Exhibit 10.7
CAPITAL SUPPORT AGREEMENT
THIS CAPITAL SUPPORT AGREEMENT (this
“Agreement”) is made as of the 18th day of September,
2008, by and among Legg Mason, Inc., a Maryland corporation
(“Legg Mason”), LM CAPITAL COMPANY, LLC, a Maryland
limited liability company (“LMSub” and, together with
Legg Mason, the “Support Providers”), and Western Asset
Institutional Money Market Fund, a series of Legg Mason Partners
Institutional Trust (the “Fund”).
WITNESSETH:
WHEREAS, Legg Mason Partners
Institutional Trust is an investment company registered with the
Securities and Exchange Commission in accordance with the
Investment Company Act of 1940 (as amended, the “1940
Act”);
WHEREAS, the Fund is a money market fund
that seeks to maintain a stable net asset value using the Amortized
Cost Method as defined in and in accordance with Rule 2a-7
promulgated under the 1940 Act (as amended, “Rule
2a-7”);
WHEREAS, the Fund holds notes and other
instruments (the “Notes”) issued by structured
investment vehicles listed in Schedule A attached hereto (each, an
“Issuer”);
WHEREAS, Rule 2a-7(c)(6)(ii) requires a
money market fund to “dispose of [a portfolio] security as
soon as practicable consistent with achieving an orderly
disposition of the security, …, absent a finding by the board
of directors that disposal of the portfolio security would not be
in the best interests of the money market fund (which determination
may take into account, among other factors, market conditions that
could affect the orderly disposition of the portfolio
security)” upon the occurrence of certain events;
WHEREAS, one or more of the events
specified in Rule 2a-7(c)(6)(ii) have occurred with respect to the
Notes;
WHEREAS, a sale of the Notes under
current market conditions is unlikely to result in the full
recovery of the Fund’s investments, and may cause the Fund to
realize losses;
WHEREAS, Legg Mason is the sole
stockholder of the Fund’s manager and LMSub is a subsidiary
of Legg Mason;
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WHEREAS, the Board of Trustees of the
Fund (the “Board”) will consider this Agreement in
determining whether disposal of the Notes currently would be in the
best interest of the Fund:
NOW, THEREFORE, in consideration of the
above premises, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the Support Providers hereby agree
as follows:
1. Definitions . In
addition to the terms defined elsewhere in the Agreement, the
following terms have the meanings indicated:
(a)
“Amortized Cost Value”
means, with respect to any Eligible Note held by the Fund, the
value of that Eligible Note as determined using the Amortized Cost
Method in accordance with Rule 2a-7 on the relevant date.
Solely for purposes of calculating the amount of the Loss
under this Agreement, if an Eligible Note is received in an
exchange or restructuring, the Amortized Cost Value of such
Eligible Note shall be increased by the excess, if any, of the
Amortized Cost Value of the predecessor Note as of the time
immediately preceding the exchange over the sum of the Amortized
Cost Value of the Eligible Note and any cash received in such
exchange.
(b) “Capital
Contribution” means a cash contribution by either Support
Provider to the Fund for which the Support Provider does not
receive any shares or other consideration from the Fund.
(c) “Contribution
Event” means, with respect to any Eligible Note held by any
Fund, any of the following occurrences:
(i) any sale of the Eligible Note by the
Fund for cash in an amount, after deducting any commission or
similar transaction costs, less than the Amortized Cost Value of
the Eligible Note sold as of the date of settlement;
(ii) receipt of final payment on the
Eligible Note in an amount less than the Amortized Cost Value of
that Eligible Note as of the date such payment is
received;
(iii) issuance of orders by a court
having jurisdiction over the matter discharging the Issuer from
liability for the Eligible Note and providing for payments on that
Eligible Note in an amount less than the Amortized Cost Value of
that Eligible Note as of the date such payment is received;
and
(iv) receipt of new securities that are
“Eligible Securities,” as
defined in paragraph (a)(10)
of Rule 2a-7, in exchange for or replacement of Eligible Notes if
the Amortized Cost Value of such new securities is less than the
Amortized Cost Value of such Eligible Notes on the date of exchange
or replacement.
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(d) “Eligible Notes”
mean the Notes held by the Fund as portfolio securities on the date
hereof or any securities or other instruments received in exchange
for, or as a replacement of, the Notes or any Eligible Notes as a
result of an exchange offer, debt restructuring, reorganization or
similar transaction pursuant to which the Notes or Eligible Notes
are exchanged for, or replaced with, new securities of the Issuer
or a third party, other than Notes or securities which are or
become “Eligible Securities” as defined in paragraph
(a)(10) of Rule 2a-7.
(e) “Loss” incurred as
a result of a Contribution Event means the excess of the Amortized
Cost Value of the Eligible Notes subject to a Contribution Event
over the amount received by the Fund in connection with such
Contribution Event.
(f) “Maximum Contribution
Amount” means $20,000,000.
(g) “Segregated
Account” means an account established by LMSub for the
benefit of the Fund at a bank which is a qualified custodian under
the 1940 Act, which may be an interest-bearing account and/or which
account’s assets may be invested in money market instruments.
On any business day during the term of the Agreement the
Segregated Account shall hold cash or cash equivalent securities in
an amount equal to the Maximum Contribution Amount reduced by the
amount of any Capital Contribution previously made by either
Support Provider to the Fund. The assets of the Segregated
Account shall be available to the Fund by means of ACH transfer
initiated by the Fund without the requirement of further action or
consent by LMSub.
2. Covenants of the Fund .
The Fund agrees that:
(a) To the extent consistent with
the Fund’s interest, the Board shall consult with the Support
Providers with respect to all decisions regarding each Eligible
Note (including, but not limited to, any decision to sell the
Eligible Note or to forgo the right to any payment) prior to the
occurrence of a Contribution Event with respect to that Eligible
Note. No
