TABLE OF CONTENTS

 

				Page
ARTICLE I	CERTAIN DEFINITIONS; CONSTRUCTION			5
	1.1.	Definitions		5
	1.2	Construction		24
ARTICLE II	PURCHASE AND SALE OF ASSETS; THE NEGATIVE CONSENT PROCESS; THE OFFSHORE REDEMPTION IN KIND PROCESS; THE REORGANIZATIONS			24
	2.1.	Sale and Purchase of the Acquired Assets		24
	2.2	Negative Consents, Offshore Redemptions in Kind and Interim Transfers		25
	2.3	The Reorganizations		26
	2.4	Assignment of the Deutsche Bank Agreements		26
	2.5	Payments		26
	2.6	Calculation of Assets for Payment Purposes		27
	2.7	Calculation of Transferred Assets for Purposes of Calculating Deferred Payments		28
	2.8	Clawback		33
	2.9	Allocation Among Acquired Assets		34
	2.10	Closing Dates		34
	2.11	Retained Alliance Liabilities and Retained Alliance Fund Liabilities		35
	2.12	Transfer of Transfer Agent Records		35
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF ALLIANCE			36
	3.1	Representations and Warranties Regarding Alliance		36
		3.1.1	Organization and Qualification	36
		3.1.2	Authority	36
		3.1.3	No Violations	37
		3.1.4	Governmental/Regulatory Authorities; Stockholder Approval	37
		3.1.5	Litigation or Proceedings	37
		3.1.6	Regulatory Compliance	37
		3.1.7	No Undisclosed Liabilities	38

 

-i-

 

		3.1.8	Title and Sufficiency of Assets	38
		3.1.9	Intellectual Property	39
		3.1.10	Brokers and Finders	39
	3.2	Representations and Warranties Regarding the Domestic Alliance Funds		39
		3.2.1	Regulation of Each Domestic Alliance Fund	39
		3.2.2	No Convictions, Sanctions or Other Violations	39
		3.2.3	Regulatory Compliance	40
		3.2.4	Tax Qualification	40
		3.2.5	Taxes	40
		3.2.6	Changes	41
		3.2.7	Affiliate Contracts	41
		3.2.8	Third Party Contracts	41
		3.2.9	Litigation	42
	3.3	Representation and Warranties Regarding Each Offshore Alliance Fund		42
		3.3.1	Regulation of Each Offshore Alliance Fund	42
		3.3.2	Regulatory Compliance	42
		3.3.3	Tax Qualifications	42
		3.3.4	Taxes	43
		3.3.5	Changes	43
		3.3.6	Affiliate Contracts	44
		3.3.7	Third Party Contracts	44
		3.3.8	Litigation	44
		3.3.9	Non-U.S. Employees	44
	3.4	Representations and Warranties Regarding Insured Accounts		44
		3.4.1	Regulation of the Insured Accounts	44
		3.4.2	Regulatory Compliance	45
		3.4.3	Effectiveness; No Default	45
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF FEDERATED			45
	4.1	Representations and Warranties of Federated		45
		4.1.1	Incorporation and Qualification	45
		4.1.2	Authority	46
		4.1.3	No Violations	46
		4.1.4	Governmental/Regulatory Authorities	46
		4.1.5	Litigation or Proceedings	46

 

-ii-

 

		4.1.6	Regulatory Compliance	47
		4.1.7	Financial Ability	47
		4.1.8	Brokers and Finders	47
	4.2	Representations and Warranties Regarding Each Surviving Fund		47
		4.2.1	Regulation of Each Surviving Fund	48
		4.2.2	No Convictions, Sanctions or Other Violations	48
		4.2.3	Regulatory Compliance	48
		4.2.4	Tax Qualification	49
		4.2.5	Taxes	49
		4.2.6	Changes	49
		4.2.7	Litigation	49
ARTICLE V	COVENANTS AND AGREEMENTS			50
	5.1	Covenants With Respect to the Alliance Funds and Insured Accounts		50
		5.1.1	Conduct of Business	50
		5.1.2	Negative Consent Process; Offshore Redemption in Kind Process	50
		5.1.3	Board Approvals; Shareholder Approval; Prospectus and Statement of Additional Information Supplements; Information in Registration Statement on Form N-14; Other Consents	51
		5.1.4	Alliance Fund Taxes	53
		5.1.5	Insured Account Covenants	54
	5.2	Covenants With Respect to the Surviving Funds and Transferred Insured Accounts		54
	5.3	[Intentionally Omitted]		54
	5.4	Covenant With Respect to Cash Management Assets		54
	5.5	Covenants With Respect to Expenses		55
	5.6	Covenants With Respect to Litigation and Changes in Condition		56
	5.7	Covenants With Respect to Publicity and Third Party Communications		56
	5.8	Restrictive Covenants		57
		5.8.1	Non-Solicitation	57
		5.8.2	Covenant Not to Compete	57
		5.8.3	Enforcement	60

 

-iii-

 

	5.9	Covenants With Respect to Further Actions		61
	5.10	Covenants With Respect to Access		61
	5.11	Covenant With Respect to Liquidation of Alliance Funds		61
	5.12	Covenant With Respect to Employees		62
	5.13	Covenant With Respect to Retention Pool		62
	5.14	NAV Catch-Up Payment		62
	5.15	Security Transfer Methodology		62
	5.16	Shared Used Assets		64
ARTICLE VI	CONDITIONS PRECEDENT TO CLOSING			64
	6.1	Conditions Precedent to First Closing		64
		6.1.1	Consents	64
		6.1.2	Satisfaction of All Requirements Relating to the Negative Consent Process	65
		6.1.3	Expiration of Waiting Period under HSR Act	65
		6.1.4	No Legal Obstruction	65
		6.1.5	Legal Opinions	65
	6.2	Conditions Precedent to Final Closing		65
		6.2.1	Consents	65
		6.2.2	No Legal Obstruction	65
		6.2.3	Continuing Effectiveness of Prior Consents	65
		6.2.4	Legal Opinion	66
	6.3	Conditions Precedent to Obligations of Federated With Respect to All Closings and Interim Transfers		66
		6.3.1	No Breach of Covenants; True and Correct Representations and Warranties	66
		6.3.2	Delivery of Documents	67
		6.3.3	Satisfaction of Conditions under the Reorganization Agreements	67
		6.3.4	No Litigation	67
		6.3.5	Access to and Copies of Books and Records	67
		6.3.6	No MAC	68
	6.4	Conditions Precedent to Obligations of Alliance With Respect To All Closing and Interim Transfers		68
		6.4.1	No Breach of Covenants; True and Correct Representations and Warranties	68
		6.4.2	No MAC	69
		6.4.3	Delivery of Documents	69

 

-iv-

 

ARTICLE VII	SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS, AND THE ABILITY TO ASSERT CLAIMS		69
	7.1	Survival of Covenants	69
	7.2	Survival of Representation and Warranties	69
	7.3	Survival of Ability to Assert Claims	70
ARTICLE VIII	TERMINATION		70
	8.1	Termination	70
	8.2	Termination of Obligations Relating to Final Closing	71
	8.3	Survival upon Termination	71
ARTICLE IX	INDEMNIFICATION		71
	9.1	Indemnification of Federated by Alliance	71
	9.2	Indemnification of Alliance by Federated	72
	9.3	Indemnification Procedures	73
	9.4	Right of Set-Off	74
	9.5	Exclusive Remedy	74
	9.6	Treatment of Indemnification Payments	74
ARTICLE X	NOTICES		75
ARTICLE XI	ENTIRE AGREEMENT; MODIFICATION		76
ARTICLE XII	MISCELLANEOUS		76
	12.1	Governing Law	76
	12.2	Jurisdiction	76
	12.3	Waiver of Jury Trail	77
	12.4	Assignment; Successors	77
	12.5	Waiver	77
	12.6	Further Assurances	78
	12.7	Counterparts	78
	12.8	Severability	78
	12.9	Third Parties	78

 

-v-

 

Exhibits:
Exhibit A	Funds
Exhibit B	Forms of Plan of Reorganization
Exhibit C	Allocation Schedule
Exhibit D	Form of Legal Opinion of Ropes & Gray LLP
Exhibit E	Form of Legal Opinion of Reed Smith LLP
Schedules:
1.1	Alliance Net Revenue Methodology
2.1	Other Assets
2.7(d)	Other Federated Products
2.7(i)	Illustrative Examples of Operation of Asset Tracking Provisions
3.1(b)	Alliance Stock
3.1.4	Alliance Consents
3.1.5	Alliance Litigation
3.1.8	Title Matters
3.2.7	Alliance Contracts
3.2.8	Third Party Contracts
3.3.6	Offshore Alliance Contracts
3.3.7	Offshore Third Party Contracts
3.4.3	Deutsche Bank Agreements
4.1.5	Federated Litigation
5.8.2(c)	Permitted Existing Cash Management Vehicles

 

-vi-

 

AGREEMENT

 

THIS AGREEMENT, dated as of October 28, 2004 (this “Agreement” ), is between FEDERATED INVESTORS, INC. ( “Federated” ), a corporation organized under the laws of the Commonwealth of Pennsylvania with its principal business office located at Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania, and ALLIANCE CAPITAL MANAGEMENT L.P. ( “Alliance” ), a Delaware limited partnership, with headquarters located at 1345 Avenue of the Americas, New York, New York.  Certain terms used in this Agreement are defined in Section 1.1 of this Agreement.

 

W I T N E S S E T H:

 

WHEREAS, AllianceBernstein Institutional Reserves Prime Portfolio, AllianceBernstein Institutional Reserves Government Portfolio, AllianceBernstein Institutional Reserves Treasury Portfolio, AllianceBernstein Institutional Reserves Tax-Free Portfolio, AllianceBernstein Institutional Reserves California Tax-Free Portfolio, AllianceBernstein Institutional Reserves New York Tax-Free Portfolio (each an “AllianceBernstein Institutional Reserves Portfolio” , and collectively the “AllianceBernstein Institutional Reserves Portfolios” ); AllianceBernstein Municipal Trust General Portfolio, AllianceBernstein Municipal Trust New York Portfolio, AllianceBernstein Municipal Trust California Portfolio, AllianceBernstein Municipal Trust Connecticut Portfolio, AllianceBernstein Municipal Trust New Jersey Portfolio, AllianceBernstein Municipal Trust Virginia Portfolio, AllianceBernstein Municipal Trust Florida Portfolio, AllianceBernstein Municipal Trust Massachusetts Portfolio, AllianceBernstein Municipal Trust Pennsylvania Portfolio, AllianceBernstein Municipal Trust Ohio Portfolio (each an “AllianceBernstein Municipal Trust Portfolio” , and collectively the “AllianceBernstein Municipal Trust Portfolios” ); AllianceBernstein Capital Reserves Portfolio, AllianceBernstein Money Reserves Portfolio (each an “AllianceBernstein Capital Reserves Portfolio” , and collectively the “AllianceBernstein Capital Reserves Portfolios” ); AllianceBernstein Government Reserves Portfolio, AllianceBernstein Treasury Reserves Portfolio (each an “AllianceBernstein Government Reserves Portfolio” , and collectively the “AllianceBernstein Government Reserves Portfolios” and together with the AllianceBernstein Institutional Reserves Portfolios, AllianceBernstein Municipal Trust Portfolios and AllianceBernstein Capital Reserves Portfolios, each a “Domestic Alliance Fund” , and collectively the “Domestic Alliance Funds” ); and ACM International Reserves and ACM International Reserves II PLC (each an “Offshore Alliance Fund” , and collectively the “ Offshore Alliance Funds” and together with the

 

-1-

 

Domestic Alliance Funds, the “Alliance Funds” ) are investment companies or series of certain investment companies as described below; and

 

WHEREAS, the AllianceBernstein Institutional Reserves Portfolios are series of AllianceBernstein Institutional Reserves, Inc., a corporation organized under the laws of Maryland and registered under the Investment Company Act of 1940, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder (the “1940 Act” ), as an open-end management investment company and whose shares are registered for sale under the Securities Act of 1933, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder (the “1933 Act” ) ( “Institutional Reserves” ); and

 

WHEREAS, the AllianceBernstein Municipal Trust Portfolios are series of AllianceBernstein Municipal Trust, a business trust organized under the laws of Massachusetts and registered under the 1940 Act as an open-end management investment company and whose shares are registered for sale under the 1933 Act (the “Municipal Trust” ); and

 

WHEREAS, the AllianceBernstein Capital Reserves Portfolios are series of AllianceBernstein Capital Reserves, a business trust organized under the laws of Massachusetts and registered under the 1940 Act as an open-end management investment company and whose shares are registered for sale under the 1933 Act ( “Capital Reserves” ); and

 

WHEREAS, the AllianceBernstein Government Reserves Portfolios are series of AllianceBernstein Government Reserves, a business trust organized under the laws of Massachusetts and registered under the 1940 Act as an open-end management investment company and whose shares are registered for sale under the 1933 Act ( “Government Reserves” and, together with Institutional Reserves, Capital Reserves and the Municipal Trust, the “Domestic Investment Companies” ); and

 

WHEREAS, ACM International Reserves is an investment company incorporated with limited liability under the laws of the Cayman Islands as an exempted company ( “ACM International Reserves” or an “Offshore Alliance Fund” ); and

 

WHEREAS, ACM International Reserves II PLC is an open-ended investment company with variable capital incorporated with limited liability under the laws of Ireland ( “ACM International Reserves II” or an “Offshore Alliance Fund” ); and

 

-2-

 

WHEREAS, Alliance services insured demand deposit accounts (the “Deutsche Bank Insured Accounts” ) whereby investors with securities accounts established through intermediaries maintain demand deposits at Deutsche Bank Trust Company Americas ( “Deutsche Bank” ), and Alliance acts as agent in respect of such demand deposits and all related transactions, including further deposits and withdrawals; and

 

WHEREAS, Alliance has proposed to be involved in establishing and servicing insured demand deposit accounts with a certain Midwestern trust company previously identified to Federated (the “Trust Company” ), whereby investors with securities accounts established through intermediaries will maintain insured demand deposits (the “Trust Insured Accounts” , and together with the Deutsche Bank Insured Accounts, the “Insured Accounts” ); and

 

WHEREAS, Alliance serves as an investment adviser to each Domestic Alliance Fund pursuant to investment advisory agreements, each dated July 22, 1992, between Alliance and each Domestic Investment Company on behalf of each respective Domestic Alliance Fund (as amended, the “Domestic Alliance Funds Advisory Agreements” ); and

 

WHEREAS, Alliance serves as an investment adviser to each Offshore Alliance Fund pursuant to investment advisory agreements between Alliance and each of ACM International Reserves and ACM International Reserves II, dated August 20, 1998 and August 23, 2001, respectively (as amended, the “Offshore Alliance Funds Advisory Agreements” , and together with the Domestic Advisory Agreements, the “Advisory Agreements” ); and

 

WHEREAS, Alliance provides deposit placement, administrative and recordkeeping services in connection with the Deutsche Bank Insured Accounts pursuant to the Third Amended and Restated Money Market Agreement, dated as of November 4, 2003, between Alliance and Deutsche Bank (as amended, and as defined in more detail in Section 1.1 below, the “Deutsche Bank Agreement” ; and together with the Advisory Agreements, the “Alliance Agreements” ); and

 

WHEREAS, Federated or an investment advisory subsidiary of Federated is the sponsor to the investment companies registered under the 1940 Act and shares are or will be registered for sale under the 1933 Act (or similar foreign Applicable Law) and identified on Exhibit A to this Agreement (each, together with any successor or transferee of a substantial portion of its assets prior to the Final Closing Date, a “Surviving Fund” , and collectively the “Surviving Funds” ); and

 

-3-

 

WHEREAS, each Surviving Fund is a duly organized series of a Federated investment company identified on Exhibit A to this Agreement (each, a “Federated Investment Company” , and collectively the “Federated Investment Companies” ); and

 

WHEREAS, Alliance intends to cause the transfer of all of the Alliance Fund Assets associated with the sweep accounts invested in the Alliance Funds (the “Sweep Accounts” ) to the appropriate Surviving Funds identified on Exhibit A to this Agreement; and

 

WHEREAS, as contemplated in this Agreement, such transfers will be effected via a negative written consent process conducted in compliance with Rule 2510 of the National Association of Securities Dealers ( “NASD” ) and other Applicable Law, whereby Persons with authority over such Sweep Accounts will be sent a negative consent letter informing them of the transfer and advising them that they have thirty (30) days to object to such transfer (the “Negative Consent Process” ) to the Surviving Funds; and

 

WHEREAS, concurrently with the Negative Consent Process, Alliance shall use commercially reasonable efforts to cause each Offshore Alliance Fund to redeem all of its outstanding shares held by its current registered shareholders after the execution of this Agreement and that, in each case, such redemption be effected in kind by the Offshore Alliance Fund transferring, on behalf of and at the direction of each such registered shareholder, all (or substantially all) of its investment assets (and any surplus cash) to the applicable offshore Surviving Fund in return for such Surviving Fund allotting and issuing to each such registered shareholder the appropriate number of fully paid shares of the corresponding class (the “Offshore Redemption in Kind Process” ); and

 

WHEREAS, to the extent that such transfers are not effected pursuant to the processes and means described above, if mutually agreed between Alliance and Federated in accordance with this Agreement, Alliance intends to recommend to the Investment Companies that the Alliance Funds be reorganized with and into the Surviving Funds upon the terms and conditions set forth in this Agreement and in certain Agreements and Plans of Reorganization between the Investment Companies on behalf of the Alliance Funds and the Federated Investment Companies on behalf of the Surviving Funds in forms to be negotiated, and mutually agreed to between the Parties prior to the First Closing, starting from the forms attached as Exhibit B hereto (each, together with such changes as negotiated prior to the First Closing, a “Plan of Reorganization” , and collectively the “Reorganization Agreements” ); and

 

-4-

 

WHEREAS, Alliance and certain of its Affiliated Persons operate a cash management business used by both retail and institutional clients through Alliance’s and certain of its Affiliated Persons’ provision of investment advisory, investment management and other services to the Alliance Funds and certain distribution and support related services to the Insured Accounts (as defined in more detail in Section 1.1 below, collectively, the “Business” ), and Alliance wishes to sell to Federated, and Federated wishes to purchase from Alliance, substantially all of Alliance’s interest in, the Business, including certain assets identified in Section 1.1 below relating to the Business, on the terms and subject to the conditions set forth in this Agreement; and

 

NOW, THEREFORE, in consideration of the respective representations, warranties and covenants contained in this Agreement, and intending to be legally bound, Alliance and Federated agree as follows:

 

ARTICLE I
CERTAIN DEFINITIONS; CONSTRUCTION

 

1.1                                  Definitions .  The following terms have the meanings specified below or are defined in the Sections referred to below. “1933 Act” is defined in the recitals to this Agreement.

 

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules regulations and interpretations promulgated by any Governmental Authority thereunder.

 

“1940 Act” is defined in the recitals to this Agreement.

 

“ACM International Reserves” is defined in the recitals to this Agreement.

 

“ACM International Reserves II” is defined in the recitals to this Agreement.

 

“Acquired Assets” is defined in Section 2.1(a) of this Agreement.

 

“Advisory Agreements” is defined in the recitals to this Agreement.

 

“Advisers Act” means the Investment Advisers Act of 1940, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder.

 

“Affiliated Person” means, with respect to any Person, an “affiliated person” of such Person as such term is defined in Section 2(a)(3) of the 1940 Act.

 

-5-

 

“Agreement” means this Agreement, as it may be amended, modified, supplemented, or restated from time to time.

 

“Alliance” is defined in the preamble to this Agreement.

 

“Alliance Agreements” is defined in the recitals to this Agreement.

 

“AllianceBernstein Capital Reserves Portfolio” is defined in the recitals to this Agreement.

 

“AllianceBernstein Government Reserves Portfolio” is defined in the recitals to this Agreement.

 

“AllianceBernstein Institutional Reserves Portfolio” is defined in the recitals to this Agreement.

 

“AllianceBernstein Municipal Trust Portfolio” is defined in the recitals to this Agreement.

 

“Alliance Consents” is defined in Section 3.1.4 of this Agreement.

 

“Alliance Fund Assets” means the net assets of the Alliance Funds and deposits in Insured Accounts (prior to the assets of the Insured Accounts being transferred as contemplated in this Agreement).

 

“Alliance Funds” is defined in the recitals to this Agreement.

 

“Alliance Fund Termination Date” shall mean, with respect to any Alliance Fund, the earlier of (a) the date on which all of the Alliance Fund Assets of such Alliance Fund are transferred to a Surviving Fund either through the Negative Consent Process, the Offshore Redemption in Kind Process, an Interim Transfer or pursuant to a Reorganization Agreement, or (b) the Final Closing Date.

 

“Alliance Indemnitees” is defined in Section 9.2 of this Agreement.

 

“Alliance Intellectual Property” means all Intellectual Property owned, licensed or used by Alliance or any Alliance Fund, or any Affiliated Person of any of them, in connection with the Business (other than any Retained Asset or Shared Use Asset) and included in the Acquired Assets.

 

-6-

 

“Alliance NYAG Settlement” means the settlement evidenced by the Assurance of Discontinuance dated as of September 1, 2004 entered into by Alliance and the New York State Attorney General.

 

“Alliance SEC Documents” means Alliance Capital Management L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and all other reports, registration statements, definitive proxy statements or information statements, and amendments thereto, filed by Alliance subsequent to March 10, 2004 and prior to the fifth Business Day preceding the date hereof under the 1933 Act or under Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act as filed with the Commission.

 

“Alliance SEC Settlement” means the settlement detailed in the Order of the Commission contained in Release No. IA-2205A; IC 26312A; Administrative Proceeding File No. 3-11359; dated January 15, 2004.

 

“Anniversary Payments” means an amount equal to the sum of the First Anniversary Payment, Second Anniversary Payment, Third Anniversary Payment, Fourth Anniversary Payment and the Fifth Anniversary Payment.

 

“Annualized Pre-First Closing Run Rate Measurement” means the net revenue earned by Alliance or its Affiliated Persons (calculated in a manner consistent with the methodology reflected in Schedule 1.1 ) on Alliance Fund Assets attributable to Tracked Clients which become Transferred Assets, for the ninety (90) day period ending one day prior to the First Closing Date, annualized by dividing the net revenue for such period by 90 and multiplying the result by 365.

 

“Annualized 8/31/04 Run Rate Measurement” means the net revenue earned by Alliance or its Affiliated Persons (calculated in a manner consistent with the methodology reflected in Schedule 1.1 ) on Alliance Fund Assets attributable to Tracked Clients which become Transferred Assets, for the ninety (90) day period ending August 31, 2004, annualized by dividing the net revenue for such period by 90 and multiplying the result by 365.

 

“Applicable Law” means all applicable provisions of all (i) constitutions, treaties, statutes, laws (including the common law), rules, regulations, ordinances, codes, interpretations or orders of any Governmental Authority, (ii) Governmental Approvals and (iii) orders, decisions, injunctions, judgments, writs, awards, and decrees of, or agreements with, any Governmental Authority.

 

-7-

 

“Assumed Alliance Fund Liabilities” means, in the case of any Alliance Fund reorganized through an “F reorganization” under the Code with and into a Surviving Fund pursuant to a Reorganization Agreement at the Final Closing, ordinary course Liabilities specifically identified on the financial statements of the Alliance Fund and expressly assumed by a Surviving Fund pursuant to a Reorganization Agreement as required in connection with such “F reorganization” under the Code or, obligations of the predecessor Alliance Fund assumed in order to succeed to redemption credits pursuant to Section 24(f) of the 1940 Act and former Rule 24e-2 promulgated under the 1940 Act (as in effect prior to October 11, 1997).

 

“Board” means the Board of Directors or Trustees, as applicable, of (i) in the case of Alliance, the General Partner, (ii) Federated, (iii) any Alliance Fund, or (iv) any Surviving Fund, as applicable.

 

“Business” is defined in the recitals to this Agreement.  For the avoidance of doubt, “Business” also includes the Acquired Assets.

 

“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York or Pittsburgh, Pennsylvania, or the New York Stock Exchange, are authorized or required to close.

 

“Calculation Dispute” is defined in the definition of Dispute Resolution Process in Section 1.1.

 

“Calculation Statement” shall mean any Closing Date Statement, Interim Period Statement or Clawback Measurement Period Statement, as applicable.

 

“Capital Reserves” is defined in the recitals to this Agreement.

 

“Cash Management Vehicle” means (a) (i) any money market fund registered under the 1940 Act or the 1933 Act (or similar foreign Applicable Law), or (ii) any collective investment vehicle that seeks stability of principal and daily or other periodic liquidity in a manner similar to a money market fund and that, but for the exceptions under the 1940 Act, would be an “investment company” thereunder, or (b) any insured demand deposit accounts similar to the Insured Accounts.

 

“Clawback Measurement Period” means the period beginning on the first day of the seventh (7th) month after the month in which the First Closing Date occurs and continuing for six (6) months thereafter; provided, however , that if at least seventy-five percent (75%) of the Total

 

-8-

 

Alliance Fund Assets are not included in the First Closing Fund Assets, then references to the First Closing Date used in determining the Clawback Measurement Period shall be changed to the Final Closing Date.

 

“Clawback Measurement Period Statement” is defined in Section 2.8(c) of this Agreement.

 

“Clawback Payment” is defined in Section 2.8(b) of this Agreement.

 

“Client Split” means the allocation of Transferred Assets attributable to Tracked Clients between Federated and Alliance, as determined in accordance with Section 2.7 of this Agreement.

 

“Client Statement” is defined in Section 2.7(a) of this Agreement.

 

“Closing” means the First Closing or the Final Closing, as applicable.

 

“Closing Fund Assets” means the First Closing Fund Assets, Interim Period Transferred Assets and the Final Closing Fund Assets.

 

“Closing Date” means the First Closing Date or the Final Closing Date, as applicable.

 

“Closing Date Statement” is defined in Section 2.6(a) of this Agreement.

 

“Code” means the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder.

 

“Commission” means the U.S. Securities and Exchange Commission.

 

“Consent” means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, or filing or registration with, or report or notice to, any Person, including any Governmental Authority.

 

“Consideration Amount” means an amount equal to the sum of the First Closing Payment, the Interim Payments, the Final Closing Payment, the Non-Tracked Client Payment, the Anniversary Payments, the Payment Differential and, if applicable, the Contingent Payment, less the Clawback Payment, if any.

 

“Contingent Payment” means an amount equal to ten million dollars ($10,000,000).

 

-9-

 

“Contracts” means, in respect of any Person, all loan agreements, indentures, letters of credit (including related letter of credit applications and reimbursement obligations), mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes, guarantees, surety obligations, warranties, licenses, franchises, permits, powers of attorney, purchase orders, leases, and other agreements, contracts, instruments and similar obligations to which such Person is party or by which they or any of their properties or assets may be bound or affected, in each case as amended, supplemented, waived or otherwise modified.

 

“Deutsche Bank” is defined in the recitals to this Agreement.

 

“Deutsche Bank Agreement” is defined in the recitals to this Agreement.  “Deutsche Bank Agreement” also shall include any referring institution agreements (or similar selling agreements) to which Alliance is a party relating to the sale of the Deutsche Bank Insured Accounts.

 

“Deutsche Bank Assignment Documents” means those written Contracts and Consents necessary to assign the Deutsche Bank Agreement to Federated or to otherwise transfer the benefits received by Alliance under such Deutsche Bank Agreement to Federated

 

“Deutsche Bank Insured Accounts” is defined in the recitals to this Agreement.

 

“Dispute Resolution Process” means the following process which either Federated or Alliance may invoke by providing written notice to the other Party if Federated and Alliance cannot agree on any Calculation Statement required to be delivered under this Agreement as contemplated in this Agreement (a “Calculation Dispute” ).  Upon either Party delivering such written notice of a Calculation Dispute:

 

(a)                                   any undisputed amount shall be paid by the applicable Party on the date required under this Agreement;

 

(b)                                  the payment of any disputed amount shall be postponed until the date that is three (3) Business Days after the Calculation Dispute is resolved pursuant to this Dispute Resolution Process;

 

(c)                                   the Calculation Dispute will be escalated to senior executives of Alliance and Federated with authority to resolve the Calculation Dispute, and such senior executives will meet (either in person or via conference call, and with such other representatives of Alliance or Federated (as applicable) as such senior executives deem necessary or desirable), at least once

 

-10-

 

initially within five (5) Business Days after such written Calculation Dispute notice was delivered, to attempt to resolve the Calculation Dispute; if such senior executives agree upon a resolution to such Calculation Dispute, the applicable Calculation Statement (as modified consistent with such agreement) shall be considered final and conclusive for all purposes;

 

(d)                                  if such executives cannot resolve such dispute within forty-five (45) calendar days, then either party may thereafter provide written notice to the other that it elects to submit the Calculation Dispute to a nationally recognized independent accounting firm chosen jointly by such executives of Federated and Alliance (the “Neutral Accountants” ).  Alliance and Federated shall use commercially reasonable efforts to cause the Neutral Accountants to promptly review and resolve the Calculation Dispute no later than thirty (30) days after the delivery of such written notice, using GAAP as applied in the United States (or, if necessary, generally accepted accounting principles as applied in an applicable foreign jurisdiction).  The fees and expenses of the Neutral Accountants shall be shared equally by Alliance and Federated, and the decision of the Neutral Accountants shall be final and conclusive for all purposes.

 

“Domestic Alliance Funds” is defined in the recitals to this Agreement.

 

“Domestic Alliance Funds Advisory Agreements” is defined in the recitals to this Agreement.

 

“Domestic Investment Companies” is defined in the recitals to this Agreement.

 

“Federated” is defined in the preamble to this Agreement.

 

“Federated Indemnitees” is defined in Section 9.1 of this Agreement.

 

“Federated Investment Companies” is defined in the recitals to this Agreement.

 

“Federated NYAG Settlement” means any settlement reached between Federated and the New York Attorney General relating to the matters disclosed in the Federated SEC Documents.

 

“Federated SEC Documents” means Federated’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and all other reports, registration statements, definitive proxy statements or information statements, and amendments thereto, filed by Federated subsequent to June 30, 2003 and prior to the fifth (5th) Business Day preceding the date hereof under the 1933 Act or under Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act as filed with the Commission.

 

-11-

 

“Federated SEC Settlement” means any settlement reached between Federated and the Commission relating to the matters disclosed in the Federated SEC Documents.

 

“Fifth Anniversary Date” means the date which is five (5) Fiscal Years after the First Closing Date.

 

“Fifth Anniversary Payment”   means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the Fourth Anniversary Date.

 

“Final Closing” is defined in Section 2.10(b) of this Agreement.

 

“Final Closing Anniversary Date” means the date which is five (5) Fiscal Years after the Final Closing Date.

 

“Final Closing Date” is defined in Section 2.10(b) of this Agreement.  If the Final Closing Date does not occur before August 31, 2005, “Final Closing Date” shall be deemed to mean August 31, 2005 for all purposes of this Agreement (it being understood that, in such instance, no additional Closings or Interim Transfers shall occur after August 31, 2005 and Article VI would not be applicable).

 

“Final Closing Fund Assets” means the Alliance Fund Assets transferred to the Surviving Funds (or, in the case of the Insured Account assets, as contemplated in this Agreement) (in each case, if any) on the Final Closing Date.

 

“Final Closing Payment” means an amount equal to (a) twenty-five million dollars ($25,000,000) less (b) the First Closing Payment, less (c) the sum of all Interim Payments.

 

“First Anniversary Date” means the date which is one (1) Fiscal Year after the First Closing Date.

 

“First Anniversary Payment” shall mean an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the First Closing Date.

 

“First Closing” is defined in Section 2.10(a) of this Agreement.

 

“First Closing Date” is defined in Section 2.10(a) of this Agreement.

 

-12-

 

“First Closing Fund Assets” means the Alliance Fund Assets transferred to the Surviving Funds (or, in the case of the Insured Account assets, as contemplated in this Agreement) on the First Closing Date.

 

“First Closing Payment” means an amount equal to the product of (a) an amount equal to the quotient of (i) First Closing Fund Assets, divided by (ii) Total Alliance Fund Assets, multiplied by (b) twenty-five million dollars ($25,000,000).

 

“Fiscal Year” means a period of 365 days (or, as applicable in the event of a leap year, 366 days).

 

“Former Alliance Client” means (a) a client of the Business that is not also a client of Federated on the date of this Agreement and that transfers all or a portion of such client’s assets to a Surviving Fund or Other Federated Cash Management Vehicle, between the date of this Agreement and the First Closing Date, or (b) as mutually agreed (including in terms of the client and the portion of such client’s assets to be included) upon by the Parties prior to the First Closing, a client of the Business that is also a client of Federated on the date of this Agreement and that transfers all or a portion of such client’s assets to a Surviving Fund or Other Federated Cash Management Vehicle between the date of this Agreement and the First Closing Date.

 

“Fourth Anniversary Date” means the date which is four (4) Fiscal Years after the First Closing Date.

 

“Fourth Anniversary Payment” means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the Third Anniversary Date.

 

“Fund” means an Alliance Fund or Surviving Fund, as applicable.

 

“GAAP” means generally accepted accounting principles in the United States of America.

 

“General Partner” means Alliance Capital Management Corporation, a Delaware corporation.

 

“Governing Documents” means (a) with respect to any corporation, its articles or certificate of incorporation, bylaws and other organizational documents, (b) with respect to any limited liability company, its articles or certificate of formation or organization, limited liability company agreement, operating agreement and other organizational documents, (c) with respect

 

-13-

 

to any business trust, its declaration of trust, trust agreement and other organizational documents, (d) with respect to any limited partnership, its certificate of partnership, partnership agreement and any other organizational document and (e) with respect to any other Person, its comparable governing agreements and other organizational documents.

 

“Government Reserves” is defined in the recitals to this Agreement.

 

“Governmental Approval” means any Consent of, with or to any Governmental Authority.

 

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, any government authority, agency, department, board, commission or instrumentality of the United States, any State of the United States, any foreign nation, government, commonwealth or province, or any political subdivision thereof; any court, governmental tribunal, or arbitrator; and any self-regulatory organization (as such term is defined in the 1934 Act).

 

“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder.

 

“Incidental Money Market Fund” means a Cash Management Vehicle of a Person (other than Alliance or any Non-Compete Affiliate), unless the net revenue of such Person from such Cash Management Vehicle is greater than either (i) seven million five hundred thousand dollars ($7,500,000), or (ii) seven and one-half percent (7½%) of such Person’s net revenue.   For the avoidance of doubt, “Incidental Money Market Fund” shall in no event mean a Cash Management Vehicle started by Alliance or any Non-Compete Affiliate either de novo or through the reorganization or other conversion of another one of their respective existing businesses into a Cash Management Vehicle.

 

“Indemnified Party” is defined in Section 9.3 of this Agreement.

 

“Indemnifying Party” is defined in Section 9.3 of this Agreement.

 

“Institutional Reserves” is defined in the recitals to this Agreement.

 

“Insured Accounts” is defined in the recitals to this Agreement.

 

-14-

 

“Intellectual Property” shall mean any United States and foreign patents, trademarks, service marks, trade names, trade dress, logos, business and product names, slogans, copyrights, trade secrets, know-how, and software, spreadsheets, source code, updates, upgrades and versions, and other proprietary rights, or intellectual property, and all applications, registrations, manuals and other documentation related thereto.

 

“Interim Payment” means a payment to be made by Federated to Alliance with respect to all Interim Period Transferred Assets transferred to a Surviving Fund (or, in the case of Insured Account assets, as contemplated in this Agreement) during any calendar month during which there is an Interim Transfer Date, which payment shall equal the product of (a) an amount equal to the quotient of (i) Interim Period Transferred Assets transferred to a Surviving Fund (or, in the case of Insured Account assets, as contemplated in this Agreement) since the First Closing Date (in the case of the first Interim Payment) or the last Interim Transfer Date (in the case of all subsequent Interim Payments), divided by (ii) Total Alliance Fund Assets, multiplied by (b) twenty five million dollars ($25,000,000).

 

“Interim Payment Anniversary Date” means the date which is five (5) Fiscal Years after any Interim Transfer Date.

 

“Interim Payment Date” means the date that is seven (7) days after the end of each calendar month during which there is an Interim Transfer Date, provided that if an Interim Payment Date is a Friday, Saturday, or Sunday, Interim Payment Date shall be the following Monday.

 

“Interim Period Statement” is defined in Section 2.6(b) of this Agreement.

 

“Interim Period Transferred Assets” means Alliance Fund Assets transferred in an Interim Transfer.

 

“Interim Transfer” means the transfer of Alliance Fund Assets to the Surviving Funds (or, in the case of Insured Account assets, as contemplated in this Agreement) by Alliance after the First Closing and before the Final Closing.

 

“Interim Transfer Date” means each date after the First Closing Date and before the Final Closing Date on which (a) Alliance Fund Assets are transferred pursuant to Section 2.2 or Section 2.4 of this Agreement, and any related Acquired Assets are transferred pursuant to the transactions contemplated in Section 2.1 of this Agreement, or (b) any Alliance Fund Assets, and Acquired Assets related to that portion of the Business being transferred, are transferred to the

 

-15-

 

Surviving Funds and Federated, respectively, pursuant to another mutually agreed upon transfer mechanism, in each case upon at least three (3) days prior written notice from Alliance to Federated.

 

“Investment Companies” means the Domestic Investment Companies and the Offshore Alliance Funds.

 

“Knowledge” means (a) with respect to Alliance, the actual knowledge, after commercially reasonable inquiry, of (i) the Chairman, Chief Executive Officer, President (if such an office is filled), any Executive Vice President, Chief Compliance Officer, Chief Investment Officer (if such an office is filled), Chief Financial Officer or General Counsel of the General Partner, who are involved with, supervise or are responsible, directly or indirectly, for the Transactions or the operation or management of the Business or the Alliance Funds or Insured Accounts, and each such individual’s direct reports, and/or (ii) the President, the Chief Compliance Officer and Chief Investment Officer of any Alliance Fund, and each such individual’s direct reports, and (b) with respect to Federated, the actual knowledge, after commercially reasonable inquiry, of (i) the Chairman, Chief Executive Officer, President, any Executive Vice President, Chief Compliance Officer, Chief Investment Officer, Chief Financial Officer or General Counsel (as applicable) of Federated, who are involved with, supervise or are responsible for the Transactions or the operation or management of the Surviving Funds, and each such individual’s direct reports, and/or (ii) the President, the Chief Compliance Officer and Chief Investment Officer of any Surviving Fund, and each such individual’s direct reports.

 

“Liabilities” mean any claim, debt, expense, duty, liability or obligation of any kind whatsoever, whether or not accrued or fixed, known or unknown, absolute or contingent, determined or determinable or when due or to become due.

 

“Liens” means any mortgage, pledge, lien, encumbrance, charge, liability, obligation, claim (whether pending or, to the Knowledge of the Person against whom the claim is being asserted, threatened in writing), license, rights of others or restriction of any kind affecting title to or use of, or resulting in an encumbrance against, property, real or personal, tangible or intangible, or a security interest of any kind, including, any conditional sale or other title retention agreement, any lease in the nature thereof, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute) of any jurisdiction (other than a financing statement which is filed or given solely to protect the interest of a lessor).

 

-16-

 

“Litigation” means any action, cause of action, claim, demand, suit, proceeding, audit, citation, summons, subpoena, inquiry, examination or investigation of any nature, whether legal, civil, criminal, administrative, regulatory or otherwise, pending or, to the Knowledge of the relevant party, threatened, in law or in equity, or before any Governmental Authority.

 

“Losses” is defined in Section 9.1 of this Agreement.

 

“MAC” shall mean:

 

(a)                                   with respect to Alliance, the Business, the Alliance Funds or the Insured Accounts (except to the extent transferred to a Surviving Fund or as otherwise contemplated in this Agreement, as applicable), (i) any event, circumstance or condition which would have a material adverse effect (whether taken individually or in the aggregate with all other effects) on Alliance, the Business, the Alliance Funds and the Insured Accounts, taken as a whole, or (ii) any event, circumstance or condition affecting Alliance, the Business, the Alliance Funds or the Insured Assets, which would materially delay or otherwise materially and adversely affect the enforcement of, or performance or consummation of the Transactions (taken as a whole) by Alliance and the Alliance Funds under, this Agreement, the Reorganization Agreements, or any other Transaction Document; provided, however, that a reduction in Alliance Fund Assets shall not be considered a MAC; and

 

(b)                                  with respect to Federated, any event, circumstance or condition affecting Federated or the Surviving Funds, which would materially delay or otherwise materially and adversely affect the enforcement of, or performance or consummation of the Transactions (taken as a whole) by Federated and the Surviving Funds under, this Agreement, the Reorganization Agreements, or any other Transaction Document, or Federated’s post-Closing operation and management of the Business (taken as a whole); provided, however, that (i) the Federated SEC Settlement, and (ii) the Federated NYAG Settlement, each shall not be considered a MAC.

 

“Municipal Trust” is defined in the recitals to this Agreement.

 

“NASD” means the National Association of Securities Dealers, Inc. or NASD Regulation, Inc., as applicable.

 

“NAV Catch-Up Payment” means, for any Alliance Fund, the difference between (a) the number of Alliance Fund shares (valued at $1.00 per share) associated with the Alliance Fund Assets being transferred at a Closing or Interim Transfer pursuant to the Transactions contemplated by this Agreement and (b) the sum of (i) the market value of the portfolio

 

-17-

 

securities of the Alliance Fund being transferred at such Closing or Interim Transfer (as determined in accordance with Section 5.15(c) below), and (ii) any portfolio cash being transferred at such Closing or Interim Transfer.

 

“Negative Consent Process” is defined in the recitals to this Agreement.

 

“Net Revenue” means with respect to any Transferred Assets an amount equal to (a) the sum of (i) net advisory fee revenue, (ii) administrative service fees, (iii) shareholder servicing fees, (iv) 12b-1 fees, and (v) any other revenue earned by Federated from fees charged to the Surviving Funds or any Other Federated Cash Management Vehicle for new services rendered to the Surviving Funds or any Other Federated Cash Management Vehicle beginning on a date after the First Closing Date, in each case after deducting fund expense waivers and reimbursements of expenses, less (b) any payments made to clients, and less (c) any payments made to third parties on behalf of clients, all calculated on a basis consistent with Section 2.7 of this Agreement.  With respect to Transferred Assets invested in Insured Accounts, “Net Revenue” shall mean all fees and other revenue earned by Federated in respect of the Insured Accounts (after deducting any expense waivers and reimbursements), less (b) any payments made to clients, less (c) any payments made to third parties on behalf of clients, and less (d) any payments made to Deutsche Bank and/or Trust Company, all calculated on a basis consistent with Section 2.7 of this Agreement.  “Net Revenue” earned by Federated calculated under this Agreement shall include any component of Net Revenue earned by any Affiliated Person of Federated.

 

“Neutral Accountants” is defined in the definition of Dispute Resolution Process in Section 1.1 of this Agreement.

 

“Non-Compete Affiliate” means (a) Alliance Capital Management Holding L.P., (b) the General Partner or (c) any Person that is directly or indirectly controlled by Alliance.

 

“Non-Solicitation Period” means the period beginning on the First Closing Date and ending on (and including) the Second Anniversary Date.

 

“Non-Tracked Client Payment” means an amount (expressed in dollars) equal to (a) 0.017 basis points, multiplied by (b) the sum of (i) the First Closing Fund Assets attributable to Non-Tracked Clients, plus (ii) Interim Period Transferred Assets attributable to Non-Tracked Clients, plus (iii) Final Closing Fund Assets attributable to Non-Tracked Clients.  For the avoidance of doubt, the assets of Former Alliance Clients that are Non-Tracked Clients transferred to a Surviving Fund or Other Federated Cash Management Vehicle prior to the Final

 

-18-

 

Closing shall be considered Final Closing Fund Assets attributable to Non-Tracked Clients for purposes of determining the Non-Tracked Client Payment.

 

“Non-Tracked Clients” shall mean those clients of Alliance with assets invested in the Alliance Funds or deposited in the Insured Accounts as of the Tracked Client Determination Date that are not Tracked Clients, and certain clients (including certain Former Alliance Clients) of Alliance with $0 balances as of the Tracked Client Determination Date as mutually agreed between Alliance and Federated.

 

“Offshore Alliance Fund” is defined in the recitals to this Agreement.

 

“Offshore Alliance Funds Advisory Agreements” is defined in the recitals to this Agreement.

 

“Offshore Redemption in Kind Process” is defined in the recitals to this Agreement.

 

“Other Federated Cash Management Vehicle” means a Cash Management Vehicle created, distributed, advised, managed, sold, administered or promoted by Federated ; provided , that “Other Federated Cash Management Vehicle” shall not include a Cash Management Vehicle that is (a) distributed, sold, administered or promoted for a third party in a manner similar to which Federated currently provides such services to third parties, and (b) not created, advised or managed by Federated or any Affiliated Person of Federated.

 

“Parties” means Alliance and Federated.

 

“Payment Differential” means an amount equal to (a) seventy percent (70%) of the Net Revenue earned by Federated with respect to Transferred Assets relating to Final Closing Fund Assets attributable to Tracked Clients for the period beginning on the first day following the Fifth Anniversary Date and ending on the Final Closing Anniversary Date, plus (b) for each Interim Transfer, seventy percent (70%) of the Net Revenue earned by Federated with respect to Transferred Assets relating to the Interim Period Transferred Assets attributable to Tracked Clients associated with such Interim Transfer for the period beginning on the first day following the Fifth Anniversary Date and ending on the Interim Payment Anniversary Date.

 

“Permitted Liens” means Liens for Taxes or assessments or governmental charges or levies, including those arising by operation of law, which are not yet due or delinquent or are being challenged in good faith.  For the avoidance of doubt, with respect to Acquired Assets that cannot be fully transferred at the First Closing or any Interim Transfer because the Acquired

 

-19-

 

Assets cannot be segregated and transferred to Federated until the earlier of the date that all related Alliance Fund Assets are transferred to a Surviving Fund (or, in the case of Insured Account assets, as contemplated in this Agreement) or the liquidation of the related Alliance Fund, “Permitted Liens” also shall include the remaining interest of any Investment Company, Alliance Fund or Insured Account in such Acquired Assets until such Acquired Assets are fully transferred to Federated.

 

“Person” means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, account or any other entity, whether acting in an individual, fiduciary or other capacity.

 

“Plan of Reorganization” is defined in the recitals to this Agreement.

 

“Regulated Investment Company” is as defined under Section 851 of the Code.

 

“Reorganization Agreements” is defined in the recitals to this Agreement.

 

“Restricted Activity” is defined in Section 5.8.2(b)(i).

 

“Restricted Period” means the period beginning on the First Closing Date and ending on the Seventh Anniversary Date.

 

“Retained Assets” is defined in Section 2.1 of this Agreement.

 

“Retained Alliance Fund Liabilities” means any Liabilities of or relating to (a) any Alliance Fund or Investment Company, or (b) the Insured Accounts prior to the transfer of the Insured Accounts as contemplated herein, or (c) any officer, director or trustee of any Alliance Fund or Investment Company to the extent relating to them in their capacity as such, or (d) the Alliance Fund Assets.  For the avoidance of doubt, and without limiting the foregoing, “Retained Alliance Fund Liabilities” includes any Liabilities (other than Alliance Retained Liabilities) resulting from or relating to (i) the Alliance Fund Assets prior to transfer to a Surviving Fund, or, in the case of the Insured Account assets, as contemplated in this Agreement, (ii) any assets of an Alliance Fund or Insured Account not transferred to a Surviving Fund or, in the case of the Insured Account assets, as contemplated in this Agreement, (iii) the operation of the Alliance Funds or Investment Companies, (iv) the operation of the Insured Accounts prior to the assets of the Insured Accounts being transferred as contemplated in this Agreement, (v) the Alliance SEC Settlement (to the extent of any Liability of any Alliance

 

-20-

 

Fund or Investment Company), (vi) the Alliance NYAG Settlement (to the extent of any Liability of any Alliance Fund or Investment Company), (vii) any Taxes due, owing or payable by or in respect of any Alliance Fund, Investment Company or Insured Account and (viii) any Litigation against or involving any Person specified in the first sentence of this definition to the extent relating to any Alliance Fund, Investment Company or Insured Account (prior to the assets of such Insured Accounts being transferred as contemplated in this Agreement) or the Alliance Fund Assets.  In the case of any Alliance Fund reorganized through an “F reorganization” under the Code with and into a Surviving Fund pursuant to Reorganization Agreement at the Final Closing, “Retained Alliance Fund Liabilities” shall not include any Assumed Alliance Fund Liabilities.

 

“Retained Alliance Liabilities” means any Liabilities of or relating to (a) Alliance, or (b) any officer, director or trustee of Alliance to the extent relating to them in their capacity as such, or (c) the Business.  For the avoidance of doubt, and without limiting the foregoing, “Retained Alliance Liabilities” includes any Liabilities (other than Retained Alliance Fund Liabilities) resulting from or relating to (i) the Acquired Assets prior to transfer to Federated, (ii) the Retained Assets and any other assets of Alliance not transferred to Federated, (iii) the management of the Alliance Funds or Investment Companies, (iv) the servicing of the Insured Accounts prior to the assets of the Insured Accounts being transferred as contemplated in this Agreement, (v) the Alliance SEC Settlement (to the extent of any Liability of Alliance or relating to the Business), (vi) the Alliance NYAG Settlement (to the extent of any Liability of Alliance or relating to the Business), (vii) any Taxes due, owing or payable by or in respect of Alliance or the Business, (viii) any Litigation against or involving any Person specified in the first sentence of this definition to the extent relating to Alliance or the Business, (ix) any employee or agent of Alliance or the Business in their capacities as such, and (x) the WARN Act.

 

“Run Rate Multiplier” shall mean eighty percent (80%) of the lower of the Annualized Pre-First Closing Run Rate Measurement or the Annualized 8/31/04 Run Rate Measurement.

 

“SAI” means the statement of additional information of an Alliance Fund or Surviving Fund, as the case may be.

 

“Second Anniversary Date” means the date which is two (2) Fiscal Years after the First Closing Date.

 

“Second Anniversary Payment” means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the First Anniversary Date.

 

-21-

 

“Seventh Anniversary Date” means the date which is seven (7) Fiscal Years after the Final Closing Date.

 

“Shared Use Asset” means any asset (other than a Retained Asset) of Alliance that is (a) used in connection with the operation of the Business, (b) used in connection with the operation of one or more businesses that are not part of the Business, and (c) not reasonably capable of being segregated and transferred to Federated.  For the avoidance of doubt, “Shared Use Assets” shall not include (i) any software or other asset that is readily available to Federated in the market (such as “off the shelf” or non-proprietary software) or (ii) any asset of Alliance used exclusively in connection with the operation of the Business.

 

“Sixth Anniversary Date” means the date which is six (6) Fiscal Years after the First Closing Date.

 

“Surviving Fund” is defined in the recitals to this Agreement.

 

“Sweep Accounts” is defined in the recitals to this Agreement.

 

“Taxes” is defined in Section 3.2.5 of this Agreement.

 

“Tax Returns” is defined in Section 3.2.5 of this Agreement.

 

“Third Anniversary Date” means the date which is three (3) Fiscal Years after the First Closing Date.

 

“Third Anniversary Payment” means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the Second Anniversary Date.

 

“Total Alliance Fund Assets” shall mean the total, aggregate Alliance Fund Assets measured as of the First Closing Date.

 

“Total Payment” means the aggregate amount of the First Closing Payment, any Interim Payments, and the Final Closing Payment, which shall equal, in all events (subject to the terms hereof), twenty-five million dollars ($25,000,000).

 

“Tracked Client Determination Date” means the close of business on the day that is three (3) Business Days prior to the First Closing Date.

 

-22-

 

“Tracked Clients” means those clients of Alliance that have $5,000,000 or more invested in the Alliance Funds and/or deposited in the Insured Accounts as of the Tracked Client Determination Date, and certain other clients of Alliance sourced through correspondents of clearing firms as mutually agreed between Alliance and Federated prior to the First Closing Date, and certain clients (including certain Former Alliance Clients) of Alliance with $0 balances as of the Tracked Client Determination Date as mutually agreed between Alliance and Federated.

 

“Transactions” means the transactions contemplated by this Agreement, the Reorganization Agreements and the other Transaction Documents.

 

“Transaction Costs” is defined in Section 5.5(a) of this Agreement.

 

“Transaction Documents” shall mean this Agreement, the Reorganization Agreements, and any other certificate, filing, agreement, instrument or document executed or delivered in connection with the foregoing documents, and any amendments, modifications, supplements or restatements of any of the foregoing documents.

 

“Transferred Accounts” shall mean (a) Alliance clients (and successors of such clients as contemplated in this Agreement) whose assets are transferred in whole or in part (i) to the Surviving Funds or any Other Federated Cash Management Vehicle through the Negative Consent Process, the Offshore Redemption in Kind Process or a Reorganization Agreement, or otherwise in accordance with this Agreement, either on the First Closing Date, any Interim Transfer Date, or on the Final Closing Date as contemplated by this Agreement, and (ii) in the case of Insured Account assets, as contemplated in this Agreement through the Deutsche Bank Assignment Documents either on the First Closing Date, any Interim Transfer Date or on the Final Closing Date, and (b) any Former Alliance Clients (and successors of such Former Alliance Clients as contemplated in this Agreement).

 

“Transferred Assets” shall mean the total assets from time to time of the Transferred Accounts (including increases or decreases therein) as measured on any day after the Final Closing Date in accordance with Section 2.7 whether such assets are in the Surviving Funds, the Insured Accounts or any Other Federated Cash Management Vehicle.

 

“Trust Company” is defined in the recitals to this Agreement.

 

“Trust Insured Accounts” is defined in the recitals to this Agreement.

 

“Valuation Process” is defined in Section 5.8.2(c)(i)(C) of this Agreement.

 

-23-

 

“WARN Act” means the Worker Adjustment and Retraining Notification Act, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder, and any similar state Applicable Law, providing for notification to employees affected by closing, relocation, sale of a business, mass layoff or similar event.

 

1.2                                Construction.   The language used in this Agreement, and the other Transaction Documents, shall be deemed to be the language chosen by the Parties hereto to express their mutual intent, and no rule of construction under which a document is to be construed against the drafter of such document shall apply.  Whenever the words “include,” “includes” or “including” are used in this Agreement, or any other Transaction Document, they shall be deemed to be followed by the words “without limitation.”  Whenever the context may require, any nouns and pronouns used in this Agreement, or any other Transaction Document, shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa.  The phrases “the date of this Agreement,” “the date hereof” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth in the first paragraph of this Agreement.  The same principle shall be applied with respect to the other Transaction Documents as well.  The paragraph headings in this Agreement, and in the other Transaction Documents, are for convenience of reference only and shall not be deemed to alter or affect any provision of this Agreement, or the other Transaction Documents.

 

ARTICLE II
PURCHASE AND SALE OF ASSETS; THE NEGATIVE CONSENT PROCESS; THE OFFSHORE REDEMPTION IN KIND PROCESS; THE REORGANIZATIONS

 

Subject to the other provisions of this Agreement:

 

2.1                                Sale and Purchase of the Acquired Assets.

 

(a)                                   At the First Closing, upon each Interim Transfer and at the Final Closing, if any, Alliance shall sell, transfer, convey, assign and deliver to Federated, and Federated shall purchase or acquire from Alliance all right, title and interest of Alliance in and to the Business, including:  (i) all goodwill of Alliance, as well as workforce in place (as applicable), customer relationships and other customer-based intangibles, and other going concern value related exclusively to that portion of the Business being transferred to Federated at such Closing or upon such Interim Transfer (as applicable) and (ii) the other assets specified on Schedule 2.1 to this Agreement related to that portion of the Business being transferred to Federated at such Closing

 

-24-

 

or upon such Interim Transfer (the assets described in the preceding clauses (i) and (ii) each being an “Acquired Asset” and collectively, the “ Acquired Assets ”).  For the avoidance of doubt, the Acquired Assets being transferred to Federated at any Closing or upon any Interim Transfer shall not include any assets constituting property, plant or equipment, or trademarks, trade names, company names or web-site domain names (collectively, “Retained Assets” ) or any Shared Use Asset, but shall otherwise include all assets used to operate the portion of the Business being transferred, except, until the Final Closing Date, as contemplated in the definition of Permitted Liens in Section 1.1 above.

 

(b)                                  Each such sale, transfer, conveyance, assignment and delivery described in this Section 2.1 shall be made to Federated free and clear of any Liens (except for Permitted Liens).

 

2.2                                Negative Consents , Offshore Redemptions in Kind and Interim Transfers.

 

Without limitation of the other covenants of Alliance or Federated herein:

 

(a)                                   from the execution of this Agreement through the earlier of (i) the First Closing or (ii) any termination pursuant to Section 8.1 hereof, Alliance shall use commercially reasonable efforts to cause the Negative Consent Process to be undertaken with respect to the Sweep Accounts invested in the Alliance Funds as further described in Section 5.1.2; and

 

(b)                                  from the execution of this Agreement through the earlier of (i) the First Closing or (ii) any termination pursuant to Section 8.1 hereof, Alliance shall use commercially reasonable efforts to cause the Offshore Redemption in Kind Process to be undertaken with respect to Alliance Fund Assets in the Offshore Alliance Funds as further described in Section 5.1.2; and

 

(c)                                   from the First Closing through the earlier of (i) any termination pursuant to Section 8.1 or 8.2 hereof, or (ii) the Final Closing Date, Alliance shall use commercially reasonable efforts to effect Interim Transfers from time to time as soon as reasonably possible as contemplated in this Agreement; it being understood and agreed that unless either Party shall have given the other Party written notice of the failure of any condition precedent to its obligations to consummate an Interim Closing to have been satisfied, the consummation of an Interim Transfer shall be deemed to be a certification by Alliance of the satisfaction of the conditions precedent set forth in Section 6.3.1, 6.3.5 and 6.3.6 and by Federated of the conditions precedent set forth in Section 6.4.1 and 6.4.2.  Without limiting the foregoing, the Parties acknowledge that such reasonable efforts may include, in the case of Offshore Alliance Funds, amending the Governing Documents of such Offshore Alliance Funds, obtaining the Consents

 

-25-

 

required for and convening an extraordinary general meeting of the shareholders of the Offshore Alliance Funds and obtaining Offshore Alliance Fund approval.

 

2.3                                The Reorganizations .  Without limitation of the other covenants of Alliance or Federated herein, and to the extent mutually deemed necessary by the Parties, from the execution of this Agreement through the earlier of (i) the Final Closing Date or (ii) any termination pursuant to Section 8.1 or 8.2 hereof, Alliance and Federated shall use commercially reasonable efforts to cause each Alliance Fund to be reorganized into the applicable Surviving Funds as contemplated on Exhibit A attached hereto pursuant to the Reorganization Agreements on such date or dates as mutually agreed to by Federated and Alliance.

 

2.4                                Assignment of the Deutsche Bank Agreements.   Without limitation of the other covenants of Alliance or Federated herein, from the execution of this Agreement through the earlier of (a) the Final Closing or (b) any termination pursuant to Sections 8.1 or 8.2 hereof, Alliance and Federated shall use commercially reasonable efforts to cause the Deutsche Bank Agreement to be assigned from Alliance to Federated.

 

2.5                                Payments .

 

(a)                                   As consideration for the Acquired Assets, Federated shall pay to Alliance, and Alliance shall receive, the Consideration Amount in such amounts and at such times as set forth below:

 

(i)                                      On the First Closing Date, Federated shall pay the First Closing Payment to Alliance.

 

(ii)                                   On each Interim Payment Date, Federated shall pay an Interim Payment to Alliance.

 

(iii)                                On the Final Closing Date, Federated shall pay the Final Closing Payment, and the Non-Tracked Client Payment to Alliance.

 

(iv)                               Within the thirty (30) day period following the First Anniversary Date, Federated shall pay the First Anniversary Payment to Alliance.

 

(v)                                  Within the thirty (30) day period following the Second Anniversary Date, Federated shall pay the Second Anniversary Payment to Alliance.

 

-26-

 

(vi)                               Within the thirty (30) day period following the Third Anniversary Date, Federated shall pay the Third Anniversary Payment to Alliance.

 

(vii)                            Within the thirty (30) day period following the Fourth Anniversary Date, Federated shall pay the Fourth Anniversary Payment to Alliance.

 

(viii)                         Within the thirty (30) day period following the Fifth Anniversary Date, Federated shall pay the Fifth Anniversary Payment to Alliance.

 

(ix)                                 Within the thirty (30) day period following the Final Closing Anniversary Date, Federated shall pay the Payment Differential to Alliance.

 

(x)                                    If Net Revenue attributable to Transferred Assets of the Tracked Clients for the Fiscal Year ending on the Fifth Anniversary Date is equal to or greater than the Run Rate Multiplier, then Federated shall pay Alliance the Contingent Payment within thirty (30) days of the Fifth Anniversary Date.

 

(b)                                  All payments required to be made under this Section 2.5, Section 2.8 below, or the definition of Dispute Resolution Process in Section 1.1 above shall be payable in U.S. dollars, by wire transfer of immediately available funds to an account designated in writing by the Party that is to receive payment to the Party that is to make payment at least three (3) Business Days in advance of any payment date.  If any payment required to be made under this Section 2.5 or Section 2.8 below is subject to a Calculation Dispute, the payment shall be made as contemplated in the definition of Dispute Resolution Process in Section 1.1 above.  If any payment required to be made under this Section 2.5, Section 2.8 below or the definition of Dispute Resolution Process in Section 1.1 above is due to be paid on a payment date that is not a Business Day, the payment date for such payment shall be deemed to be the next Business Day.

 

2.6                                Calculation of Assets for Payment Purposes .

 

(a)                                   As soon as reasonably possible following the close of business on the day which is three (3) Business Days prior to a Closing, Alliance shall deliver to Federated a statement of the Alliance Fund Assets (as of the close of business on such Business Day) relating to specific clients that are to be transferred to a Surviving Fund (or, in the case of the Insured Accounts, as contemplated in this Agreement) on the applicable Closing Date (each, a “Closing Date Statement” ).  Such Closing Date Statements shall segregate assets attributable to Tracked Clients and Non-Tracked Clients.

 

-27-

 

(b)                                  Alliance shall deliver to Federated a statement of the Interim Period Transferred Assets that were transferred to a Surviving Fund (or, in the case of the Insured Accounts, as contemplated in this Agreement) during each calendar month between the First Closing Date and the Final Closing Date no later than three (3) Business Days following the last day of each such calendar month (or three (3) Business Days prior to the Final Closing Date in the case of the calendar month that includes the Final Closing Date) (each, an “Interim Period Statement” ).  Such Interim Period Statements shall segregate assets attributable to Tracked Clients and Non-Tracked Clients.

 

(c)                                   Alliance shall make available to Federated and its representatives such books, records, work papers, schedules and other documents, and employees of Alliance, or any of its Affiliated Persons to the extent reasonably requested by Federated in connection with its review of a Closing Date Statement or Interim Period Statement.  Federated, Alliance and their respective representatives shall work together in good faith to agree upon each Closing Date Statement and Interim Period Statement, and any changes thereto, on or before each relevant Closing Date or Interim Payment Date.  To the extent Federated and Alliance are unable to agree upon any Closing Date Statement or Interim Period Statement, either Party may invoke the Dispute Resolution Process by providing notice to the other Party.

 

2.7                                Calculation of Transferred Assets for Purposes of Calculating Deferred Payments.

 

It is the intention of the Parties to calculate Net Revenue and Transferred Assets on a per client basis in accordance with the provisions of this Section 2.7.

 

(a)                                   Alliance has delivered to Federated a schedule listing Alliance’s client relationships and the anticipated Client Splits resulting from the application of the methodology described in this Section 2.7 ( “Client Statement” ), which Client Statement has been reviewed and accepted by the Parties.  On the day that is two Business Days prior to the First Closing Date, Alliance shall update the Client Statement.  Such updated Client Statement shall identify those clients that Alliance believes are Tracked Clients and Non-Tracked Clients.

 

(b)                                  As soon as reasonably possible after receiving such updated Client Statement from Alliance, Federated shall identify, and provide reasonable supporting evidence establishing, each client on the Client Statement with whom Federated, any Surviving Fund or other investment company advised by Federated or any Affiliated Person of Federated also has a client

 

-28-

 

relationship.  Federated also shall notify Alliance of any disagreements that Federated has with respect to Alliance’s designation of a client as a Tracked Client or Non-Tracked Client, and of the proposed Client Split applicable to each Tracked Client that should be included in the Client Statement.

 

(c)                                   Federated, Alliance and their respective representatives shall work together in good faith to agree upon the Client Statement, and any changes thereto, on or before the First Closing Date.

 

(d)                                  Notwithstanding any other provision in this Agreement:

 

(i)                                      assets that (A) are attributable to Non-Tracked Clients, or (B) are transferred to or exchanged for an investment vehicle other than a Cash Management Vehicle, or (B) any other Federated product identified on Schedule 2.7(d) , shall no longer be included in calculating Transferred Assets and Net Revenue for purposes of determining the First Anniversary Payment, Second Anniversary Payment, Third Anniversary Payment, Fourth Anniversary Payment, Fifth Anniversary Payment and Payment Differential; and

 

(ii)                                   subject to Section 2.7(d)(i) above, assets that are attributable to Tracked Clients or Non-Tracked Clients included in Transferred Accounts that transfer or exchange into an Other Federated Cash Management Vehicle shall continue to be deemed to be Transferred Assets for all purposes of this Agreement.

 

(e)                                   For purposes of determining the appropriate Client Split to be included in the Client Statement, the following methodology shall be utilized by the Parties:

 

(i)                                      If a Tracked Client is a client of Alliance on the Tracked Client Determination Date, but is not also a client of Federated on the Tracked Client Determination Date (or other appropriate date specified in Section 2.7(f) below), then (A) such Tracked Client will be assigned a unique dealer number(s) that will be used to calculate Transferred Assets, and (B) subject to Section 2.7(f) below, the Client Split for such Tracked Client shall be 100% for Alliance, meaning that Alliance shall get credit for all assets associated with that dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to such Tracked Client;

 

(ii)                                   If a Tracked Client is a client of Alliance on the Tracked Client Determination Date, and a client of Federated on the Tracked Client Determination Date (or

 

-29-

 

other appropriate date specified in Section 2.7(f) below), and Alliance’s relationship with such Tracked Client is distinct from, and mutually exclusive of, Federated’s relationship with such Tracked Client, then (A) Alliance’s business with such Tracked Client and Federated’s business with such Tracked Client shall each be assigned separate unique dealer number(s), (B) the dealer number(s) assigned to Alliance’s business with such Tracked Client shall be used to calculate Transferred Assets, and (C) subject to Section 2.7(f) below, the Client Split for such Tracked Client will be 100% with respect to Alliance’s business with such Tracked Client, meaning that Alliance shall get credit for all assets associated with Alliance’s dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to that Tracked Client.

 

(iii)                                If a Tracked Client is a client of Alliance and a client of Federated on the Tracked Client Determination Date, and Alliance’s relationship with such Tracked Client is not distinct from, and not mutually exclusive of, Federated’s relationship with such Tracked Client, then (A) such Tracked Client will be assigned a unique dealer number(s), and (B) subject to Section 2.7(f) below, the Client Split for such Tracked Client shall be allocated pro rata between Alliance and Federated based on the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client included in the First Closing Fund Assets and the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client already invested with Federated as of the Tracked Client Determination Date (or other appropriate date specified in Section 2.7(f) below), meaning that Alliance shall get credit for a percentage (equal to the portion of the Client Split allocated to Alliance) of the assets associated with the dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to that Tracked Client.

 

For purposes of Sections 2.7(e)(i), (ii) and (iii), as applicable, and determining the appropriate Client Split for a Tracked Client that is a Former Alliance Client, the assets of such Former Alliance Client that transferred to Federated between the date of this Agreement and the First Closing shall be considered Transferred Assets as of the Tracked Client Determination Date (such that Alliance gets credit for such assets).

 

-30-

 

(f)                                     The Client Splits for Tracked Clients determined in accordance with Section 2.7(e) above, shall be mutually redetermined by the Parties at the following times, and any changes in the Client Splits shall be effective only from and after the time as of when such redeterminations are made:

 

(i)                                      With respect to any Client Split determined in accordance with Section 2.7(e)(iii), such Client Split shall be mutually redetermined by the Parties as of the close of business on the date that is three (3) Business Days prior to the Final Closing Date; in such case, the Client Split for such Tracked Client shall be reallocated pro rata between Alliance and Federated based on the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client included in the First Closing Fund Assets, Interim Period Transferred Assets and Final Closing Fund Assets (as applicable), on the one hand, and the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client already invested with Federated as of the Tracked Client Determination Date, on the other hand, meaning that Alliance shall get credit going forward for a percentage (equal to the portion of the Client Split allocated to Alliance) of the assets associated with the dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to that Tracked Client;

 

(ii)                                   With respect to any Client Split determined in accordance with Section 2.7(e), such Client Split shall be mutually redetermined by the Parties as of the close of business on any date on which Federated acquires (other than pursuant to the Transactions contemplated by this Agreement) assets attributable to a Tracked Client either (A) through a reorganization, negative consent process, asset purchase, or redemption and exchange transaction similar to the Offshore Redemption In Kind Process, or (B) through a transaction involving Federated making an up-front payment to acquire such assets; in such ca