ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of the
___ day of _____, 1999, by and among World Monitor Trust II, a
Delaware business trust (the "Trust"), Prudential Securities
Futures Management Inc., a Delaware corporation (the
"Managing Owner") and Xxxxxx Capital Management, L.P., a
Delaware limited partnership (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Trust has been organized primarily for the
purpose of trading, buying, selling, spreading or otherwise
acquiring, holding or disposing of futures, forward and
options contracts with respect to commodities. Other
transactions also may be effected from time to time, including
among others, those as more fully identified in Exhibit A
hereto. The foregoing commodities and other transactions are
collectively referred to as "Commodities"; and
WHEREAS, the Managing Owner is authorized to utilize the
services of one or more professional commodity trading
advisors in connection with the Commodities trading activities
of the various Series (as defined below) of the Trust; and
WHEREAS, the Trust proposes to make an initial public
offering (the "Offering") of limited liability beneficial interests
in the Trust (the "Interests") evidenced by different series of
Interests (each, a "Series") through Prudential Securities
Incorporated ("Prudential Securities"), an affiliate of the
Managing Owner, and in connection therewith, the Trust
intends to file with the U. S. Securities and Exchange
Commission (the "SEC"), pursuant to the Securities Act of
1933, as amended (the "1933 Act"), a registration statement on
Form S-1 to register the
Interests, and as part thereof a
prospectus (which registration statement, together with all
amendments thereto, shall be referred to herein as the
"Registration Statement" and which prospectus, in final form,
shall be referred to herein as the "Prospectus"); and
WHEREAS, the Trust will prepare and file applications for
registration of the Interests under the securities or Blue Sky
laws of such jurisdictions as the Managing Owner deems
appropriate; and
WHEREAS, the Advisor's present business includes the
management of Commodities accounts for its clients; and
WHEREAS, the Advisor is registered as a commodity trading
advisor under the Commodity Exchange Act, as amended (the
"CE Act"), and is a member of the National Futures
Association (the "NFA") as a commodity trading advisor and
will maintain such registration and membership for the term of
this Agreement; and
WHEREAS, the Trust and the Advisor desire to enter into this
Agreement in order to set forth the terms and conditions upon
which the Advisor will render and implement commodity
advisory services on behalf of the Trust during the term of this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Duties of the Advisor.
(a) Appointment. The Trust hereby appoints the Advisor,
and the Advisor hereby accepts appointment, as its limited
attorney-in-fact to exercise discretion to invest and reinvest in
Commodities during the term of this Agreement the portion of
the Trust's Net Asset Value (as defined in the Prospectus)
which is comprised of the assets attributable to the Trust's
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Series E Interests allocated to the Advisor (the "Series E
Allocated Assets") on the terms and conditions and for the
purposes set forth herein. This limited power-of-attorney is a
continuing power and shall continue in effect with respect to
the Advisor until terminated hereunder. The Advisor shall
have sole authority and responsibility for independently
directing the investment and reinvestment in Commodities of
the Series E Allocated Assets for the term of this Agreement
pursuant to the trading programs, methods, systems, and
strategies described in Exhibit A hereto, which the Trust and
the Managing Owner have selected to be utilized by the
Advisor in trading the Series E Allocated Assets (collectively
referred to as the Advisor's "Trading Approach"), subject to
the trading policies and limitations as set forth in the
Prospectus and attached hereto as Exhibit B (the "Trading
Policies and Limitations"), as the same may be modified from
time to time and provided in writing to the Advisor. The
portion of the Series E Allocated Assets to be allocated by the
Advisor at any point in time to one or more of the various
trading strategies comprising the Advisor's Trading Approach
will be determined as set forth in Exhibit A hereto, as it may be
amended from time to time, with the consent of the parties, it
being understood that trading gains and losses automatically
will alter the agreed upon allocations. Upon receipt of a new
allocation, the Advisor will determine and, if required, adjust
its trading in light of the new allocation.
(b) Allocation of Responsibilities. The Managing Owner will
have the responsibility for the management of any portion of
the Series E Allocated Assets that are not invested in
Commodities. The Advisor will use its good faith and best
efforts in determining the investment and reinvestment in
Commodities of the Series E Allocated Assets in compliance
with the Trading Policies and Limitations, and in accordance
with the Advisor's Trading Approach. In the event that the
Managing Owner shall, in its sole discretion, determine in
good
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faith following consultation appropriate under the
circumstances with the Advisor that any trading instruction
issued by the Advisor violates the Trading Policies and
Limitations, then the Managing Owner, following reasonable
notice to the Advisor appropriate under the circumstances,
may override such trading instruction and shall be responsible
therefor. Nothing herein shall be construed to prevent the
Managing Owner from imposing any limitation(s) on the
trading activities of the Trust beyond those enumerated in the
Prospectus if the Managing Owner determines that such
limitation(s) are necessary or in the best interests of the Trust,
in which case the Advisor will adhere to such limitations
following written notification thereof.
(c) Gains From Trading Approach. The Advisor agrees that
at least 90% of the gains and income, if any, generated by its
Trading Approach for Series E will be from buying and selling
Commodities, as described in Exhibit D hereto.
(d) Modification of Trading Approach. In the event the
Advisor requests to use, or the Managing Owner requests the
Advisor to use, a trading program, system, method or strategy
other than or in addition to the trading programs, systems,
methods or strategies comprising the Trading Approach in
connection with trading for the Trust (including, without
limitation, the deletion or addition of an agreed upon trading
program, system, method or strategy to the then agreed upon
Trading Approach or a modification in the leverage employed),
either in whole or in part, the Advisor may not do so and/or
shall not be required to do so, as appropriate, unless both the
Managing Owner and the Advisor consent thereto in writing.
(e) Notification of Material Changes. The Advisor also
agrees to give the Trust prior written notice of any proposed
material change in its Trading Approach and agrees not to
make any material change in such Trading Approach (as
applied to the Trust) over the
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objection of the Managing Owner, it being understood
that the Advisor shall be free to institute
non-material changes in its Trading Approach (as
applied to the Trust) without prior written notification. Without
limiting the generality of the foregoing, refinements to the
Advisor's Trading Approach, and the deletion (but not the
addition) of commodities (other than the addition of
commodities then being traded (i) on organized domestic
commodities exchanges, (ii) on foreign commodities
exchanges recognized by the Commodity Futures Trading
Commission (the "CFTC") as providing customer protections
comparable to those provided on domestic exchanges or (iii)
in the interbank foreign currency market) to or from the
Advisor's Trading Approach shall not be deemed a material
change in the Advisor's Trading Approach, and prior approval
of the Managing Owner shall not be required therefor. The
utilization of forward markets in addition to those enumerated
in Exhibit D hereto would be deemed a material change to the
Advisor's Trading Approach and prior approval shall be
required therefor.
Subject to adequate assurances of confidentiality, the Advisor
agrees that it will discuss with the Managing Owner upon
request any trading methods, programs, systems or strategies
used by it for trading customer accounts which differ from the
Trading Approach used for the Trust, provided, that nothing
contained in this Agreement shall require the Advisor to
disclose what it deems to be proprietary or confidential
information.
(f) Request for Information. The Advisor agrees to provide
the Trust with any reasonable information concerning the
Advisor that the Trust may reasonably request (other than the
identity of its customers or proprietary or confidential
information concerning the Trading Approach), subject to
receipt of adequate assurances of confidentiality by the Trust,
including, but not limited to, information regarding any change
in control, key personnel, Trading Approach and financial
condition which the Trust reasonably deems to be material to
the
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Trust; the Advisor also shall notify the Trust of any such
matters the Advisor, in its reasonable judgment, believes may
be material to the Trust relating to the Advisor and its Trading
Approach. During the term of this Agreement, the Advisor
agrees to provide the Trust with updated monthly information
related to the Advisor's performance results within a
reasonable period of time after the end of the month to which
it relates.
(g) Notice of Errors. The Advisor is responsible for promptly
reviewing all oral and written confirmations it receives to
determine that the Commodities trades were made in
accordance with the Advisor's instructions. If the Advisor
determines that an error was made in connection with a trade
or that a trade was made other than in accordance with the
Advisor's instructions, the Advisor shall promptly notify the
Managing Owner of this fact and shall utilize its best efforts to
cause the error or discrepancy to be corrected.
(h) Liability. Neither the Advisor nor any employee, director,
officer or shareholder of the Advisor, nor any person who
controls the Advisor, shall be liable to the Managing Owner, its
officers, directors, shareholders or employees, or any person
who controls the Managing Owner, or the Trust or the owners
of Series E Interests ("Limited Owners"), or any of their
respective successors or assignees under this Agreement,
except by reason of acts or omissions in material breach of
this Agreement or due to their misconduct or negligence or by
reason of their not having acted in good faith in the
reasonable belief that such actions or omissions were in the
best interests of the Trust; it being understood that the
Advisor makes no guarantee of profit nor offers any protection
against loss, and that all purchases and sales of Commodities
shall be for the account and risk of the Trust, and the Advisor
shall incur no liability for trading profits or losses resulting
therefrom provided the Advisor would not otherwise be liable
to the Trust under the terms hereof.
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(i) Initial Allocation. Initially, the Series E Allocated Assets
will total an amount equal to the assets of the Trust allocable
to the Series E Interests, including all cash and cash
equivalents held by the Trust in respect of such Interests
reduced by all liabilities of the Trust incurred specifically in
respect of the Series E Interests and further reduced by a pro-
rata share of the total liabilities of the Trust which are not
otherwise specifically allocable to another Series of Interests,
at the conclusion of the Trust's Initial Offering Period (as
defined in the Prospectus).
(j) Additional Allocations and Reallocations. Subject to
Section 10 below, the Trust may, on a weekly basis during the
Trust's Continuous Offering Period, as described in the
Prospectus, (A) allocate additional assets to the Advisor, (B)
reallocate the Series E Allocated Assets away from the Advisor
to another commodity trading advisor (an "Other Advisor"),
(C) reallocate assets to the Advisor from an Other Advisor, or
(D) allocate additional capital with respect to the Series E
Allocated Assets to an Other Advisor.
(k) Delivery of Disclosure Document. The Advisor agrees to
provide to the Managing Owner with any amendment or
supplement to the Disclosure Document attached hereto as
Exhibit D (an "Update") as soon as such Update is available
for distribution.
2. Indemnification.
(a) The Advisor. Subject to the provisions of Section 3, the
Advisor, each person who controls the Advisor, and each of
their respective officers, directors, shareholders and
employees shall be indemnified, defended and held harmless
by the Trust and the Managing Owner, jointly and severally,
from and against any and all claims, losses, judgments,
liabilities, damages, costs, expenses (including, without
limitation, reasonable investigatory and attorneys'
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fees and expenses) and amounts paid in settlement of any claims in
compliance with the conditions specified below (collectively,
"Losses") sustained by any of them (i) in connection with any
acts or omissions of the Advisor, or any of its officers,
directors or employees relating to its management of the
Series E Allocated Assets, including in connection with this
Agreement or otherwise as a result of the Advisor's
performance of services on behalf of the Trust or its role as
trading advisor to Series E Allocated Assets and/or (ii) as a
result of a material breach of this Agreement by the Trust or
the Managing Owner, provided that, (i) such Losses were not
the result of negligence, misconduct or a material breach of
this Agreement on the part of the Advisor, and its officers,
directors, shareholders and employees, and each person
controlling the Advisor, (ii) the Advisor, and its officers,
directors, shareholders and employees, and each person
controlling the Advisor, acted in good faith and in a manner
reasonably believed by it and them to be in or not opposed to
the best interests of the Trust and (iii) any such
indemnification will only be recoverable from the Series E
Allocated Assets and the assets of the Managing Owner and
not from any other assets of any other Series of the Trust,
provided further, that no indemnification shall be permitted
under this Section 2 for amounts paid in settlement if either
(A) the Advisor fails to notify the Trust of the terms of any
settlement proposed, at least 15 days before any amounts are
paid or (B) the Trust does not approve the amount of the
settlement within 15 days (such approval not to be withheld
unreasonably). Notwithstanding the foregoing, the Trust shall
at all times have the right to offer to settle any matter with the
approval of the Advisor (which approval shall not be withheld
unreasonably), and if the Trust successfully negotiates a
settlement and tenders payment therefor to the party claiming
indemnification (the "Indemnitee"), the Indemnitee must either
use its best efforts to dispose of the matter in accordance with
the terms and conditions of the proposed settlement or the
Indemnitee may
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refuse to settle the matter and continue its
defense in which latter event the maximum liability of the Trust
to the Indemnitee shall be the amount of said proposed
settlement. Any indemnification by the Trust under this
Section 2, unless ordered by a court, shall be made only as
authorized in the specific case and only upon a determination
by mutually acceptable independent legal counsel in a written
opinion that indemnification is proper in the circumstances
because the Indemnitee has met the applicable standard of
conduct set forth hereunder.
(b) Default Judgments and Confessions of Judgment. None
of the foregoing provisions for indemnification shall be
applicable with respect to default judgments or confessions of
judgment entered into by the Indemnitee, with its knowledge,
without the prior consent of the Trust.
(c) Procedure. In the event that an Indemnitee under this
Section 2 is made a party to an action, suit or proceeding
alleging both matters for which indemnification can be made
hereunder and matters for which indemnification may not be
made hereunder, such Indemnitee shall be indemnified only
for that portion of the Losses incurred in such action, suit or
proceeding which relates to the matters for which
indemnification can be made.
(d) Expenses. Expenses incurred in defending a threatened
or pending civil, administrative or criminal action, suit or
proceeding against an Indemnitee shall be paid by the Trust in
advance of the final disposition of such action, suit or
proceeding if (i) the legal action, suit or proceeding, if
sustained, would entitle the Indemnitee to indemnification
pursuant to the terms of this Section 2, (ii) the Advisor
undertakes to repay the advanced funds to the Trust in cases
in which the Indemnitee is not entitled to indemnification
pursuant to this Section 2 and
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(iii) in the case of advancement of expenses by
the Trust, the Indemnitee obtains a written
opinion of mutually acceptable independent legal counsel that
advancing such expenses is proper in the circumstances.
3. Limits on Claims.
(a) Prohibited Acts. The Advisor agrees that it will not take
any of the following actions against the Trust: (i) seek a
decree or order by a court having jurisdiction in the premises
(A) for relief in respect of the Trust in an involuntary case or
proceeding under the federal Bankruptcy Code or any other
federal or state bankruptcy, insolvency, reorganization,
rehabilitation, liquidation or similar law or (B) adjudging the
Trust a bankrupt or insolvent or seeking reorganization,
rehabilitation, liquidation, arrangement, adjustment or
composition of or in respect of the Trust under the federal
Bankruptcy Code or any other applicable federal or state law
or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Trust or of
any substantial part of any of its properties or ordering the
winding up or liquidation of any of its affairs or (ii) seek a
petition for relief, reorganization or to take advantage of any
law referred to in the preceding clause or (iii) file an
involuntary petition for bankruptcy (collectively, "Bankruptcy
or Insolvency Action").
(b) Limited Assets Available. In addition, the Advisor agrees
that for any obligations due and owing to it by the Trust, the
Advisor will look solely and exclusively to Series E Allocated
Assets or to the assets of the Managing Owner, if it has
liability in its capacity as Managing Owner, to satisfy its claims
and will not seek to attach or otherwise assert a claim against
the other assets of the Trust, whether there is a Bankruptcy or
Insolvency Action taken or
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otherwise. The parties agree that this provision
will survive the termination of this Agreement,
whether terminated in a Bankruptcy or Insolvency Action or
otherwise.
(c) No Limited Owner Liability. This Agreement has been
made and executed by and on behalf of the Trust and the
Managing Owner for the benefit of the Series E Interests of the
Trust and the obligations of the Trust and/or the Managing
Owner set forth herein are not binding upon any of the Limited
Owners individually but are binding only upon the assets and
property identified above, and no resort shall be had to the
assets of other Series issued by the Trust or the Limited
Owners' personal property for the satisfaction of any
obligation or claim hereunder.
(d) Subordination Agreement. The Advisor agrees and
consents (the "Consent") to look solely to each Series for
which advisory services are being performed ("Series E") and
assets (the "Series E Assets") of Series E and to the Managing
Owner and its assets for payment. The Series E Assets
include only those funds and other assets that are paid, held
or distributed to the Trust on account of and for the benefit of
the Series E, including, without limitation, funds delivered to
the Trust for the purchase of interests in Series E. In
furtherance of the Consent, the Advisor agrees that any debts,
liabilities, obligations, indebtedness, expenses and claims of
any nature and of all kinds and descriptions (collectively,
"Claims") incurred, contracted for or otherwise existing
arising from, related to or in connection with the Trust and its
assets and Series E and the Series E Assets, shall be subject
to the following limitations:
(1) Subordination of certain claims and rights. (i) except as
set forth below, the Claims, if any, of the Advisor (the
"Subordinated Claims") shall be expressly
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subordinate and junior in right of payment to any
and all other Claims against the Trust and
any Series thereof and any of their respective
assets which may arise as a matter of law or pursuant to any
contract; provided, however, that the Advisor's Claims (if any)
against Series E shall not be considered Subordinated Claims
with respect to enforcement against and distribution and
repayment from Series E, the Series E Assets and the
Managing Owner and its assets; and provided, further that the
Advisor's valid Claims, if any, against Series E shall be pari
passu and equal in right of repayment and distribution with all
other valid Claims against Series E and (ii) the Advisor will
not take, demand or receive from any Series or the Trust or
any of their respective assets (other than Series E, the Series E
Assets and the Managing Owner and its assets) any payment
for the Subordinated Claims;
(2) the Claims of the Advisor with respect to Series E shall
only be asserted and enforceable against Series E, the
Series E Assets and the Managing Owner and its assets, and
such Claims shall not be asserted or enforceable for any
reason whatsoever against any other Series, the Trust
generally or any of their respective assets;
(3) if the Claims of the Advisor against Series E or the Trust
are secured in whole or in part, the Advisor hereby waives
(under section 1111(b) of the Bankruptcy Code (11 U.S.C. S
1111(b)) any right to have any deficiency Claims (which
deficiency Claims may arise in the event such security is
inadequate to satisfy such Claims) treated as unsecured
Claims against the Trust or any Series (other than Series E), as
the case may be;
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(4) in furtherance of the foregoing, if and to the extent that
the Advisor receives monies in connection with the
Subordinated Claims from a Series or the Trust (or their
respective assets), other than Series E, the Series E Assets
and the Managing Owner and its assets, the Advisor shall be
deemed to hold such monies in trust and shall promptly remit
such monies to the Series or the Trust that paid such amounts
for distribution by the Series or the Trust in accordance with
the terms hereof; and
(5) the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied and
notwithstanding that the agreements in respect of such Claims
are terminated, rescinded or canceled.
4. Obligations of the Trust, the Managing Owner and the
Advisor.
(a) The Registration Statement and Prospectus. Each of the
Trust and the Managing Owner agrees to cooperate and use its
good faith and best efforts in connection with (i) the
preparation by the Trust of the Registration Statement and the
Prospectus (and any amendments or supplements thereto), (ii)
the filing of the Registration Statement and the Prospectus
(and any amendments or supplements thereto) with such
governmental and self-regulatory authorities as the Managing
Owner deems appropriate for the registration and sale of the
Interests and the taking of such other actions not inconsistent
with this Agreement as the Managing Owner may determine to
be necessary or advisable in order to make the proposed offer
and sale of Interests lawful in any jurisdiction and (iii) causing
the Registration Statement (and any amendment thereto) to
become effective under the 1933 Act and the Blue Sky
securities laws of such jurisdictions as the Managing Owner
may deem appropriate. The Advisor agrees to make all
necessary disclosures regarding itself, its officers and
principals, trading performance,
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Trading Approach, customer accounts (other than the
names of customers, unless such disclosure is
required by law or regulation) and otherwise as
may be required, in the reasonable judgment of the Managing
Owner, to be made in the Registration Statement and
Prospectus and in applications to any such jurisdictions. No
description of or other information relating to the Advisor may
be distributed by the Managing Owner without the prior
written consent of the Advisor; provided that, distribution of
performance information relating to Series E's account shall
not require consent of the Advisor.
(b) Road Shows. The Advisor agrees to make
representatives of its marketing department available to
participate in "road show" and similar presentations in
connection with the offering of the Series E Interests to the
extent reasonably requested by the Managing Owner, on the
following conditions: (i) all expenses incurred by the Advisor
in the course of such participation will be shared between and
among the Advisor, the Managing Owner and/or Prudential
Securities, in such amounts as shall be agreed among the
parties, (ii) the Advisor shall not be obligated to take any
action which might require registration as a broker-dealer or
investment adviser under any applicable federal or state law
and (iii) the Advisor shall not be required to assist in "road
show" or similar presentations to the extent that it reasonably
believes that doing so would interfere with its trading,
marketing or other activities.
(c) Advisor Not A Promoter. The parties acknowledge that
the Advisor has not been, either alone or in conjunction with
Prudential Securities or its affiliates, an organizer or promoter
of the Trust, and it is not intended by the parties that the
Advisor shall have any liability as such.
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(d) Filings. The Trust may at any time determine not to file
the Registration Statement with the SEC or withdraw the
Registration Statement from the SEC or any other
governmental or self-regulatory authority with which it is filed
or otherwise terminate the Registration Statement or the
offering of Interests. Upon any such withdrawal or
termination, or if the "minimum" (i) aggregate number of
Interests or (ii) Series E Interests required to be sold pursuant
to the Prospectus is not sold, this Agreement shall terminate
and, except for the payment of expenses as set forth in
subparagraph 4(b) above and in paragraph 2, neither the Trust
nor the Managing Owner shall have any obligations to the
Advisor with respect to this Agreement nor shall the Advisor
have any obligations to the Trust or the Managing Owner with
respect to this Agreement.
(e) Representation Agreement. On or prior to
commencement of the offering of Interests pursuant to the
Prospectus, the parties agree to execute a Representation
Agreement relating to the offering of the Interests (the
"Representation Agreement") substantially in the form of
Exhibit C to this Agreement.
5. Advisor Independence.
(a) Independent Contractor. The Advisor shall for all
purposes herein be deemed to be an independent contractor
with respect to the Trust, the Managing Owner and each other
commodity trading advisor that may in the future provide
commodity trading advisory services to the Trust and
Prudential Securities and shall, unless otherwise expressly
authorized, have no authority to act for or to represent the
Trust, the Managing Owner, any other commodity trading
advisor or Prudential Securities in any way or otherwise be
deemed to be a general agent, joint venturer or partner of the
Trust, the Managing Owner, any other commodity trading
advisor
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or Prudential Securities or in any way be responsible
for the acts or omissions of the Trust, the Managing Owner,
any other commodity trading advisor or Prudential Securities
as long as it is acting independently of such persons.
(b) Unauthorized Activities. Without limiting the obligations
of the Trust set forth under this Agreement, nothing herein
contained shall be deemed to require the Trust to take any
action contrary to its Trust Agreement or Certificate of Trust or
any applicable statute, regulation or rule of any exchange or
self-regulatory organization.
(c) Purchase of Interests. Any of the Advisor, its principals
and employees may, in its discretion, purchase Interests in the
Trust.
(d) Confidentiality. The Trust and the Managing Owner
acknowledge that the Trading Approach of the Advisor is the
confidential property of the Advisor. Nothing in this
Agreement shall require the Advisor to disclose the
confidential or proprietary details of its Trading Approach.
The Trust and the Managing Owner further agree that they will
keep confidential and will not disseminate the Advisor's
trading advice to the Trust, except as, and to the extent that, it
may be determined by the Managing Owner to be (i) necessary
for the monitoring of the business of the Trust, including the
performance of brokerage services by the Trust's commodity
broker(s), or (ii) expressly required by law or regulation.
6. Commodity Broker.
All Commodities traded for the account of the Trust shall be
made through such commodity broker or brokers, or
counterparty or counterparties, as the Managing Owner directs
or otherwise in accordance with such order execution
procedures as are agreed upon between the
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Advisor and the Managing Owner. Except as set forth
below, the Advisor shall not have any authority
or responsibility in selecting or supervising
any floor brokers or counterparties for execution
of Commodities trades of the Trust or for negotiating floor
brokerage commission rates or other compensation to be
charged therefor. The Advisor shall not be responsible for
determining that any such broker or counterparty used in
connection with any Commodities transactions meets the
financial requirements or standards imposed by the Trust's
Trading Policies and Limitations. At the present time, it is
contemplated that the Trust will execute and clear all
Commodities trades through Prudential Securities and its
affiliates. The Advisor may, however, with the consent of the
Managing Owner, such consent not to be unreasonably
withheld, execute transactions at such other firm(s) and upon
such terms and conditions as the Advisor and the Managing
Owner agree if such firm(s) agree to "give up" all such
transactions to Prudential Securities for clearance. To the
extent that the Trust determines to utilize a broker or
counterparty other than Prudential Securities, it will consult
with the Advisor prior to directing it to utilize such broker or
counterparty and will not retain the services of such firm over
the reasonable objection of the Advisor.
7. Fees.
In consideration of and in compensation for the performance
of the Advisor's services under this Agreement, the Advisor
shall receive from Series E a management fee (the
"Management Fee") and an incentive fee (the "Incentive Fee")
based on the Series E Allocated Assets, as follows:
(a) A Management Fee equal to 0.0384615% of Series E's
Allocated Assets determined as of the close of business each
Friday (an annual rate of 2.0%). In the event that the
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Managing Owner and the Advisor agree that the Trading Approach
should be modified to alter the agreed upon trading level of
1.5:1, an appropriate adjustment in the weekly Management
Fee will be made to reflect the revised leverage. The sum of
the amounts determined each Friday will be paid monthly. For
purposes of determining the Management Fee, any
distributions, redemptions or reallocation of the Series E's
Allocated Assets made as of the last Friday of a week shall be
added back to the Series E Allocated Assets, and there shall
be no reduction for (i) the weekly Management Fees being
calculated, (ii) any accrued but unpaid incentive fees due the
Advisor under paragraph (b) below for the quarter in which
such fees are being computed or (iii) any accrued but unpaid
extraordinary expenses unrelated to Series E (as defined in the
Trust Agreement). The Management Fee determined for any
week in which an Advisor manages the Series E Allocated
Assets for less than a full week shall be prorated, such
proration to be calculated on the basis of the number of days
in the week the Series E Allocated Assets were under the
Advisor's management as compared to the total number of
days in such week with such proration to include appropriate
adjustments for any funds taken away from the Advisor's
management during the week for reasons other than
distributions or redemptions, including, but not limited to, the
reduction of the Series E Allocated Assets allocated to the
Advisor's management resulting from the payment of
extraordinary expenses. Management fees paid pursuant to
this Section are non-refundable.
(b) An incentive fee of 20% (the "Incentive Fee") of "New
High Net Trading Profits" (as hereinafter defined) generated on
the Series E Allocated Assets, including realized and
unrealized gains and losses thereon, as of the close of
business on the last Friday of each calendar quarter (the
"Incentive Measurement Date"). For purposes of computing
the Net Asset Value of the Series E Allocated Assets only, the
Incentive Fee will be accrued weekly.
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New High Net Trading Profits (for purposes of calculating the
Advisor's Incentive Fee only) will be computed as of the
Incentive Measurement Date and will include such profits (as
outlined below) since the Incentive Measurement Date of the
most recent preceding calendar quarter for which an incentive
fee was earned (or, with respect to the first Incentive Fee, as of
the commencement of operations) (the "Incentive
Measurement Period"). New High Net Trading Profits for any
Incentive Measurement Period will be the net profits, if any,
from trading of the Series E Allocated Assets during such
period (including (i) realized trading profit (loss) plus or minus
(ii) the change in unrealized trading profit (loss) on open
positions) and will be calculated after the determination of
Series E's fixed brokerage fee and other transaction
costs attributable to the Series E Allocated
Assets, the Advisor's Management Fee, and the
operating expenses for which Series E Allocated
Assets are responsible, but before deduction of any Incentive
Fees payable during the Incentive Measurement Period. New
High Net Trading Profits will not include interest earned or
credited on Series E's assets and will be adjusted (either
increased or decreased, as the case may be) to reflect
extraordinary expenses (e.g., litigation, costs or damages)
paid during an Incentive Measurement Period. New High Net
Trading Profits will be generated only to the extent that the
Advisor's cumulative New High Net Trading Profits exceed the
highest level of cumulative New High Net Trading Profits
achieved by the Advisor as of a previous Incentive
Measurement Date. Except as set forth below, net losses from
prior quarters must be recouped before New High Net Trading
Profits can again be generated. If a withdrawal or distribution
occurs or if this Agreement is terminated at any date that is
not an Incentive Measurement Date, the date of the withdrawal
or distribution or termination will be treated as if it were an
Incentive Measurement Date, but any Incentive Fee accrued in
respect of the withdrawn assets on such date shall not be paid
to the Advisor until the
19
next scheduled Incentive Measurement
Date. New High Net Trading Profits for an Incentive
Measurement Period shall exclude capital contributions to
Series E in an Incentive Measurement Period, distributions or
redemptions paid or payable by Series E during an Incentive
Measurement Period, as well as losses, if any, associated with
redemptions, distributions and reallocations of assets during
the Incentive Measurement Period and prior to the Incentive
Measurement Date (i.e., to the extent that assets are allocated
away from the Advisor, any loss carryforward attributable to
the Advisor shall be reduced in the same proportion that the
assets allocated away from the Advisor through redemptions,
distributions or allocations caused by the Trust or the
Managing Owner bears to the Series E Allocated Assets prior
to the re-allocation and New High Net Trading Profits shall
reflect this reduction in loss carryforward). In calculating New
High Net Trading Profits, incentive fees paid for a previous
Incentive Measurement Period will not reduce cumulative New
High Net Trading Profits in subsequent periods.
(c) Timing of Payment. Management Fees and Incentive
Fees shall be paid generally within 15 business days following
the end of the period for which they are payable. The first
incentive fee which may be due and owing to the Advisor in
respect of any New Trading Profits will be due and owing as of
the last Friday of the first calendar quarter during which the
Trading Advisor managed the Allocated Assets for at least 45
days. If an Incentive Fee shall have been paid by the Trust to
the Advisor in respect of any calendar quarter and the Advisor
shall incur subsequent losses on the Series E Allocated
Assets, the Advisor shall nevertheless be entitled to retain
amounts previously paid to it in respect of New High Net
Trading Profits.
(d) Fee Data. The Managing Owner will provide the Advisor
with the data used by the Managing Owner to compute the
foregoing fees including a statement of the actual
20
execution costs attributable to the Series E Allocated Assets
generally within fifteen business days of the end of the
relevant period.
(e) Third Party Payments. Neither the Advisor, nor any of its
officers, directors, employees or stockholders, shall receive
any commissions, compensation, remuneration or payments
whatsoever from any broker with which the Trust carries an
account for transactions executed in the Trust's account. The
parties acknowledge that a spouse of any of the foregoing
persons may receive floor brokerage commissions in respect
of trades effected pursuant to the Advisor's Trading Approach
on behalf of the Trust, which payment shall not violate the
preceding sentence.
8. Term and Termination.
(a) Term. This Agreement shall commence on the date
hereof and, unless sooner terminated pursuant to paragraph
(b), (c), or (d) of this Section 8, shall continue in effect until the
close of business on the last day of the month ending twelve
full months following the commencement of Series E's trading
activities. Thereafter, unless this Agreement is terminated
pursuant to paragraphs (b), (c), or (d) of this Section 8, this
Agreement shall be renewed automatically on the same terms
and conditions set forth herein for successive additional one-
year terms, each of which shall commence on the first day of
the month subsequent to the conclusion of the preceding
term. Subject to Section 8(d) hereof, the automatic renewal(s)
set forth in the preceding sentence hereof shall not be affected
by (i) any allocation of the Series E Allocated Assets away
from the Advisor pursuant to this Agreement or (ii) the
retention of Other Advisors following a reallocation or
otherwise.
21
(b) Automatic Termination. This Agreement shall terminate
automatically in the event that the Trust is terminated. In
addition, this Agreement shall terminate automatically in the
event that the Series E Allocated Assets decline as of the end
of any business day by at least 40% from the Series E
Allocated Assets (i) as of the first day of this Agreement or (ii)
as of the first day of any calendar year, as adjusted on an
ongoing basis by (A) any decline(s) in the Series E Allocated
Assets caused by distributions, redemptions, distributions,
reallocations and withdrawals, and (B) additions to the
Series E Allocated Assets caused by additional allocations.
(c) Optional Termination Right of Trust. This Agreement
may be terminated at any time at the election of the Managing
Owner in its sole discretion upon at least 30 days' prior written
notice to the Advisor. The Managing Owner will use its best
efforts to cause any termination to occur as of a month-end.
This Agreement also may be terminated upon prior written
notice, appropriate under the circumstances, to the Advisor in
the event that: (i) the Managing Owner determines in good
faith following consultation appropriate under the
circumstances with the Advisor that the Advisor is unable to
use its agreed upon Trading Approach to any material extent,
as such Trading Approach may be refined or modified in the
future in accordance with the terms of this Agreement for the
benefit of the Trust; (ii) the Advisor's registration as a
commodity trading advisor under the CE Act or membership
as a commodity trading advisor with the NFA is revoked,
suspended, terminated or not renewed; (iii) the Managing
Owner determines in good faith following consultation
appropriate under the circumstances with the Advisor that the
Advisor has failed to conform, and after receipt of written
notice, continues to fail to conform in any material respect, to
(A) any of the Trust's Trading Policies and Limitations or (B)
the Advisor's Trading Approach; (iv) there is an unauthorized
assignment of this Agreement by the Advisor; (v) the Advisor
dissolves, merges or
22
consolidates with another entity or sells
a substantial portion of its assets, any portion of its Trading
Approach utilized by the Trust or its business goodwill, in
each instance without the consent of the Managing Owner; (vi)
Xxxxxxx X. Xxxxxx is not in control of the Advisor's trading
activities for the Trust; (vii) the Advisor becomes bankrupt
(admitted or decreed) or insolvent; (viii) for any other reason,
the Managing Owner determines in good faith that such
termination is essential for the protection of the Trust and the
Series E Interests, including, without limitation a good faith
determination by the Managing Owner that the Advisor has
breached a material obligation to the Trust under this
Agreement relating to the trading of the Series E Allocated
Assets.
(d) Optional Termination Right of Advisor. The Advisor shall
have the right to terminate this Agreement at any time upon
written notice to the Trust, appropriate under the
circumstances, in the event (i) of the receipt by the Advisor of
an opinion of independent counsel satisfactory to the Advisor
and the Trust that by reason of the Advisor's activities with
respect to the Trust it is required to register as an investment
adviser under the Investment Advisers Act of 1940 and it is not
so registered; (ii) that the registration of the Managing Owner
as a commodity pool operator under the CE Act or its NFA
membership as a commodity pool operator is revoked,
suspended, terminated or not renewed; (iii) that the Managing
Owner (A) imposes additional trading limitation(s) pursuant to
Section 1 of this Agreement which the Advisor does not agree
to follow in its management of the Series E Allocated Assets
or (B) overrides trading instructions of the Advisor or does not
consent to a material change to the Trading Approach
requested by the Advisor; (iv) the amount of the Series E
Allocated Assets decreases to less than $4 million as the
result of redemptions, distributions, reallocations of Series E
Allocated Assets, or deleveraging initiated by the Trust or
Managing Owner but not trading losses, as
23
of the close of
business on any Friday; (v) the Managing Owner elects
(pursuant to Section 1 of this Agreement) to have the Advisor
use a different Trading Approach in the Advisor's management
of Trust assets from that which the Advisor is then using to
manage such assets and the Advisor objects to using such
different Trading Approach; (vi) there is an unauthorized
assignment of this Agreement by the Trust or the Managing
Owner; (vii) there is a material breach of this Agreement by the
Trust and/or the Managing Owner and after giving written
notice to the Managing Owner which identifies such breach,
such material breach has not been cured within ten days
following receipt of such notice by the Managing Owner; (viii)
an Other Advisor is allocated a portion of the Series E Assets;
(ix) the Advisor provides the Managing Owner with writted notice
at least 90 days' prior to the end of the then current
term, of the Advisor's desire and intention to terminate
this Agreement as of the end of the then current term; or (x)
other good cause is shown and the written consent of the Managing
Owner is obtained (which shall not be withheld or delayed
unreasonably).
(e) Termination Fees. In the event that this Agreement is
terminated with respect to, or by, the Advisor pursuant to this
Section 8 or the Managing Owner allocates the Trust's assets
to Other Advisors, the Advisor shall be entitled to, and the
Trust shall pay, the Management Fee and the Incentive Fee, if
any, which shall be computed (i) with respect to the
Management Fee, on a pro rata basis, based upon the portion
of the month for which the Advisor had the Series E Allocated
Assets under management and (ii) with respect to the
Incentive Fee, if any, as if the effective date of termination was
the last day of the then current calendar quarter. The rights of
the Advisor to fees earned through the earlier to occur of the
date of expiration or termination shall survive this Agreement
until satisfied.
24
(f) Termination and Open Positions. Once terminated, the
Advisor shall have no responsibility for existing positions,
including delivery issues, if any, which may result from such
positions.
9. Liquidation of Positions.
The Advisor agrees to liquidate open positions in the amount
that the Managing Owner informs the Advisor, in writing via
facsimile or other equivalent means, that the Managing Owner
considers necessary or advisable to liquidate in order to (i)
effect any termination or reallocation pursuant to Sections 1 or
8, respectively or (ii) fund its pro rata share of any redemption,
distribution or Trust expense. The Managing Owner shall not,
however, have authority to instruct the Advisor as to which
specific open positions to liquidate, except as provided in
Section 1 hereof. The Managing Owner shall provide the
Advisor with such reasonable prior notice of such liquidation
as is practicable under the circumstances and will endeavor to
provide at least one day prior notice. In the event that losses
incurred by the Advisor exceed the amount of the Series E
Allocated Assets, the Managing Owner agrees to cover such
excess losses from its assets, but in no event from the assets
of the other Series issued by the Trust.
10. Other Accounts of the Advisor.
(a) Management of Other Accounts and Trading of
Proprietary Capital. Subject to paragraph (c) of this Section
10, the Advisor shall be free to (i) manage and trade accounts
for other investors (including other public and private
commodity pools), and (ii) trade for its own account, and for
the accounts of its partners, shareholders, directors, officers
and employees, as applicable, using the same or other
information and Trading Approach utilized in
25
the performance of services for the Trust, so long as in the Advisor's
reasonable judgment the aggregate amount of capital being
managed or traded by the Adviser does not (i) materially
impair the Advisor's ability to carry out its obligations and
duties to the Trust pursuant to this Agreement or (ii) create a
reasonable likelihood of the Advisor having to modify
materially its agreed upon Trading Approach being used for
the Trust in a manner which might reasonably be expected to
have a material adverse effect on the Trust. The aggregate
amount of capital referred to in the preceding sentence
hereinafter shall be called "Advisor's Capacity," and currently
is estimated by the Advisor to be $1 billion. The Advisor shall
not be required to accept capital from the Trust in an amount
which exceeds $50 million if such excess amount will cause
the Advisor to be managing or trading funds pursuant to its
Trading Approach which exceed the Advisor's Capacity.
(b) Acceptance of Non-Trust Capital. So long as the Advisor
is performing services for the Trust, it agrees that it will not
manage or trade funds which exceed the Advisor's Capacity.
Without limiting the generality of the foregoing, it is
understood that this paragraph shall not prohibit routine
adjustments to trading patterns in order to comply with
speculative position limits or daily trading limits. The Advisor
agrees to notify the Managing Owner when the Advisor's
Capacity is likely to be reached, and when it agrees to manage
or trade additional funds of at least $100 million.
(c) Equitable Treatment of Accounts. The Advisor agrees, in
its management of accounts other than the account of the
Trust, that it will not knowingly or deliberately favor any other
account managed or controlled by it or any of its principals or
affiliates (in whole or in part) over the Trust. The preceding
sentence shall not be interpreted to preclude (i) the Advisor
from charging another client fees which differ from the fees to
be paid to it hereunder or (ii) an
26
adjustment by the Advisor in the implementation of
any agreed upon Trading Approach in
accordance with the procedures set forth in Section 1 hereof
which is undertaken by the Advisor in good faith in order to
accommodate additional accounts. Notwithstanding the
foregoing, the Advisor also shall not be deemed to be favoring
another commodity interest account over the Trust's account
if the Advisor, in accordance with specific instructions of the
owner of such account, shall trade such account at a degree of
leverage or in accordance with trading policies which shall be
different from that which would normally be applied or if the
Advisor, in accordance with the Advisor's money management
principles, shall not trade certain commodity interest contracts
for an account based on the amount of equity in such account.
The Advisor, upon reasonable request and receipt of adequate
assurances of confidentiality, shall provide the Managing
Owner with an explanation of the differences, if any, in
performance between the Trust and any other similar account
pursuant to the same Trading Approach for which the Advisor
or any of its principals or affiliates acts as a commodity
trading advisor (in whole or in part), provided, however, that
the Advisor may, in its discretion, withhold from any such
inspection the identity of the client for whom any such
account is maintained.
(d) Inspection of Records. Upon the reasonable request of
and upon reasonable notice from the Managing Owner, the
Advisor shall permit the Managing Owner to review at the
Advisor's offices during normal business hours such trading
records as it reasonably may request for the purpose of
confirming that the Trust has been treated equitably with
respect to advice rendered during the term of this Agreement
by the Advisor for other accounts managed by the Advisor,
which the parties acknowledge to mean that the Managing
Owner may inspect, subject to such restrictions as the Advisor
may reasonably deem necessary or advisable so as to
preserve the confidentiality of proprietary information and the
identity of its
27
clients, all trading records of the Advisor as it
reasonably may request during normal business hours. The
Advisor may, in its discretion, withhold from any such report
or inspection the identity of the client for whom any such
account is maintained and in any event the Trust and the
Managing Owner shall keep all such information obtained by
them from the Advisor confidential unless disclosure thereof
legally is required or has been made public. Such right will
terminate one year after the termination of this Agreement and
does not permit access to computer programs, records, or
other information used in determining trading decisions.
11. Speculative Position Limits.
If, at any time during the term of this Agreement, it appears to
the Advisor that it may be required to aggregate the Trust's
Commodities positions with the positions of any other
accounts it owns or controls for purposes of applying the
speculative position limits of the CFTC, any exchange, self-
regulatory body or governmental authority, the Advisor
promptly will notify the Managing Owner if the Trust's
positions under its management are included in an aggregate
amount which equals or exceeds the applicable speculative
limit. The Advisor agrees that if its trading recommendations
pursuant to its agreed upon Trading Approach are altered
because of the potential application of speculative position
limits, the Advisor will modify its trading instructions to the
Trust and its other accounts in a good faith effort to achieve
an equitable treatment of all accounts; to wit, the Advisor will
liquidate Commodities positions and/or limit the taking of new
positions in all accounts it manages, including the Trust, as
nearly as possible in proportion to the assets available for
trading of the respective accounts (including "notional"
equity) to the extent necessary to comply with applicable
speculative position limits. The Advisor presently believes
that its Trading Approach for the management of the Trust's
account, assuming that the allocation is not more than $50
million, can be implemented for the
28
benefit of the Trust notwithstanding the possibility
that, from time to time, speculative position limits
may become applicable.
12. Redemptions, Distributions, Reallocations and Additional
Allocations.
(a) Notice. The Managing Owner agrees to give the Advisor
at least one business day prior notice of any proposed
redemptions, exchanges, distributions, reallocations,
additional allocations or withdrawals affecting the Series E
Allocated Assets.
(b) Allocations. Redemptions, exchanges, withdrawals and
distributions of Series E Interests shall be charged against the
Series E Allocated Assets.
13. Brokerage Confirmations and Reports.
The Managing Owner will instruct the Trust's brokers and
counterparties to furnish the Advisor with copies of all trade
confirmations, daily equity runs and monthly trading
statements relating to the Series E Allocated Assets. The
Advisor will maintain records and will monitor all open
positions relating thereto; provided, however, that the Advisor
shall not be responsible for any errors by the Trust's brokers
or counterparties. The Managing Owner also will furnish the
Advisor with a copy of the form of all reports, including but
not limited to, monthly, quarterly and annual reports, sent to
the Limited Owners and copies of all reports filed with the
SEC, the CFTC and the NFA. The Advisor shall, at the
Managing Owner's request, make a good faith effort to provide
the Managing Owner with copies of all trade confirmations (if
the clearing broker is other than Prudential Securities), daily
equity runs, monthly trading reports or other reports sent to
the Advisor by the Trust's commodity broker regarding the
Trust and in the Advisor's possession or control as the
Managing Owner deems appropriate if the
29
Managing Owner cannot obtain such copies on
its own behalf. Upon request, the Managing
Owner will provide the Advisor with accurate
information with respect to the Series E Allocated Assets.
14. The Advisor's Representations and Warranties.
The Advisor represents and warrants that:
(a) it has full capacity and authority to enter into this
Agreement and to provide the services required of it
hereunder;
(b) it will not by entering into this Agreement and by acting
as a commodity trading advisor to the Trust (i) be required to
take any action contrary to its incorporating or other formation
documents or, to the best of its knowledge, any applicable
statute, law or regulation of any jurisdiction or (ii) breach or
cause to be breached, to the best of its knowledge, any
undertaking, agreement, contract, statute, rule or regulation to
which it is a party or by which it is bound which, in the case of
(i) or (ii), would materially limit or materially adversely affect its
ability to perform its duties under this Agreement;
(c) it is duly registered as a commodity trading advisor
under the CE Act and is a member of the NFA as a commodity
trading advisor and it will maintain and renew such
registration and membership during the term of this
Agreement;
(d) a copy of its most recent Commodity Trading Advisor
Disclosure Document as required by Part 4 of the CFTC's
regulations has been provided to the Managing Owner on
behalf of the Trust in the form of Exhibit D hereto (and the
Managing Owner acknowledges receipt of such Disclosure
Document on behalf of the Trust) and, except as
30
disclosed in such Disclosure Document, all
information in such Disclosure Document (including,
but not limited to, background, performance,
trading methods and trading systems) is true,
complete and accurate in all material respects and is in
conformity in all material respects with the provisions of the
CE Act, including the rules and regulations thereunder; as well
as all rules and regulations of the National Futures
Association;
(e) assuming that the Series E Allocated Assets equal not
more than $50 million as of the commencement of trading, the
amount of such assets should not, in the reasonable judgment
of the Advisor, result in the Advisor being required to manage
funds in an amount which will exceed the Advisor's Capacity;
and
(f) neither the Advisor nor its stockholders, directors,
officers, employees, agents, principals, affiliates nor any of its
or their respective successors or assigns: (i) shall knowingly
use or distribute for any purpose whatsoever any list
containing the names and/or residence addresses of, and/or
other information about, the Limited Owners of the Trust nor
(ii) shall solicit any person it or they know is a Limited Owner
of the Trust for the purpose of soliciting commodity business
from such Limited Owner, unless such Limited Owner shall
have first contacted the Advisor or is already a client of the
Advisor or a prospective client with which the Advisor has
commenced discussions or is introduced to or referred to the
Advisor by an unaffiliated agent other than in violation of
clause (i).
(g) the Advisor has taken all reasonable steps necessary to
assure that its business operations and any services under the
Advisor's control provided pursuant to this Agreement will not
be materially interrupted by the advent of the Year 2000 date.
31
The within representations and warranties shall be continuing
during the term of this Agreement, and if at any time any event
has occurred which would make or tend to make any of the
foregoing not true in any material respect with respect to the
Advisor, the Advisor promptly will notify the Trust in writing
thereof.
15. The Managing Owner's Representations and Warranties.
The Managing Owner represents and warrants on behalf of the
Trust and itself that:
(a) each has the full capacity and authority to enter into this
Agreement and to perform its obligations hereunder;
(b) it will not, by acting as managing owner to the Trust or
by entering into this Agreement, and the Trust will not (i) be
required to take any action contrary to its incorporating or
other formation documents or any applicable statute, law or
regulation of any jurisdiction or (ii) breach or cause to be
breached (A) any undertaking, agreement, contract, statute,
rule or regulation to which it or the Trust is a party or by which
it or the Trust is bound or (B) any order of any court or
governmental or regulatory agency having jurisdiction over it
or the Trust, which in the case of (i) or (ii) would materially
limit or materially adversely affect the performance of its or the
Trust's duties under this Agreement;
(c) it is registered as a commodity pool operator under the
CE Act and is a commodity pool operator member of the NFA,
and it will maintain and renew such registration and
membership during the term of this Agreement;
32
(d) this Agreement has been duly and validly authorized,
executed and delivered and is a valid and binding agreement,
enforceable against each of them, in accordance with its
terms;
(e) on the date hereof, it is, and during the term of this
Agreement, it will be (i) in the case of the Trust, a duly formed
and validly existing Delaware Business Trust and (ii) in the
case of the Managing Owner, a duly formed and validly
existing corporation, in each case, in good standing under the
laws of the State of Delaware and in good standing and
qualified to do business in each jurisdiction in which the
nature and conduct of its business requires such qualification
and where the failure to be so qualified would materially
adversely affect its ability to perform its obligations under this
Agreement; and
(f) its business operations and any services provided
pursuant to this Agreement will not be materially interrupted
by the advent of the Year 2000 date.
The within representations and warranties shall be continuing
during the term of this Agreement, and if at any time any event
has occurred which would make or tend to make any of the
foregoing not true in any material respect, the Managing
Owner promptly will notify the Advisor in writing.
33
16. Assignment.
This Agreement may not be assigned by any of the parties
hereto without the express prior written consent of the other
parties hereto, except that the Advisor need not obtain the
consent of any Other Advisor.
17. Successors.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and the successors and permitted
assignees of each of them, and no other person (except as
otherwise provided herein) shall have any right or obligation
under this Agreement. The terms "successors" and
"assignees" shall not include any purchasers, as such, of
Interests.
18. Amendment or Modification or Waiver.
(a) Changes to Agreement. This Agreement may not be
amended or modified, nor may any of its provisions be waived,
except upon the prior written consent of the parties hereto,
except that an amendment to, a modification of or a waiver of
any provision of the Agreement as to the Advisor need not be
consented to by any Other Advisor.
(b) No Waiver. No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other
right, power or remedy. Any waiver granted hereunder must
be in writing and shall be valid only in the specific instance in
which given.
19. Notices.
34
Except as otherwise provided herein, all notices required to be
delivered under this Agreement shall be effective only if in
writing and shall be deemed given by the party required to
provide notice when received by the party to whom notice is
required to be given and shall be delivered personally or by
registered mail, postage prepaid, return receipt requested or
by facsimile, as follows (or to such other address as the party
entitled to notice shall hereafter designate by written notice to
the other parties):
If to the Managing Owner or the Trust:
Prudential Securities Futures
Management Inc
Xxx Xxx Xxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxxxx and
Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and in either case with a copy to:
Rosenman & Colin LLP and Prudential Securities Incorporated
000 Xxxxxxx Xxxxxx One Xxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 000 Xxxxx Xxxxxx
Attention: Xxxx X. Xxxxx, Esq. Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000 Attention: Xxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
If to the Advisor: With a copy to:
Xxxxxx Capital Management, X.X. Xxxxxx Capital Management, L.P.
Stamford Harbor Park Stamford Harbor Park
000 Xxxxxx Xxxxxx 000 Xxxxxx Xxxxxx
Xxxxxxxx, XX 00000 Xxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx Attention: Xxxx Xxxxxxx
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
35
20. Governing Law.
Each party agrees that this Agreement shall be governed by
and construed in accordance with the laws of the State of New
York without regard to conflict of laws principles.
21. Survival.
The provisions of this Agreement shall survive the termination
of this Agreement with respect to any matter arising while this
Agreement was in effect.
22. Promotional Literature.
Each party agrees that prior to using any promotional
literature in which reference to the other parties hereto is
made, it shall furnish in advance a copy of such information to
the other parties and will not make use of any promotional
literature containing references to such other parties to which
such other parties object, except as otherwise required by law
or regulation.
23. No Liability of Limited Owners.
This Agreement has been made and executed by and on behalf
of the Trust, and the obligations of the Trust and/or the
Managing Owner set forth herein are not binding upon any of
the Limited Owners individually, but rather, are binding only
upon the assets and property of the Trust and, to the extent
provided herein, upon the assets and property of the
Managing Owner.
24. Headings.
Headings to Sections herein are for the convenience of the
parties only and are not intended to be or to affect the
meaning or interpretation of this Agreement.
36
25. Complete Agreement.
Except as otherwise provided herein, this Agreement and the
Representation Agreement constitute the entire agreement
between the parties with respect to the matters referred to
herein, and no other agreement, verbal or otherwise, shall be
binding upon the parties hereto.
26. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which,
when taken together, shall constitute one original instrument.
27. Arbitration, Remedies.
Each party hereto agrees that any dispute relating to the
subject matter of this Agreement shall be settled and
determined by arbitration in the City of New York pursuant to
the rules of the NFA or, if the NFA should refuse to accept the
matter, the American Arbitration Association.
37
IN WITNESS WHEREOF, this Agreement has been executed for
and on behalf of the undersigned as of the day and year first
above written.
WORLD MONITOR TRUST II- Series E
By: PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
Its: Managing Owner
By: ________________________________
Xxxxxxx X. Xxxxxx
Executive Vice-President
XXXXXX CAPITAL MANAGEMENT, L.P.
By: ________________________________
38
EXHIBIT A
SERIES E TRADING APPROACH
GLOBAL DIVERSIFIED PROGRAM
The Advisor will make its trading decisions for Series E
according to its Global Diversified Program as described in
Exhibit D as amended from time to time and will trade the
Series E Allocated Assets at a trading level of 1.5 times the
Series E Allocated Assets.
A-1
EXHIBIT B
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable to assets
representing the Series E Allocated Assets of the Trust as a
whole and at the outset to the Advisor individually; since the
Advisor initially will manage 100% of the Trust's Series E
Allocated Assets, such application of the limitations and
policies is identical initially for the Series E Allocated Assets
of the Trust and the Advisor. The Advisor sometimes may be
prohibited from taking positions for the Series E Allocated
Assets which it would otherwise acquire due to the need to
comply with these limitations and policies. The Managing
Owner will monitor compliance with the trading limitations and
policies set forth below, and it may impose additional
restrictions (through modification of such limitations and
policies) upon the trading activities of the Advisor as it, in
good faith, deems appropriate in the best interests of Series E
of the Trust, subject to the terms of the Advisory Agreement.
The Managing Owner will not approve a material change in the
following trading limitations and policies without obtaining the
prior written approval of Limited Owners owning more than
50% of the Series E Interests. The Managing Owner may,
however, impose additional trading limitations on the trading
activities of the Series E Interests of the Trust without
obtaining such approval if the Managing Owner determines
such additional limitations to be necessary in the best
interests of Series E of the Trust.
Trading Limitations
Series E of the Trust will not: (i) engage in pyramiding its
commodities positions (i.e., the use of unrealized profits on
existing positions to provide margin for the acquisition of
additional positions in the same or a related commodity
provided, however, unrealized profits may be considered in
determining the current Allocated Assets) but may take into
account open trading equity on existing positions in
determining generally whether to acquire additional
commodities positions; (ii) borrow or loan money (except with
respect to the initiation or maintenance of commodities
positions or obtaining lines of credit for the trading of forward
currency contracts; provided, however, that Series E of the
Trust is prohibited from incurring any indebtedness on a
non-recourse basis); (iii) permit rebates to be received by the
Managing Owner or its affiliates or permit the Managing Owner
or any affiliate to engage in any reciprocal business
arrangements which would circumvent the foregoing
prohibition; (iv) permit the Advisor to share in any portion of
the commodity brokerage fees paid by the Series E Interests of
the Trust; (v) commingle its assets, except as permitted by
law; or (vi) permit the churning of its commodity accounts.
Series E of the Trust will conform in all respects to the rules,
regulations and guidelines of the markets on which its trades
are executed.
Trading Policies
Subject to the foregoing limitations, the Advisor has agreed to
abide by the trading policies of Series E of the Trust, which
currently are as follows:
B-1
(1) Series E Allocated Assets will generally be invested in
contracts which are traded in sufficient volume which, at the
time such trades are initiated, are reasonably expected to
permit entering and liquidating positions.
(2) Stop or limit orders may, in the Advisor's discretion, be
given with respect to initiating or liquidating positions in order
to attempt to limit losses or secure profits. If stop or limit
orders are used, no assurance can be given, however, that
Prudential Securities will be able to liquidate a position at a
specified stop or limit order price, due to either the volatility of
the market or the inability to trade because of market
limitations.
(3) Series E of the Trust generally will not initiate an open
position in a futures contract (other than a cash settlement
contract) during any delivery month in that contract, except
when required by exchange rules, law or exigent market
circumstances. This policy does not apply to forward and
cash market transactions.
(4) Series E of the Trust may occasionally make or accept
delivery of a commodity including, without limitation,
currencies. Series E of the Trust also may engage in EFP
transactions involving currencies and metals and other
commodities.
(5) Series E of the Trust may, from time to time, employ
trading techniques such as spreads, straddles and
conversions.
(6) Series E of the Trust will not initiate open futures or
option positions which would result in net long or short
positions requiring as margin or premium for outstanding
positions in excess of 15% of the Trust's Series E Allocated
Assets for any one commodity or in excess of 66 2/3% of the
Trust's Series E Allocated Assets for all commodities
combined. Under certain market conditions, such as an
inability to liquidate open commodities positions because of
daily price fluctuations, the Managing Owner may be required
to commit Allocated Assets as margin in excess of the
foregoing limits, and in such case the Managing Owner will
cause the Advisor to reduce its open futures and option
positions to comply to these limits before initiating new
commodities positions.
(7) To the extent Series E of the Trust engages in
transactions in forward currency contracts other than with or
through Prudential Securities and/or Prudential Bache Global
Markets, Inc., Series E of the Trust will only engage in such
transactions with or through a bank which as of the end of its
last fiscal year had an aggregate balance in its capital, surplus
and related accounts of at least $100 million, as shown by its
published financial statements for such year and through
other broker-dealer firms with an aggregate balance in its
capital, surplus and related accounts of at least $50 million.
B-2
EXHIBIT C
[REPRESENTATION AGREEMENT]
C-1
EXHIBIT D
[ATTACH LATEST DISCLOSURE DOCUMENT]
D-1
