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Exhibit 99(g)2
KELMOORE STRATEGIC TRUST
SPECIAL CUSTODY ACCOUNT AGREEMENT
THIS AGREEMENT, dated as of ________ _____ ___, by and among The Bank of New
York, in its capacity as custodian ("Bank"), Kelmoore Strategic Trust ("Trust")
with respect to the Kelmoore Strategy Covered Option Fund ("Customer") and
______________ ("Broker").
WHEREAS, Broker is a securities broker dealer registered with the Securities and
Exchange Commission and a clearing member of The Options Clearing Corporation
("OCC") and is a member of several national securities exchanges; and
WHEREAS, Customer desires from time to time to engage in the purchase and sale
of certain Option contracts (as hereunder defined) through Broker, such Options
transactions being permitted by Customer's investment policies, and for that
purpose has opened one or more margin accounts with Broker (each an "Account")
and executed Broker's "Customer Agreement" (the "Margin Agreement"); and
WHEREAS, to facilitate Customer's transactions through Broker, Customer and
Broker desire to establish procedures for the compliance by Broker with the
provisions of Regulation T of the Board of Governors of the Federal Reserve
System and with the provisions of Rule 431 of the New York Stock Exchange and
other applicable requirements and for compliance by Customer with Regulation X
of the Board of Governors of the Federal Reserve System and other requirements
("Margin Rules"); and
WHEREAS, to assist Broker and Customer in complying with the Margin Rules, Bank
is prepared to act as custodian to hold Collateral as defined below (in such
capacity, Bank is herein called the "Custodian").
NOW, THEREFORE, be it agreed as follows:
SECTION 1. DEFINITIONS.
"ADEQUATE MARGIN" shall mean such Collateral as is adequate in Broker's
judgment under the Margin Rules and the internal policies of Broker. For
purposes hereunder, Collateral shall be valued by Broker at current market
value.
"ADVICE FROM BROKER" or "ADVISE" means a written notice sent to Customer
and/or Bank or transmitted by a facsimile sending device, except that for
any of the following purposes it shall mean notice by telephone to a person
designated by Customer in writing as authorized to receive such advice or,
in the event that no such person is available, to any officer of Customer
and confirmed promptly in writing thereafter: (i) for initial or additional
Collateral; (ii) that an exercise notice filed with OCC has been assigned to
Customer; or (iii) that Customer failed to give notice of intent to make
delivery of or payment for securities as provided in section 8(a) or 8(b) or
otherwise defaulted pursuant to section 8(c) hereof. With respect to any
covering purchase transaction, the Advice from Broker shall mean a standard
confirmation in use by Broker and sent or
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transmitted to Customer and/or Bank. With respect to substitutions or
releases of Collateral, Advice from Broker means a written notice signed by
an authorized person of Broker and sent or transmitted to Customer and/or
Bank. An officer of Broker will certify to Bank the names and signatures of
those employees who are authorized to sign Advices from Broker, which
certification may be amended from time to time. When used herein the term,
"Advise" means the act of sending an Advice from Broker.
"CALL OPTION" shall mean a call option ("CALL") which is cleared by Broker
through the OCC.
"CLOSING TRANSACTION" is a transaction in which Customer purchases an Option
of the same series as an Option previously written by it and still
outstanding or in which Customer sells an Option of the same series as an
Option previously purchased by it and still outstanding.
"COLLATERAL" shall mean cash or U.S. Government securities or other
securities acceptable to Broker.
"INSOLVENCY" means that (i) an order, judgment or decree has been entered
under the bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law (the
"Bankruptcy Law") of any jurisdiction adjudicating the Customer insolvent;
or (ii) the Customer has petitioned or applied to any tribunal for, or
consented to the appointment of, or taking possession by, a trustee,
receiver, liquidator or similar official, of the Customer, or commenced a
voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Customer under the Bankruptcy Law of any other
jurisdiction, whether now or hereinafter in effect; or (iii) any such
petition or application has been filed, or any such proceedings has
commenced, against the Customer or the Customer by any act has indicated its
approval thereof, consent thereto or acquiescence therein, or an order for
relief has been entered in an involuntary case under the Bankruptcy Law of
the United States, as now or hereinafter constituted, or an order, judgment
or decree has been entered appointing any such trustee, receiver, liquidator
or similar official, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than
30 days.
"INSTRUCTIONS FROM CUSTOMER" or "INSTRUCTIONS" means a request, direction or
certification in writing delivered in the name of Customer by an authorized
person, to Bank and/or Broker or transmitted by a facsimile sending device.
Customer will furnish to Bank a new certificate of authorized persons in the
event of any change in the then present authorized persons. Until such new
certificate is received, Bank shall be fully protected in acting upon oral
instructions and written instructions it reasonably believes to have
originated from such present Authorized Persons.
"INSTRUCT" shall mean the act of sending an Instruction from Customer.
"OPTION" shall mean either a Put Option or a Call Option or both as the
context requires.
"PUT OPTION" shall mean a put option ("PUT") which is cleared by Broker
through the OCC.
"RECEIPT OF PAYMENT" means receipt by Bank of (i) a certified or official
bank check; (ii) a written or telegraphic advice from a registered clearing
agency that funds have been or
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will be credited to the account of Bank; or (iii) a transfer of funds from
any of Broker's accounts maintained at Bank.
"RECEIPT OF SECURITIES" means receipt by Bank, of (i) securities in proper
form for transfer; or (ii) a written or telegraphic advice from a registered
clearing agency that securities have been credited to the account of Bank.
SECTION 2. SPECIAL CUSTODY ACCOUNT.
Bank shall open an account on its books entitled "Special Custody Account
for __________________ as pledgee of the Kelmoore Strategy Covered Option
Fund" (referred to herein as "Special Custody Account"). Subject to Section
22 hereof, Customer hereby grants a continuing security interest to Broker
in the Collateral and the proceeds thereof to secure its obligations to
Broker under the Margin Agreement and this Agreement. Collateral shall be
released from the Special Custody Account only in accordance with this
Agreement. Bank agrees to release Collateral to Customer from the pledge
hereunder only upon receipt of Advice from Broker. Customer may substitute
or exchange the cash, securities or similar property in the Special Custody
Account only after Customer notifies Broker of the contemplated substitution
or exchange and Broker Advises Bank that such substitution or exchange is
acceptable, which acceptance shall not unreasonably be withheld.
SECTION 3. COLLATERAL.
Customer agrees to instruct Bank in Instructions from Customer that cash and
securities specified by Customer as Collateral and which are in amounts at
least equal in value to what Broker shall initially and from time to time
advise Customer in an Advice from Broker is necessary to constitute Adequate
Margin are to be identified on Bank's books and records as pledged to Broker
as Collateral. Such Collateral (i) will be held by Bank for Broker as agent
of Broker, subject to the terms and conditions of this Agreement; (ii) may
be released only in accordance with the terms of this Agreement; and (iii)
except as required to be released hereunder to Broker, shall not be made
available to Broker or to any other person claiming through Broker,
including creditors of Broker. Bank will hold the Collateral in the Special
Custody Account separate and apart from any other property of Customer which
may be held by Bank, subject to the interest therein of Broker as the
pledgee thereof in accordance with the terms of this Agreement. Such
security interest will terminate at such time as Collateral is released as
provided herein.
Bank will confirm to Broker and Customer all pledges, releases or
substitutions of Collateral. Bank will also advise Broker upon reasonable
request of the kind and amount of Collateral pledged to Broker.
SECTION 4. MAINTENANCE OF COLLATERAL.
Upon request of Customer, Broker shall Advise Bank and Customer of any
excess of Collateral in the Special Custody Account. Customer represents and
warrants to Broker that securities included at any time in the Collateral
shall be in good deliverable form (or Bank shall have the unrestricted power
to put such securities into good deliverable form) in accordance with the
requirements of such exchanges as may be the primary market or
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markets for such securities. Securities Collateral may be held at Depository
Trust Company ("DTC") or other book entry depository system in the account
of Bank in accordance with the Investment Company Act of 1940, except that
U.S. Treasury securities may also be held at the Federal Reserve Bank in the
account of Bank. The Bank represents that Collateral will not be subject to
any other lien, charge, security interest or other right or claim of the
Bank or any person claiming through the Bank.
SECTION 5. SEPARATE ACCOUNTS.
Bank will maintain accounts and records for the Collateral in the Special
Custody Account separate from the accounts and records for other property of
Customer held by Bank and other property in which Broker has an interest.
SECTION 6. ADEQUATE MARGIN.
Customer agrees to maintain Adequate Margin at all times. Broker shall
initially, and from time to time, advise Customer (in an Advice from Broker)
of the value of Collateral which is necessary to constitute Adequate Margin.
Broker shall, from time to time, compute the aggregate net credit or debit
balance on customer's open short sales and advise Customer by 11:00 a.m. New
York time of the amount of the net debit or credit, as the case may be. If a
net debit balance exists on such day, Customer will cause an amount equal to
such net debit balance to be paid to Broker by the close of business on such
day. Broker will not pay interest on credit balances. Balances will be
appropriately adjusted to reflect each Closing Transaction.
SECTION 7. DESIGNATION OF ORDERS.
It is understood and agreed that Customer, when placing with Broker any
order to sell short for its account, will designate the order as such and
hereby authorizes Broker to xxxx such order as being "short," and when
placing with Broker any order to sell long for its account, will designate
the order as such and hereby authorizes Broker to xxxx such order as being
"long." Any sell order which Customer shall designate as being "long" as
provided above is for securities then owned by Customer.
SECTION 8. EXERCISE NOTICES.
(a) In the event that Broker advises Customer in an Advice from Broker that
an exercise notice filed with OCC in respect of one or more Calls sold by
Customer has been assigned to Customer through Broker and (i) Customer does
not promptly notify Broker by telephone of Customer's intention to comply
with the exercise notice by delivery of the underlying securities or, (ii)
Customer, having given such notice, fails to make delivery of such
securities to Broker, or cause such delivery to be made, against Receipt of
Payment of the gross exercise price for such securities less applicable
commissions or other charges, then Broker will immediately notify Customer
in an Advice from Broker of such failure to give telephone notice or failure
to deliver, as applicable, and may, after transmittal of an Advice from
Broker of its intention to do so and only if Customer does not promptly make
delivery of such securities to Broker, purchase the securities necessary and
sell such of the Collateral as is necessary to reimburse Broker for the
purchase of the securities which were deliverable under the exercised Call
plus applicable commissions or other charges minus
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the amount of the gross exercise price less applicable commissions or other
charges if Broker has not made payment of such amount to Customer. Such sale
of Collateral shall be made in accordance with subparagraph (d) of this
section.
(b) In the event that Broker advises Customer in an Advice from Broker that
an exercise notice filed with OCC in respect of one or more Puts sold by
Customer has been assigned to Customer through Broker, and (i) Customer does
not promptly notify Broker by telephone of Customer's intention to comply
with the exercise notice by making payment of the gross exercise price plus
applicable commissions or other charges against Bank's Receipt of Securities
underlying the Put or (ii) Customer, having given such notice, fails to make
such payment, or cause such payment to be made, against Receipt of
Securities underlying the Put, then Broker will immediately notify Customer
in an Advice from Broker of such failure to give telephone notice or make
payment, as applicable, and may, after transmittal of an Advice from Broker
of its intention to do so and only if Customer does not promptly make
payment to Broker for such securities, sell the securities underlying the
exercised Put and sell such of the Collateral as is necessary to reimburse
Broker for the gross exercise price of the Put plus applicable commissions
or other charges. Such sale of Collateral shall be made in accordance with
subparagraph (d) of this section.
(c) Subject to Section 22 hereof, in the event of default by Customer of any
obligation hereunder or under the Margin Agreement, or in the event of
Customer's Insolvency, Broker may, after transmittal of an Advice from
Broker of its intention to do so and only if Customer continues to be in
default or Insolvent, sell such of the Collateral as in Broker's judgment is
reasonably necessary for the protection of its interest under this
Agreement.
(d) Any sale of Collateral made pursuant to this section must be made on an
exchange or other market where such business is then usually transacted.
Such sale shall be made in a manner commercially reasonable for such
securities. Broker shall give consideration to any timely request by
Customer with respect to particular securities to be sold, but shall not be
obligated to comply with any such request if Broker, in its reasonable
judgment, believes that its rights or position would be prejudiced thereby.
Customer shall remain liable to Broker for any deficiency. Broker shall
notify Customer of any sale of Collateral and any deficiency remaining in an
Advice from Broker.
SECTION 9. BANK FEES AND EXPENSES.
Customer shall pay to Bank the fees and charges as may be specifically
agreed upon from time to time and such other fees and charges at Bank's
standard rates for such services as may be applicable. Customer shall
reimburse Bank for all costs associated with the conversion of Customer's
securities hereunder and the transfer of securities and records kept in
connection with this Agreement. Customer shall also reimburse Bank for
out-of-pocket expenses which are a normal incident of the services provided
hereunder.
Subject to section 22 hereof, Bank has the right to debit any cash account
(or any subaccount thereof) for any amount payable by Customer in connection
with any and all obligations of Customer to Bank arising under this
Agreement subject to Section 22 hereof. In addition to the rights of Bank
under applicable law and other agreements, at any time when Customer shall
not have honored any and all of its obligations to Bank, arising
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under this Agreement, Bank shall have the right without notice to Customer
to retain or setoff, against such obligations of Customer, any securities or
cash the Bank or any affiliate of the Bank may directly or indirectly hold
for the account of Customer, and any obligation (whether matured or
unmatured) that Bank or any affiliate of the Bank may have to Customer. Any
such asset of, or obligation to, the Customer may be transferred to Bank and
any affiliate of the Bank in order to effect the above rights.
SECTION 10. BANK LIABILITY.
(a) Except as otherwise expressly provided herein, Bank shall not be liable
for any costs, expenses, damages, liabilities or claims, including
attorneys' and accountants' fees (collectively, "Losses"), incurred by or
asserted against Customer or Broker, except those Losses arising out of the
negligence or willful misconduct of Bank. Bank shall have no liability
whatsoever for the action or inaction of any depository. Customer covenants
to Bank that it shall not enter into transactions which would require Bank
to employ a foreign subcustodian (i.e., transactions involving non U.S.
securities or foreign markets) in connection with this Agreement. In no
event shall Bank be liable to Customer, Broker or any third party for
special, indirect or consequential damages, or lost profits or loss of
business, arising in connection with this Agreement.
(b) Bank may enter into subcontracts, agreements and understandings with any
affiliate of the Bank, wherever and on such terms and conditions as it deems
necessary or appropriate to perform its services hereunder. No such
subcontract, agreement or understanding shall discharge Bank from its
obligations hereunder.
(c) Customer and Broker agree jointly and severally to indemnify Bank and
hold Bank harmless from and against any and all Losses sustained or incurred
by or asserted against Bank by reason of or as a result of any action or
inaction, or arising out of Bank's performance hereunder, including
reasonable fees and expenses of counsel incurred by Bank in a successful
defense of claims by Customer; provided however, that neither Customer nor
Broker shall indemnify Bank for those Losses arising out of Bank's
negligence or willful misconduct. This indemnity shall be a continuing
obligation of Customer or Broker, its successors and assigns notwithstanding
the termination of this Agreement.
(d) Without limiting the generality of the foregoing, Bank shall be under no
obligation to inquire into, and shall not be liable for, any losses incurred
by Customer or any other person as a result of the receipt or acceptance of
fraudulent, forged or invalid securities, or securities which are otherwise
not freely transferable or deliverable without encumbrance in any relevant
market.
(e) Bank may, with respect to questions of law regarding the Agreement, seek
and obtain the advice of independent counsel and shall be fully protected
with respect to anything done or omitted by it in good faith in conformity
with such advice.
(f) Bank shall be under no obligation to take action to collect any amount
payable on securities in default, or if payment is refused after due demand
and presentment.
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(g) Bank shall have no duty or responsibility to inquire into, make
recommendation as to, supervise, or determine the suitability of any
transactions affecting any account.
SECTION 11. BROKER LIABILITY.
Broker shall not be liable for any losses, costs, damages, liabilities or
expenses suffered or incurred by Customer as a result of any transaction
executed hereunder, or any other action taken or not taken by Broker
hereunder for Customer's account at Customer's direction or otherwise,
except to the extent that such loss, cost, damage, liability or expense is
the result of Broker's own negligence, willful misconduct or bad faith.
SECTION 12. AMENDMENTS.
No amendment of this Agreement shall be effective unless in writing and
signed by an authorized officer of each of the parties hereto.
SECTION 13. ENTIRE AGREEMENT.
This Agreement may be executed in one or more counterparts, all of which
together shall constitute but one and the same instrument.
SECTION 14. CONFIRMATIONS AND STATEMENTS.
Bank will confirm in writing to Broker and Customer all pledges, releases or
substitutions of Collateral. Bank will also advise Broker upon request, at
any time, of the kind and amount of Collateral pledged to Broker. A monthly
statement will be provided to Broker listing all Collateral held in the
Special Custody Account. It is agreed that, notwithstanding any language to
the contrary in Bank's form of confirmation, Bank holds the Collateral as
agent of Broker as pledgee and secured party hereunder, not as escrow agent.
SECTION 15. LIENS AND ENCUMBRANCES.
Customer represents and warrants that the Collateral will not be subject to
any other liens or encumbrances.
SECTION 16. TERMINATION.
Any of the parties hereto may terminate this Agreement by notice in writing
to the other parties hereto; provided, however, that the status of any
Options transaction, and of Collateral held at the time of such notice to
margin such Options transaction shall not be affected by such termination
until the release of such Collateral pursuant to applicable rules of such
national securities exchanges of which Broker may be a member or the OCC, as
applicable.
SECTION 17. WRITTEN COMMUNICATIONS.
Written communications hereunder shall be sent by facsimile transmission or
hand delivered as required herein, or when another method of delivery is not
specified, may be mailed first class postage prepaid, except that written
notice of termination shall be sent by certified mail, addressed:
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(a) If to Bank, to: (b) If to Customer, to:
The Bank of New York Kelmoore Strategic Trust
____________________________________ 0000 X. Xxxxxxxx Xxxx, Xxxxx 000
____________________________________ Xxxx Xxxx, XX 00000
Attn: ______________________________ Attn: _____________________________
Phone: _____________________________ Phone: ____________________________
Fax: __________________________ Fax: _____________________________
(c) If to Broker, to:
Attn: __________________________
Phone: __________________________
Fax: __________________________
SECTION 18. GOVERNING LAW.
This Agreement shall be construed in accordance with the substantive laws of
the State of New York, without regard to conflicts of laws principles
thereof. Customer, Broker and Bank hereby consent to the jurisdiction of a
state or federal court situated in New York City, New York in connection
with any dispute arising hereunder. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, any
objection which it may now or hereafter have to the laying of venue of any
such proceeding brought in such a court and any claim that such proceeding
brought in such a court has been brought in an inconvenient forum. Customer
and Bank each hereby irrevocably waives any and all rights to trial by jury
in any legal proceeding arising out of or relating to this Agreement.
SECTION 19. PARTIES.
The parties hereto agree that in performing hereunder, Bank is acting solely
on behalf of Customer and no contractual or service relationship shall be
deemed to be established hereby between Bank and any other person.
SECTION 20. LIMITATIONS OF BANK LIABILITIES.
(a) Bank shall not be responsible or liable for any failure or delay in the
performance of its obligations under this Agreement arising out of or
caused, directly or indirectly, by circumstances beyond its reasonable
control, including without limitation, acts of God; earthquakes; fires;
floods; wars; civil or military disturbances; sabotage; epidemics; riots;
interruptions, loss or malfunctions of utilities, computer (hardware or
software) or communications service; accidents; labor disputes; acts of
civil or military authority or governmental actions; it being understood
that Bank shall use its best efforts to resume performance as soon as
practicable under the circumstances.
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(b) Bank shall have no duties or responsibilities whatsoever except such
duties and responsibilities as are specifically set forth in this Agreement,
and no covenant or obligation shall be implied against Bank in connection
with this Agreement.
SECTION 21. CONFLICT WITH CUSTODY AGREEMENTS.
If Customer and Bank are parties to a custodial agreement that relates to
accounts such as this Special Custody Account, then the Special Custody
Account shall be subject to such custodial agreement, as well as to this
Agreement. To the extent that this Agreement is inconsistent with such
custodial agreement, this Agreement shall govern with respect to the subject
matter hereof.
SECTION 22. AMOUNTS OWED.
Notwithstanding any provision in this Agreement to the contrary, any amount
owed by Customer to Bank or Broker arising out of the Special Custody
Account shall be paid only out of the assets and property of the Kelmoore
Strategy Covered Option Fund.
All persons contracting with or having any claim against the Trust or a
particular fund of the Trust shall look only to the assets of all funds or
such particular fund for payment under such contract or claim; and neither
the Trustees of the Trust nor, when acting in such capacity, any of the
Trust's officers, employees or agents, whether past, present or future,
shall be personally liable therefor.
KELMOORE STRATEGIC TRUST THE BANK OF NEW YORK
By:______________________________ By:________________________________
Name:____________________________ Name:______________________________
Title:___________________________ Title:_____________________________
Broker:
_________________________________
By:______________________________
Name:____________________________
Title: __________________________
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