Exhibit 99(g)(3)
SPECIAL CUSTODY AND PLEDGE AGREEMENT
(Short Sales and Exchange-Listed Options)
AGREEMENT, (hereinafter "Agreement") dated as of May 9, 2005, among XXXXXX
ASSOCIATES INVESTMENT TRUST, ON BEHALF OF ITS SERIES LISTED ON SCHEDULE A
ATTACHED HERETO ("Customer"), PERSHING LLC ("Broker"), and INVESTORS BANK &
TRUST COMPANY as Custodian hereunder ("Custodian").
WHEREAS, Broker is a member of several national securities exchanges and is
a clearing member of The Options Clearing Corporation ("OCC); and
WHEREAS, Customer has opened a margin account (the "Margin Account") with
Broker in which Customer may effect Short Sales. (as such term is hereinafter
defined) and transactions in exchange-listed options ("Options Transactions"),
and for that purpose has signed a Client Agreement with Broker (the Margin
Agreement") and has entered into or may hereafter enter into one or more of
Brokers master agreements for exchange-listed options (such agreements,
collectively, the Options Agreements"); and
WHEREAS, Customer intends to effect Short Sales and Options Transactions
and to pledge assets to Broker to secure performance of Customers obligations
with respect to Short Sales and Options Transactions effected for Customer's
account with Broker; and
WHEREAS, Broker is required to comply with applicable laws and regulations
requiring the margining of Short Sales and Options Transactions, including the
margin regulations of the Board of Governors of the Federal Reserve System, the
OCC, any relevant securities exchanges, other self-regulatory associations (the
"Margin Rules") and Broker's internal policies; and
WHEREAS, to facilitate Short Sales and Options Transactions hereunder.
Customer and Broker desire to establish procedures for their compliance with the
Margin Rules; and
WHEREAS, Custodian acts as custodian of certain assets of Customer pursuant
to a contract with Customer (the "Custodian Contract") and holds such assets in
an account (the "Custodial Account") and is further prepared to act as custodian
for Collateral (as hereinafter defined) pursuant to the terms and conditions of
this Agreement;
NOW, THEREFORE, be it agreed as follows:
(1) As used herein, capitalized terms have the following meanings unless
otherwise defined herein:
"Adequate Performance Assurance" shall mean such Collateral placed in the
Special Custody Account (as defined below) as is adequate to cover both short
sales and options transactions under the Margin Rules and Brokers Internal
policies in effect from time to time, prior written notice of which shall be
given to Customer.
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"Advice from Broker" means a notice in writing delivered to Customer or
Custodian, as applicable hereunder, or transmitted to them 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 or Custodian, as
applicable, in writing as authorized to receive such advice or, in the event
that no such person is available, to any officer of the Customer or Custodian
and confirmed in writing promptly thereafter; (i) for initial or additional
Collateral; (ii) notice that an exercise notice filed with OCC has been assigned
to Customer; (iii) notice that Customer has failed to give notice of intent to
make payment due upon exercise of a Put Option (as hereinafter defined); (iv)
notice that Customer has failed to make delivery of securities or currency
required to be delivered upon exercise of a Call Option (as hereinafter
defined); (v) notice that Customer has failed to pay an Exercise Settlement
Amount (as hereinafter defined); or (vi) any notice referred to in paragraph 9
hereof.
"Business Day" means a day on which Custodian and Broker are open for
business.
"Call Option" means a call option that is issued by the OCC and is cleared
by Broker through the OCC.
"Closing Transaction" means a transaction in which Customer (i) purchases
securities that have been sold short or (ii) purchases an Option of the same
series as an Option previously written by it and still unexpired or unexercised,
or in which Customer sells an Option of the same series as an Option previously
purchased by it and still outstanding.
"Collateral" means U.S. cash, U.S. Government securities, U.S. securities
underlying a Call Option (as defined below) or other U.S. margin-eligible
securities acceptable to Broker which are pledged to Broker as provided herein.
"Exercise Settlement Amount" means: (i) in the case of a Call Option on a
market index, the amount by which the 'aggregate exercise price' of the Call
Option contract is less than the 'aggregate current index value' of the
underlying index (as those quoted terms are defined in Article XVII of the
By-Laws of the OCC), plus all applicable commissions and other charges, or (ii)
in the case of a Put Option on a market index, the amount by which the
'aggregate exercise price' of the Put Option contract is greater than the
'aggregate current index value' of the underlying index (as those quoted terms
are defined in Article XVII of the By-Laws of the OCC), plus all applicable
commissions and other charges.
"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 (herein called
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 commenced, against the Customer and 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.
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"Instructions from Customer" or "Instructions" means a request, direction
or certification in writing signed in the name of the Customer by a person
authorized by Customer and delivered to Custodian or transmitted to it by a
facsimile-sending device except that instructions to pledge initial or
additional Collateral may be given by telephone and thereafter confirmed in
writing signed in the name of Customer by a person authorized in writing by
Customer.
"Option" means either a Put Option or a Call Option or both as the context
requires.
"Put Option" means a put option that is issued by the OCC and is cleared by
Broker through the OCC.
"Same Day" shall mean no later than 2:00 p.m. on the same Business Day that
the Broker notifies Customer that an exercise notice has been assigned to
Customer but only if such notification has been given by Broker by 10:00 a.m. If
such notification is given by Broker to Customer after 10:00 a.m., Same Day
shall mean by 2:00 p.m. the following Business Day.
"Short Sales" shall mean the sale by Customer of securities which Customer
does not own, and which is consummated by the delivery of securities borrowed
from or through the facilities of Broker.
(2) Customer agrees to provide and at all times to maintain Adequate
Performance Assurance in the Special Custody Account pursuant to the terms and
conditions of this Agreement.
(3) (a) Custodian shall segregate Collateral on its books and records, as
a subaccount of Customers Custodial Account, under the name of "Pershing LLC as
Pledgee of The Oakmark applicable series" (such segregated assets referred to
herein as "Special Custody Account), end shall hold all Collateral therein for
Broker as pledgee upon the terms of this Agreement. Customer will instruct
Custodian in Instructions from Customer as to the cash and specific securities
which Custodian is to identify on its books and records as pledged to Broker as
Collateral in the Special Custody Account. Customer agrees that the value of
such cash and securities shall be 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 Performance Assurance. Broker agrees to monitor
Collateral in the Special Custody Account to ensure that such Collateral is
adequate for both short sales and options transactions. Customer may substitute
Collateral in the Special Custody Account only after Customer notifies Broker of
the contemplated substitution and Broker Advises Custodian that such
substitution is acceptable. Custodian shall have no responsibility for
determining the valuation or adequacy of margin required under this Agreement.
Custodian may, in its discretion, choose not to act upon Instructions from
Customer if any advances under the Custodian Contract are outstanding at such
time. If Custodian chooses not to act upon Instructions from Customer, Custodian
shall promptly notify Customer and Broker of Custodian's intention not to act on
such instructions. Broker shall have all rights and remedies provided hereunder
and under the Margin Agreement and the Options Agreements.
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(b) Customer grants to Custodian the authority to segregate in the
Special Custody Account any Collateral specified by Customer. Customer, Broker
and Custodian agree that Collateral will be held for Broker in the Special
Custody Account by Custodian under the terms and conditions of this Agreement,
that the Custodian will take such actions with respect to any Collateral
(including without limitation the delivery thereof) as Broker shall direct in an
Advice from Broker and that in no event shall any consent of the Customer be
required for the taking of any such action by Custodian.
(c) Customer hereby grants a continuing security interest to Broker
(i) in the Collateral and any proceeds thereof in the Special Custody Account
and (ii) in its accounts (including the Margin Account) with Broker, to secure
Customer's obligations to Broker hereunder and under the Margin Agreement and
the Options Agreements. Such security interest will terminate at such time as
Collateral is released as provided herein. Custodian shall have no
responsibility for the creation, validity, priority, or enforceability of such
security interest.
(4) Custodian shall confirm in writing to Broker and Customer, within one
Business Day, all pledges, releases or substitutions of Collateral and will
supply Broker with a monthly statement of Collateral for combined short sales
and options transactions in the account during the preceding month. Customer
agrees that Customer will be responsible for maintaining adequate Collateral to
cover both Short Sales and Option Transactions. Broker shall advise Customer, in
an Advice from Broker, of the value of Collateral which is necessary to
constitute Adequate Margin. Custodian will also advise Broker or Customer, upon
reasonable request, of the kind and amount of Collateral pledged to Broker.
(5) Custodian agrees to release Collateral to Customer from the pledge
hereunder only upon receipt of an Advice from Broker. Broker agrees, upon
request of Customer, to provide such Advice with respect to Collateral selected
by Customer (i) if said Collateral represents an excess in value of the
Collateral necessary to constitute Adequate Performance Assurance at that time
or (ii) against receipt in the Special Custody Account of substitute Collateral
having a value at least equal (with any remaining Collateral) to Adequate
Performance Assurance or (iii) upon termination of the Customer's accounts
including the Margin Accounts (if any) and settlement in full of all
transactions therein and any amounts owed to Broker with respect thereto. It is
understood that Broker will be responsible for valuing Collateral; Custodian at
no time has any responsibility for determining whether the value of Collateral
is equal in value to Adequate Performance Assurance.
(6) Customer represents and warrants to broker that securities pledged to
Broker shall be in good deliverable from (or Custodian shall have the
unrestricted power to put such securities into good deliverable form), and that
the Collateral will not be subject to any liens or encumbrances other that the
lien in favor of Broker contemplated hereby, except as required in paragraph 7.
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(7) The Collateral shall at all times remain the property of the Customer
subject only to the extent of the security interest and rights therein of Broker
as the pledgee and secured party thereof. Any cash interest or cash dividends
paid with respect to Collateral shall be credited by Custodian to the Custodial
Account. Custodian represents that Collateral is not subject any other lien,
charge, security interest or other right or claim of the Custodian or any person
claiming through Custodian, except for a lien for Custodian's fees, expenses,
and advances in connection herewith or under the Custodian contract between
Customer and Custodian, which lien shall be expressly subordinated in right of
payment to the security interest of Broker granted herein. Custodian shall use
its best efforts to notify Broker and Customer as soon as possible if Custodian
receives any notice of levy, lien, court order or other process purporting to
affect the Collateral.
(8) Broker shall, on each Business Day, compute the aggregate net credit
or debit balance on Customer's open Short Sales and open Options Transactions
and advise Customer by 11:00A.M. of the amount of the net debit or credit in an
Advice from Broker, 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
deposited as Collateral into the Special Custody Account by the close of
business on such day. If a net credit balance exits on such day, Broker will pay
such credit balance to Customer by the close of business on such day. As
Customer's open short positions and options positions are marked-to-market each
week, payments will be made by or to Customer to reflect changes (if any) in the
credit or debit balances. Broker will charge Customer interest on debit balances
in accordance with Broker's policies, as stated in Broker's Margin Agreement
with Customer, and Broker will pay interest on credit balances as agreed to by
the parties. Balances will be appropriately adjusted when Short Sales are closed
out and upon the occurrence of Closing Transactions.
(9) The occurrence of any of the following constitutes a Customer Default
hereunder:
(a) failure by Customer to perform any obligation hereunder or under
the Margin Agreement or Options Agreement including, without
limitation, its obligation to maintain Adequate Performance
Assurance as herein provided or, upon receiving notice from
Broker that it can no longer protect Customers Short Sale, to
make timely delivery to Broker in accordance with applicable
laws, rules and regulations, of securities identical to the
securities
(b) upon an Advice from Broker that an exercise notice filed with OCC
in respect of one or more Call Options sold by Customer has been
assigned to Customer through Broker and either: (i) Customer does
not notify Broker by telephone on the Same Day of Customer's
intention to comply with the exercise notice by delivery of the
underlying securities, currency or the Exercise Settlement Amount
(as applicable); or (ii) Customer, having given such notice,
fails to make delivery of such security or currency or cause such
delivery to be made against receipt of payment against the gross
exercise price for such securities or currency, less applicable
commissions or other charges, or of the Exercise Settlement
Amount on behalf of Customer to Broker; or
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(c) upon an Advice from Broker that an exercise notice filed with OCC
in respect of one or more Put Options sold by Customer has been
assigned to Customer through Broker and either: (i) Customer does
not notify Broker by telephone on the Same Day 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 Custodian's receipt of securities underlying the
put, or to pay the Exercise Settlement Amount (as applicable); or
(ii) Customer, having given such notice, fails to make payment or
cause such payment to be made against receipt of securities
underlying the Put Options, or payment of Exercise Settlement
Amount; or
(d) Customer's Insolvency.
Broker will immediately notify Customer in an Advice from Broker (which may be
given by electronic facsimile, telegraph or hand delivery) of such Customer
Default, whereupon Broker may take any action permitted pursuant to the Margin
Agreement or Options Agreements, including without limitation, the conversion of
any convertible securities or exercise of Customer's right in warrants (if any)
held in the Special Custody Account, the buy-in of any securities of which
Customer's account may be short, and the sale of any or all property or
securities in the Margin Account(s) and the Special Custody Account to the
extent necessary to satisfy Customer's obligations to Broker (in which event
such Collateral shall be delivered to Broker as directed in an Advice from
Broker. Any sale of Collateral made pursuant to his paragraph 9 shall be made in
accordance with the provisions of the New York Uniform Commercial Code in the
principal market for the securities or, if such principal market is closed, such
sale shall be made in a manner commercially reasonable for such Collateral.
Customer shall be liable to Broker for any deficiency that may exist after the
exercise by Broker of its rights and remedies as aforesaid. Any surplus
resulting from the sale of Collateral shall be transmitted to Custodian for
deposit to the Custodial Account, Broker shall notify Customer of any sale of
Collateral and any deficiency remaining thereafter in an Advice from Broker.
(10) Broker hereby covenants, for the benefit of Customer, that Broker will
not instruct Custodian to deliver Collateral free of payment with respect to any
sale of Collateral pursuant to paragraph 9 until after the occurrence of the
events and the expiration of the time periods set forth in paragraph 9. The
foregoing covenant is for the benefit of Customer only and shall in no way be
deemed to constitute a limitation on Broker's right at any time to instruct
Custodian pursuant to an Advice of Broker and Custodian's obligation to act upon
such instructions. Custodian shall not be required to make any determination as
to whether such delivery is made in accordance with any provisions of any
agreement between Broker and Customer. Custodian will, however, provide prompt
telephone notice to an officer of Customer of receipt by Custodian of Advice
from Broker to deliver Collateral.
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(11) Custodian's duties and responsibilities are set forth in this
Agreement. Custodian shall act only upon receipt of Advice from Broker regarding
release of Collateral, except as required by applicable law. Custodian shall not
be liable or responsible for anything done, or omitted to be done by it in good
faith and in the absence of negligence and may rely and shall be protected in
acting upon any Advice from Broker or any other notice, instruction or other
communication from Customer or Broker which it reasonably believes to be genuine
and authorized. As between Customer and Custodian, the terms of the Custodian
Contract shall apply with respect to any losses or liabilities of such parties
arising out of mailers covered by this Agreement. As between Custodian and
Broker, Broker shall indemnify and hold Custodian harmless with regard to any
losses or liabilities of Custodian (including counsel fees) imposed on or
incurred by Custodian arising out of any action or omission of Custodian in
accordance with any Advice, notice or instruction of Broker under this Agreement
except to the extent such losses or liabilities are the result of Custodian's
own negligence or willful misconduct in the carrying out of such Advice, notice,
or instruction. In matters concerning or relating to this Agreement Custodian
shall not be responsible for compliance with any statute or regulation regarding
the establishment or maintenance of margin credit, including but not limited to
Regulations T or X of the Board of Governors of the Federal Reserve System, the
OCC, or the Securities and Exchange Commission. Custodian shall not be liable to
any party for any such acts or omissions of the other parties to this Agreement.
Custodian shall have no duty to require any cash or securities to be delivered
to it or to determine that the amount and form of assets deposited in the
Special Custody Account comply with any applicable requirements. Custodian may
hold the securities in the Special Custody Account in bearer, nominee,
book-entry or other form and in any depository or clearing corporation
(including omnibus accounts), with or without indicating that the securities are
held hereunder; provided, however, that all securities held in the Special
Custody Account shall be identified on Custodian's records as subject to this
Agreement and shall be in a form that permits transfer at the direction of the
Broker without additional authorization or consent of the Customer.
(12) The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, to be paid by Customer, as agreed to from
time to time between Customer and Custodian.
(13) No modification or amendment of this Agreement shall be effective
unless in writing and signed by an authorized officer of each of Customer,
Broker and Custodian.
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(14) Written communications hereunder shall be sent by facsimile
transmission, overnight delivery, 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, in any such case addressed:
(a) if to Custodian, to: Investors Bank & Trust Company
000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxx Xxxxx
Fax No.: 000-000-0000
Phone No: 000-000-0000
(b) if to Customer, to: Xxxxxx Associates Investment Trust
Xxx Xxxxx XxXxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxx Xxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
(c) if to Broker to: Pershing LLC
Xxx Xxxxxxxx Xxxxx
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxx
Fax No.: 000-000-0000
Phone No.: 000-000-0000
(15) Customer, Broker or Custodian may terminate this Agreement by thirty
days prior notice in writing to the other parties hereto; provided, however,
that the status of any Collateral pledged to Broker at the time of such notice
shall not be affected by such termination until the release of such pledge
pursuant to the terms of the Margin Agreement, the Options Agreements and any
applicable rules, laws and regulations, including Margin Rules. Upon termination
of this Agreement or the Custodian Contract, all assets of the Customer held in
the Special Custody Account shall be transferred out of the Special Custody
Account to a successor custodian specified by Customer.
(16) Nothing in the Agreement will prohibit Broker, Customer or Custodian
from entering into similar agreements with others in order to facilitate option
contract transactions.
(17) If any provision or condition of this Agreement shall be held to be
invalid or unenforceable by any court, or regulatory or self-regulatory agency
or body, such invalidity or unenforceability shall attach only to such provision
or condition. The validity of the remaining provisions and conditions shall not
be affected thereby and this Agreement shall be carried out as if any such valid
or unenforceable provision or condition were not contained herein.
(18) All references herein to times of day shall mean the time in New York,
New York, U.S.A.
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(19) This Agreement and its enforcement (including, without limitation, the
establishment and maintenance of the Special Custody Account and all interests,
duties and obligations related thereto) shall be governed by the laws of the
State of New York. This Agreement shall be binding on the parties and any
successor organizations thereof irrespective of any change or changes in
personnel thereof.
(20) This Agreement may be executed in one or more counterparts, all of
which shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized offers as of the day and year first above
written.
XXXXXX ASSOCIATES INVESTMENT TRUST
On behalf of its series listed on Schedule A:
By: Xxxxx Xxxxx
Signature: /s/ Xxxxx Xxxxx
Title: V.P. and Secretary
PERSHING LLC
By: Xxxx Xxxxxxxx
Signature: /s/ Xxxx Xxxxxxxx
Title: Managing Director
[SEAL]
INVESTORS BANK & TRUST COMPANY
By: Xxxxxx X. Xxxxxx
Signature: /s/ Xxxxxx X. Xxxxxx
Title: Managing Director
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SCHEDULE A
Dated May 9, 2005
To Special Custody and Pledge Agreement Among Xxxxxx Associates Investment
Trust, on behalf of its series listed on Schedule A, Pershing LLC, and Investors
Bank & Trust Company
PORTFOLIOS OF XXXXXX ASSOCIATES INVESTMENT TRUST
The Oakmark Fund
The Oakmark Select Fund
The Oakmark Equity and Income Fund
The Oakmark International Fund
The Oakmark Global Fund
The Oakmark International Small Cap Fund
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