OPERATING SERVICES AGREEMENT FAIRHOLME FUNDS, INC.
FAIRHOLME
FUNDS, INC.
This
Agreement
is made
as of the 15th
day of
December, 1999, and amended effective January 22, 2007 (“Effective Date”), by
and between Fairholme Funds, Inc., a Maryland corporation (the “Fund”), and
Fairholme Capital Management, LLC, a Delaware limited liability company
(hereinafter referred to as “Manager”).
WHEREAS,
the
Fund is an open-end management investment company, registered under the
Investment Company Act of 1940, as amended (the “Act”), and authorized to issue
shares representing common stock in the following series:
The
Xxxxxxxxx Xxxx (the “Portfolio”); and
WHEREAS,
Manager
is registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and engages in the business of asset management and the
provision of certain other administrative and recordkeeping services in
connection therewith; and
WHEREAS,
the
Fund wishes to engage Manager, to provide, or arrange for the provision
of, certain operational services which are necessary for the day-to-day
operations of the Portfolio in the manner and on the terms and conditions
hereinafter set forth, and Manager wishes to accept such
engagement;
NOW,
THEREFORE,
in
consideration of the premises and the mutual covenants hereinafter contained,
the Fund and Manager agree as follows:
| 1. |
Obligations
of Manager.
|
| (a) |
Services.
The Fund hereby retains Manager to provide, or, upon receipt of written
approval of the Fund arrange for other companies to provide, the
following
services to the Portfolio in the manner and to the extent that such
services are reasonably necessary for the operation of the Portfolio
(collectively, the “Services”):
|
| (1) |
accounting
services and functions, including costs and expenses of any independent
public accountants;
|
| (2) |
non-litigation
related legal and compliance services, including the expenses of
maintaining registration and qualification of the Fund and the Portfolio
under federal, state and any other applicable laws and
regulations;
|
| (3) |
dividend
disbursing agent, dividend reinvestment agent, transfer agent, and
registrar services and functions (including answering inquiries related
to
shareholder Portfolio accounts);
|
| (4) |
custodian
and depository services and
functions;
|
| (5) |
distribution,
marketing, and/or underwriting services;
|
| (6) |
independent
pricing services;
|
| (7) |
preparation
of reports describing the operations of the Portfolio, including
the costs
of providing such reports to broker-dealers, financial institutions
and
other organizations which render services and assistance in connection
with the distribution of shares of the
Portfolio;
|
| (8) |
sub-accounting
and recordkeeping services and functions (other than those books
and
records required to be maintained by Manager under the Investment
Advisory
Agreement between the Fund and Manager dated October 15, 1999), including
maintenance of shareholder records and shareholder information concerning
the status of their Portfolio accounts by investment advisors,
broker-dealers, financial institutions, and other organizations on
behalf
of Manager;
|
| (9) |
shareholder
and board of directors communication services, including the costs
of
preparing, printing and distributing notices of shareholders’ meetings,
proxy statements, prospectuses, statements of additional information,
Portfolio reports, and other communications to the Fund’s Portfolio
shareholders, as well as all expenses of shareholders’ and board of
directors’ meetings, including the compensation and reimbursable expenses
of the directors of the Fund;
|
| (10) |
other
day-to-day administrative services, including the costs of designing,
printing, and issuing certificates representing shares of the Portfolio,
and premiums for the fidelity bond maintained by the Fund pursuant
to
Section 17(g) of the Act and rules promulgated thereunder (except
for such
premiums as may be allocated to third parties, as insureds thereunder);
and
|
| (11) |
a
call center in order to respond to information and transaction requests
from existing and potential shareholders of the
Portfolio.
|
| (b) |
Exclusions
from Services.
Notwithstanding the provisions of Paragraph 1(a) above, the Services
shall
not include and Manager will not be responsible for any of the
following:
|
| (1) |
all
brokers’ commissions, issue and transfer taxes, and other costs chargeable
to the Fund or the Portfolio in connection with securities transactions
to
which the Fund or the Portfolio is a party or in connection with
securities owned by the Fund or the
Portfolio;
|
| (2) |
the
interest on indebtedness, if any, incurred by the Fund or the
Portfolio;
|
| (3) |
the
taxes, including franchise, income, issue, transfer, business license,
and
other corporate fees payable by the Fund or the Portfolio to federal,
state, county, city, or other governmental
agents;
|
| (4) |
the
expenses, including fees and disbursements of counsel, in connection
with
litigation by or against the Fund or the Portfolio;
and
|
| (5) |
any
other extraordinary expense of the Fund or
Portfolio.
|
2
| (c) |
Books
and Records.
All books and records prepared and maintained by Manager for the
Fund
under this Agreement shall be the property of the Fund and, upon
request
therefor, Manager shall surrender to the Fund such of the books
and
records so requested.
|
| (d) |
Staff
and Facilities.
Manager assumes and shall pay for maintaining the staff, personnel,
space,
equipment and facilities necessary to perform its obligations under
this
Agreement.
|
| (e) |
Manager
Qualifications.
Manager’s obligation to provide any of the Services directly to the
Portfolio is subject to Manager’s legal qualification to provide such
Service to registered, open-end management investment companies,
and
nothing herein shall require Manager to register with the Securities
and
Exchange Commission or any state regulator in order to perform
such
Service directly.
|
| (f) |
Payments
for Distribution and Marketing Services.
Manager shall not make payments for Portfolio distribution and
marketing
services, which shall include payments in connection with the Services
set
forth in Section 1(a)(5) above and may include payments in connection
with
the Services set forth in Section 1(a)(11) above, from the compensation
Manager receives pursuant to this
Agreement.
|
| 2. |
Obligations
of the Fund.
|
| (a) |
Fee.
The Fund will pay to Manager on the last day of each month a fee
at an
annual rate equal to 0.50% of average net asset of the Portfolio,
such fee
to be computed daily based upon the net asset value of the Portfolio
as
determined by a valuation made in accordance with the Fund’s procedure for
calculating Portfolio net asset value as described in the Fund’s
Prospectus and/or Statement of Additional Information. During any
period
when the determination of the Portfolio’s net use value is suspended by
the directors of the Fund, the net asset value of a she of the
Portfolio
as of the last business day prior to such suspension shall, for
the
purpose of this Paragraph 2(a), be deemed to be the net asset value
at the
close of each succeeding business day until it is again
determined.
|
| (b) |
Information.
The Fund will, from time to time, furnish or otherwise make available
to
Manager such information relating to the business and affairs of
the
Portfolio as Manager may reasonably require in order to discharge
its
duties and obligations
hereunder.
|
3. Term.
This
Agreement shall remain in effect until December 15, 2007, and from year to
year
thereafter provided such continuance is approved at least annually by (1)
the
vote of a majority of the Board of Directors of the Fund or (2) a vote of
a
“majority” (as that term is defined in the Investment Company Act of 1940) of
the Fund’s outstanding securities; provided, however, that;
(a) at
any
time and without the payment of any penalty, the Fund may terminate this
Agreement upon 90 days written notice to Manager;
(b) this
Agreement shall immediately terminate in the event of its assignment (within
the
meaning of the Act and the Rules thereunder); and
(c) at
any
time and without the payment of any penalty, Manager may terminate this
Agreement upon 90 days written notice to the Fund.
3
4. Notices.
Except
as otherwise provided in this Agreement, any notice or other communication
required by or permitted to be given in connection with this Agreement will
be
in writing and will be delivered in person or sent by first class mail, postage
prepaid or by prepaid overnight delivery service to the respective parties
as
follows:
|
If
to the Fund:
|
If
to Manager:
|
|
Fairholme
Funds, Inc.
00
XXX Xxxxxxx
Xxxxx
Xxxxx, XX 00000
Attn:
Xxxxx X. Xxxxxxxxx
President
|
Fairholme
Capital Management, LLC
00
XXX Xxxxxxx
Xxxxx
Xxxxx, XX 00000
Attn:
Xxxxx X. Xxxxxxx
Chief
Financial Officer
|
| 5. |
Miscellaneous
|
| (a) |
Performance
Review.
Manager will permit representatives of the Fund, including the
Fund’s
independent auditors, to have reasonable access to the personnel
and
records of Manager in order to enable such representatives to monitor
the
quality of services being provided and the level of fees due Manager
pursuant to this Agreement. In addition, Manager shall promptly
deliver to
the Board of Directors of the Fund such information as may reasonably
be
requested from time to time to permit the Board of Directors to
make an
informed determination regarding continuation of this Agreement
and the
payments contemplated to be made
hereunder.
|
| (b) |
Choice
of Law.
This Agreement shall be construed in accordance with the laws of
the State
of Maryland and the applicable provisions of the Act. To the extent
the
applicable law of the State of Maryland or any of the provisions
herein
conflict with the applicable provisions of the Act, the latter
shall
control.
|
IN
WITNESS WHEREOF,
the
parties hereto have caused this Agreement to be executed as of the Effective
Date.
|
FAIRHOLME
FUNDS, INC.
|
FAIRHOLME
CAPITAL
MANAGEMENT,
LLC
|
|
|
By:
/s/ Xxxxx X. Xxxxxxx
|
By: /s/
Xxxxx X. Xxxxxxxxx
|
|
|
Name:
Xxxxx X. Xxxxxxx
|
Name:
Xxxxx X. Xxxxxxxxx
|
|
|
Title:
Secretary/Treasurer
|
Title:
Managing Member
|
