Exhibit No. EX. 99.g.2.A
SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT (hereinafter "Agreement") dated as of February 2, 1998, by and
among Firstar Trust Company, in its capacity as custodian hereunder (the
"Bank"), each series of The Xxxxxxx Funds, each of which shall be considered a
separate party to this Agreement and each of which shall be known as the
"Customer", and Bear, Xxxxxxx Securities Corp. (the "Broker").
WHEREAS, Broker is a securities broker-dealer and is a member of several
national securities exchanges; and
WHEREAS, Customer is a registered investment company which desires from
time to time to execute various security transactions, including short sales
(which is permitted by Customer's investment policies), and in connection
therewith has executed Broker's Professional Account Agreement (the "Customer
Agreement") which provides for margin transactions; and
WHEREAS, to facilitate Customer's transactions in short sales of
securities, 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 other applicable requirements (the
"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.
NOW THEREFORE, be it agreed as follows:
1. DEFINITIONS
As used herein, the following terms have the following meanings:
(a) "Adequate Margin" in respect of short sales shall mean such collateral
as is adequate in Broker's reasonable judgment under the Margin Rules
and the internal policies of the Broker.
(b) "Advice from Broker" or "Advice" means a written notices sent to
Customer and Bank or transmitted by a facsimile sending device, except
that Advice for initial or additional Collateral or with respect to
Broker's ability to effect a short sale for the Customer may be given
orally. With respect to any short sale of Closing Transaction, the
Advice from Broker shall mean a standard confirmation in use by Broker
and sent or transmitted to Customer and Bank. With respect to
substitutions of releases of Collateral, Advice from Broker means a
written notice signed by Broker and sent or transmitted to Customer
and Bank. An authorized agent of Broker will certify to Customer and
Bank the names and signatures of those employees who are authorized to
sign Advice 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.
(c) "Closing Transaction" is a transaction in which Customer purchases
securities which have been sold short.
(d) "Collateral" shall mean cash or U.S. Government securities or other
securities acceptable to Broker.
(e) "Custody Agreement" shall mean the agreement for general custodial
services between the Bank and Customer.
(f) "Insolvency" means that (A) 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") or any competent
jurisdiction adjudicating the Customer insolvent; or (B) 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 competent jurisdiction, whether now or hereinafter in effect; or
(C) 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
60 days.
(g) "Instructions from Customer" or "Instructions" means a request,
direction or certification in writing signed by Customer and delivered
to Bank and Broker or transmitted by a facsimile sending device. An
officer of Customer will certify to Bank and Broker the names and
signatures of those persons authorized to sign the instructions, which
certification may be amended from time to time. When used herein, the
term "Instruct" shall mean the act of sending an Instruction from
Customer.
(h) "Receipt of Payment" means receipt by Bank, of (1) a certified or
official bank check or wire transfer to Bank; (2) a written or
telegraphic advice from a registered clearing agency that funds have
been or will be credited to the account of Bank; or (3) a transfer of
funds from any of Broker's accounts maintained at Bank.
(i) "Receipt of Securities" means receipt by Bank, of (1) securities in
proper form for transfer; or (2) a written or telegraphic advice from
a registered clearing agency that securities have been credited to the
account of Bank for the Special Custody Account.
(j) "Special Custody Account" shall have the meaning assigned to that term
in Section 2 hereof.
2. SPECIAL CUSTODY ACCOUNT
(a) Opening Custody Account. Bank shall open an account on its books
entitled "Special Custody Account for Bear, Xxxxxxx Securities Corp.
as Pledgee of Xxxxxxx Financial Alert Fund" ("Special Custody
Account") and shall hold therein all securities and similar property
as shall be received and accepted by it therein pursuant to this
Agreement. Customer agrees to instruct Bank in Instructions from
Customer as to cash and specific securities which Bank is to identify
on its books and records as pledged to Broker as Collateral in the
Special Custody Account. Customer agrees that the values 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 Margin. Such Collateral (i)
will be held by Bank for Broker as agent of Broker, (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 any other person claiming through
Broker, including the creditors of the Broker.
(b) Security Interest. Customer hereby grants a continuing security
interest to Broker in the Collateral in the Special Custody Account.
To perfect Broker's security interest, the Bank will hold the
Collateral in the Special Custody Account, subject to the interest
therein of Broker as the pledgee and secured party 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 shall have no responsibility for the validity or
enforceability of such security interest.
(c) Confirmation. Bank will confirm in writing to Broker and Customer all
pledges, releases or substitutions of Collateral and will supply
Broker and Customer with a monthly statement of Collateral and
transactions in the Special Custody Account for such month. Bank will
also advise Broker upon request of the kind and amount of Collateral
pledged to Broker.
(d) Excess Collateral. Upon the request of Customer, Broker shall advise
Bank and Customer of any excess of Collateral in the Special Custody
Account. Such excess shall at Customer's request be transferred
therefrom upon Advice from Broker, which Advice shall not be
unreasonably withheld.
(e) Accounts and Records. Bank will maintain accounts and records for the
Collateral in the Special Custody Account as more fully described in
sub-paragraph 5(a) below. The Collateral shall at all times remain the
property of the Customer subject only to the extent of the interest
and rights therein of Broker as the pledgee thereof.
3. ORIGINAL AND VARIATION MARGIN ON SHORT SALES
(a) Short Sales. From time to time, Customer may place orders with Broker
for the short sale of securities. Prior to acceptance of such orders
Broker will advise Customer of Broker's ability to borrow such
securities or other properties and acceptance of short sales orders
will be contingent upon same.
(b) Open Short Sales Balance. Broker shall, based on the closing market
price on each business day, compute the aggregate net credit or debit
balance on Customer's open short sales and advise Customer and/or
Customer's designated agent by 11:00 A.M. New York time on the next
business day (each a "Determination Day") of the amount of the net
debit or credit, as the case may be. If a net debit balance exists on
a Determination Day, Customer will cause an amount equal to such net
debit balance to be paid to Broker by the close of business on such
Determination Day. If a net credit balance exists on a Determination
Day, Broker will pay such credit balance to Customer by the close of
business on such Determination Day. As Customer's open short positions
are marked-to-market each business day, payments will be made by or to
Customer to reflect changes (if any) in the credit or debit balances.
To the extent payments are not made as aforesaid, Broker will charge
interest on debit balances, and Broker will pay interest on credit
balances. Balances will be appropriately adjusted when short sales are
closed out.
4. PLACING ORDERS
It is understood and agreed that Customer, when placing with Broker any
order to sell short for Customer's 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 Customer's 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 for long account as above
provided is for securities the owned by Customer and, if securities are not then
deliverable by Broker from any account of Customer, the placing of such order
shall constitute a representation by Customer that it is impracticable for
Customer then to deliver such securities to Broker but that Customer shall
deliver them by the settlement date or as soon as possible thereafter.
5. RIGHTS AND DUTIES OF THE BANK
(a) Generally. The Bank shall receive and hold in the Special Custody
Account, as custodian upon the terms of this Agreement, all Collateral
deposited and maintained pursuant to the terms of this Agreement and,
except as provided in sub-paragraph 5(b) below, shall receive and hold
all monies and other property paid, distributed or substituted in
respect of such Collateral or realized on the sale or other
disposition of such Collateral; provided, however, that the Bank shall
have no duty to require any money or securities to be delivered to it
or determine that the amount and form of assets delivered to it comply
with any applicable requirements. Collateral held in the Special
Custody Account shall be released only in accordance with this
Agreement or as required by applicable law. The Customer grants its
authority to deposit in such account any money, securities and other
property received by the Bank. The Bank may hold the securities in the
Special Custody Account in bearer, nominee, book entry, or other form
and in a depository or clearing corporation, 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 the Bank's records as subject to this Agreement and
shall be in a form that permits transfer without additional
authorization or consent of the Customer. The Customer and Broker
hereby agree to hold the Bank and its nominees harmless from any
liability as holder of record.
(b) Dividends and Interest. Any interest, dividends or other distributions
paid with respect to the Collateral held in the Special Custody
Account shall be retained therein as additional Collateral, unless
requested by Customer in accordance with the provision in this
Agreement concerning the release of excess Collateral.
(c) Reports. The Bank shall, as promptly as practical, provide Broker and
Customer and/or Customer's designated agent with written confirmation
of each transfer into and out of the Special Custody Account. The Bank
also shall render to the Broker and the Customer and/or Customer's
designated agent a monthly statement of the Collateral held in the
Special Custody Account. In addition, the Bank will advise the Broker
and the Customer and/or Customer's designated agent, upon request of
the Broker or Customer, at any time of the type and amount of
Collateral held in the account; provided, however, that the Bank shall
have no responsibility for making any determination as to the value of
such Collateral.
(d) Limitation of Bank's Liability. The Bank's duties and responsibilities
are set forth in this Agreement. The Bank shall act only upon receipt
of Advice from Broker regarding release or substitution of Collateral.
The Bank 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
notice, instruction or other communication which it reasonably
believes to be genuine and authorized. As between the Bank and Broker,
Broker shall indemnify and hold that Bank harmless with regard to any
losses or liabilities of the Bank (including counsel fees) imposed on
or incurred by the Bank arising out of any action or omission of the
Bank in accordance with any Advice, notice or instruction of Broker
under this Agreement. In matters concerning or relating to this
Agreements, the Bank 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, or with nay rules or
regulations of the Office of the Controller of the Currency (or the
Securities and Exchange Commission). The Bank shall not be liable to
any party for any acts or omissions of the other parties to this
Agreement.
(e) Compensation. Bank shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to time
be agreed upon in writing between Customer and Bank.
6. DEFAULT
In the event of any failure by the Customer to timely comply with any
obligation on Customer's part to be performed or observed under this Agreement
or the Customer Agreement, including, but not limited to, the obligation to
maintain Adequate Margin, or in the event of Customer's Insolvency, Broker may
effect a Closing Transaction of buy-in of any securities of which Customer's
account may be short, provided that Broker shall first use reasonable efforts to
give notice to Customer specifying such default (which notice may be telegraph,
facsimile transmission or hand delivery).Notwithstanding the foregoing, notice
shall not be required in the event market conditions render same impracticable
in the reasonable discretion of Broker. In the event of any default or
Customer's Insolvency as aforesaid, after making a reasonable attempt to give
notice (subject to market conditions as set forth above), Broker shall also have
the right to sell any and all Collateral in the Special Custody Account and to
give Advice to Bank to deliver such Collateral free of payment to Broker, which
Advice shall state that, pursuant to this Agreement, the condition precedent to
Broker's right to receive such Collateral free of payment has occurred. The Bank
will provide immediate notice to Customer by telephone of any receipt by Bank of
an Advice from Broker to deliver Collateral free of payment, and shall promptly
effect delivery of Collateral to Broker. Such sale or purchase may be made
according to Broker's judgment and may be made at Broker's discretion, on the
principal exchange or other market for such securities, or in the event such
principal market is closed, in a manner commercially responsible for such
securities.
7. LIMITATION OF 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 discretion or otherwise, except to the
extent that such loss, cost, damage, liability or expense is the result of
Broker's own recklessness, willful misconduct or bad faith.
8. CUSTOMER REPRESENTATION
Customer represents and warrants that the Collateral will not be subject to
any other liens or encumbrances.
9. 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 short
sales, and of Collateral held at the time of such notice to margin such short
sales shall not be affected by such termination until the release of such
Collateral pursuant to applicable law or regulations or rules of any self
regulatory organization to which the Broker is subject. In the event of the
release of Collateral, the Collateral shall be transferred to a proper custody
account of the Customer of the Bank.
10. NOTICE
Written communications hereunder shall be telegraphed, sent by facsimile
transmission or hand delivered as required herein, 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:
(a) if to Bank, to:
Firstar Trust Company
Xxxxx Center
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxx Xxxxxxx
Phone: (000) 000-0000
Facsimile: (000) 000-0000
(b) if to Customer, to:
The Olstein Funds
0 Xxxxxxxxxxxxxx Xxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxxx
Phone: (000) 000-0000
Facsimile: (000) 000-0000
(c) if to Broker, to:
Bear, Xxxxxxx Securities Corp.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx Xxxxxxx, Treasurer
Phone: (000) 000-0000
Facsimiles: (000) 000-0000
11. CONTROLLING LAW
The construction and enforcement of this Agreement shall be subject to and
governed by the laws of the State of New York.
12. THE AGREEMENT CONTROLS/AMENDMENTS
Customer and Bank agree that the terms of this Agreement shall supplement
and amend the Custody Agreement dated as of August 18, 1995 between Bank and
Customer with respect to the Special Custody Account identified on page 3
hereof, and to the extent inconsistent therewith, the terms of this Agreement
shall control. No amendment of this Agreement shall be effective unless in
writing and signed by an authorized officer of each of Broker, Customer, and
Bank.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers as of the day and year first above
written.
THE XXXXXXX FUNDS
By:/s/ Xxxxxxx Xxxxx
Name: Xxxxxxx Xxxxx
Title: Treasurer and Chief
Accounting Officer
FIRSTAR TRUST COMPANY
By:/s/ Xxxx X. Xxxxxxxx
Name: Xxxx X. Xxxxxxxx
Title: Vice President
BEAR, XXXXXXX SECURITIES CORP.
By:/s/ Xxxxxxx Xxxxxxx
Name: Xxxxxxx Xxxxxxx
Title: Treasurer
