Exhibit 99(k)(3)
Prime Brokerage Services
Standard Form of Special
Custody Account Agreement
(3 Party- Short Sales Only)
SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT, dated as of July ___, 2005, by and among Bank of New York, in
its capacity as custodian hereunder ("Bank"), Old Mutual/Claymore Long-Short
Fund (the "Customer"), and Xxxxxx Xxxxxxx & Co. Incorporated ("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 sell securities "short"
through Broker, such short sales 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 Prime Broker Account
Agreement" (the "Customer Agreement"); and
WHEREAS, to facilitate Customer's transactions through Broker, Customer,
Bank 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:
1. As used herein, the following terms have the following meanings:
"Adequate Margin" shall mean such Eligible Collateral as is adequate in
Broker's judgment under the Margin Rules and the internal policies of Broker.
For purposes hereunder, Eligible Collateral shall be valued by Broker at
Broker's sole discretion.
"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 Customer has
defaulted pursuant to paragraph 9(a) hereof. With respect to any short sale or
covering purchase transaction, the Advice from Broker shall mean a standard
confirmation in use by Broker and sent or 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.
"Closing Transaction" is a transaction in which Customer purchases
securities which have been sold short.
"Collateral" means the Special Custody Account, all Eligible Collateral,
other financial assets or investment property and other property and assets
which is deposited from time to time in, or credited from time to time to, the
Special Custody Account, all security entitlements in respect thereof, all
income and profits thereon, all interest, dividends and other payments and
distributions with respect thereto, all other property and assets specified as
Collateral in the second paragraph of Section 4, and all proceeds of any of the
foregoing.
"Eligible Collateral" means cash, U.S. government securities maintained in
the Treasury/Reserve Automated Debt Entry System ("TRADES") or other securities
acceptable to Broker.
"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") of any 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 jurisdiction, whether now or hereinafter
in effect; or (C) any such petition or application has been filed, or any such
proceeding 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 signed by Customer and delivered to Bank and/or
Broker or transmitted by a facsimile sending device and which is reasonably
believed by Bank and/or Broker in good faith to be
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signed by a person authorized to give Instructions on behalf of Customer. An
authorized agent of Customer will certify to Bank and Broker the names and
signatures of those persons authorized to Instruct Bank and/or Broker, 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.
"Receipt of Payment" means receipt by Bank on behalf of Broker, of (l) a
certified or official bank check, (2) a written or telegraphic advice from a
registered clearing agency that funds have been or will be credited to the
account of Bank for credit to Broker, or (3) a transfer of funds from any of
Broker's accounts maintained at Bank.
"Receipt of Securities" means receipt by Bank on behalf of Broker, of (1)
securities in proper form for transfer or (2) a written or telegraphic advice
from a registered clearing agency or other securities intermediary approved in
writing by Broker that securities have been credited to the account of Bank for
credit to Broker.
2. From time to time, Customer may place orders with Broker for the short
sale of securities. Prior to the acceptance of such short sale orders Broker
will notify Customer of Broker's ability to borrow such securities or other
properties and acceptance of short sale orders will be contingent upon same.
3. Bank shall open an account on its books entitled "Special Custody
Account for margin and short sales for Xxxxxx Xxxxxxx & Co. Incorporated as
pledgee of Old Mutual/Claymore Long-Short Fund " (referred to herein as "Special
Custody Account"). Collateral shall be released 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 can 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.
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. The parties hereto agree that all
property and assets other than cash held in or credited to the Special Custody
Account will be treated as financial assets under Article 8 of the Uniform
Commercial Code as in effect in the State of New York (the "UCC"). The parties
hereto further agree that the securities intermediary's jurisdiction, within the
meaning of Section 8-110(e) of the UCC, in respect of the Special Custody
Account and the Collateral is the State of New York and agree that none of them
has or will enter into any agreement to the contrary. Anything in this Agreement
to the contrary notwithstanding, Bank hereby agrees to comply with entitlement
orders and other instructions of Broker with respect to the Special Custody
Account and any Collateral without further consent of Customer. Customer hereby
consents to such agreement and agrees Bank may conclusively presume without any
investigation or inquiry that all entitlement orders or other instructions of
Broker with respect to the Special Custody Account and/or any collateral are
proper and authorized.
4. Customer agrees to instruct Bank in Instructions from Customer which
Eligible Collateral specified by Customer and at least equal in value to what
Broker shall initially, and
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from time to time thereafter, advise Customer in an Advice from Broker is
necessary to constitute Adequate Margin, is to be identified on Bank's books and
records as pledged to Broker as Collateral. Such Eligible Collateral and any
other Collateral (i) will be held by Bank in, and credited by Bank to, the
Special Custody Account, 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.
Interest, dividends or proceeds attributable to Collateral shall be
credited to the Special Custody Account as additional Collateral and shall be
held in the Special Custody Account as Collateral until released therefrom or
withdrawn in accordance with this Agreement.
Bank will confirm in writing to Broker and Customer all pledges,
deliveries, releases or substitutions of Collateral. Bank will also advise
Broker upon reasonable request (and in any event monthly) of the kind and amount
of Collateral pledged to Broker and held in the Special Custody Account. Bank
will also advise Broker daily by 3:00 p.m. E.S.T. of the amount of the
Collateral pledged to Broker as of the close of business of the prior business
day by facsimile to (718) 754-__________ and once a month to the Broker's
address. Upon the request of Customer, Broker shall Advise Bank and Customer of
any excess of Collateral in the Special Custody Account. Upon Customer's
request, Broker shall Advise Bank to transfer such excess Collateral out of the
Special Custody Account to an account designated by Customer.
5. 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 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, except U.S. Treasury securities shall be held in a TRADES Participant's
Securities Account of the Bank at a Federal Reserve Bank. The Bank represents
that Collateral will not be subject to any lien, charge, security interest or
other right or claim of the Bank or any person claiming through the Bank. Bank
hereby waives and releases all liens, encumbrances, claims and rights of setoff
that it may now or hereafter have against the Special Custody Account or any
Collateral and agrees that it will not assert any such lien, encumbrance, claim
or right against the Special Custody Account or any Collateral. Bank represents
and warrants that it has not, and agrees that it will not, agree to comply with
entitlement orders concerning the Special Custody Account or any Collateral that
are originated by any person other than Broker.
6. 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.
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7. 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 Eligible 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 of Eligible
Collateral equal to such net debit balance to be deposited as Collateral in the
Special Custody Account 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.
8. 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 then owned by Customer.
9(a) In the event of default by Customer of any obligation hereunder or
under the Customer Agreement, or in the event of Customer's Insolvency, Broker
may, after transmittal of an Advice from Broker to Customer specifying such
default or Insolvency and its intention to do so, and only if Customer continues
to be in default or Insolvent, sell and Advise Bank to deliver to Broker the
proceeds of such of the Collateral as in Broker's judgment is reasonably
necessary for the protection of its interest under this Agreement.
(b) Any sale of Collateral made pursuant to this paragraph 9 must be made
on the exchange or other market where such business is then usually transacted.
Such sale shall be made in a manner commercially reasonable for such securities.
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. If the proceeds of any such sale exceed the amount due to Broker
under this paragraph 9, the excess of the amount due to Broker shall remain in
the Special Custody Account as Collateral unless otherwise released or withdrawn
as provided herein.
10. 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.
11. With respect to any losses or liabilities, Bank shall be protected in
acting or not acting pursuant to any Instructions, Advices or notices from
Customer or Broker believed by Bank in good faith to be genuine and authorized,
except in the case of Bank's bad faith or negligence Customer agrees to
indemnify Bank for, and hold it harmless against, any loss, liability or expense
incurred by Bank in connection with any Instructions, Advices or notices from
Customer or any specific provisions of this Agreement, or in connection with any
actions taken or omitted by Bank without negligence or bad faith on the part of
Bank, arising out of this Agreement.
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12. Neither Broker nor Bank shall 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
or Bank 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, or Bank's own, as the case may be, negligence or willful
misconduct. In no event shall Bank be liable for: (a) any indirect, special, or
consequential damages; (b) any delay or failure by Bank to perform caused by any
forces or events beyond its reasonable control, including, without limitation,
acts of war, acts of terrorism, acts of God, natural disasters, or loss,
interruption or malfunction of communication or computer (hardware or software)
services: (c) for the acts or omissions of any securities depositary, any third
party, or the Federal Reserve/U.S. Treasury book-entry system for government
securities; or (d) for whether adequate Collateral is provided, whether any
Collateral which is provided is Eligible Collateral, whether Broker has a valid
or perfected security interest in any Collateral held in the Special Account, or
whether any substitutions or withdrawals are done in accordance with the terms
of the Agreement or any other agreements.
13. No amendment of this Agreement shall be effective unless in writing and
signed by an authorized officer of each of the parties hereto.
14. This Agreement may be executed in one or more counterparts, all of
which together shall constitute but one and the same instrument.
15. 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.
16. Customer represents and warrants that the Collateral will not be
subject to any other liens or encumbrances, other than to Broker in accordance
with the Margin Agreement and this Agreement.
17. Customer agrees with Bank that any overdrafts in, or indebtedness with
respect to, the Special Custody Account shall be deemed an overdraft of
indebtedness arising under the Custody Agreement and subject to all the rights
of Bank as Custodian thereunder.
18. 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 rules of such national securities exchanges of
which Broker may be a member, as applicable.
19. Written communications hereunder shall be 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:
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(a) If to Bank, to:
(b) If to Customer, to:
(c) If to Broker, to:
Xxxxxx Xxxxxxx & Co. Incorporated
Prime Brokerage Services
Xxx Xxxxxxxxxx Xxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attention: PB Custody - Xxxx Xxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
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20. This Agreement will be governed by the laws of the State of New York
without regard to its conflicts of law rules and to the extent not preempted by
ERISA. Broker, Bank and Customer hereby irrevocably submit to the exclusive
jurisdiction of any New York State court or any United States District Court
located in the County of New York in any action or proceeding arising out of
this Agreement and hereby irrevocably waive (a) any objection to the venue of
any such action or proceeding brought in any such court or any defense of an
inconvenient forum, and (b) to the extent permitted by law, any right to any
trial by jury.
Bank of New York
as Bank
By:
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Name:
Title:
Old Mutual/Claymore Long-Short Fund
as Customer
By:
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Name:
Title:
Xxxxxx Xxxxxxx & Co. Incorporated
as Broker
By:
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