FAIRHOLME FUNDS, INC. INVESTMENT MANAGEMENT AGREEMENT
FAIRHOLME
FUNDS, INC.
This
Agreement is made and entered into as of the 23rd of May, 2008, by and
between Fairholme Funds, Inc., a Maryland corporation (the "Fund"), and
Fairholme Capital Management, L.L.C., a Delaware limited liability company
("Manager").
WHEREAS,
the Fund is an open-end management investment company, registered under the
Investment Company Act of 1940, as amended (the "Act"), and is authorized to
issue shares representing interests 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 and engages in the business of asset management; and
WHEREAS,
the Fund desires to retain Manager to render certain investment management
services to the Fund and Manager is willing to render such
services;
NOW
THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. | OBLIGATIONS OF MANAGER | |
(A) | INVESTMENT ADVISORY SERVICES. Manager agrees to perform the following investment advisory services (the "Investment Advisory Services") for the Fund: |
(1)
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manage
the investment and reinvestment of the Portfolio's
assets;
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(2)
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continuously
review, supervise, and administer the investment program of the
Portfolio;
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(3)
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determine,
in its discretion, the securities to be purchased, retained or sold (and
implement those decisions);
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(4)
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maintain
books and records with respect to Manager's activities for the Fund,
including the Fund’s securities transactions, which the Fund is required
to maintain; and
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(5)
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render
regular reports to the Fund's officers and directors concerning Manager's
discharge of the foregoing
responsibilities.
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Manager
shall discharge the foregoing responsibilities subject to the general
supervision and control of the officers and the directors of the Fund and in
compliance with such policies as the directors may from time to time establish,
and in compliance with the objectives, policies, and limitations of the
Portfolio set forth in the Fund's prospectus and statement of additional
information, as amended from time to time, and with all applicable laws and
regulations. All Investment Advisory Services to be furnished by Manager under
this Agreement may be furnished through the medium of any directors, officers or
employees of Manager or through such other parties as Manager may determine from
time to time.
(B) |
OPERATING
SERVICES. The Fund hereby retains Manager to provide, or, upon receipt of
written approval of the Fund arrange for other companies to provide, the
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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
“Operating Services” and together with Investment Advisory Services, the
“Services”):
(1)
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accounting
services and functions, including costs and expenses of any independent
public accountants;
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(2)
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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;
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(3)
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dividend
disbursing agent, dividend reinvestment agent, transfer agent, and
registrar services and functions (including answering inquiries related to
shareholder Portfolio accounts);
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(4)
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custodian
and depository services and
functions;
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(5)
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distribution,
marketing, and/or underwriting
services;
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(6)
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independent
pricing services;
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(7)
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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;
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(8)
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sub-accounting
and recordkeeping services and functions (other than those books and
records required to be maintained by Manager under Paragraph 1(A) above,
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;
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(9)
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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;
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(10)
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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
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(11)
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a
call center in order to respond to information and transaction requests
from existing and potential shareholders of the
Portfolio.
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Manager’s
obligation to provide any of the Operating Services directly to the Portfolio is
subject to Manager’s legal qualification to provide such Operating 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 Operating Service
directly.
Manager
shall not make payments for Portfolio distribution and marketing services, which
shall include payments in connection with the Operating Services set forth in
Paragraph 1(B)(5) above and may include payments in connection with the
Operating Services set forth in Paragraph 1(B)(11) above, from the compensation
Manager receives pursuant to this Agreement.
(C) |
EXCLUSIONS FROM
SERVICES. Except to the extent expressly assumed by Manager in Paragraphs
1(A) and 1(B) above and except to the extent required by law to
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be paid by the
Manager, the Fund shall pay all costs and expenses in connection with its
operation and organization, including:
(1)
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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;
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(2)
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the
interest on indebtedness, if any, incurred by the Fund or the
Portfolio;
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(3)
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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;
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(4)
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the
expenses, including fees and disbursements of counsel, in connection with
litigation by or against the Fund or the Portfolio;
and
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(5)
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any
other extraordinary expense of the Fund or
Portfolio.
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(D) |
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
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request
therefor, Manager shall surrender to the Fund such of the books and records so
requested. Manager shall preserve for the periods prescribed by Rule 31a-2 under
the Act those records required by Rule 31a-1 that it retains for the
Fund.
(E) |
STAFF AND
FACILITIES. Manager agrees, at its own expense or at the expense of one or
more of its affiliates, to render the Services and to provide the office
space,
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furnishings,
equipment and personnel as may be reasonably required in the judgment of the
Board of Directors of the Fund to perform the Services on the terms and for the
compensation provided herein. Manager shall authorize and permit any of its
officers, directors and employees, who may be elected as directors or officers
of the Fund, to serve in the capacities in which they are
elected.
2. |
PORTFOLIO
TRANSACTIONS. Manager is authorized to select the brokers or dealers that
will execute the purchases and sales of securities for the
Portfolio.
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Manager will
seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of considerations. Among these are the Manager's evaluation of the
broker-dealer's efficiency in executing and clearing transactions, the rate of
commission or the size of the broker-dealer's spread, the size and difficulty of
the order, the nature of the market for the security, and operational
capabilities of the broker-dealer. The Manager will not take into
account the sale of Fund shares when selecting brokers to execute portfolio
transactions.
Manager
may, in its discretion, purchase and sell portfolio securities from and to
brokers and dealers who provide the Portfolio and any other account over which
the Manager exercises investment discretion with research and brokerage services
(as those terms are defined in Section 28(e) of the Securities and Exchange Act
of 1934 and interpretations thereunder), and Manager may pay to these brokers
and dealers, in return for research and brokerage services, a higher commission
or spread than may be charged by other brokers and dealers for that transaction,
provided that Manager determines in good faith that such commission is
reasonable relative to the value of the research and brokerage services provided
by such broker or dealer as viewed in terms either of that particular
transaction or of the overall responsibility of Manager to the Fund and its
other clients. Manager will promptly communicate to the officers and the
directors of the Fund such information relating to portfolio transactions as
they may reasonably request.
3. |
COMPENSATION OF
MANAGER. The Fund will pay to Manager on the last day of each month a fee
at an annual rate equal to 1.00% of the daily average net asset
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value 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
procedures 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 a Portfolio's net asset value is suspended by the directors
of the Fund, the net asset value of a share of the Portfolio as of the last
business day prior to such suspension shall, for the purpose of this Paragraph
3, be deemed to be net asset value at the close of each succeeding business day
until it is again determined.
4. |
STATUS
OF MANAGER. The services of Manager to the Fund are not to be deemed
exclusive, and Manager shall be free to render similar services to others
so long
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as its
services to the Fund are not impaired thereby. Manager shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund. Nothing in this Agreement shall limit
or restrict the right of any director, officer or employee of Manager, who may
also be a director, officer, or employee of the Fund, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
5. |
PERMISSIBLE
INTERESTS. Directors, agents, and stockholders of the Fund are or may be
interested in Manager (or any successor thereof) as directors, partners,
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officers, or
stockholders, or otherwise, and directors, partners, officers, agents, and
stockholders of Manager are or may be interested in the Fund as directors,
stockholders or otherwise; and Manager (or any successor) is or may be
interested in the Fund as a stockholder or otherwise.
6. |
LIABILITY OF MANAGER. Manager assumes no responsibility under this
Agreement other than to render the services called for hereunder in good
faith. Manager
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shall
not be liable for any error of judgment or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from a breach of fiduciary duty with respect to receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3)) of the Act or a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of, or from reckless disregard by it of its obligations and
duties under, this Agreement.
7. |
TERM.
This Agreement shall become effective at such time as it shall have been
approved by stockholders of the Fund, in accordance with the requirements
of the
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Act, and,
unless sooner terminated as provided herein, shall continue in effect for two
years 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 Act ) of the
Fund's outstanding securities, provided that in either event the continuance is
also approved by the vote of a majority of the directors of the Fund who are not
parties to this Agreement or "interested persons" (as defined in the Act) of any
such party, which vote must be cast in person at meeting called for the purpose
of voting on such approval. Notwithstanding the foregoing, this Agreement may be
terminated by:
(A) the Fund,
at any time and without the payment of any penalty, upon 60 days prior written
notice to Manager; or
(B) Manager,
at any time and without payment of penalty, upon 60 days prior written notice to
the Fund.
This
Agreement shall terminate immediately in the event of its assignment (within the
meaning of the Act and the rules thereunder). The terms of paragraph 6 of this
Agreement shall survive the termination of this Agreement.
8. |
NOTICES.
Except as otherwise provided in this Agreement, any notice or other
communication required by or permitted to be given in connection with this
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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:
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If to the
Manager:
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Fairholme
Funds, Inc.
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Fairholme
Capital Management, LLC
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0000
Xxxxxxxx Xxxx.
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0000
Xxxxxxxx Xxxx.
|
0xx
Xxxxx
|
0xx
Xxxxx
|
Xxxxx,
XX 00000
|
Xxxxx,
XX 00000
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[Xxxxx
X. Xxxxxxxxx]
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[Xxxxxxx
X. Xxxxxxxxx]
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[President]
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[Chief
Operating Officer]
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9. |
AMENDMENTS. No
provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
parties
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hereto. No
material amendment of this Agreement shall be effective until approved by vote
of a majority of the outstanding voting securities of the
Fund.
10. |
MISCELLANEOUS. 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
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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. If any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise, the remainder of this Agreement shall not be affected
thereby.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the day and the year first written above.
FAIRHOLME
CAPITAL
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||
FAIRHOLME
FUNDS, INC.
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MANAGEMENT,
LLC
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By:
[Xxxxx X. Xxxxxxxxx]
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By:
[Xxxxxxx X. Xxxxxxxxx]
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[President]
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[Chief
Operating Officer]
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ATTEST:
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ATTEST:
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By:
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||
_______________________________
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________________________
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Its:
Secretary
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Its:
Secretary
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[Corporate
Seal]
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[Corporate
Seal]
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SK 22146
0003 858159