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EXHIBIT 10(iii)
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT dated as of the 20th day of December 1995
BETWEEN:
THE BANK OF NOVA SCOTIA, a Canadian chartered bank, having its
executive offices in the City of Toronto, in the Province of Ontario
(The "Bank"),
-and-
GUARDIAN TIMING SERVICES, INC., a corporation incorporated under the
laws of Canada, having its registered office in the City of Toronto,
in the Province of Ontario,
(the "Investment Manager")
RECITALS:
A. Whereas the Bank wishes to have the Investment Manager manage an
investment portfolio (the "Portfolio") on behalf of the Bank or one or more of
its subsidiaries in Ontario using market timing signals generated by the
software developed by the Investment Manager and/or Bearhill Limited, known as
"ITM Software" (the "Software") and the parties desire to set forth certain
terms relating to the activities and responsibilities of the Bank and the
Investment Manager in such regard.
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NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter contained, it is agreed by and between the
parties hereto as follows:
DEFINITIONS AND INTERPRETATIONS
1. In this Agreement, except where the context otherwise requires:
(a) "Agreement" means this Investment Management Agreement as the same may
be amended from time to time and "herein", "hereof", "hereby",
"hereunder" and similar expressions refer to this Agreement and include
every instrument supplemental or ancillary to this Agreement and,
except where the context otherwise requires, not to any particular
article, section or subsection thereof;
(b) "Bank" shall include such subsidiaries and affiliates of The Bank of
Nova Scotia, where the Bank has requested that the Portfolio be managed
by the Investment Manager on behalf of such subsidiaries and
affiliates;
(c) "business day" shall mean each day on which The New York Stock
Exchange is open for business;
(d) "Custodian" shall mean the custodian of the assets of the Portfolio as
appointed by the Bank from time to time.
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(e) "Person" means any individual, partnership, limited partnership, joint
venture, syndicate, sole proprietorship, company or corporation with or
without share capital, executor, administrator or other legal personal
representative, regulatory body or agency, government or governmental
agency, authority or entity however designated or constituted; and
(f) "Securities Authorities" means the Ontario Securities Commission and
equivalent regulatory authorities in each Province and Territory of
Canada.
APPOINTMENT OF THE INVESTMENT MANAGER
2. The Bank hereby appoints the Investment Manager as the investment
manager of the Portfolio with full authority and responsibility to provide or
cause to be provided to the Portfolio, the investment management and related
administrative services hereinafter set forth and the Investment Manager hereby
accepts such appointment and agrees to act in such capacity and to provide or
cause to be provided such investment management and related administrative
services upon the terms set forth in this Agreement.
DUTIES OF THE INVESTMENT MANAGER
3. The Investment Manager shall, during the term of this Agreement and any
renewal thereof:
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(a) manage the Portfolio and shall cause to be made the decisions as to the
purchase and sale of the Portfolio's securities in accordance with the
indicators provided by the Software and decisions as to the execution
of all portfolio transactions, including selection of market, dealer or
broker and the negotiation, where applicable, of commissions or service
charges, provided that the Investment Manager shall use Scotia XxXxxx,
Inc. and/or its affiliates as the dealer for the Portfolio whenever it
is convenient and reasonable to do so;
(b) provide written instructions to the Custodian respecting the delivery
and acceptance of the Portfolio's securities on the purchase or sale of
such securities;
(c) comply with and enter into contracts with all sub-investment managers
and advisors appointed by it, with the prior written approval of the
Bank, with respect to the Portfolio;
(d) in accordance with the instructions of the Bank, execute and deliver,
or cause to be executed and delivered, proxies and vote or withhold
from voting, or cause to be voted or withheld from voting, securities
held as part of the Portfolio from time to time.
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(f) ensure that all securities legislation is complied with in
connection with the operation of the Portfolio and the
execution and delivery of all necessary documents and
certificates in connection therewith, as may be requested by
the Bank from time to time;
(g) to provide any assistance to the Bank which may be required to
prepare and file or cause to be prepared and filed all
returns, reports and filings which may be required from time
to time by any municipal, provincial, federal or other
governmental authority and including, without limitation, such
returns, reports and filings which may be required pursuant to
the Income Tax Act (Canada) and applicable laws, regulations,
requirements or policies of the Securities Authorities; and
(h) provide or cause to be provided services as may be reasonably
requested by the Bank in respect of the Portfolio's daily
operation, including providing the prices of individual
securities as often as may be reasonably required by the Bank.
With regard to paragraphs (g) and (h) above the Bank shall pay to the
Investment Manager its reasonable costs and expenses incurred by the Investment
Manager with regard to meeting its obligations thereunder.
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4. The Investment Manager may engage or retain any persons for the
provision of certain portfolio management services in connection with the
Portfolio, with the prior written approval of the Bank.
STANDARD OF CARE
5. The Investment Manager shall exercise the powers granted hereunder and
discharge its duties hereunder honestly, in good faith, and in connection
therewith, shall exercise the degree of care, diligence and skill that a
reasonably prudent investment manager would exercise in the circumstances.
The Investment Manager represents and warrants that as at the date
hereof it has, and covenants that it has, and covenants that it will maintain
during the currency of this Agreement, for its own account, all necessary
licenses or registrations which it is required to have in order to perform its
duties and obligations pursuant to this Agreement.
REPORTING OBLIGATION OF THE INVESTMENT MANAGER
6. The Investment Manager agrees that it shall maintain or cause to be
maintained complete records of all transactions in respect of the Portfolio as
may be required under applicable laws and as the Bank may otherwise reasonably
request, and to provide or cause to be provided to the Bank, on a timely basis,
such reports as the Bank may reasonably require. The Bank shall pay to the
Investment
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Manager, its reasonable costs and expenses incurred by the Investment manager
with regard to meeting its obligations thereunder.
FEES AND EXPENSES
7. In consideration of the duties performed by the Investment Manager
pursuant to the terms of this Agreement, the Investment Manager shall receive
from the Bank, either directly or as a charge to the Portfolio, as the Bank may
direct an investment management fee (the "Investment Management Fee") as
determined in accordance with Schedule "A" hereto.
LIABILITY OF THE INVESTMENT MANAGER
8. The Investment Manager shall not be liable to the Bank for any loss or
damage relating to any matter regarding the Portfolio, including any loss or
diminution in the value of the Portfolio. Nothing herein shall be deemed to
protect the Investment Manager against any liability to the Bank in any
circumstance where there has been negligence, willful default or dishonesty on
the part of the Investment Manager or to the extent the Investment Manager may
have failed to fulfill its duties and obligations as set forth in this
Agreement.
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9. The Investment Manager shall not be liable to the Bank for the acts,
omissions, receipts, neglects or defaults of any person, firm or corporation
employed or engaged by it as permitted hereunder, or for any loss, damage or
expense caused to the Portfolio or the Bank through the insufficiency or
deficiency of any security in or upon which any of the monies of or belonging to
the Portfolio shall be laid out or invested, or for any loss or damage arising
from the bankruptcy, insolvency or tortious act of any person, firm or
corporation with whom or which any monies, securities or property of the
Portfolio shall be lodged or deposited, or for any loss occasioned by error in
judgment on the part of the Investment Manager, or for any other loss, damage or
misfortune which may happen in the execution by the Manager of its duties
hereunder, except to the extent set out in the last sentence of paragraph 8.
10. The Investment manager may rely and act upon any statement, report or
opinion prepared by or any advice received from auditors, solicitors, notaries
or other professional advisors of the Investment Manager and shall not be
responsible or held liable for any loss or damage resulting from relying or
acting thereon if the advice was within the area of professional competence of
the person from whom it was received and the Investment Manager acted reasonably
in relying thereon.
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TERM
11. This Agreement shall continue in full force and effect until Agreement
is terminated by either party by giving at least 30 days notice prior to the
last business day of a calendar month (or such shorter period as the parties may
agree) to the other of such termination.
12. During the term of this Agreement the Investment Manager shall make
available to the Bank for inspection on reasonable notice, and upon termination
of this Agreement the Investment Manager shall forthwith deliver to the Bank all
records, documents and books of account related to the Portfolio.
13. Upon termination of this Agreement the Bank shall pay to the
Investment Manager such fees as may be due as of the date of termination and
shall reimburse the Investment Manager for its expenses and disbursements to
which it is entitled hereunder as of the date of such termination.
AMENDMENTS OF THIS AGREEMENT
14. This Agreement may not be amended or modified in any respect except by
written instrument signed by the parties hereto and any proposed change shall
not be effected without compliance with applicable requirements of the
Securities Authorities.
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NOTICES
15. Any notice, request or direction required or permitted to be given
hereunder shall be in writing and shall be properly given, if delivered
personally or by facsimile transmission, addressed to The Bank of Nova Scotia,
00 Xxxx Xxxxxx Xxxx, Xxxxxxx, Xxxxxxx X00X 0X0, Attention: Executive Vice
president, Investment Banking, and to the Investment Manager at Guardian Timing
Services, Inc., 000 Xxxxxxxx Xxxxxx Xxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxx, X0x 0X0,
Attention: President, or to such other address as either party may from time to
time specify by notice given in accordance herewith.
MISCELLANEOUS PROVISIONS
16. This Agreement shall be subject to and construed in accordance with
the laws of the Province of Ontario and each of the Bank and the Investment
Manager hereby irrevocably attorns to the jurisdiction of the courts thereof.
17. This Agreement may be assigned to an affiliate of the Investment
Manager, but otherwise shall not be assignable by either party hereto, without
the express prior written consent of the other party hereto. Written notice of
any assignment to an affiliate of the Investment Manager must be provided to the
Bank not less than 10 days in advance of such assignment.
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18. The Investment Manager, may not directly or indirectly, advise any
third party of its role as investment manager of the Portfolio, without the
prior written consent of the Bank, save for such advice which it may be required
to provide to governmental authorities or by court order.
19. This Agreement may be executed in any number of counterparts all of
which taken together shall constitute this Agreement.
IN WITNESS WHEREOF the parties have executed this Agreement as of the
day and year first above written.
THE BANK OF NOVA SCOTIA
By: /s/ Xxxxxx X. Xxxxxx
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GUARDIAN TIMING SERVICES INC.
By: /s/ J.P. Fruchet
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SCHEDULE "A"
1. The initial size of the Portfolio shall be C$10 million. The Investment
Manager shall manage the Portfolio in pursuit of the objectives but
subject to the constraints set forth in the Investment Objectives and
Guidelines that the Bank and the Investment Manager shall agree on from
time to time. If the Bank requests, the Portfolio shall be divided into
sub-portfolios, which shall be managed in accordance with different
investment objectives, different investment guidelines or both (e.g.,
as a mutual fund which complies with national Policy 39), always
provided that no sub-portfolio may be established in an initial amount
less than C$5 million.
2. The Bank shall pay all fees and bonuses to the Investment Manager from
the assets in the Portfolio, always provided that each such payment
shall require the specific authorization of the Executive Vice
President, Investment Banking, which shall not be withheld
unreasonably.
3. The fee payable to the Investment Manager shall be 1/12 of one percent
per month of the net asset value of the Portfolio (net of all costs and
expenses paid or accrued earlier and net of all fees and bonuses paid
or accrued earlier), determined at the end of each month and payable
quarterly.
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0. There may be a bonus payable annually to the Investment Manager. This
bonus shall be determined by the more restrictive of two calculations.
(a) On the first calculation, the bonus shall be payable only if
the year's growth in net asset value of the Portfolio (net of
all costs and expenses paid earlier and net of all fees and
bonuses paid earlier), expressed in percentage terms, exceeds
the year's rate of return of the S&P 500 Total Return Index.
The bonus shall be 20% of the product of (I) the difference
between the two percentage rates multiplied by (ii) the
initial net asset value of the Portfolio for that year.
For purposes of determining the year's rate of return of the
S&P 500 Total Return Index, the base figure for the initial
period shall be the level of the S&P 500 Total Return Index at
the close on 22 April 1996, and the final figure for the
initial period shall be the level of the S&P 500 Total Return
Index at the close on 31 December 1996 or, if applicable, the
date of termination of the Investment Management Agreement
before 31 December 1996. After such initial period, the base
figure for each calendar year shall be the level of the S&P
500 Total Return Index at the close on the last business day
of the preceding calendar year, and the final figure shall be
the level of the S&P 500 Total Return Index at the close on
the last business day of the calendar year for which
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a bonus is being calculated or, if applicable, the date of
termination of the Investment Management Agreement during such
calendar year. For purposes of determining the year's growth
in net asset value of the Portfolio, the same dates and times
shall apply.
(b) On the second calculation, however, the bonus shall be payable
only if the cumulative growth in net asset value of the
Portfolio (net of all costs and expenses paid or accrued
earlier and net of all fees and bonuses paid or accrued
earlier) since inception, expressed in percentage terms,
exceeds the cumulative rate of return of the S&P 500 Total
Return Index over the same period of time. The bonus shall be
such that the sum of all bonuses paid since the inception of
the Portfolio does not exceed 20% of the product of (i) the
difference between the two cumulative percentage rates
multiplied by (ii) the net asset value of the Portfolio at
inception. For greater certainty, the two percentage rates
shall be expressed not on a per annum basis but on the basis
of the entire term of the Portfolio since inception.
For purposes of determining the cumulative rate of return of
the S&P 500 Total Return Index, the base figure shall be the
level of the S&P Total Return Index at the close on 22 April
1996, and the final figure shall be the level of the S&P Total
Return Index at the close on the last business day of the
calendar year for which a
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bonus is being calculated or, if applicable, the date of
termination of the Investment Management Agreement during such
calendar year. For purposes of determining the cumulative
growth in net asset value of the Portfolio, the same dates and
times shall apply.
5. For purposes of calculating all fees and bonuses payable hereunder, all
calculations shall be based on U.S. dollars, but all fees and bonuses
shall be payable in Toronto in Canadian dollars based on mid-market
conversion rates at the time of payment.
6. The minimum fee and bonus payable to the Investment Manager shall be
C$50,000 per annum or part thereof.
7. The Bank shall pay any GST payable on all fees and bonuses payable
hereunder.
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INVESTMENT OBJECTIVES AND GUIDELINES
GUARDIAN TIMING SERVICES PORTFOLIO
EFFECTIVE 22 APRIL 1996
Objective: To realize a total rate of return by investing in a
portfolio of principally U.S. securities.
Benchmark: The S&P 500 Total Return Index.
Guidelines: 1. The Investment Manager shall rely exclusively on the
systematic use of his proprietary computer-generated
market timing signals and his proprietary computer-
generated stock-picking techniques.
2. The Investment Manager may buy and sell U.S. dollar-
denominated money market instruments, U.S. stocks,
Canadian stocks and other stocks (collectively,
Securities).
3. The Investment Manager retains the right (which,
however, he does not anticipate exercising) to buy
and sell exchange-traded convertible debentures,
exchange-traded warrants and exchange-traded options
(collectively, Derivative Securities).
4. The Investment Manager may buy and short S&P 500
Stock Index futures contracts.
5. When the proprietary timing model generates a buy
signal, the Investment Manager may take a long
position in equities as great as the net asset value
of the Portfolio. He shall do so using stocks
selected by his proprietary stock-picking
techniques. He also may take a long position in S&P
500 Stock Index futures contracts.
6. When the proprietary timing model generates a sell
signal, the Investment Manager shall sell any
existing long position in S&P 500 Stock Index futures
contracts, may retain the existing long position in
equities and may take a short position in S&P 500
Stock Index futures contracts.
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7. When the proprietary timing model generates a short
signal, the Investment manager shall take an
additional short position in S&P 500 Stock Index
futures contracts.
Limits: 1. No more than 10% of the net asset value of the
portfolio at time of purchase shall be invested in
stocks other than U.S. and Canadian stocks.
2. No more than 10% of the net asset value of the
Portfolio at time of purchase shall be invested in
exchange-traded warrants and exchange-traded options,
taken together.
3. The value of the long position in Securities and
Derivative Securities plus the underlying value of
the long position in S&P 500 Stock Index futures
contracts shall not exceed 200% of the net asset
value of the portfolio.
4. The underlying value of the short position in S&P 500
Stock Index futures contracts shall not exceed 200%
of the net asset value of the portfolio.
5. For purposes of monitoring, the Bank and the
Investment Manager shall agree from time to time in
writing on the maximum number of S&P 500 Stock Index
futures contracts that the Investment Manager may
use. Initially, they agree that the Investment
Manager shall be long no more than 22 contracts and
shall be short no more than 44 contracts.
Approvals: The Investment manager shall act as a fully discretionary
manager within the limits fixed by these Investment Objectives
and Guidelines.
Clearing Broker: ScotiaMcLeod Inc. shall act as clearing broker for all
transactions in the Portfolio.
Custodian: ScotiaMcLeod Inc. shall act as custodian of the Portfolio.
Voting: ScotiaMcLeod Inc. as custodian shall execute all proxies for
voting of the securities in the Portfolio.
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Monitor: The Bank's Integrated support Services shall monitor the
Investment manager's compliance with those parts of these
Guidelines that define:
1. the types of security that the Investment Manager may
buy, sell or short;
2. the percentage of the net asset value of the
portfolio that the Investment Manager may invest in
stocks other than U.S. and Canadian stocks.
3. the percentage of the net asset value of the
portfolio that the Investment Manager may invest in
exchange-traded warrants and exchange-traded options;
and
4. the number of S&P 500 Stock Index futures contracts
that the Investment Manager may buy or short.
I.S.S. shall monitor daily. I.S.S. shall report any exceptions
no later than the following day to the Executive Vice
President, Investment Banking and to the Assistant General
Manager, Investments.
Reporting
Procedure: ScotiaMcLeod Inc. As custodian shall report monthly to the
E.V.P., Investment Banking, the A.G.M., Investments and the
A.G.M., International Banking Division. The report shall
include a list of all transactions, a statement and
valuation of assets and any other information required from
time to time by the E.V.P., Investment Banking, acting
reasonably.
Responsibilities: Upon due notice from the E.V.P., Investment Banking or the
A.G.M., Investments, both the Investment Manager and
ScotiaMcLeod, Inc. Shall permit the Bank's external and
internal auditors access to all relevant information.
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