Exhibit 7(a)
SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT, dated as of September 12, 2007, by and among Xxxxx Brothers
Xxxxxxxx & Co., in its capacity as custodian hereunder ("Bank"), BlackRock Large
Cap Core Plus Fund of BlackRock Large Cap Series Funds, Inc. (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 " Prime Broker Margin Account
Agreement" (the "Customer Agreement"); and
WHEREAS, to facilitate Customer's transactions through Broker, 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 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 in a
commercially reasonable manner.
"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 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 (1) 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 BlackRock Large Cap Core Plus Fund of
BlackRock Large Cap Series Funds, Inc. as pledgor for the benefit of Xxxxxx
Xxxxxxx & Co. Incorporated as pledgee (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 held
in or credited to the Special Custody Account will be treated as financial
assets under Revised 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 the further consent of, but upon notice to Customer. Customer
hereby consents to such agreement.
4. Customer agrees to instruct Bank in Instructions from Customer that
Eligible Collateral specified by Customer and 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 are 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 (000) 000-0000 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's subcustodian 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; provided, however, that the Bank shall retain a secondary lien
for its customary fees and expenses which shall be expressly subordinate in
right of payment to the security interest of Broker granted herein. 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 except as provided in the
previous sentence. 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.
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. Any cash proceeds generated
from the short sale of securities shall be deposited in the Special Custody
Account.
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, without negligence
or bad faith on the part of Bank, arising out of this Agreement.
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 performing its responsibilities hereunder,
Bank will not be liable for any loss or damage to any of the Collateral, or for
any diminution in the value thereof, by reason of insolvency of, or any act or
omission of Bank's subcustodian at a Federal Reserve Bank (as provided in
Section 5) and/or centralized depository selected by Bank unless such loss or
damage result from the Bank's negligence or willful misconduct. Bank shall also
have no responsibility or liability for determining if Collateral is Eligible
Collateral or for changes in the investment grade of any securities in the
Special Custody Account or changes in their value relative to other currencies
or securities. In no event shall either of Bank or Broker be liable to Customer
for indirect, special, consequential or punitive damages even if Bank or, as the
case may be, Broker, has been advised of the possibility of such damages.
13. No party shall be liable for any failure or delay in performance under
this Agreement if such failure or delay is caused by conditions beyond the
reasonable control of the affected party and not caused by that party's own
negligence or willful misconduct, including, but not limited to, (a) an act of
God, (b) accident, fire, water damage or explosion, (c) any computer, system or
other equipment failure or malfunction caused by any computer virus or the
malfunction or failure of any communications medium, (d) any interruption of the
power supply or other utility service, (e) any strike or other work stoppage,
whether partial or total, or (f) any disruption of, or suspension of trading in,
the securities, commodities or foreign exchange markets,
14. No amendment of this Agreement shall be effective unless in writing
and signed by an authorized officer of each of the parties hereto.
15. This Agreement may be executed in one or more counterparts, all of
which together shall constitute but one and the same instrument.
16. 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; provided however, that
Bank's duties as agent of Broker shall be
limited to the terms of this Agreement.
17. 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.
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:
(a) If to Bank, to: Xxxxx Brothers Xxxxxxxx & Co.
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxx. Xxxx Xxxxxxxx
Phone: 000-000-0000
Fax: 000-000-0000
E-mail: Xxxx.Xxxxxxxx@xxx.xxx
If to Customer, to: BlackRock Large Cap Core Plus Fund of
BlackRock Large Cap Series Funds, Inc.
As Customer
BlackRock Advisers LLC
000 Xxxxxxxx Xxxx Xx.
Xxxxxxxxxx, XX 00000
Attn: Xxxx Xxxxxxx
Phone: 000-000-0000
Fax:000-000-0000
E-mail: Xxxx_Xxxxxxx@xx.xxx
(c) If to Broker, to:
Xxxxxx Xxxxxxx & Co. Incorporated
Prime Brokerage Services
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: PB Custody - Xxxx Xxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
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. The Custodian and the Customer hereby irrevocably submit to the exclusive
jurisdiction of any New York State court or any United States District Court
located in the State of New York in any action or proceeding arising out of this
Agreement and hereby irrevocably waive any objection to the venue of any such
action or proceeding brought in any such court or any defense of an inconvenient
forum.
Xxxxx Brothers Xxxxxxxx & Co.
as Bank
By:
Name:
Title:
BlackRock Large Cap Core Plus Fund of
BlackRock Large Cap Series Funds, Inc.
as Customer
By:
Name:
Title:
Xxxxxx Xxxxxxx & Co. Incorporated as Broker
By:
