EXHIBIT 10(b)
FORM OF
CUSTODY AGREEMENT
CUSTODY AGREEMENT ("Agreement") made this ____ day of September, 1998,
between 1st Atlantic Guaranty Corporation, a Maryland corporation ("1ST
ATLANTIC"), and Key First Company of Ohio ("CUSTODIAN") (collectively,
"Parties").
WITNESSETH:
WHEREAS, 1ST ATLANTIC is registered with the Securities and Exchange
Commission ("SEC") as a face-amount certificate company within the meaning of
Section 4(1) of the Investment Company Act of 1940 ("1940 Act"); and
WHEREAS, 1ST ATLANTIC proposes to issue face-amount certificates
("Certificates") and will register the same under the Securities Act of 1933
("1933 Act"), to the extent required thereby; and
WHEREAS, CUSTODIAN has the qualifications prescribed in Section 26(a)(1)
of the 1940 pursuant to Section 28(c) of the 1940 Act.
NOW THEREFORE, in consideration of the mutual covenants and agreements
made herein, the Parties agree as follows:
I. APPOINTMENT OF CUSTODIAN;
ASSETS COVERED BY THIS AGREEMENT
A. EMPLOYMENT
1ST ATLANTIC hereby employs CUSTODIAN to serve as the custodian of the
cash, securities and other assets (collectively, "assets") that it delivers to
CUSTODIAN pursuant to this Agreement. CUSTODIAN agrees to hold, maintain, and
dispose of the assets that it receives from 1ST ATLANTIC in accordance with
the terms of this Agreement.
B. REQUIRED RESERVES
1ST ATLANTIC shall, from time to time, deliver to and maintain with
CUSTODIAN (and, in 1ST ATLANTIC's sole discretion, one or more additional
custodians) qualified investments having at all times an aggregate value at
least equal to the amount 1ST ATLANTIC is required to maintain as reserves
pursuant to Section 28(a) of the 1940 Act ("required reserves"), which amounts
shall be set out in reports submitted by 1ST ATLANTIC to CUSTODIAN pursuant to
Section IV.B.1. hereof.
CUSTODIAN acknowledges that 1ST ATLANTIC may, pursuant to the terms of
this Agreement, withdraw any of its assets held hereunder at any time by
substituting qualified investments of equal or greater value, or without such
substitution, to the extent the aggregate value of the qualified investments
held hereunder exceeds the required reserves.
C. QUALIFIED INVESTMENTS; CERTIFICATES
1. QUALIFIED INVESTMENTS. For purposes of this Agreement, "qualified
investments" shall have the meaning given to it by Section 28(b) of the 1940
Act, as administered by the SEC. Qualified investments shall be valued, for
the purpose of determining compliance with the deposit requirements of Section
28 of the 1940 Act, in accordance with the District of Columbia Code, where
applicable, and otherwise as prescribed by the SEC. Any asset deposited with
CUSTODIAN shall be accompanied by a statement made by an Authorized Person
from 1ST ATLANTIC (as defined below) giving the value of the assets and
stating that Authorized Person's opinion that the asset is a qualified
investment.
2. CERTIFICATES. Whenever used in this Agreement, the term
"Certificate" shall mean a "face-amount certificate" as that term is defined
in Section 2(a)(15) of the 1940 Act, unless otherwise expressly noted.
II. SAFEKEEPING OF ASSETS
A. DUTIES OF CUSTODIAN WITH RESPECT TO SECURITIES
1. HOLDING OF SECURITIES. CUSTODIAN shall hold and physically
segregate for the account of 1ST ATLANTIC all securities delivered by 1ST
ATLANTIC pursuant to this Agreement; PROVIDED, however, that CUSTODIAN may,
pursuant to Section II.A.4. of this Agreement, maintain such securities in a
clearing agency that acts as a securities depository or in a book-entry system
authorized by the U.S. Department of the Treasury and certain federal agencies
(each, a "Securities System").
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2. DELIVERY OF SECURITIES. CUSTODIAN shall release and deliver
securities held by it or in its account with a Securities System (i) only upon
receipt of Proper Instructions, as defined below, from 1ST ATLANTIC, (ii) only
where there would remain in its custody, after the release and delivery of
such securities, an amount of qualified investments sufficient to meet 1ST
ATLANTIC's reserve requirements at the time, and (iii) only in the following
cases:
a) Upon sale of such securities for the account of 1ST ATLANTIC and
receipt of payment therefor;
b) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section II.A.4. hereof;
c) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable; PROVIDED
that, in any such case, the cash or other consideration is to be
delivered to CUSTODIAN;
d) To the issuer thereof, or its agent, for transfer into the name of
1ST ATLANTIC or into the name of any nominee or nominees of
CUSTODIAN; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; PROVIDED that, in any such case,
the new securities are to be delivered to CUSTODIAN;
e) Upon the sale of such securities for the account of 1ST ATLANTIC,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery" custom;
f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or
pursuant to any deposit agreement; PROVIDED that, in any such
case, the new securities and cash, if any, are to be delivered to
CUSTODIAN;
g) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; PROVIDED that, in
any such case, the new securities and cash, if any, are to be
delivered to CUSTODIAN;
h) For delivery in connection with any loans of securities made by
1ST ATLANTIC, BUT ONLY against receipt of adequate collateral as
the Parties may mutually agree in writing, which collateral may be
in the form of cash or obligations issued by the United States
government, its agencies or instrumentalities;
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i) For delivery as security in connection with any borrowings by 1ST
requiring a pledge of assets by 1ST ATLANTIC, BUT ONLY against
receipt of amounts borrowed;
j) For delivery in accordance with the provisions of any agreement
among 1ST ATLANTIC, CUSTODIAN and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by 1ST ATLANTIC;
k) Upon receipt of Proper Instructions from 1ST ATLANTIC to the
extent 1ST ATLANTIC substitutes securities or other qualified
investments of equal or greater value, or without such
substitution, to the extent the aggregate value of the qualified
investments held hereunder exceeds the required reserves.
l) For any other proper corporate purpose, BUT ONLY upon receipt of,
in addition to Proper Instructions from 1ST ATLANTIC, a certified
copy of a resolution of the Board of Directors or of the Executive
Committee of the Board signed by an officer of 1ST ATLANTIC and
certified by the Secretary or an Assistant Secretary, specifying
the securities of 1ST ATLANTIC to be delivered, setting forth the
purpose for which such delivery is to be made, declaring such
purpose to be a proper purpose, and naming the person or persons
to whom delivery of such securities shall be made.
In delivering any securities pursuant to this Section, CUSTODIAN shall
credit to the account of 1ST ATLANTIC the cash or other property
received therefor, except to the extent that CUSTODIAN may be instructed
otherwise by certified resolution meeting the requirements of paragraph
(l) of this Section.
3. REGISTRATION OF SECURITIES. Securities held by CUSTODIAN (other
than bearer securities) shall be registered in the name of 1ST ATLANTIC or in
the name of any nominee of 1ST ATLANTIC or of any nominee of CUSTODIAN that
1ST ATLANTIC acknowledges in writing to be acceptable. CUSTODIAN shall clearly
note on its records "1ST ATLANTIC" for each security of 1ST ATLANTIC it holds.
All securities accepted by CUSTODIAN on behalf of 1ST ATLANTIC under the terms
of this Agreement shall be in "street name" or other good delivery form.
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4. DEPOSIT OF SECURITIES IN SECURITIES SYSTEMS. CUSTODIAN may deposit
and/or maintain securities owned by 1ST ATLANTIC in a Securities System,
subject to the following provisions:
a) CUSTODIAN may keep securities of 1ST ATLANTIC in a Securities
System provided that such securities are represented in an account
("Account") of CUSTODIAN in the Securities System which shall not
include any assets of CUSTODIAN other than assets held as a
fiduciary, custodian or otherwise for customers;
b) The records of CUSTODIAN with respect to securities of 1ST
ATLANTIC that are maintained in a Securities System shall identify
by book-entry those securities belonging to 1ST ATLANTIC;
c) CUSTODIAN shall pay for securities purchased for the account of
1ST ATLANTIC upon (i) receipt of written or electronically
accessible advice from the Securities System that such securities
have been transferred to the Account, and (ii) the making of an
entry on the records of CUSTODIAN to reflect such payment and
transfer for the account of 1ST ATLANTIC. CUSTODIAN shall transfer
securities sold for the account of 1ST ATLANTIC upon (i) receipt
of written or electronically accessible advice from the Securities
System that payment for such securities has been transferred to
the Account, and (ii) the making of an entry on the records of
CUSTODIAN to reflect such transfer and payment for the account of
1ST ATLANTIC. Copies of all advices from the Securities System of
transfers of securities for the account of 1ST ATLANTIC shall
identify 1ST ATLANTIC, be maintained for 1ST ATLANTIC by CUSTODIAN
and be provided to 1ST ATLANTIC at its request. Upon request,
CUSTODIAN shall furnish 1ST ATLANTIC confirmation of each transfer
to or from the account of 1ST ATLANTIC in the form of a written
advice or notice and shall furnish to 1ST ATLANTIC copies of daily
transaction sheets reflecting each day's transactions in the
Securities System for the account of 1ST ATLANTIC. CUSTODIAN shall
also comply with all requirements of Rule 17f-4 under the 1940
Act;
d) CUSTODIAN shall provide 1ST ATLANTIC with any report obtained by
CUSTODIAN on the Securities System's accounting system, internal
accounting controls and procedures for safeguarding securities
deposited in the Securities System. CUSTODIAN shall send to 1ST
ATLANTIC such reports automatically whenever there is a material
change in any such systems;
e) Notwithstanding any other provision of this Agreement, CUSTODIAN
shall be liable to 1ST ATLANTIC for any loss or damage resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of CUSTODIAN or any of its agents or of
any of its or their employees or from failure of CUSTODIAN or any
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such agent to use reasonable efforts to enforce such rights as it
may have against the Securities System or any guarantee or
insurance fund; at the election of 1ST ATLANTIC, it shall be
entitled to be subrogated to the rights of CUSTODIAN or any agent
with respect to any claim against the Securities System or any
other person or fund which CUSTODIAN or agent may have as a
consequence of any such loss or damage if and to the extent that
1ST ATLANTIC has not been made whole for any such loss or damage.
B. DUTIES WITH RESPECT TO CASH AND PAYMENT OF MONIES
1. BANK ACCOUNTS
CUSTODIAN shall open and maintain in the name of CUSTODIAN a separate
bank account or accounts in banks or trust companies in the United States in
the name of 1ST ATLANTIC, subject only to draft or order by CUSTODIAN acting
pursuant to the terms of this Agreement, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or
for the account of 1ST ATLANTIC. Funds held by CUSTODIAN for 1ST ATLANTIC may
be deposited by it to its credit as CUSTODIAN in such banks or trust companies
(including, without limitation, affiliates of CUSTODIAN) as it may in its
discretion deem necessary or desirable; PROVIDED, however, that every such
bank or trust company shall be qualified to act as a custodian under Section
26(a) of the 1940 Act and that each such bank or trust company and funds to be
deposited with each such bank or trust company shall be approved by vote of a
majority of the Board of Directors of 1ST ATLANTIC. Such funds shall be
deposited by CUSTODIAN in its capacity as CUSTODIAN and shall be withdrawable
by CUSTODIAN only in that capacity; PROVIDED, however that depositing such
funds shall not relieve CUSTODIAN of its responsibilities or liabilities
hereunder.
2. PAYMENT OF MONIES
Upon receipt of Proper Instructions from 1ST ATLANTIC, CUSTODIAN
shall pay out monies in the following cases only:
a) Upon the purchase of securities for the account of 1ST ATLANTIC
but only (i) against the delivery of such securities to CUSTODIAN
registered in the manner required for such instruments to be held
pursuant to this Agreement or in proper form for transfer; or (ii)
in the case of a purchase effected through a Securities System, in
accordance with the conditions set forth in Section II.A.4.
hereof;
b) In connection with conversion, exchange or surrender of securities
owned by 1ST ATLANTIC;
c) For the redemption or repurchase of Certificates issued by 1ST
ATLANTIC;
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d) For the payment of any expense or liability incurred by 1ST
ATLANTIC, including but not limited to the following payments for
the account of 1ST ATLANTIC: interest, taxes, management,
accounting and legal fees, and operating expenses of 1ST ATLANTIC;
and
e) Upon withdrawal of monies to the extent the aggregate value of
qualified investments held hereunder exceed the required reserves;
f) For any other proper purpose, BUT ONLY upon receipt of, in
addition to Proper Instructions from 1ST ATLANTIC on behalf of 1ST
ATLANTIC, a certified copy of a resolution of the Board of
Directors or of the Executive Committee of 1ST ATLANTIC signed by
an officer of 1ST ATLANTIC and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
C. DUTIES OF CUSTODIAN WITH RESPECT TO REAL ESTATE AND REAL ESTATE RELATED
INVESTMENTS
1. MORTGAGES, TRUST DEEDS, ETC.
Any mortgage, trust deed, or other security instrument (collectively,
"Instrument") evidencing a secured interest in real estate and/or improvement
thereon (collectively, "Property") that 1ST ATLANTIC delivers to CUSTODIAN
pursuant to this Agreement shall be accompanied by the following additional
documents:
a) Any note or bond secured thereby, duly endorsed.
b) If such Instrument does not secure a note or bond, an assignment
of the Instrument, with the name of the assignee left blank.
c) An attorney's opinion as to title, or a certificate or policy
issued by a title insurance company, stating or showing as of the
date thereof such Instrument to be a first lien upon the real
estate described therein.
d) A certificate of insurance adequately protecting against any
reasonably foreseeable hazard, showing the amount of such
insurance, the hazards insured against, and the expiration date or
dates of such policy.
e) Whenever the delivery of any Instrument to the CUSTODIAN is
required by the terms of this Agreement and such Instrument is on
file pursuant to or is required to be filed with a public officer
by the statutes of any state, a copy of such Instrument, duly
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certified by any officer of 1ST ATLANTIC to be a true copy
thereof, may be delivered in lieu of such original Instrument.
For purposes of this Section II.C.1., an Instrument shall not be deemed
to be other than a first lien upon the property covered thereby by reason of
the existence of taxes or assessments that are not delinquent, instruments
creating or reserving mineral, oil, or timber rights, rights of way, joint
driveways, sewer rights, rights in walls, nor by reason of building
restrictions or other restrictive covenants, nor when such real estate is
subject to lease in whole or in part whereby rents or profits are reserved to
the owner.
2. MODIFICATIONS TO INSTRUMENTS
1ST ATLANTIC and the owner of any real estate subject to any Instrument
being maintained with CUSTODIAN may at any time before sale at foreclosure of
the real estate described therein, whether such Instrument be in default or
otherwise, by agreement in writing, change or modify the terms thereof in
respect to, among other things, the rate of interest, the time or manner of
the payment of principal or interest, whether in default or thereafter
becoming due, and the amount of principal. A copy of any such agreement shall
be filed forthwith with the CUSTODIAN.
3. TAXES
1ST ATLANTIC agrees to pay and discharge any and all taxes, assessments
and other governmental charges (collectively, "Taxes") levied upon or against
any real estate covered by any Instrument maintained with CUSTODIAN, if not
paid by the person or corporation under the primary duty of paying the same,
within six months after the same become delinquent. If any Taxes are not paid
within six months after they become delinquent, CUSTODIAN is hereby authorized
to pay and discharge the same; PROVIDED, however, if 1ST ATLANTIC shall notify
CUSTODIAN in writing that it or the owner of the real estate involved desires
to contest the validity of the Tax or the amount thereof, CUSTODIAN shall not
pay and discharge the same until the validity or amount thereof has been
determined by final judgment of a court of competent jurisdiction.
4. POSSESSION; SALE OR EXCHANGE OF PROPERTY
1ST ATLANTIC shall be entitled to the possession of any Property
maintained with CUSTODIAN, with full right to manage, repair, improve and
lease the same and to receive and retain the rents and income therefrom. In
the event 1ST ATLANTIC desires to sell any Property maintained with CUSTODIAN
hereunder, or exchange the same for any other qualified investment maintained
by CUSTODIAN, CUSTODIAN shall execute any instrument or instruments necessary
or appropriate to consummate such sale or exchange, and shall forward the same
to the person or persons that 1ST ATLANTIC shall designate; PROVIDED, however,
that if, as a result of the sale or exchange, the amount being maintained with
CUSTODIAN would fall below the amount of the required reserves, ATLANTIC
shall, before or at the time such sale or exchange is consummated, deliver,
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transfer or convey to CUSTODIAN additional assets so that upon the
consummation of the sale or exchange the amount being maintained with
CUSTODIAN shall equals or exceeds the required reserves.
D. DUTIES OF CUSTODIAN WITH RESPECT TO OTHER ASSETS
Unless and until CUSTODIAN receives contrary Proper Instructions from
1ST ATLANTIC, CUSTODIAN shall:
1. Detach from and present at the proper time for payment all coupons
and other income items that require presentation and that are held by
CUSTODIAN hereunder. All items of income from dividends and interest on
securities that are depository eligible (i.e., depositable with
Depository Trust Company and/or Federal Reserve Book Entry) shall be
credited to 1ST ATLANTIC's account and made available in federal funds
on the date succeeding the date such items are payable without regard to
actual receipt by CUSTODIAN; income on non-eligible securities,
physically held in CUSTODIAN's vault, shall be credited to 1ST
ATLANTIC's account upon receipt of funds from the paying agent.
CUSTODIAN, at its own expense, shall undertake such procedures as may be
necessary to collect such items of income as are not actually received
by CUSTODIAN and the credit of such items to 1ST ATLANTIC's account
shall be subject to final payment; provided, however, that 1ST ATLANTIC
shall collect all interest and principal payments made on mortgages and
real estate properties.
2. Present for payment all securities which may mature or be called,
redeemed, retired or which may otherwise become payable and credit the
proceeds thereof, and any other principal payments, to the account of
1ST ATLANTIC and furnish 1ST ATLANTIC with a description of the source
of each such payment. 1ST ATLANTIC shall be credited, and federal funds
made available, on the maturity date of short-term securities
customarily settled on a "same-day" basis. Redemptions shall be credited
to the account of 1ST ATLANTIC upon collection and federal funds made
available on the next business day.
E. PROTECTION AGAINST CLAIMS BY CUSTODIAN'S CREDITORS
CUSTODIAN shall take all reasonable and appropriate steps to help
protect 1ST ATLANTIC's assets against claims by CUSTODIAN's creditors in the
event of CUSTODIAN's insolvency, bankruptcy or similar circumstances,
including the daily investment of cash advances in temporary overnight
investments, as directed by 1ST ATLANTIC's investment adviser.
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III. PROCEDURES IN CASE OF DEFAULT BY 1ST ATLANTIC
A. COLLATERAL SECURITY
The assets maintained with CUSTODIAN shall be held, subject to 1ST
ATLANTIC's right of withdrawal, by CUSTODIAN so long as any liability exists
upon any of the Certificates secured thereby. Such assets shall be deemed
delivered to CUSTODIAN as collateral security for the payment by 1ST ATLANTIC
to Certificate holders of cash payments due under the terms and conditions of
such Certificates.
B. CURING DEFAULTS
If 1ST ATLANTIC fails to make any cash payment provided in any
outstanding Certificate, CUSTODIAN shall, upon the written request of the
holder, and after giving thirty days' written notice of its intention to do
so, use so much of the assets maintained with it as is necessary to pay and
discharge the liability if not cured by the end of the thirty day period. To
that end, CUSTODIAN shall have the right to sell any asset then held by it and
not due at probate sale, or at public auction, giving 1 ATLANTIC at least ten
days' written notice of the time, place, and manner of sale; to collect any
asset then due or which becomes due during the continuance of said default,
with or without suit, and to foreclose any asset then subject to foreclosure
in CUSTODIAN's name or in that of 1ST ATLANTIC, giving to 1ST ATLANTIC at
least five days' written notice of the time and place of the sale. CUSTODIAN
shall apply the proceeds realized, or so much as shall be necessary, to the
discharge of the liability in default. If 1ST ATLANTIC in good faith disputes
the right of any person under any Certificate to receive it or the amount
claimed and so notifies CUSTODIAN in writing thereof, no default, for the
purposes of this section, shall be deemed to arise until such dispute is
settled between the parties thereto or is determined by final judgment of a
court of competent jurisdiction.
C. NOTIFICATION
If CUSTODIAN shall determine to apply any asset maintained with it to
the discharge of a default by the collection, sale or foreclosure of the same,
it shall forthwith notify 1ST ATLANTIC in writing of its intention so to do,
identifying the asset or assets, and shall thereafter be entitled to all then
unpaid interest, dividends or other income due or to become due thereon,
PROVIDED that if any of said assets be not sold, collected or foreclosed, 1ST
ATLANTIC, upon the discharge of the default, shall become entitled to any such
interest, dividends or other income not applied in the discharge of such
default.
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D. ATTORNEY-IN-FACT
For the purpose of realizing the amount necessary to discharge the
default, 1ST ATLANTIC does hereby irrevocably make, constitute and appoint
CUSTODIAN its attorney-in-fact in respect to assets maintained with it to
complete and to make or execute any assignments, transfers, endorsements,
cancellations, satisfactions, collections, and settlements, in the name of 1ST
ATLANTIC or otherwise, and to do any and all acts consistent with CUSTODIAN's
obligations under this Agreement.
E. BANKRUPTCY
Should 1ST ATLANTIC be adjudged a bankrupt under the Federal Bankruptcy
Act or insolvent by final judgment or decree of any court of competent
jurisdiction, and a trustee in bankruptcy or a general receiver be appointed,
CUSTODIAN shall, in and when authorized by an order of the court, surrender
and deliver all assets then maintained with it hereunder, subject to any legal
claims which it may have thereon for compensation for services or for
reimbursement for unpaid expenses or advancements, to such trustee or
receiver, and shall thereupon be relieved of any and all further duties in
respect thereto; PROVIDED, however, that such surrender and delivery shall be
without prejudice to any rights which Certificate holders may have in said
assets to have them applied according to the usual rules and principles of law
applicable to collateral security.
IV. REPORTS AND INSPECTIONS
A. BY AND OF CUSTODIAN
1. ACTIVITY REPORTS
CUSTODIAN shall furnish to 1ST ATLANTIC daily activities advices
including projected settlement reports as well as fail control reports and
trades processed reports. CUSTODIAN shall furnish a monthly statement of
account reflecting all activity during the previous month and a priced asset
listing of all assets held at the end of the month. CUSTODIAN will also
furnish an inventory of assets at such reasonable times as requested by 1ST
ATLANTIC.
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2. CONTROL ACCOUNTS
CUSTODIAN shall maintain control accounts for the assets of 1ST ATLANTIC
and shall update the control records of these accounts for all securities
payments.
3. INVENTORY AND INSPECTION OF ASSETS
Upon 1ST ATLANTIC's written request, CUSTODIAN shall furnish 1ST
ATLANTIC or 1ST ATLANTIC's public accountants or other examiners with a
certified inventory of all assets then held hereunder at CUSTODIAN's premises
or on its agents, premises and/or make assets available for inspection in
connection with 1ST ATLANTIC's annual audits or other periodic examinations,
other than assets that are placed with a Securities System as permitted
hereby.
In addition, CUSTODIAN shall provide 1ST ATLANTIC at such times as 1ST
ATLANTIC may reasonably request, with reports by CUSTODIAN or by independent
public accountants on CUSTODIAN's own accounting system, internal accounting
control and procedures for safeguarding securities, including securities
deposited and/or maintained in a Securities System, relating to the services
provided by CUSTODIAN under this Agreement. Such reports shall be of
sufficient scope and in sufficient detail as may reasonably be required by 1ST
ATLANTIC to provide reasonable assurance that any material inadequacies would
be disclosed by such examination, and, if there are no such inadequacies, the
reports shall so state. CUSTODIAN shall provide such reports automatically
whenever there is a material change in any such system.
4. INSURANCE; FINANCIAL CONDITION
CUSTODIAN shall furnish to 1ST ATLANTIC upon request information
concerning the insurance or bonding coverage applicable to 1ST ATLANTIC's
assets. In addition, CUSTODIAN will promptly inform 1ST ATLANTIC in the event
of any material adverse change in its financial condition or any loss of the
assets of 1ST ATLANTIC.
5. RECORDS AND INSPECTION OF RECORDS
CUSTODIAN shall create and maintain all records relating to its
activities and obligations under this Agreement in such manner as will meet
the obligations of 1ST ATLANTIC under 1940 Act, with particular attention to
Section 31 thereof and the rules thereunder. All such records shall be the
property of 1ST ATLANTIC and shall at all times during the regular business
hours of CUSTODIAN be open for inspection by duly authorized officers,
employees or agents of 1ST ATLANTIC and employees and agents of the SEC.
6. MORTGAGE-RELATED DOCUMENTS
1st ATLANTIC may from time to time request access to mortgage-related
documents on deposit with CUSTODIAN and may temporarily borrow them from
CUSTODIAN for copying, examination, title searches and similar purposes. 1ST
ATLANTIC shall leave written evidence of such borrowing with CUSTODIAN, signed
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by two officers of 1ST ATLANTIC, and shall promptly return such documents when
it has finished using them.
B. BY AND OF 1ST ATLANTIC
1. MONTHLY REPORTS
1ST ATLANTIC shall make monthly reports to CUSTODIAN stating, as of the
last day of the preceding month:
a) the aggregate value of qualified investments on deposit with
CUSTODIAN, and
b) the aggregate amount of reserves required to be maintained in
respect of all outstanding Certificates.
The first monthly statement every year shall be made and certified by an
independent public accountant and the others shall be verified by an
authorized person from 1ST ATLANTIC. CUSTODIAN may conclusively rely upon such
statements, unless it has knowledge or notice that such statements are not
true.
CUSTODIAN shall promptly examine the monthly reports submitted by 1ST
ATLANTIC and compare the amount of required reserves to the value of assets
actually on deposit with it. If it appears that the amount of assets on
deposit with CUSTODIAN are less than required hereunder, it shall within 30
days of ascertaining such fact notify 1ST ATLANTIC and the SEC in writing of
such deficiency.
2. CERTIFICATIONS
1st ATLANTIC shall, from time to time, provide CUSTODIAN with written
certifications of such information and data as CUSTODIAN shall reasonably
request to permit CUSTODIAN to discharge its duties and responsibilities under
this Agreement, which information may include, without limitation, the reports
specified in Section IV.B.1. above. CUSTODIAN shall be entitled to rely on the
information and data set out in the written certifications provided by 1st
ATLANTIC until such time as 1st ATLANTIC files a subsequent certification with
CUSTODIAN, unless it has knowledge or notice that such certification is not
true.
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V. PROXIES
CUSTODIAN shall deliver immediately to 1ST ATLANTIC all proxies, notices
and communications relating to securities held by it hereunder, which it may
receive from sources other than 1ST ATLANTIC. Unless otherwise directed in
writing by an Authorized Person of 1ST ATLANTIC, CUSTODIAN shall cause such
proxies to be executed in blank by the registered holder of such securities,
if the securities are registered in the name of CUSTODIAN or its nominee,
without indicating the manner in which such proxies are to be voted.
1ST ATLANTIC hereby authorizes CUSTODIAN to provide 1ST ATLANTIC's name,
address, and share position to requesting companies whose securities 1ST
ATLANTIC owns.
VI. CUSTODIAN FEES
1ST ATLANTIC shall pay to CUSTODIAN the fees and charges set forth in
Exhibit A of this Agreement, as amended in writing from time to time by the
Parties. CUSTODIAN agrees that it shall have no lien at any time upon any
assets held by it pursuant to this Agreement.
VII. STANDARD OF CARE
CUSTODIAN shall not be liable on account of any action or omission in
connection with the investments of 1ST ATLANTIC, except for CUSTODIAN's own
negligence or willful misconduct, PROVIDED that in any and every case where
CUSTODIAN makes payment for the purchase of securities for the account of 1ST
ATLANTIC in advance of receipt of the securities purchased in the absence of
specific written instructions from 1ST ATLANTIC to so pay in advance,
CUSTODIAN shall be absolutely liable to 1ST ATLANTIC for such securities to
the same extent as if the securities had been received by CUSTODIAN.
Except as may arise from CUSTODIAN's own negligence or willful
misconduct or that of its agents or employees, or as otherwise provided in
this Agreement, CUSTODIAN shall be without liability to 1ST ATLANTIC for any
loss, liability, claim or expense resulting from or caused by: (i) events or
circumstances beyond the reasonable control of CUSTODIAN or Securities System
or any agent or nominee of any of the foregoing, including, without
limitation, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions,
acts of war or terrorism, riots, revolutions, work stoppages, natural
disasters or other similar events or acts; (ii) errors by 1ST ATLANTIC or its
investment adviser in their instructions to CUSTODIAN provided such
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instructions have been in accordance with this Agreement; (iii) the insolvency
of or acts or omissions by a Securities System, except as provided in Section
II.A.4. hereof; (iv) delays or inability to perform its duties due to any
disorder in market infrastructure with respect to any particular security or
Securities System, except as provided pursuant to Sections II.A.4. hereof; and
(v) compliance with any provision of any present or future law or regulation
or order of the United States of America, or any state thereof, or any other
country, or political subdivision thereof or of any court of competent
jurisdiction.
VIII. NAMES AND SIGNATURES OF AUTHORIZED PERSONS
A. AUTHORIZED PERSONS
1ST ATLANTIC shall, from time to time, provide CUSTODIAN with a
certified list designating the persons authorized to act hereunder for and on
behalf of 1ST ATLANTIC along with specimen signatures and the title of said
persons (each, an "Authorized Person"). CUSTODIAN is authorized to rely and
act upon Proper Instructions signed by such Authorized Person or Persons in
the form described in paragraph B, as were so designated in the most recent
certified list from 1ST ATLANTIC which has been delivered to CUSTODIAN and
received by it.
B. PROPER INSTRUCTIONS
"Proper Instructions" as used throughout this Agreement means a writing
signed or initialed by one or more Authorized Person or Persons as the Board
of Directors of 1ST ATLANTIC shall have from time to time authorized. Each
such writing shall set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for which such action
is requested. Oral instructions will be considered Proper Instructions if
CUSTODIAN reasonably believes them to have been given by a person authorized
to give such instructions with respect to the transaction involved; PROVIDED,
however, that in no event may CUSTODIAN rely on oral instructions where the
speaker fails to identify him or herself using the pre-established
identification code, which the Parties shall establish for this purpose prior
to CUSTODIAN's reliance on any oral instruction. 1ST ATLANTIC shall cause all
oral instructions to be confirmed in writing by either telecopier or telex.
Upon receipt of a certificate of the Secretary or an Assistant Secretary as to
the authorization by the Board of Directors of 1ST ATLANTIC, accompanied by a
detailed description of procedures approved by the Board of Directors, Proper
Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Board of Directors
and CUSTODIAN are satisfied that such procedures afford adequate safeguards
for 1ST ATLANTIC's assets.
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IX. TERM AND TERMINATION OF AGREEMENT
The term of the Agreement shall begin on __________, 1998, and shall
continue until terminated in accordance with the terms thereof, PROVIDED that
this Agreement shall not become effective or continue in effect unless
initially approved or continued at least annually, as the case may be, by the
vote of a majority of directors of 1ST ATLANTIC, including a majority of those
directors who are not parties to this Agreement or "interested persons" of any
party to the Agreement, within the meaning of the 1940 Act. 1ST ATLANTIC may
terminate this Agreement at any time by written notice thereof and appoint a
successor CUSTODIAN. The written notice of termination must be delivered
together with a copy of the resolution of 1ST ATLANTIC's Board of Directors
authorizing such termination, and certified by the Secretary and Assistant
Secretary of 1ST ATLANTIC, by registered mail to CUSTODIAN.
CUSTODIAN may resign as custodian by giving 1ST ATLANTIC sixty days'
written notice of such termination by registered mail addressed to 1ST
ATLANTIC at its principal place of business. 1ST ATLANTIC shall use its best
efforts to appoint a successor CUSTODIAN within six months of receiving the
notice of resignation. If 1ST ATLANTIC fails to so appoint a successor,
CUSTODIAN may petition any competent court for the appointment of a successor
custodian. If the appointee and 1ST ATLANTIC fail to agree upon the
compensation to be paid to the appointee, the court may fix the amount.
No substitution or resignation shall become effective until a successor
CUSTODIAN has been appointed and has accepted such appointment. Upon service
of written notice of such appointment and acceptance, CUSTODIAN shall deliver
all securities and other assets belonging to 1ST ATLANTIC held by it to the
successor custodian.
Any successor CUSTODIAN appointed hereunder shall meet the
qualifications of Section 26(a)(1) of the 1940 Act, as administered by the
SEC.
Upon termination hereof, 1ST ATLANTIC shall pay to CUSTODIAN such
compensation as may be due as of the date of such termination.
X. SUCCESSOR CUSTODIAN
A. AUTOMATIC SUCCESSION
Any bank or trust company into which CUSTODIAN or any successor
custodian may be merged or converted or with which it or any successor
custodian may be consolidated or any bank or trust company resulting from any
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merger, conversion or consolidation to which CUSTODIAN or any successor
custodian shall be a party or any bank or trust company succeeding to the
business of CUSTODIAN or any successor custodian, shall be substituted as
successor custodian under this Agreement without the execution of any
instrument or any further act on the part of 1ST ATLANTIC or CUSTODIAN or any
successor custodian.
▇. ▇▇▇▇▇▇
Any such successor custodian shall have all powers, duties, and
obligations of the preceding CUSTODIAN under this Agreement and any amendments
thereof. CUSTODIAN shall, upon termination, deliver to such successor
custodian at the office of CUSTODIAN, duly endorsed and in the form for
transfer, all securities and other assets of 1ST ATLANTIC then held by it or
its agents, and shall transfer to an account of the successor custodian all of
the securities of 1ST ATLANTIC held in a Securities System.
XI. DISCLOSURE OF INFORMATION
1ST ATLANTIC and CUSTODIAN agree that the information communicated by
either Party to this Agreement to the other will be regarded as having been
disclosed in confidence and that neither Party will use such information
except in rendering the services covered in this Agreement and except as may
be disclosed pursuant to an inspection of documents and/or securities or
response to a request for information made pursuant to an order of a court of
competent jurisdiction or made by a governmental agency.
XII. CONSTRUCTION OF AGREEMENT
CUSTODIAN and 1ST ATLANTIC acknowledge that they have read this
Agreement, including Exhibit A, physically attached and made a part hereof,
and agree that this Agreement constitutes the entire understanding, agreement
and contract between them and supersedes any and all prior or contemporaneous
oral or written communications or representations with respect to their rights
and obligations and the subject matter hereof, and any and all such prior or
contemporaneous oral or written communications or representations are merged
herein. This Agreement shall not be modified, interpreted, supplemented or
amended or in any way revised or altered, except by an instrument in writing
signed by the duly authorized officers of the parties hereto. It is understood
that this Agreement shall be governed by and construed in accordance with the
laws of the State of Maryland.
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XIII. NOTICES
All notices, requests, or other communications ("notices") herein
required or provided for hereunder shall be in writing and shall be deemed to
have been duly given four days after mailing, if mailed by United States
certified or registered mail, postage prepaid, return receipt requested, to
the Parties or their representatives at the following addresses:
For CUSTODIAN:
Attn:
For 1ST ATLANTIC: 1ST ATLANTIC GUARANTY CORPORATION
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed on their behalf by their duly authorized officers named below as of
the day and year first above written.
ATTEST:
_____________________________ By_____________________________
Title__________________________
ATTEST: 1ST ATLANTIC GUARANTY CORPORATION
_____________________________ By_____________________________
Title__________________________
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EXHIBIT A
SCHEDULE OF FEES
[To be negotiated, from time to time.]
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