SPECIAL CUSTODY ACCOUNT AGREEMENT
(Short Sales)
AGREEMENT, dated as of December 23, 2009, by and among PFPC Trust Company,
in its capacity as custodian hereunder ("Custodian"), ACAP Strategic Fund (the
"Customer"), and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & 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,
Custodian 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, Custodian acts as custodian of certain assets of Customer pursuant
to a contract between the Custodian and Customer dated as of December 1, 2009
(the "Custodian Agreement") and holds such assets in an account (the "Custodial
Account") and is further prepared to act as custodian to hold Collateral as
defined below pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, be it agreed as follows:
1. As used herein, the following terms have the following meanings:
"Adequate Margin" shall mean such Eligible Collateral as is adequate in
Broker's judgment under the Margin Rules and the internal policies of Broker.
For purposes hereunder, Eligible Collateral shall be valued by Broker at
Broker's sole discretion.
"Advice from Broker" or "Advise" means a written notice sent by Broker and
delivered to Customer and/or Custodian or transmitted by a facsimile sending
device and which is reasonably believed by Customer and/or Custodian in good
faith to be signed by a person designated by Broker in writing as authorized to
give an Advice from Broker on behalf of Broker, except that for any of the
following purposes in connection with a notice to Customer only 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; and (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 Custodian. An officer of
Broker will certify to Custodian 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 are 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. dollars), U.S. government securities
maintained in the Treasury/Reserve Automated Debt Entry System ("TRADES") or
other securities acceptable to Broke and securities having an industry CUSIP,
SEDOL or ISIN number that are either in the possession of Custodian or credited
to the account of Custodian.
"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 Custodian and/or
Broker or transmitted by a facsimile sending device and which is reasonably
believed by Custodian 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 Custodian and Broker the names and signatures of those
persons authorized to Instruct Custodian 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 Custodian on behalf of Broker, of (l)
a wire transfer to Custodian or 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 Custodian for credit to Broker, or
(3) a transfer of funds from any of Broker's accounts maintained at Custodian.
"Receipt of Securities" means receipt by Custodian 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 Custodian for credit to the Special Custody Account.
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. Custodian shall open an account on its books entitled "Special Custody
Account for margin and short sales for ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated as
pledgee of ACAP Strategic Fund" (referred to herein as "Special Custody
Account"). Collateral shall be released only in accordance with this Agreement.
Custodian agrees to release Collateral held in the Special Custody Account to
Customer only upon receipt of and as provided in an 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 Custodian to make such substitution
or exchange. Any collateral so released to Customer from the Special Custody
Account shall be transferred to the Custodial Account. 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 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, Custodian
hereby agrees to comply with entitlement orders and other instructions of Broker
with respect to the Special Custody Account and any Collateral without further
consent of Customer. Customer hereby consents to such agreement.
4. Customer agrees to instruct Custodian 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 is to be transferred to and
deposited in the Special Custody Account as Collateral. Such Eligible Collateral
and any other Collateral so transferred (i) will be held by Custodian in, and
credited by Custodian 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. Custodian will hold the
Collateral in the Special Custody Account separate and apart from any other
property of Customer which may be held by Custodian, subject to the interest
therein of Broker as the pledgee thereof in accordance with the terms of this
Agreement. The security interest of Broker will terminate at such time as
Collateral is released as provided herein. Custodian shall have no
responsibility for the validity, priority or enforceability of any security
interest granted by Customer to Broker.
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.
Custodian will make available to Broker and Customer (via access to
Custodian's web browser) a daily statement of (i) the amount and kind of assets
maintained in the Special Custody Account and (ii) any transactions in the
Special Custody Account, including deposits of assets therein and releases of
assets therefrom, by the business day after the business day to which such
statement relates. In the event that, but only so long as, such web access is
not available to Broker or Customer, Custodian shall provide a comparable daily
statement to Broker and Customer in writing upon notice from Broker or Customer
to Custodian that such access is not available. Upon the request of Customer,
Broker shall Advise Custodian and Customer of any excess of Collateral in the
Special Custody Account. Upon Customer's request, Broker shall Advise Custodian
to transfer such excess Collateral out of the Special Custody Account to the
Custodial Account. Custodian at no time has any responsibility to require or
request Broker to, or for determining whether Broker should or should not,
Advise Custodian as provided in the immediately preceding sentence.
5. For the avoidance of doubt, Broker shall have no right pursuant to this
Agreement, as a secured party or otherwise, with respect to those assets of
Customer that are held by the Custodian outside of the Special Custody Account;
provided, however, that nothing herein shall be construed as a waiver of
Broker's right to seek recourse against such assets as a creditor under the
Customer Agreement. Customer represents and warrants to Broker that securities
included at any time in the Collateral shall be in good deliverable form (or
Custodian 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 Custodian, except U.S. Treasury securities shall be
held in a TRADES Participant's Securities Account of the Custodian at a Federal
Reserve Bank. The Custodian represents that Collateral will not be subject to
any lien, charge, security interest or other right or claim of the Custodian or
any person claiming through the Custodian. Custodian 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. Custodian 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. Custodian 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 Custodian 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. Custodian at no time has any responsibility to
determine whether Adequate Margin is maintained.
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 ▇▇▇▇ 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 ▇▇▇▇ such order as being "long."
Any sell order which Customer shall designate as being for long account as above
provided is for securities then owned by Customer.
9. (a) In the event of default by Customer of any obligation hereunder or
under the Customer Agreement and the expiration of any applicable cure or grace
period, 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 Custodian 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. Custodian is not a party to,
nor bound by, and shall be deemed to have no knowledge of, the terms of the
Customer Agreement. Except as provided herein or otherwise notified by Broker in
an Advice from Broker Custodian shall have no responsibility to determine the
existence of, or take any action in respect of, any such Customer default or
Insolvency.
(b) Any sale of Collateral made by Broker 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. Custodian 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 Custodian.
11. Custodian's duties and responsibilities with respect to the Special
Custody Account and the Collateral from time to time held therein shall be only
those expressly set forth in this Agreement. In matters concerning or relating
to this Agreement, Custodian shall not be responsible for compliance with any
Margin Rules or the regulations of the OCC. Custodian shall be entitled to rely
upon any court order, entered by a court of competent jurisdiction over the
Special Custody Account and regarding the Special Custody Account, until such
time that such order is overturned, suspended, withdrawn or is no longer
applicable. Custodian shall not be liable for the acts or omissions of any of
the other parties to this Agreement. Neither Broker, Customer nor Custodian
shall be responsible or liable for any losses resulting from nationalization,
expropriation, devaluation, seizure, or similar action by any governmental
authority, de facto or de jure; or enactment, promulgation, imposition or
enforcement by any such governmental authority of currency restrictions,
exchange controls, levies or other charges affecting the property in the Special
Custody Account; or acts of war, terrorism, insurrection or revolution; or acts
of God; or any other similar event beyond the reasonable control of such party.
Neither Broker, Customer nor Custodian shall be liable for punitive, indirect
special or consequential damage even if advised of the possibility or likelihood
thereof. With respect to any losses or liabilities, Custodian shall be protected
in acting or not acting pursuant to any Instructions, Advices or notices from
Customer or Broker believed by Custodian in good faith to be genuine and
authorized, except in the case of Custodian's bad faith, negligence or willful
misconduct. Custodian shall have no obligation or responsibility to question or
investigate any Advice from Broker or Instruction from Customer. Customer agrees
to indemnify Custodian for, and hold it harmless against, any loss, liability or
expense (including counsel fees) incurred by Custodian in connection with any
Instructions, Advices or notices from Customer or otherwise arising under this
Agreement, except to the extent such losses, claims, costs, damages, liabilities
or expenses are the result of Custodian's own negligence or willful misconduct
in the carrying out of Custodian's obligations under this Agreement. This
paragraph 11 shall survive the termination of this Agreement.
12. Neither Broker nor Custodian shall be liable for any losses, claims,
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 Custodian 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 Custodian's own, as the
case may be, negligence or willful misconduct.
13. No amendment of this Agreement shall be effective unless in writing and
signed by an authorized officer of each of the parties hereto.
14. This Agreement may be executed in one or more counterparts, all of
which together shall constitute but one and the same instrument.
15. It is agreed that, notwithstanding any language to the contrary in
Custodian's form of confirmation, Custodian holds the Collateral deposited in
the Special Custody Account for the benefit of Broker as pledgee and secured
party hereunder, not in the capacity of escrow agent.
16. Customer represents and warrants that the Collateral will not be
subject to any other liens or encumbrances, other than to Broker in accordance
with the Customer Agreement and this Agreement.
17. Any of the parties hereto may terminate this Agreement upon thirty (30)
days prior written notice 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 by Broker of such Collateral pursuant to the provisions of this
Agreement or as otherwise required by applicable rules of such national
securities exchanges of which Broker may be a member, as applicable. This
Agreement shall also terminate in the event of the termination of the Custodian
Agreement, following thirty (30) days prior written notice from Custodian or
Customer to the other parties hereto. Upon termination of this Agreement by any
party, any Collateral in the Special Custody Account that has not been released
by Broker shall be transferred, within thirty (30) days of such termination, to
a successor custodian designated in writing by Customer and acceptable to Broker
18. 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 Custodian, to:
PFPC Trust Company
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Customer, to:
SilverBay Capital Management LLC
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇. ▇▇▇▇▇ Arnedt
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
(c) If to Broker, to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
Prime Brokerage Services
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: PB Custody - ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
19. 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.
20. This Agreement is being entered into for the exclusive benefit of
Broker, Customer and Custodian. There are no third party beneficiaries to this
Agreement. Nothing in this Agreement shall be construed to benefit any person
other than Broker, Customer or Custodian, as the case may be.
21. In the event of any inconsistency between the provisions of this
Agreement and the other provisions of the Customer Agreement, as between
Customer and Broker, this Agreement will prevail. Notwithstanding anything in
this Agreement to the contrary, Custodian is not a party to, nor bound by, and
shall be deemed to have no knowledge of, the terms of the Customer Agreement.
PFPC Trust Company
as Custodian
By:
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Name:
Title:
ACAP Strategic Fund
as Customer
By:
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Name:
Title:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
as Broker
By:
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Name:
Title: