Exhibit 23(g)(3)
SPECIAL CUSTODY ACCOUNT AGREEMENT
AGREEMENT (this "Agreement"), dated as of December 21, 2005,
by and among Mellon Bank, N.A., in its capacity as Custodian hereunder
("Custodian"), Mellon Institutional Investment Trust, on behalf of its series,
Mellon Institutional Market Neutral Fund ("Customer") and BEAR, ▇▇▇▇▇▇▇
SECURITIES CORP. ("Broker").
WHEREAS, Broker is a securities broker-dealer and is a member
of several national securities exchanges; and
WHEREAS, Customer desires from time to time to execute various
securities transactions, including short sales (which are permitted by the
investment policies of Customer), and in connection therewith has executed the
Customer Agreement (as defined herein) which provides for margin transactions;
and
WHEREAS, to facilitate Customer's transactions in Customer's
account with Broker in short sales of securities, Customer and Broker desire to
establish procedures for the compliance by Customer and Broker, as applicable,
with the provisions of Regulation T of the Board of Governors of the Federal
Reserve System, the margin rules of various exchanges and other applicable
margin requirements ("Margin Rules") and other laws, rules and regulations
("Other Regulations"); and
WHEREAS, Custodian, as custodian of certain assets of Customer
pursuant to the Custodian Contract (as defined herein) is prepared to act as
custodian to hold Collateral in the Special Custody Account (as each such term
is defined below);
NOW, THEREFORE, Customer, Custodian and Broker hereby agree as
follows:
1. DEFINITIONS
As used herein, the following terms have the following
meanings:
(a) "Adequate Margin" means Collateral having such value as is
adequate, in Broker's judgment under the Margin Rules and the internal policies
of Broker, to secure the Secured Obligations.
(b) "Advice from Broker" or "Advice" means a written notice or
instruction provided by Broker to Customer or Custodian by mail, telegram,
personal delivery or facsimile, provided, that in respect of Customer only,
Advice also means a notice, instruction or information provided, or made
available to, Customer by electronic mail or other internet or electronic means,
including without limitation, by providing Customer with access to, or use of,
an internet site, or an on-line or other electronic system for account access,
trading, order entry or other service, and provided further, that
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Advice for the deposit or posting of initial or additional Collateral or with
respect to Broker's ability to effect a short sale for Customer may be given
orally. With respect to any short sale or Closing Transaction, the Advice from
Broker may be communicated by means of the standard confirmation in use by
Broker and provided or made available to Customer or Custodian, as applicable.
Anything herein to the contrary notwithstanding, any Advice from Broker
communicated to Custodian, as aforesaid, and directing transfer or redemption of
any Financial Asset comprising the Collateral shall constitute an Entitlement
Order of Broker. With respect to substitutions or releases of Collateral, Advice
from Broker means a written notice signed by Broker and sent or transmitted to
Custodian. An authorized agent of Broker will certify to Customer and Custodian
the names and signatures of those employees who are authorized to sign an Advice
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.
(c) "Closing Transaction" is a transaction in which Customer
purchases securities which have been sold short.
(d) "Collateral" shall mean each of (i) the Special Custody
Accounts; (ii) the assets, properties, rights and items (whether now owned or
existing or hereafter acquired or coming into existence) that are on the date of
this Agreement or may at any time and from time to time hereafter be deposited
by or on behalf of Customer to, held, contained, evidenced, represented or
reflected in or by, or related to or arising from, any Special Custody Account,
including, in each case, without limitation, (A) any and all Certificated
Securities, Uncertificated Securities, Federal Book Entry Securities, other
Securities, Financial Assets, Security Entitlements, other Investment Property,
Instruments, Accounts, General Intangibles, Documents, Securities Accounts and
other collateral accounts, Money, Proceeds of any Collateral and other property,
(B) any and all assets, properties, rights and items of the types described in
clause (A) above issued or distributed to Customer with respect to any
Collateral as dividends, interest payments and other distributions or as a
result of any amendment of the certificate of incorporation or other charter
documents, merger, consolidation, redesignation, reclassification, purchase or
sale of assets, dissolution, or plan of arrangement, compromise or
reorganization of the issuer of any Collateral, and (C) any rights incidental to
the ownership of any Collateral, including voting, conversion and registration
rights and rights of recovery for violations of applicable securities laws; and
(iii) any Proceeds of any of the foregoing, including without limitation, to the
extent not otherwise covered above, the proceeds of the exercise, redemption,
sale or exchange of any Collateral.
(e) "Custodian Contract" means the agreement by and between
Custodian and Customer, pursuant to which Custodian provides general custodial
services to Customer and pursuant to which the Special Custody Account has been
established.
(f) "Customer Agreement" means the Institutional Account
Agreement, among Customer, Broker and the affiliates of Broker party thereto, as
in effect from time to time or any successor or replacement agreement thereto.
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(g) "Default" has the meaning assigned to that term in
Section 6.
(h) "DTC" means The Depository Trust Company or any successor
thereto.
(i) "DTC Participant" means any Person that is eligible to
maintain, and maintains, one or more accounts with the DTC.
(j) "Eligible Assets" means, collectively, any and all "margin
securities" (as defined under Regulation T) as Broker shall from time to time
Advise Customer are acceptable to Broker. For the avoidance of doubt, cash shall
not constitute an Eligible Asset.
(k) "Fed" means the Federal Reserve Bank.
(l) "Fed Member" means any Person that is eligible to
maintain, and maintains, one or more book-entry accounts in the name of such
Person with the Fed.
(m) "Federal Book Entry Regulations" means the provisions for
the creation and perfection of security interests in Federal Book Entry
Securities contained in (or contained in regulations substantially identical to)
Subpart O, 31 C.F.R. ss. 306.115 through ss. 306.122.
(n) "Federal Book Entry Securities" means Securities and other
Collateral maintained in the form of entries on the records of the Fed.
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(o) "Insolvency" means that: (i) either Customer or Custodian
shall generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or (ii)(A) any proceeding shall be
instituted by or against Customer or Custodian seeking (under any law relating
to bankruptcy, insolvency or reorganization, relief of debtors or similar law,
whether now or hereafter from time to time in effect in the United States, any
State or political subdivision thereof or any other jurisdiction) (1) to
adjudicate it bankrupt or insolvent or (2) the liquidation, dissolution,
winding-up, reorganization, arrangement, adjustment, protection, relief or
composition of it or its debts or (3) the entry of an order for relief against,
or the appointment of a trustee, receiver, custodian, liquidator or similar
official for, it or any substantial part of its property and (B) in the case of
any such proceeding instituted against it (but not instituted by it) that is
being contested by it in good faith, either such proceeding shall remain
undismissed or unstayed for a period of 60 days or any of the actions sought in
such proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a trustee, receiver, custodian, liquidator or
similar official for, it or any substantial part of its property) shall occur;
or (iii) either Customer or Custodian shall take any corporate, partnership or
other action to authorize, or shall approve, consent to or acquiesce in, any of
the actions set forth above in this definition.
(p) "Instructions from Customer" or "Instructions" means a
request, direction or certification in writing signed by Customer and sent to
Custodian or Broker by mail, telegram, personal delivery or facsimile. An
officer of Customer will certify to Custodian and Broker the names and
signatures of those persons authorized to sign the Instructions, which
certification may be amended or transmitting from time to time. When used
herein, the term "Instruct" shall mean the act of sending an Instruction from
Customer.
(q) "NYUCC" means the Uniform Commercial Code as in effect
from time to time in the State of New York.
(r) "Person" means an individual, partnership, corporation,
firm, business trust, joint stock company, trust, unincorporated association,
joint venture, association, company, division of a corporation, governmental
authority or other entity of whatever nature.
(s) "Revised Article 8" means Article 8 of the NYUCC"
(including the corresponding, or successor, sections and provisions) as in
effect from time to time.
(t) "Revised Article 9" means Article 9 of the NYUCC
(including the corresponding, or successor, sections and provisions) or in
effect from time to time.
(u) "Right" means any lien, security interest, pledge, charge,
encumbrance, claim, setoff right, ownership or property right, title or interest
(including, without limitation, such as has been obtained by sale, transfer,
assignment, conveyance,
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contribution, exchange or other disposition) or other right, title or interest
of any kind (including, without limitation, such as are listed in the definition
of "Collateral").
(v) "Secured Obligations" means any and all obligations of
Customer to Broker from time to time outstanding, including without limitation
Obligations as defined in the Customer Agreement and any obligation hereunder.
(w) "Security Interest" has the meaning assigned to that term
in Section 2(b).
(x) "Special Custody Account" has the meaning assigned to that
term in Section 2(a).
The following terms have the respective meanings assigned in
the NYUCC: "Account," "Certificated Security," "Control," "Deliver," "Delivery,"
"Documents," "Entitlement Order," "Entitlement Holder," "Financial Asset,"
"General Intangibles," "Investment Property," "Money," "Proceeds," "Securities
Account," "Securities Intermediary," "Securities Intermediary's Jurisdiction,"
"Security," "Security Entitlement," and "Uncertificated Security".
2. SPECIAL CUSTODY ACCOUNTS.
(a) Opening Special Custody Accounts. Custodian shall open
one or (at the request of Broker) more separate special custody accounts, each
such account to be entitled "Special Custody Account for Bear, ▇▇▇▇▇▇▇
Securities Corp. as Pledgee of Mellon Institutional Investment Trust, on behalf
of its series, Mellon Institutional Market Neutral Fund" (each a "Special
Custody Account") and shall hold in each Special Custody Account all Eligible
Assets received by Custodian from time to time, pursuant to this Agreement, and,
to the extent not inconsistent herewith, the Custodian Contract, for deposit (as
Advised by Broker or Instructed by Customer) into such Special Custody Account.
Each Special Custody Account shall be a Securities Account in the name of
Customer and within the sole dominion and Control of Broker. Customer shall
deposit Eligible Assets into each Special Custody Account. Customer shall insure
that the value (as from time to time determined by Broker in its judgment
exercised in good faith and notified by Broker to Customer) of all Eligible
Assets from time to time on deposit in the Special Custody Account(s) is at
least equal to the Adequate Margin for the Secured Obligations (as from time to
time determined by Broker in its judgment exercised in good faith and notified
by Broker to Customer). Upon Advice that the value (so determined) of the
Eligible Assets in the Special Custody Account(s) is less than the Adequate
Margin for the Secured Obligations, Customer shall promptly deposit therein
additional Eligible Assets with a value (so determined) sufficient to remedy
such deficiency. Customer agrees to Instruct Custodian (and Custodian agrees to
comply with such Instructions) as to the Eligible Assets which Custodian is to
deposit and maintain in each Special Custody Account and is to identify on
Custodian's books and records as subject to Broker's Security Interest. All
Collateral shall be held by Custodian as agent of Broker and shall
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be released by Custodian only in accordance with the terms of this Agreement or
as required by applicable law.
(b) Security Interest. Customer hereby grants to Broker, for
the benefit of each Bear ▇▇▇▇▇▇▇ entity (as defined in the Customer Agreement),
a continuing lien on and security interest in all Collateral (the "Security
Interest") as collateral security for the payment and performance when due or
required to be performed (whether at the scheduled performance date, by
acceleration or otherwise) of the Secured Obligations, which Security Interest
shall, to the fullest extent provided by law of the State of New York, be a
first priority perfected security interest. The Collateral shall at all times be
held in the Special Custody Account in accordance with the terms of this
Agreement and, to the extent not inconsistent herewith, the Custodian Contract
and remain the property of Customer subject only to the extent of the interest
and rights therein of Broker as pledgee and secured party thereof and as
Entitlement Holder thereof as described herein. Such Security Interest shall
terminate at such time as Collateral is released from Special Custody Account as
provided herein. Each of Customer, Broker and Custodian hereby agrees that all
Collateral will be held for Broker by Custodian as Securities Intermediary, on
behalf of Broker separate and apart from any other property of Customer which
may be held by Custodian and such segregation may be accomplished on the books
and records of Custodian.
(c) Custodian Representations, Etc. Custodian represents,
warrants, covenants and agrees as follows:
(i) Custodian is and will at all times remain, and will at all
times maintain the Special Custody Account(s) and all other
Collateral in its capacity as, (A) a "bank" (as defined in
Section 3(a)(6) of the Securities Exchange Act of 1934, as
amended), (B) a Securities Intermediary with notice of
Broker's Security Interest, and (C) as appropriate, a DTC
Participant or a Fed Member. Custodian shall maintain all
Collateral in its possession or, as applicable, with the DTC,
the Fed or such other clearing corporation or depository in
accordance with market practice. Custodian shall insure that
all Collateral maintained by Custodian with or through the
DTC, the Fed, or any other clearing corporation or depository
is accuratelyreflected in Custodian's books and records in
accordance with this Agreement.
(ii) Custodian shall cause each Special Custody Account and
the Collateral contained therein or credited thereto to be
maintained separately on its books and records from all other
accounts, cash, assets, properties, rights and items of
Customer (including, without limitation, any other Special
Custody Account and other Collateral). Custodian shall not
deposit into any Special Custody Account any cash, assets,
properties, rights or items other than in accordance with this
Agreement.
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(iii) This Agreement is the legal, valid and binding
obligations of Custodian, enforceable against Custodian in
accordance with its respective terms.
(iv) The Collateral is not, and will not be, subject to (and
Custodian hereby irrevocably waives) any Right in favor of
Custodian or any Person claiming through Custodian (other than
the Security Interest and the Rights of Customer permitted
pursuant to this Agreement) except for a lien for Custodian's
fees, expense and advances in connection herewith as provided
under the Custodian Contract. Custodian has not received any
notice, and does not know, of any Right of any Person in the
Collateral (other than the Security Interest and the Rights of
Customer permitted pursuant to this Agreement). Any Rights
that Customer may have in the Collateral shall be subject in
all respects to the Security Interest in accordance with this
Agreement.
(v) Each Special Custody Account is, and will (at all times
remain, under the sole dominion and Control of Broker. To that
end, all Certificated Securities and Uncertificated Securities
will, by virtue of being held under such dominion and Control,
be deemed to have been Delivered to Broker.
(vi) Custodian will treat all Collateral as Financial Assets,
and will treat Broker as entitled to exercise any and all
Rights, and to benefit from any and all property interests,
that comprise such Financial Assets (including, without
limitation, the Rights and property interests constituting
Security Entitlements with respect to such Financial Assets).
Custodian shall (A) hold all Collateral solely for the benefit
of Broker, subject to Broker's interests and rights as
pledgee, secured party and Entitlement Holder under Section
2(b) hereof, and of Customer (as provided for herein), (B)
comply with any and all Entitlement Orders originated by
Broker (without further consent by Customer, any other
Entitlement Holder or any other Person), (C) except as
otherwise provided for in this Agreement, accept instructions
as to disposition of the Collateral, only from Broker and from
no other Person (whether from Customer, any other Entitlement
Holder or other Person), (D) except as contemplated by Section
8(i), accept other Entitlement Orders only from Broker and
from no other Person (whether from Customer, any other
Entitlement Holder or other Person) and (E) not release to
Customer (except as otherwise specified in this Agreement),
dispose of, or pledge, re-pledge, hypothecate or
rehypothecate, or otherwise apply to the benefit of (except
otherwise specified in this Agreement) Custodian, Customer,
any other Entitlement Holder (other than Broker) or any other
Person, any of the Collateral without the prior written
consent of Broker.
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(vii) Custodian (A) shall insure that security interest in the
Collateral is not granted to another party on its books and
records other than as provided for herein, (B) shall, as
promptly as practicable, provide Broker and Customer or
Customer's designated agent with written confirmation of each
transfer into and out of each Special Custody Account.
Custodian shall also confirm in writing to Broker and Customer
all pledges, releases or substitutions of Collateral, shall
supply Broker and Customer with a monthly statement of
Collateral held, and transactions in each Special Custody
Account for such month and, upon request of Broker, shall
notify Broker of the types and value of Collateral carried in
each Special Custody Account (it being understood that
Custodian shall have no responsibility for determining the
value of Collateral) and (C) shall be solely responsible to
the Customer in accordance with the Custodian Contract for
notifying the Customer of corporate actions. For the avoidance
of doubt, Broker shall not be responsible to the Customer for
notification of any corporate actions.
(d) Excess Collateral. Pursuant to an activity report that
Broker shall submit to Customer, Broker shall Advise Custodian and Customer of
any Collateral in any Special Custody Account in excess of the Adequate Margin
then required for the Secured Obligations. At Customer's request and upon
Broker's Advice, such excess shall be transferred from such Special Custody
Account to an account of Customer at Custodian. Customer represents and warrants
to Broker that the Collateral shall be at all times in good, freely deliverable
and transferable form (or Custodian shall have the unrestricted power to put
such securities into good, freely deliverable and transferable form) in
accordance with the requirements of such exchanges and other markets as may be
the primary market or markets for such Collateral.
(e) Substitution of Collateral. Upon the request of Customer,
an item or items of Collateral in a Special Custody Account may be returned to
Customer upon the deposit by Customer of additional Eligible Assets into such
Special Custody Account so as to maintain the value (as determined by Broker as
provided in Section 2(a)) of the Eligible Assets in such Special Custody Account
to that which is at least equal to Adequate Margin for the Secured Obligations
(as determined by Broker as provided in Section 2(a)). Upon such a request and
upon Broker's Advice, which Advice will not be given prior to the deposit of the
additional Eligible Assets as aforesaid, the item or items of Collateral to be
returned to Customer shall be transferred from the applicable Special Custody
Account to an account of Customer at Custodian.
(f) Accounts and Records. Custodian shall maintain accounts
and records for the Collateral in each Special Custody Account to the extent
necessary to comply with and as more fully described in Sections 2(c) and 5(a).
Custodian confirms and agrees that it will make entries in its books of account
showing Broker's Security Interest in the Collateral.
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(g) Tax Reporting. Customer, Custodian and Broker agree that
all items of income, gain, expense and loss recognized in any Special Custody
Account shall be reported by Custodian to the Internal Revenue Service and all
state and local taxing authorities under the name and taxpayer identification
number of Customer.
3. ORIGINAL AND VARIATION MARGIN ON SHORT SALES
(a) Short Sales. From time to time, Customer may place orders
with Broker for the short sale of securities for Customer's account with Broker.
Prior to the acceptance of such orders, Broker will advise Customer of Broker's
ability to borrow such securities or other properties and acceptance of short
sale orders will be contingent upon same.
(b) Open Short Sales Balance. Broker shall, based on the
closing market price on each business day, compute the aggregate net credit or
debit balance on Customer's open short sales and Advise Customer or Customer's
designated agent by 11:00 am New York time on the next business day (each a
"Determination Day") of the amount of the net debit or credit, as the case may
be. If a net debit balance exists on a Determination Day, Customer will cause
Eligible Assets in an amount equal to such net debit balance to be deposited in
a Special Custody Account or paid to Broker by the close of business on such
Determination Day. If a net credit balance exists on a Determination Day, Broker
will instruct Custodian to release the amount of such net credit from the
Special Custody Account to Customer by the close of business on such
Determination Day. As Customer's open short positions are marked to market each
business day, payments will be made to or from the Special Custody Account, by
or to Customer, to reflect changes (if any) in the credit or debit balances. To
the extent payments are not made as aforesaid, Broker will charge interest on
debit balances and pay interest on credit balances. Balances will be
appropriately adjusted when short sales are closed out.
4. PLACING ORDERS
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 Broker is hereby authorized 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 Broker is hereby authorized 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 and, if such
securities are not then deliverable by Broker from any account of Customer, the
placing of such order shall constitute a representation by Customer that it is
impracticable for Customer then to deliver such securities to Broker but that
Customer shall deliver them by the settlement date or as soon as possible
thereafter (but, in any event, on or before the day required for delivery by
applicable law).
5. CERTAIN RIGHTS AND DUTIES OF CUSTODIAN
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(a) Generally. Custodian shall receive and hold in each
Special Custody Account, as agent of and Custodian for Broker and upon the terms
of this Agreement, and, to the extent not inconsistent herewith, the Custodian
Contract, all Collateral required (as Advised by Broker or Instructed by
Customer) to be deposited into such Special Custody Account and, except as
provided in Section 5(b), shall receive and hold all monies and other property
paid, distributed or substituted in respect of such Collateral or realized on
the sale or other disposition of such Collateral; provided, however, that
Custodian shall have no duty to require any money or securities to be delivered
to it or to determine that the amount and form of assets delivered to it comply
with any applicable requirements. Custodian may hold Securities in each Special
Custody Account in bearer, nominee, book entry, Securities Entitlement or other
form and in depository or clearing corporation, with or without indicating that
such Securities are held hereunder; provided, however, that all Securities and
other Collateral held in a Special Custody Account shall be identified on
Custodian's records as subject to this Agreement and Broker's Security Interest
therein and shall be in a form that permits transfer without additional
authorization or consent of Customer. Customer hereby agrees to hold Custodian
and its nominees harmless from any liability as holder of record except for
losses or liabilities arising out of Custodian's negligence, recklessness or
willful misconduct.
(b) Dividends and Interest. Any dividends or interest paid
with respect to the Collateral held in any Special Custody Account shall, when
collected, be paid by Custodian to Customer or Customer's designee; provided
that, upon Advice of Broker to Custodian that a Default has occurred and is
continuing (and so long as Broker shall not have Advised Custodian that such
Default is no longer continuing), Custodian shall apply such dividends and
interest in accordance with the Advice from time to time of Broker to Custodian.
(c) Security Interest. Except as otherwise specified in this
Agreement, Custodian shall have no responsibility for the validity or
enforceability of the Security Interest.
(d) Limitation of Custodian's Liability. Custodian's duties
and responsibilities are set forth in this Agreement. Except as otherwise
provided for in this Agreement, Custodian shall act only upon receipt of Advice
from Broker regarding release or substitution of Collateral. Custodian shall not
be liable or responsible for anything done, or omitted to be done, by it in good
faith and in the absence of negligence and may rely and shall be protected in
acting upon any Advice, notice, Instruction or other communication which it
reasonably believes to be genuine and authorized. As between Custodian and
Broker, Broker shall indemnify and hold Custodian harmless with regard to any
losses or liabilities of Custodian (including reasonable counsel fees) imposed
on or incurred by Custodian arising out of any action or omission of Custodian
in accordance with any notice, instruction or Advice of Broker under this
Agreement, except for losses or liabilities arising out of Custodian's
negligence, recklessness or willful misconduct. In matters concerning or
relating to this Agreement, Custodian shall not be responsible for compliance
with any statute or regulation regarding the
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establishment or maintenance of margin credit, including but not limited to
Regulation T of the Board of Governors of the Federal Reserve System and the
other Margin Rules, or with any rules or regulations of the OCC. Custodian shall
not be liable to any party for any acts or omissions of the other parties to
this Agreement. Notwithstanding anything to the contrary herein and without
limiting the generality of the foregoing, Custodian shall not be responsible for
determining or verifying (i) any event that gives rise to any instruction,
direction or other Entitlement Order to the Custodian by Broker or Customer,
(ii) the compliance by Broker or Customer with any provision or requirement of
applicable law, or (iii) whether any Collateral delivered to Custodian for
deposit to the Special Custody Account(s) constitutes Eligible Assets and the
adequacy or sufficiency of this Agreement, the Special Custody Account or any
Collateral deposited thereto.
(e) Compensation. 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.
6. DEFAULT
In the event (each a "Default") of (i) failure by Customer to
maintain Adequate Margin in respect of any Secured Obligation as herein
provided, or (ii) failure by Customer to make any payment hereunder or under the
Customer Agreement when due (including, upon demand by Broker, payment of any
losses sustained by Broker as may occur under circumstances contemplated in
Section 3 above), or (iii) failure by Customer to timely comply with any
obligation on Customer's part to be performed or observed under this Agreement
or the Customer Agreement or (iv) failure of any representation or warranty of
Customer hereunder to be accurate in any material respect or (v) Customer's
Insolvency, then, upon any such Default, Broker shall have the right to (1)
effect a Closing Transaction or a buy-in of any securities of which Customer's
account may be short, (2) cause such Special Custody Account to be re-registered
in Broker's own name or transfer such Special Custody Account to another
Securities Intermediary in Broker's sole name, (3) remove any Collateral from
such Special Custody Account and register such Collateral in Broker's name or in
the name of Broker's Securities Intermediary, agent or nominee or any of their
nominees, (4) exercise any voting, conversion, registration, purchase or other
Rights of a holder of any Collateral and any reasonable expense of such exercise
shall be deemed to be an expense of preserving the value of such Collateral and
shall constitute a Secured Obligation hereunder, (5) collect, including by legal
action, any notes, checks or other instruments for the payment of money included
in the Collateral and compromise or settle with any obligor of such instruments,
and (6) exercise any and all rights and remedies provided under the Customer
Agreement, the NYUCC, including, without limitation, Revised Article 8 and
Revised Article 9 or otherwise available under applicable law. Upon Advice from
Broker (stating that, pursuant to this Agreement, the condition precedent to
Broker's right to receive Collateral (including without limitation all Proceeds
thereof) free of payment has occurred), Custodian shall deliver such Collateral
free of payment to Broker. Custodian will provide prompt telephone notice to
Customer of any receipt by Custodian of Advice from Broker to deliver Collateral
free of payment, and shall
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promptly effect delivery of Collateral to Broker. Each sale or purchase of
Collateral may be made according to Broker's judgment and may be made at
Broker's discretion, at any time, in any order and in any commercially
reasonable manner but with no obligation to utilize third party pricing. Until
there is a Default, unless Instructed by Customer, the Broker shall not sell or
Advise the Custodian to sell any Securities held in a Special Custody Account.
7. LIMITATION OF BROKER LIABILITY TO CUSTOMER
Broker shall not be liable to Customer 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 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 gross negligence, willful misconduct or bad faith.
Notwithstanding anything set forth in this Agreement, Broker shall not be liable
for any losses caused directly or indirectly by any inability of Broker to
perform occasioned by suspension of trading, wars, civil disturbances, strikes,
natural calamities, labor or material shortages, government restrictions, acts
or omissions of exchanges, specialists, markets, clearance organizations or
information providers, delays in mails, delays or inaccuracies in the
transmission of orders or information, governmental, exchange or self-regulatory
organization laws, rules or actions, or any other causes beyond Broker's
control, or for any consequential, incidental, punitive, special or indirect
damages, economic loss or lost profits, even if Broker is advised of the
possibility of such damages or loss.
8. CUSTOMER REPRESENTATIONS, ETC.
Customer represents, warrants, covenants and agrees that:
(a) Customer is and at all times during the life of this
Agreement will be the lawful legal or beneficial owner of the Collateral, in
each case (i) with full power and authority to sell, transfer, assign, convey,
contribute or otherwise dispose of the Collateral, subject to the Security
Interest (including, without limitation, to grant the Security Interest to
Broker and to bestow upon Broker all the rights and remedies thereunto
appertaining under applicable law or pursuant to this Agreement), and otherwise
to deal (in accordance with this Agreement and the Customer Agreement) with, the
Special Custody Account(s) and the cash and the other assets, properties, rights
and items from time to time constituting, or purporting to constitute,
Collateral and (ii) free of any and all Rights of any other person whatsoever
(other than the Security Interest).
(b) The Collateral is and will be freely transferable and
assignable, and no portion of the Collateral is or will be subject to any
option, right of first refusal, shareholders agreement, charter or by-law
provision, declaration of trust or other contractual restriction of any nature
which might prohibit, impair, delay or otherwise affect the pledge of the
Collateral hereunder, or the sale or disposition of the Collateral pursuant
hereto after the exercise by Broker of its rights and remedies hereunder.
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(c) This Agreement constitutes the legal, valid and binding
obligation of Customer, enforceable against Customer in accordance with its
terms, subject to applicable bankruptcy reorganization, insolvency, moratorium
or similar laws affecting creditors' rights generally and applicable principles.
(d) Broker has, and will have, a valid and enforceable
perfected first-priority lien on and security interest in the Collateral,
securing the Secured Obligations. Customer has taken and shall continue to take
all steps to insure that each Special Custody Account is, and will at all times
remain under the dominion and Control of Broker.
(e) The execution, delivery and performance of this Agreement
and the Customer Agreement by the Customer, the grant of the Security Interest
hereunder and the consummation of the transactions contemplated hereby or
thereby do not and will not (i) violate any law, rule, regulation, judgment,
writ, injunction or order of any court or governmental authority, in each case
applicable to Customer; (ii) violate or result in the breach of or default under
the charter, bylaws or other organic documents of Customer, or any other
agreement to which Customer is a party or by which any of its properties or the
Collateral are bound, or (iii) violate any restriction on the transfer of any of
the Collateral.
(f) No consent, approval, license, permit or authorization of
any Person or any governmental authority is requested or required for the valid
execution, delivery and performance of this Agreement and the Customer
Agreement, the creation and perfection of the Security Interest or the valid and
effective exercise by Broker of the Rights available to it under this Agreement,
the Customer Agreement or at law.
(g) Customer shall take all steps requested by Broker to
secure for Broker, its successors and assigns the benefits of this Agreement,
including (i) such steps as may be requested by Broker to perfect the security
interests contemplated by this Agreement, and (ii) whether or not a Default has
occurred, endorsing and delivering checks, notes and other instruments for the
payment of money in the name and on behalf of Customer, endorsing and delivering
securities certificates in the name and on behalf of Customer, executing and
delivering in the name and on behalf of Customer Instructions to the issuers of
Uncertificated Securities and executing and filing in the name and on behalf of
Customer financing statements and continuations and amendments to financing
statements in any State of the United States and Forms 4, 5, 144 and Schedules
13D and 13G with the United States Securities and Exchange Commission. If
Customer fails to perform any act required by this Agreement, Broker may perform
such act in the name and on behalf of Customer, at Customer's expense, which
shall be chargeable to Customer and shall constitute a Secured Obligation.
(h) Customer shall not, without the written consent of Broker,
take any action in respect of the Collateral if such action would require the
release of, or would
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adversely affect, any Collateral, the Security Interest therein or Broker's
rights with respect thereto.
(i) Customer shall be solely responsible for issuing
Instructions directly to Custodian (and shall not seek to issue such
Instructions to Broker) in relation to capital change information and corporate
actions of which Customer receives notification from the Custodian pursuant to
Section 2(c)(vii) of this Agreement affecting securities held by Custodian in
the Special Custody Account(s) including, but not limited to, securities called
for redemption, the organization of protective committees, reorganizations,
mergers, consolidations or similar proceedings.
9 TERMINATION
(a) Any of the parties hereto may terminate this Agreement by
notice in writing to the other parties hereto; provided, however, that (i) 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 law or regulations or rules of
any self regulatory organization to which Broker is subject; (ii) Customer shall
not be entitled to terminate this Agreement unless and until Customer shall have
indefeasibly paid in full in cash to Broker all Secured Obligations then
outstanding; and (iii) Custodian shall not be entitled to terminate this
Agreement unless and to the extent that, immediately before such termination,
(A) Customer shall have also been entitled to terminate this Agreement in
accordance with clause (ii) above or (B) the Collateral shall have been
transferred to Broker or its designee, and Broker shall continue to have a valid
and enforceable perfected first-priority lien and Security Interest in the
Collateral.
(b) The Security Interest shall terminate (i) with respect to
Collateral released or paid pursuant to this Agreement, upon such release or
payment; and (ii) in any other case, upon the termination of this Agreement. Any
Collateral in which the Security Interest shall have terminated in accordance
with the preceding sentence shall be transferred to Customer or its designee.
10. NOTICES
Other than as contemplated by the term Advice, written
communications hereunder shall be sent by facsimile transmission, telegram, hand
delivered or mailed first class postage prepaid, except that written notice of
termination shall be sent by certified mail, in each case addressed (and oral
communications shall be directed to the following telephone numbers):
(a) if to Custodian, to: Mellon Bank, N.A.
▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(b) if to Customer, to: Mellon Institutional Funds
Investment Trust, on behalf of its series,
Mellon Institutional Market Neutral Fund
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Telephone: 617-248-6000
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
With a duplicate copy to:
Franklin Portfolio Associates, LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Compliance Officer
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
(c) if to Broker, to: Bear, ▇▇▇▇▇▇▇ Securities Corp.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
Telephone: 212-272-2000
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or, in the case of each party hereto, such other address as such party shall
notify to the other parties hereto in accordance with this Section 10.
11. GOVERNING LAW; JURISDICTION
(a) This agreement (including, without limitation, the
creation, validity, perfection and priority of the Security Interest) shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to the conflicts of law principles thereof. In furtherance
of the foregoing, Broker, Customer and Custodian agree that, for all purposes of
this Agreement, Custodian is the Securities Intermediary, and the State of New
York is the Securities Intermediary's jurisdiction.
(b) Each of Custodian and Customer hereby consents (i) to the
jurisdiction of the courts of the State of New York sitting in New York City and
the courts of the United States of America for the Southern District of New
York; and (ii)
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that any suit, action, proceeding or dispute that may arise from time to time
out of or in connection with this Agreement or any and all of the Collateral may
be brought, or initiated and settled in such courts. Each of Custodian and
Customer waives any objection that it may now or hereafter have to the venue of
any such suit, action, proceeding or settlement in any such court, or that such
suit, proceeding or settlement was brought in an inconvenient forum, and agrees
not to plead or claim the same. Each of Custodian and Customer authorizes the
service of process on itself by registered or certified mail or courier service
c/o its address referred to in Section 10.
(c) To the maximum extent permitted by applicable law, each of
Broker, Customer and Custodian irrevocably waives all right to trial by jury in
any suit, action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or related to this Agreement or any and all of the
Collateral.
12. THIS AGREEMENT CONTROLS
Notwithstanding anything to the contrary set forth in the
Customer Agreement, in the event of any inconsistency between this Agreement and
the Customer Agreement, the terms of this Agreement shall prevail.
13. COUNTERPARTS
This Agreement may be executed in any number of counterparts
and shall become effective at such time as counterparts executed by all of the
parties to this Agreement have been delivered. Each copy of this Agreement that
includes counterparts executed by each party to this Agreement shall be an
original hereof.
14. CAPTIONS/HEADINGS
The captions and headings preceding the text of each section
herein shall be disregarded in connection with the interpretation of this
Agreement.
15. LIMITATION OF LIABILITY OF CUSTOMER
The parties agree that all obligations of Customer hereunder
shall bind only the Mellon Institutional Market Neutral Fund and the assets of
such fund and shall not be binding on any other series of Customer or on the
Trustees, officers or shareholders of Customer or of any other series of
Customer personally.
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IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their duly authorized officers as of the day and
year first above written.
MELLON INSTITUTIONAL FUNDS
INVESTMENT TRUST, on behalf of its
series, Mellon Institutional Market
Neutral Fund
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Vice President and Secretary
MELLON BANK, N.A. not in its
individual capacity, but solely as Custodian
of MELLON INSTITIONAL FUNDS
INVESTMENT TRUST, on behalf of its
series, Mellon Institutional Market Neutral
Fund
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
BEAR, ▇▇▇▇▇▇▇ SECURITIES CORP.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Senior Managing Director
17