INVESTMENT MANAGEMENT
AGREEMENT
THIS
AGREEMENT , made this 17 day of January, 2007 by and
between Bear Stearns Asset Management Inc., a New York corporation
with principal offices at 383 Madison Avenue, New York, New York
10179 (the “Investment Manager”), and Oriental
Financial Group Inc., Oriental Bank & Trust, and
Oriental International Bank Inc., each a Puerto Rico corporation
with principal offices at Oriental Center, Professional Offices
Park, 997 San Roberto Street, 10 th Floor, San Juan Puerto Rico 00926 (collectively,
the “Client”).
WHEREAS,
Client desires to engage the Investment Manager on or around
March 1, 2007 (the “Effective Date”) to supervise
and manage certain of its assets held in custody by Mellon Bank,
N.A., as custodian (the “Custodian”), in accordance
with the terms and conditions hereinafter set forth and the
Investment Manager desires to accept such engagement in accordance
with such terms and conditions.
NOW,
THEREFORE , the parties hereto hereby agree as
follows:
1.
Appointment of Investment Manager.
(a) Client
hereby appoints the Investment Manager as his attorney-in-fact to
invest and reinvest the Investment Account Assets (as defined in
paragraph 3 hereof) as fully as Client itself could do in
accordance with the investment guidelines set forth in
Exhibit A attached hereto, as the same may be amended
in writing from time to time by Client (the “Investment
Guidelines”).
(b) The
Investment Manager hereby accepts such appointment and agrees to
supervise and direct the investment of the Investment Account
Assets in accordance with the Investment Guidelines In addition,
for the Investment Manager’s reference, Client’s
Investment Policy, as the same may be amended from time to time
(the “Investment Policy”) is set forth in
Exhibit B attached hereto.
(c) Subject
to subparagraphs (a) and (b) above, the Investment
Manager may, in its full discretion and without obligation on its
part to give prior notice to the Custodian or Client, (i) buy,
sell, exchange, convert, lender and otherwise trade in any bonds or
other securities, and (ii) execute securities transactions through
accounts established with such brokers or dealers as the Investment
Manager may select, other than any Affiliate (as defined in
paragraph (e) below) of the Investment Manager.
(d) Client
has directed the Custodian, and the Custodian has agreed, to act in
accordance with the instructions of the Investment Manager. The
Investment Manager shall at no time have custody of or physical
control over the Investment Account Assets and the Investment
Manager shall not be liable for any act or omission of the
Custodian.
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(e) For
purposes of this Agreement, the term “Affiliate” of, or
“Affiliated” with, a specified person means a person
that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the
person specified.
2.
Investment Guidelines. Client may amend the Investment
Guidelines by written notice thereof to Investment Manager;
provided, however, that the Investment Manager will not follow any
such amended Investment Guidelines until it has received written
notice thereof from Client. After receiving such written notice,
the Investment Manager will implement the amended Investment
Guidelines as soon as practicable unless Client is otherwise
notified.
3.
Investment Account Assets. Client shall identify to the
Investment Manager certain assets which it intends Investment
Manager to manage together with any subsequent cash and investments
which Client may from time to time place in its account with the
Custodian (the “Investment Account”), plus all
investments, reinvestments and proceeds of the sale thereof, all
dividends and interest earned thereon and all appreciation thereof
and additions thereto, less any withdrawals therefrom
(collectively, the “Investment Account Assets”). Should
there be any disparity between the Investment Account Assets
identified by Client and the assets initially delivered or
otherwise made available to Investment Manager by Client,
Investment Manager reserves the right to postpone investment of
such assets until such time as there is conformity between such
assets and those identified by Client. Client shall not place any
assets in its account that it does not intend Investment Manager to
manage according to the Investment Guidelines. Client shall
promptly notify Investment Manager of any additional assets it
contributes to the Investment Account Assets and Investment Manager
shall invest such additional assets according to the Investment
Guidelines as soon as practicable thereafter. If Client fails to
notify Investment Manager of a contribution of additional assets,
such assets will not be managed by the Investment Manager: however,
if the Investment Manager discovers additional assets in the
Client’s account during a reconciliation with the records of
the Custodian, such assets will be presumed to be Investment
Account Assets and invested as soon as practicable after such
discovery. Client shall also notify Investment Manager prior to
withdrawing any Investment Account Assets, and should it fail to do
so, it shall be responsible for all interest, account overdraft
fees and other charges incurred as a result.
(a) The
Investment Manager shall perform its duties and obligations
hereunder with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims.
(b) The
Investment Manager shall diversify the Investment Account Assets so
as to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so.
(c) The
Investment Manager shall discharge its duties and obligations
hereunder with respect to the Investment Account Assets solely in
the interest of Client and in accordance with the Investment
Guidelines.
5.
Representations and Warranties of Client. Client hereby
represents and warrants to the Investment Manager that (a) it
is authorized to enter into this Agreement and to appoint the
Investment Manager as its Investment Manager in accordance with the
terms hereof; (b) there are no restrictions or limitations on
the investment of Investment Account Assets by the
Investment
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Manager or any
other activity contemplated by this Agreement other than as may be
communicated from time to time in writing to the Investment
Manager; (c) the Custodian will be the custodian of the
Investment Account Assets on the Effective Date of this Agreement;
(d) if another entity should be substituted for the Custodian
as custodian of the Investment Account Assets, the Investment
Manager shall promptly be notified of such substitution and the
substituted entity will thereafter be deemed to be the Custodian
for purposes of this Agreement; and (c) it shall promptly
notify the Custodian of the appointment of the Investment Manager
by delivering a copy of this Agreement to the Custodian. Client
agrees to indemnify the Investment Manager and hold it harmless
against any and all losses, costs, claims and liabilities which the
Investment Manager may suffer or incur arising out of a breach by
Client of its representations and warranties contained
herein.
6.
Procedures. All transactions will be consummated by payment
to, or delivery by, the Custodian of all cash and/or securities to
or from the Investment Account. Instructions from the Investment
Manager to the Custodian shall be made by such methods as may be
agreed upon by the Investment Manager and the Custodian, and the
Investment Manager shall instruct all brokers or dealers executing
orders on behalf of the Investment Account to forward to the
Custodian and Client copies of all brokerage confirmations promptly
after the execution of transactions.
(a) Client
has arranged or will arrange to receive monthly reports concerning
the status of the Investment Account from the Custodian and shall
cause the Custodian to provide copies of such monthly reports to
the Investment Manager. Client shall also receive confirmations of
all transactions from the Custodian and shall rely upon such
monthly reports and trade confirmations from the Custodian for
purposes of its tax reporting.
(b) The
Investment Manager, at its expense, shall provide Client with
quarterly summaries of the performance of the Investment Account
Assets and annual reports of such performance.
(c) Client
and the Investment Manager shall meet periodically, at such times
as Client may reasonably request, concerning the Investment
Account.
(d) The
Investment Manager, at its expense, shall provide Client with such
other economic, statistical and investment analysis and reports as
Client shall reasonably request from time to time.
8.
Confidential Relationship. All information and
recommendations furnished by the Investment Manager to the
Custodian and Client shall be regarded as confidential by each such
party. The Investment Manager shall regard as confidential all
information concerning the affairs, operations and investments of
Client, including all information provided by Client to the
Investment Manager pursuant to this Agreement.
9.
Services to Other Clients; Liability. It is understood that
the Investment Manager performs investment advisory services for
various clients. Client agrees that the Investment Manager may give
advice and take action with respect to any of its other clients
which may differ from the advice given to, or the timing or nature
of action taken with respect to, the Investment Account Assets,
provided that the policy and practice of the Investment Manager is
not to favor or disfavor consistently or consciously any client or
class of clients in the allocation of investment opportunities and
that, to the extent practical, such opportunities are allocated
among clients over a period of time on a fair and equitable basis.
Nothing herein contained shall be construed so as to prevent
the
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Investment
Manager or any of its directors, officers, employees or Affiliates
in any way from purchasing or selling any securities for its or
their own accounts prior to, simultaneously with or subsequent to
any recommendation or action taken with respect to the Investment
Account Assets or impose upon the Investment Manager any obligation
to purchase or sell or to recommend for purchase or sale for the
Investment Account any security which the Investment Manager or any
of its directors, officers, employees or Affiliates may purchase or
sell for its or their own accounts or for the account of any other
client, advisory or otherwise; provided always, however, that the
Investment Manager shall use its best efforts to maximize the gains
for the Investment Account Assets and that no transaction shall
violate any applicable law.
10.
Allocation of Brokerage. In selecting brokers or dealers to
execute orders for the purchase or sale of securities for the
Investment Account, the Investment Manager shall use its best
efforts to obtain for Client the most favorable price and execution
available from brokers or dealers; provided, however, that it is
expressly authorized to consider the fact that a broker or dealer
has furnished statistical, research or other information or
services which enhance the Investment Manager’s investment
research and portfolio management capability generally. Brokerage
commissions charged to the Investment Account will generally be
discounted from prevailing rates, but may not represent the maximum
discounts obtainable at any given time.
Investment
Manager shall not be authorized to effect “agency cross
transactions” (as defined in Rule 206(3)-2 promulgated
by the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended (the “Advisers Act”))
with its Affiliated broker-dealers whereby they act as agent for,
and receive commissions from, the Investment Account and the party
on the other side of the transaction.
If
Client is a non-natural person, in accordance with
Section 1l(a) of the Securities Exchange Act of 1934, as
amended, and Rule 11a2-2(T) adopted by the Securities and
Exchange Commission (the “SEC”) thereunder, the
Investment Manager will provide to Client annually a statement
showing the total amount of brokerage commissions charged by the
Investment Manager to the Investment Account during the year as
well as such other information as may be requested by Client to
determine whether to authorize the Investment Manager’s
execution of transactions for the Investment Account.
11.
Proxies. The Investment Manager will vote all proxies
solicited by or with respect to the issuers of securities in which
the Investment Account Assets may be invested from time to time.
Proxies will be voted from and after the date on which an account
is established for Client with the authorized proxy agent of the
Investment Manager (the “Proxy Account”). The Proxy
Account will be established as soon as practicable following the
opening of the Investment Account by the Investment Manager. If
Client has consented to the lending of securities in the Investment
Account to third parties either by the Investment Manager or the
Custodian and any such loan is outstanding upon the occurrence of a
record date for the securities on loan, the borrower of such
securities will have the right to vote proxies with respect to such
securities and such proxies will not therefore be eligible for
voting on Client’s behalf by the Investment
Manager.
12.
Class Actions and Other Proceedings. The Investment
Manager shall not be required to file claims, commence, render
advice with respect to, or otherwise actively participate in any
legal proceedings related to issuers of securities in which Client
has an interest.
13.
Fees. The compensation of the Investment Manager shall be
calculated and paid quarterly in arrears based on the average of
the month-end market values of the Investment Account Assets during
each quarter that this Agreement is in effect (with any partial
months or quarters being
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prorated). Such
quarterly fees shall be computed in accordance with the Fee
Schedule attached hereto as Exhibit C, which Fee
Schedule will remain in effect for a period of two (2) years
from the effective date of this Agreement and may thereafter be
amended from time to time by the Investment Manager upon ninety
(90) days’ prior written notice to Client. All fees
payable to the Investment Manager pursuant to this Agreement shall
be paid free and clear of all deductions or withholding.
14.
Valuation. Securities held in the Investment Account will
generally be valued by independent pricing services. When an
independent price for a particular security is either unavailable
or deemed by the Investment Manager, in its sole discretion, to be
unreliable, such security will be valued in a manner determined in
good faith by the Investment Manager to reflect its fair market
value. For purposes of calculating the fees due to the Investment
Manager pursuant to paragraph 13 above, total market values
reported by the Investment Manager shall include accrued dividends
and interest.
15.
Representation and Warranty of Investment Manager. The
Investment Manager represents and warrants to Client that it is
registered as an investment adviser under the Advisers Act; that
the Investment Manager is authorized and empowered to enter into
this Agreement and perform its duties and obligations hereunder;
that the execution, delivery and performance of this Agreement does
not conflict with any obligation by which the Investment Manager is
bound, whether arising by contract, operation of law or otherwise;
and that neither the Investment Manager nor any of its advisory
representatives for the Investment Account is a person subject to
an SEC order issued under Section 203(e) or 203(f) of the Advisers
Act. The Investment Manager shall promptly notify Client in writing
of the occurrence of any event that may materially adversely affect
any representation and warranty included in this
paragraph.
16.
Indemnification and Hold Harmless. The Investment Manager
shall indemnify and hold harmless Client, its Affiliates, and/or
their respective directors, officers, employees and agents
(collectively, the “Client Indemnified Parties”), from
any and all claims, charges, demands, losses, damages, expenses,
obligations and liabilities of any kind or nature whatsoever
(including, without limitation, any and all reasonable legal
expenses and costs and expenses related to investigating or
defending any such claims, charges and demands) (collectively,
“Losses”) incurred by such Client Indemnified Party by
reason of (i) any acts, omissions or alleged acts or omissions
arising out of or in connection with the Investment Account, any
investment made or held by or with respect to the Investment
Account or this Agreement, provided that such acts, omissions or
alleged acts or omission upon which such action or threatened
claim, charge, demand, action or proceeding are based were not made
in bad faith by such Client Indemnified Party or did not constitute
willful misconduct or gross negligence by such Client Indemnified
Party, or (ii) any acts of omissions, or alleged acts or
omissions, of any agent of any Client Indemnified Party, provided
that such agent was selected, engaged or retained by the Client
Indemnified Party in accordance with the standard above.
The
Client shall indemnify and hold harmless the Investment Manager,
its Affiliates, and/or their respective directors, officers,
employees and agents (collectively, the “Investment Manager
indemnified Parties”), from any and all Losses incurred by
such Investment Manager Indemnified Party by reason of (i) any
acts, omissions or alleged acts or omissions arising out of or in
connection with
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