Exhibit 99.1
SMITH BREEDEN ASSOCIATES, INC.
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PORTFOLIO ADVISORY & RATE RISK ANALYSIS AGREEMENT
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This Portfolio Advisory and Rate Risk Analysis Agreement (the "Agreement") is
made and entered into as of the date set forth on the signature page ("Effective
Date") by and between LOS PADRES BANK, FSB ("Customer") and SMITH BREEDEN
ASSOCIATES, INC., a Kansas Corporation ("Smith Breeden" or "Adviser"). By this
Agreement, as of the Effective Date the Customer and Smith Breeden hereby
terminate any and all prior agreements and understandings by and between them
relating to the subject matter herein, including, but not limited to, the
Investment and Interest Rate Risk Advisory Agreement dated on or about February
3, 1997 (collectively referred to as "Prior Agreements"). The Customer and Smith
Breeden each expressly waive any and all notice provisions with respect to
terminating any and all such Prior Agreements (including, but not limited to,
section 17. of the Investment and Interest Rate Risk Advisory Agreement dated on
or about February 3, 1997) and agree that this Agreement shall be effective as
of the Effective Date.
WHEREAS, Smith Breeden is engaged in the business of rendering investment
advice; and
WHEREAS, Customer desires to appoint Smith Breeden, and Smith Breeden
desires to accept such appointment, to render such services to Customer on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and the terms and
conditions set forth herein, the parties hereto agree as follows:
1. Appointment.
Upon and subject to the terms and conditions of this Agreement, the
Customer, being duly authorized, hereby appoints Smith Breeden as
portfolio adviser ("Portfolio Adviser") with respect to the assets of
the Customer which, by notice given or caused to be given by the
Customer to Smith Breeden, are designated for Smith Breeden's
investment advisory services, as set forth herein (the "Account"). In
addition, and as set forth herein, the Customer appoints Smith Breeden
as a rate risk analyst ("Rate Risk Analyst") to analyze rate risks and
to perform a risk analysis of the financial assets and liabilities of
the Customer (as defined below in subsection d. of Section 2) ("Rate
Risk Analysis"). Smith Breeden hereby accepts such appointment. The
appointment of Smith Breeden as a Portfolio Adviser and a Rate Risk
Analyst shall be effective as of the Effective Date of this Agreement.
2. Authority and Services of Adviser.
a. The Adviser will make investment recommendations with respect to
the Account. All transactions entered into for the Account shall
be subject to the prior approval and direction of the Customer
and the Customer may instruct the Adviser to un-wind any
transaction (provided, however, that the Customer understands and
agrees that un-winding a transaction may result in charges by the
broker and/or investment loss to the Account). As part of its
services, the Adviser may recommend the acquisition of investment
securities or other assets, including but not limited to,
mortgage-backed securities, Treasury securities, corporate
bonds and/or derivative instruments, and certain hedging
transactions to manage the interest rate risk of the
Account's investments. The Adviser may also make
recommendations regarding the funding sources for these
investment securities, as well as for the other financial
instruments of the Customer. The Adviser may make either
verbal or written recommendations with respect to the
Account.
b. In addition to other authorizations and powers given to the
Adviser in this Agreement, the Customer hereby grants the Adviser
full power and authority, subject to the prior approval and
direction of the Customer (which may be verbal or in writing), on
behalf of the Customer and the Account to:
(i) purchase, sell, borrow or otherwise trade in, invest in or
deal with any security or other asset in the Account or for
the Account and at risk of, and in the name of, the
Customer;
(ii) pledge any security or other asset of the Account or
establish safekeeping, brokerage or futures accounts in the
name of the Customer for the purpose of providing collateral
to brokers, issuers or dealers (collectively "Brokers") with
respect to transactions for the Account and to rehypothecate
any security or other asset of the Account;
(iii) select and utilize Brokers to trade with or otherwise
transact with for the Account and at the risk of, and in the
name of, the Customer. The Adviser shall use reasonable
efforts to seek the best execution in selecting such
Brokers;
(iv) instruct the Custodian of any security or other asset in the
Account (i) to deliver securities or other assets sold,
exchanged, or otherwise disposed of from the Account, (ii)
to pay cash for securities or other assets delivered to such
Custodian upon acquisition for the Account, and (iii) to
make payments from the Account on behalf of the Customer.
Such instructions may be given in writing or verbally,
provided that verbal instructions are confirmed in writing
as soon as practicable thereafter;
(v) to invest and reinvest in the name of, and at the risk of,
the Customer, but without additional fees being paid to the
Adviser, all or any part of the Account through the medium
of any fund or collective investment vehicle managed by the
Adviser, as the same may have heretofore been or may
hereafter be established or amended; and
(vi) generally perform any other act reasonable to enable the
Adviser to carry out its obligations and services under this
Agreement. Such authorization,
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however, does not include authority to deliver or
pay securities, other financial instruments or cash
to the Adviser, except with respect to assets that
are invested in a fund or collective investment
vehicle managed by the Adviser.
c. The Customer authorizes the Adviser to consult with legal counsel
or other professional advisers concerning any question which may
arise with reference to its duties under this Agreement and to
disclose to such legal counsel or other professional advisers any
information reasonable and appropriate to obtain advice relating
to such questions.
d. In conducting the Rate Risk Analysis, the Adviser will take the
Data (as defined below) provided by the Customer and analyze it
using the Adviser's valuation methods and computer programs. The
Adviser will generate a written report (a "Rate Risk Analysis
Report") for the Customer that will contain the items set forth
in the sub-section immediately below. The Adviser will conduct
this Rate Risk Analysis and provide the Rate Risk Analysis Report
at the intervals stipulated in Appendix A.
(i) A Rate Risk Analysis of the mark-to-market value of
Customer's net worth. For those assets and liabilities for
which a market exists, actual market prices will be used.
For those assets and liabilities for which no market exists,
such assets and liabilities will be valued upon the
assumptions agreed upon by the Adviser and Customer.
3. Use of Adviser Information.
The Customer shall only and exclusively use any and all data,
analysis, advice, reports or other information provided by the
Adviser in relation to this Agreement (which includes any and all
derivative work and/or or reproductions of the forgoing)
(collectively "Adviser Information") for the Customer's internal
purposes and only as contemplated by this Agreement. The Customer
shall treat any and all Adviser Information as confidential.
Notwithstanding, in no event may the Customer directly or
indirectly use or disclose any Adviser Information in a manner
that may harm or be to the detriment of the Adviser, to compete
with the Adviser and/or that may be for the benefit or advantage
of any third party (which includes affiliates). The Customer
shall not distribute, sell, rent, transfer, disclose, reveal or
make available any portion of any Adviser Information to any
third party unless the Customer has first obtained the Adviser's
express written consent provided, however, that the Customer may
disclose Adviser Information to the limited extent that the
Customer is required to do so pursuant to a valid subpoena, court
order or as otherwise required by law so long as the Customer
gives the Adviser prior and immediate written notice of such
disclosure. The Customer shall not re-package, create any
derivative work from, reverse engineer, decompile or disassemble
any Adviser Information.
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The Customer understands and agrees that any and all Adviser
Information is proprietary in nature to the Adviser, that the
unauthorized disclosure or use of any Adviser Information would
reduce its value, and the Adviser will be irrevocably damaged if
the covenants herein are not specifically adhered to and
enforced. The Customer further agrees that, in addition to any
other relief or remedies available and/or as set forth in this
Agreement, in the event of a breach or a threatened or imminent
breach of the provisions set forth in this Section 3., the
Adviser is entitled to seek and obtain an appropriate injunction
or other equitable remedy from a court with proper jurisdiction
for the purposes of restraining the Customer and any business,
firm, partnership, individual, corporation or entity
participating in such breach or threatened breach from any actual
or threatened breach of such provision. Nothing herein shall be
construed as prohibiting the Adviser from pursuing any other
remedies available at law or in equity for such breach or
threatened or imminent breach. Notwithstanding any term or
provision to the contrary, this Section 3. shall survive the
termination of this Agreement.
4. Proxies.
The Adviser has no authority to, and will not be required to, take
any action or render any advice with respect to the voting of
proxies solicited by or with respect to the issuers of securities
or other financial instruments in which assets of the Account may
be invested from time to time.
5. Custodial Responsibilities and Account Information to be Furnished.
The Customer will be responsible for the selection, retention and
payment of a custodian for the Account ("Custodian"). The
Custodian, and not the Adviser, will be responsible for the
custody and safekeeping of the securities and other assets in the
Account; for making payments with respect to the Account, upon
receiving instructions from the Adviser, as applicable; for the
collection of income relating to the Account; for the physical
acquisition, delivery and receipt of securities and other assets
for the Account.
The Custodian or the Customer will provide the Adviser with periodic
reports, but not less than on a monthly basis, regarding Account
activity and Account balances and such other information as the
Adviser may reasonably require to properly monitor the holdings
of the Account. The Adviser shall not be responsible for ensuring
or verifying that the Custodian complies with the Custodian's
obligations or be liable for any of the Custodian's acts or
omissions.
6. Other Information to be Furnished.
The Customer agrees to furnish the Adviser with information, data and
documentation that the Adviser may reasonably require to enable
it to carry out its obligations under this Agreement, including
any information required by the Adviser to conduct its Rate Risk
Analysis. The information, data and documentation that shall be
provided by the Customer so that the Adviser may conduct its Rate
Risk Analysis, and the format it shall be provided in, shall be
as set forth in Exhibit 1 attached hereto (the "Data"). The
Customer shall be
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solely responsible for the accuracy of such information, data and
documentation provided to the Adviser.
The Customer shall provide the Data, as detailed in Exhibit 1, to the
Adviser each month. The Adviser agrees to provide the Rate Risk
Analysis Report to the Customer within ten (10) business days
following its receipt of such Data.
The Adviser shall deliver to Customer a standardized analysis of
single family residence loan pricing twice each month (generally
on the first business day of the month and on the 15th day of the
month (or the next business day following the 15th if the 15th is
not a business day)).
7. Investment Objectives.
The Account's investment objectives and restrictions ("Investment
Objectives") are attached hereto as Appendix B. The Adviser will
present to the Customer trade/investment options which the
Adviser believes to be in compliance with such Investment
Objectives provided, however, that when the Customer approves a
trade/investment (which approval may be verbal or in writing), it
will be deemed that such trade/investment is in compliance with
such Investment Objectives. The Customer shall give the Adviser
prompt written notice if the Customer believes that any
investments/trades proposed for the Account may be in violation
of such Investment Objectives.
The approval process for trade/investment options shall generally be
as follows: The Customer shall designate two or more individuals
(the "Contact Persons") to receive the Adviser's trade/investment
options. The Adviser will send the trade/investment options to
the Contact Persons via email. The email will specify a deadline
by which the Contact Persons must respond to the Adviser via
email stating whether the proposed transactions are approved or
disapproved. The Customer acknowledges that if a Contact Person
does not respond to the Adviser via email by the deadline
indicated in the email, the Customer will be deemed not to have
approved the transaction and the transaction will not be effected
on behalf of the Customer. In its discretion, the Adviser may
agree to receive the Customer's approval of trade/investment
options using a process different from that described in this
paragraph.
The Customer shall give the Adviser prior written notice of any
proposed change or modification to the Investment Objectives,
which modification or change will not be applicable until the
Adviser receives such notice and approves of such change or
modification (which approval shall not be unreasonably withheld).
Unless the Customer notifies the Adviser in writing of specific
restrictions, the investments/trades recommended for, or made on
behalf of, the Account shall be deemed not to be restricted under
current or future federal or state laws or regulations or by
virtue of the terms of any other contract or instrument
purporting to bind the Customer or the Adviser.
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8. Valuation.
The fair value of securities and other assets will be based on prices
quoted on recognized securities exchanges or by independent
market quotation services, or, in the event that such quotes are
unavailable, on prices quoted by third party brokers, dealers,
banks or other counterparties, as applicable.
9. Risk Acknowledgement.
The Customer acknowledges and agrees that:
a. investment recommendations to, and investment transactions on
behalf of, the Customer by the Adviser are subject to various
market, currency, economic, political and business risks, and
that those investment recommendations and/or transactions will
not necessarily be profitable and may result in losses
(including, potentially, the loss of all assets in the Account);
b. there are inherent market fluctuation risks that surround the
investment and reinvestment of monies and the use of hedge
instruments. These risks and the scope of Adviser's services are
detailed in the Disclosure Statement in Appendix C to this
agreement and have been previously acknowledged by the Customer.
The Customer acknowledges that it understands, and can bear, the
risks involved in implementing hedge and investment transactions
as detailed in the Disclosure Statement;
c. without limiting the generality of the foregoing, the Adviser
does not guarantee: (i) against Account and/or Customer losses;
(ii) the future performance of the Account or any specific level
of performance; (iii) the success of any investment
recommendation by the Adviser or strategy that the Adviser may
use; (iv) the success of the Adviser's overall performance and/or
recommendations to Customer; or (v) that the Customer's
investment objectives will be achieved.
d. the Adviser will provide recommendations only regarding the
securities and other assets held in the Account and, in making
recommendations to the Customer, the Adviser will not consider
any other securities, other assets (which includes cash) or other
investments owned by the Customer;
e. if the rating of a security purchased for the Account is
downgraded, the Adviser has no obligation to inform the Customer
of such a downgrade unless the continued ownership of the
downgraded security by the Customer would violate the Customer's
Investment Objectives attached as Appendix B hereto; and
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f. the Adviser is not providing advice or services concerning, and
the Customer will not rely upon any Adviser statement relating
to, tax advice, regulatory compliance or accounting issues
involved in any recommended transaction.
10. Compensation to Adviser.
The Adviser, as full compensation for services rendered under this
Agreement, shall be paid the fees specified in Appendix A. The
compensation of the Adviser shall be paid upon receipt by the Customer
of the Adviser's statement for such compensation, which will be
submitted to Customer quarterly.
If the Adviser shall serve for less than the whole of any period, its
compensation shall be determined as provided above on the basis of the
value of the assets in the Account on the date of termination of this
Agreement and shall be payable on a pro rata basis for the time during
that period for which the Adviser has provided services hereunder.
11. Assignment and Amendment.
No assignment (as defined in the Investment Advisers Act of 1940, as
amended) of this Agreement shall be made by Adviser without the written
consent of the Customer. No assignment of this Agreement shall be made
by Customer without the written consent of the Adviser.
No amendment to this Agreement is valid or enforceable unless it is in
writing and validly executed by both parties hereto.
12. Termination.
This Agreement may be terminated either by the Customer or the Adviser,
by written notice given to the other, effective 30 days after such
notice is given. Such termination shall be without the payment of any
penalty, except that the party required to pay compensation under
Section 10. shall remain liable for any accrued but unpaid compensation
due to the Adviser. Except, and unless, as otherwise expressly stated
herein, the provisions of this Agreement survive the termination of
this Agreement only with respect to any matter arising while this
Agreement was in effect.
13. Representations and Warranties of the Customer.
The Customer represents and warrants that:
a. the Customer is duly organized as a Corporation pursuant to, and
is validly existing and in good standing under, the laws of the
state of California, and the Customer has full power and
authority to perform its obligations under this Agreement and the
transactions contemplated hereby;
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b. this Agreement has been duly authorized, executed, and delivered
by the Customer and, assuming due authorization, execution and
delivery by the other parties hereto, constitutes a valid and
binding obligation of the Customer, enforceable against it in
accordance with its terms;
c. Customer has taken all necessary and appropriate action to duly
authorize the Adviser to carry out its duties, responsibilities
and services specified herein, and the Adviser is duly authorized
to so carry out such duties, responsibilities and services.
Customer will immediately notify the Adviser in writing if the
Adviser is no longer duly authorized to carry out any of the
duties responsibilities or services set forth herein;
d. the execution and delivery of this Agreement, the incurrence of
the obligations set forth herein, and the consummation of the
transactions contemplated herein do not and will not constitute a
breach of, or default under, the charter documents of the
Customer or any instrument by which the Customer is bound or any
order, rule or regulation applicable to the Customer of any court
or any governmental, regulatory or administrative authority
having jurisdiction over the Customer. The Customer has
determined and provided the extent of any information regarding
the Account (including trading performance) that is required to
be provided to the Customer's shareholders, partners, investors
or members, as applicable, and takes sole responsibility
therefore;
e. the Customer is a "qualified eligible person" as defined in the
rules adopted by the Commodity Futures Trading Commission;
f. the Customer is a "qualified client" as defined in the rules
adopted under the Investment Advisers Act of 1940;
g. no authorization, consent, approval, filing or registration with
any court, governmental agency or regulatory authority (Federal,
state or local) which has not already been obtained is required
in connection with the execution, delivery and performance by
Customer of this Agreement or in connection with the transactions
contemplated hereby;
h. there is neither pending nor, to the best of the Customer's or
the Customer's directors' or controlling persons' knowledge,
threatened in writing any action, suit, proceeding or
investigation before or by any court or any governmental,
regulatory, self-regulatory or exchange body to which the
Customer is a party or to which any of its assets are subject,
which would reasonably be expected to result in any material
adverse change in the condition (financial or otherwise),
business or prospects of the Customer, or in the Customer's
ability to comply with and perform its respective obligations
under this Agreement. The Customer shall inform the Adviser as
soon as practicable if the Customer, any of its directors,
controlling persons or any of the any personnel having authority
over the Account is convicted of a felony by a court of law of
competent jurisdiction;
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all assets deposited by the Customer from time to time in the
Account will be assets owned solely by the Customer, and that
such assets are free and clear of all liens and encumbrances,
unless the Adviser expressly agrees otherwise in the case of
particular assets; and
j. the foregoing representations and warranties shall be continuing,
and if any of them shall cease to be true and accurate in any
material respect, the Customer shall promptly give written notice
of such to the Adviser.
14. Liability and Indemnification.
a. The Customer is responsible for and shall pay any and all
investment loss (subject to this Section), costs, fees and
expenses (including, but not limited to, brokerage fees)
associated with the investment of Account assets.
b. The Adviser shall indemnify, defend and hold harmless the
Customer from and against any and all losses, claims, damages,
judgments, liabilities (joint and several), fines and reasonable
costs and expenses (including reasonable attorney fees)
(collectively "Losses") that are caused by an act or omission of
the Adviser or its affiliates or any of their respective
officers, employees or directors (collectively "Adviser Party")
in relation to this Agreement that constitutes gross negligence
or willful misconduct.
c. The Adviser shall have no liability except for acts or omissions
by the Adviser or an Adviser Party that constitute gross
negligence or willful misconduct in relation to this Agreement
provided, however, that the Adviser shall have no liability for
any Losses incurred by reason of any investment decision made in
what the Adviser or an Adviser Party believes in good faith to be
the proper performance of its duties hereunder, and the Adviser
shall not, in any event, be liable for any loss or liability
incurred as a result of any act or failure to act on the part of
any trustee or any Broker or custodian or other third party, with
respect to the Account.
d. The Customer shall indemnify, defend and hold harmless the
Adviser and each Adviser Party from and against any and all
losses, claims, damages, judgments, liabilities (joint and
several), fines and reasonable costs and expenses (including
reasonable attorney fees) (again, collectively "Losses") relating
to, or arising in connection with, the business of or activities
undertaken by the Adviser or an Adviser Party pursuant to this
Agreement or a breach of a material provision of this Agreement
by the Customer, except the Customer shall not be required to
indemnify, defend or hold harmless the Adviser or any Adviser
Party to the extent that such Losses are caused by an act or
omission of the Adviser or any Adviser Party that constitute
gross negligence, willful misconduct or a breach of a material
provision of this Agreement.
e. In no event shall such Losses include, nor shall either party be
liable to another for, indirect, special, exemplary, or
consequential damages.
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f. Any suggested limitations on liability herein shall not relieve
the Adviser from any responsibility or liability the Adviser may
have under federal or state statutes or common law.
g. In the event an indemnified party ("Indemnified Party") shall
receive any demand, claim or lawsuit subject to an
indemnification obligation hereunder, the Indemnified Party shall
promptly notify the indemnifying party ("Indemnifying Party")
provided, however, that failure to provide such notice shall not
relieve the Indemnifying Party of its obligations hereunder,
except to the extent that such Indemnifying Party is materially
harmed by such failure.
h. Subject to the prior consent of the Indemnified Party, which
consent shall not be unreasonably withheld, the Indemnifying
Party shall be entitled to select counsel for matters subject to
the Indemnifying Party's indemnification obligation. Subject to
the prior consent of the Indemnified Party, which consent shall
not be unreasonably withheld, the Indemnifying Party shall retain
decision-making control regarding handling and resolving,
including settlement of, such demand, claim or lawsuit subject to
the Indemnifying Party's indemnification obligation.
i. Subject to the next sentence, in the event that such Indemnifying
Party elects to assume the defense of such demand, claim or
lawsuit and retain such counsel, the Indemnified Party shall bear
the fees and expenses of any additional counsel thereafter
retained by it or them. If in any claim, action or suit as to
which indemnity is ultimately available, an Indemnified Party
reasonably determines that its interests are or may be adverse,
in whole or in part, to the interests of the Indemnifying Party
or that there may be legal defenses available to the Indemnified
Party which are or may be different from, in addition to, or
inconsistent with the defenses available to the Indemnifying
Party, the Indemnified Party may retain its own counsel in
connection with such action or claim, and shall continue to be
indemnified by the Indemnifying party for any legal or other
expenses reasonably incurred in connection with such demand,
claim or lawsuit as set forth herein.
j. Notwithstanding the forgoing, no Indemnifying Party, in regard to
any such demand, claim or lawsuit shall, without the written
consent of the Indemnified Party (which shall not be unreasonably
withheld), consent to an entry of any judgment of, pay,
compromise or settle any such demand, claim or lawsuit that does
not include as an unconditional term the giving by the claimant
or plaintiff to the Indemnified Party of a release from all
liability in relation to which the Indemnified Party has
indemnity rights against the Indemnifying Party, as set forth
herein. The Indemnified Party shall not, without the written
consent of the Indemnifying Party, consent to an entry of any
judgment of, pay, compromise or settle such demand, claim or
lawsuit as to which the Indemnifying Party has acknowledged and
agreed in writing that, if the same is adversely determined, the
Indemnifying Party has an obligation to provide indemnification
to the Indemnified Party in respect thereof provided, however,
that
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the Indemnified Party shall have the right to consent to the
entry of a judgment of, pay, settle or compromise any such
demand, claim or lawsuit without the consent of the
Indemnifying Party if the Indemnified Party shall waive any
claim for the indemnity therefore and hereunder, unless such
consent of the Indemnifying Party is unreasonably withheld.
k. The Indemnified Party shall reasonably cooperate with the
Indemnifying Party in connection with any claim, action or suit
as to which the Indemnified Party believes it is entitled to
indemnification and shall furnish such records, information and
testimony and attend such conferences, discovery proceedings,
hearings, trials and appeals as may be reasonably requested by
the Indemnifying Party in connection therewith.
1. The foregoing agreements of indemnity shall be in addition to,
and shall in no respect limit or restrict, any other remedies
which may be available to an indemnified party.
15. Conflict of Interests.
In addition to the investment management services performed under
this Agreement, the Adviser, its affiliates and their respective
officers, employees, directors, shareholders and controlling
persons (collectively "Related Persons") may engage in any other
business and may render investment advisory services to any other
person during the term of this Agreement as described in the
Adviser's Form ADV Part II, which will be updated from time to
time. The Adviser and its Related Persons may so render
investment advisory services to any other person or entity even
if such other person or entity has investment policies and/or
guidelines similar to those followed by the Adviser for the
Customer. The Adviser and its Related Persons may or may not, at
any time, buy or sell, or may or may not direct or recommend that
the Customer or the Account buy or sell securities or other
assets of the same kind or class that are purchased or sold for
another person or entity or at a price which may or may not
differ from the price of the securities or other assets purchased
or sold for that person or entity. The Adviser and its Related
Persons may or may not, at any time, buy or sell, or may or may
not direct or recommend that another person or entity buy or sell
securities or other assets of the same kind or class that are
purchased or sold for the Customer or the Account or at a price
which may or may not differ from the price of the securities or
other assets purchased or sold for the Customer or the Account.
Nothing in this Section shall relieve the Adviser of its
obligations to comply with applicable law or Section 7. of this
Agreement.
16. Receipt of Adviser's Form ADV Part II.
The Customer acknowledges receipt more than forty-eight (48) hours
prior to the execution of this Agreement of the Adviser's current
Part II of Form ADV.
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17. No Plan Assets.
None of the assets in the Account are assets of a plan subject to the
Employee Retirement Income Security Act of 1974 ("ERISA"),
Section 4975 of the Internal Revenue Code of 1986 (the "Code") or
any federal, state, local or foreign law substantially similar to
ERISA or Section 4975 of the Code. If any of the assets of the
Account at any time may constitute assets of any such plan, the
Customer shall give the Adviser immediate written notice.
18. Client Lists and Referrals.
The Adviser will often include client lists as a part of its
marketing materials. The Adviser is authorized to disclose the
Customer's name in its client list included in the Adviser's
marketing materials.
The Adviser may use the Customer as a reference and is authorized to
disclose the Customer's name and contact information to
prospective clients, such that the Adviser's prospective clients
may contact the Customer to discuss the Adviser and its services.
19. Adviser Independence.
For all purposes of this Agreement, the Adviser shall be deemed to be
an independent contractor. Nothing contained herein shall
constitute the Adviser as a member, together with the Customer,
of any partnership, joint venture, association, syndicate or
other entity. Nothing contained herein shall be deemed to require
the Adviser or the Customer to take any action contrary to any
applicable law or rule or regulation of any regulatory body,
exchange, or board.
20. Notices.
Unless otherwise specified herein, all notices and instructions with
respect to transactions or any other matters contemplated by this
Agreement shall be deemed duly given when received in writing by
either party or on the third business day after deposit (i) in
the U.S. Mail, postage pre-paid and certified, or (ii) with a
recognized express delivery services (such as Federal Express),
postage pre-paid, in either event if such notice or instruction
is addressed to the applicable party at the address set forth
below or at such other address or addresses as shall be specified
by either party in a notice given in compliance with this
paragraph. Either party may rely upon any notice from the other
party or other communication reasonably believed by it to be
genuine.
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If to Customer:
Los Padres Bank, FSB
610 Alamo Pintado at Highway 246 Solvang
CA 93463
Attn: Butch Phillips
If to Smith Breeden:
Smith Breeden Associates, Inc.
100 Europa Drive, Suite 200
Chapel Hill, NC 27517
Attention: Ms. Marianthe S. Mewkill, Executive Vice President
21. Governing Law.
This Agreement shall be governed by, and construed and enforced in
accordance with, the substantive law of the State of New York (United
States) applicable to contracts made between residents of that state,
executed and wholly performed within that state. Each party agrees that
process in any proceeding may be served by certified mail, return
receipt requested, to the addresses for notices specified in accordance
with this Agreement.
22. Arbitration.
All disputes with respect to the interpretation of this Agreement or
with respect to an alleged breach of any provision of this
Agreement, shall be resolved by arbitration, which shall take
place in the State of New York (United States) and shall be
conducted in accordance with the commercial arbitration rules of
the American Arbitration Association ("AAA"). There shall be
three (3) arbitrators who shall be selected by the AAA from its
list of qualified arbitrators and who shall have no actual or
potential conflict in deciding or hearing the dispute and shall
be qualified by education and training to pass upon the
particular matter to be decided. The arbitration award shall be
given in writing and shall be final and binding on the parties
and not subject to any appeal and shall deal with the question of
costs of arbitration. The parties understand that this agreement
to arbitrate does not constitute a waiver of the right to seek a
judicial forum where such waiver would be void under federal or
state securities laws.
23. Anti-Money Laundering.
The Customer hereby represents and covenants to Adviser that it is
aware of the requirements of the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act ("USA PATRIOT Act"), the regulations
administered by the U.S. Department of Treasury's Office of
Foreign Assets Control ("OFAC"), and other applicable U.S.
federal or non-U.S. anti-money laundering laws and regulations
(collectively, the "anti-money laundering/OFAC laws"). The
Customer further represents and covenants that it has anti-money
laundering policies and procedures in place that are in
compliance with
13
applicable anti-money laundering/OFAC laws; that the Customer is in
compliance with such policies and procedures; and that the Customer has
policies and procedures in place reasonably designed to verify the
identity of its beneficial owners and their sources of funds. The
Customer hereby represents to the Adviser that, to the best of its
knowledge, the Customer's beneficial owners are not individuals,
entities or countries that may subject the Adviser to criminal or civil
violations of any anti-money laundering/OFAC laws; are not listed on
the Specially Designated Nationals and Blocked Persons list published
by OFAC; and, are not organized, domiciled or otherwise located in any
country subject to a sanctions program administered by OFAC or in a
country that is part of the country advisory list of the Financial
Crimes Enforcement Network of the U.S. Treasury Department or is a part
of the non-cooperative countries list of the Financial Action Task
Force on money laundering. The Customer agrees to promptly notify the
Adviser should the Customer become aware of any changes to these
representations. These representations and covenants are continuing in
nature and the Customer agrees to promptly notify the Adviser should
the Customer become aware of any changes to these representations.
24. Severability.
If any term, provision, covenant, or condition of this Agreement, or
the application thereof to any party or circumstance, is held to be
invalid or unenforceable (in whole or in part) for any reason, the
remaining terms, provisions, covenants, and conditions hereof will
continue in full force and effect as if this Agreement had been
executed with the invalid or unenforceable portion eliminated, so long
as this Agreement as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter
of this Agreement and the deletion of such portion of this Agreement
will not substantially impair the respective benefits or expectations
of the parties hereto.
25. No Third Party Rights.
This Agreement shall not be deemed to confer upon or create any rights
or benefits in regard to any third party. The rights and benefits of
this Agreement inure solely to the parties hereto and their permitted
successors and assigns.
26. Headings.
Headings to Sections herein are for the convenience of the parties only
and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
27. Complete Agreement.
This Agreement constitutes the entire agreement among the parties with
respect to the matters referred to herein, superseding any and all
Prior Agreements, and no other Prior Agreement, verbal or otherwise,
shall be binding as between the parties hereto.
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PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION IN
CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, THIS AGREEMENT IS NOT
REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY
FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN AN
ADVISORY PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF THE COMMODITY TRADING
ADVISER DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS
NOT REVIEWED OR APPROVED THIS ADVISORY PROGRAM OR THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year set forth below.
SMITH BREEDEN ASSOCIATES, INC. LOS PADRES BANK, FSB
By: Marianthe S. Mewkill By: William W. Phillips
/s/ Marianthe S. Mewkill /s/ William W. Phillips
------------------------ -----------------------
Title: Executive Vice President Title: President
Date: September 26, 2005 Date: September 26, 2005
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APPENDIX A
(1) RATE RISK ANALYSIS
The Rate Risk Analysis will be conducted, and the Rate Risk Analysis
Report will be issued, monthly.
(2) ACTIVE PORTFOLIO ADVISER STRATEGY
Structure
Low turnover
Full universe of fixed income asset classes
Cash assets in AFS (typical) and Trading (optional)
Synthetic assets (e.g. Total Rate of Return Swaps)
Hedging
Duration - Yes (e.g. IRSwaps, FHLB Advances, Term
Repos, Futures)
Convexity - Yes (e.g. Options, Dynamic rebalancing
with LIBOR futures, TSY futures, lRSwaps)
Credit
100% Investment grade
Reporting
Monthly written report
Quarterly onsite visit or conference call (determined
by Smith Breeden).
(3) FEES FOR RATE RISK ANALYSIS AND PORTFOLIO ADVISORY SERVICES
For monthly services provided by Smith Breeden pursuant to this
Agreement, the Customer's fees shall be as follows:
(a) When Smith Breeden Managed Portfolio Assets are at or above
$425,000,000, the Customer shall pay 1/12 of 0.10% annually
on the Smith Breeden Managed Portfolio Assets; or
(b) When Smith Breeden Managed Portfolio Assets are below
$425,000,000, the customer shall pay the lesser of:
a. 1/12 $425,000; or
b. 1/12 of 0.10% annually of Smith Breeden Managed Portfolio
Assets, plus 1/12 of
Total Assets (Millions) Annual Base Fee Annual Variable Portion
----------------------- ---------------------------------------
Under $100 $37,500
Over $100 $37,500 plus 0.25bp on Total Bank Assets > $100
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For purposes of the fee calculation, Total Bank Assets is
defined as the amount the institution intends to report in
its financial statements for the most recent relevant fiscal
period ended and for the relevant corporate entity (i.e.,
holding company vs. bank).
For purposes of the fee calculation, Smith Breeden Managed
Portfolio Assets is defined as the fair market value of the
total securities portfolio (which will include the notional
value of all total rate of return swaps in excess of 25% of
the fair market value of the total securities portfolio not
including such notional values) in the Account as of the
last business day of the most recent month end or as of the
last business day of the month prior to the most recent
month-end, depending on which information is readily
available. Any and all fees are due and payable in monthly
installments in advance, on the first day of each month
("monthly fee").
17