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EXHIBIT 11
PLEDGE AGREEMENT
Agreement dated as of October 29, 1997 between Xxxxxxx, Xxxxx & Co.
("Broker"), The Prudential Insurance Company of America with respect to Separate
Account Prudential Variable Contract Account-2, an investment company registered
under the Investment Company Act of 1940 ("Customer" or the "Account"), and
Investors Fiduciary Trust Company ("IFTC") ("Bank") (Customer, Broker and Bank
are hereinafter collectively known as the "Parties").
WHEREAS, by a Customer Agreement (the "Customer Agreement") dated October
29, 1997, Customer has opened one or more trading accounts (each a "Trading
Account") with Broker, a registered Futures Commission Merchant, for the purpose
of trading financial futures contracts ("Futures Contracts") and options on
Futures Contracts ("Options") (Options and Futures Contracts are referred to
individually as a "Contract" and collectively as "Contracts; and
WHEREAS, the rules and regulations of the Chicago Mercantile Exchange,
the Chicago Board of Trade, the Commodity Futures Trading Commission and such
other exchanges or boards of trade on which Broker may effect, or cause to be
effected, Contract transactions for Customer (each an "Exchange"; together the
"Exchanges"), may require Customer to deposit with Broker certain collateral;
and
WHEREAS, The Prudential Insurance Company of America ("Prudential"), the
investment manager of the Account, pursuant to the Agreement for Investment
Management Services between the Account and Prudential, has entered into a
Service Agreement with The Prudential Investment Corporation ("PIC"), a
wholly-owned subsidiary of Prudential, pursuant to which PIC furnishes
investment advisory services to the Account; and
WHEREAS, Bank is a portfolio securities custodian for Customer pursuant
to the Custodian Agreement between Customer and Bank ("Custodian Agreement");
and
WHEREAS, Customer, Broker and Bank have agreed that Bank will open and
maintain such third party custody accounts as Customer may direct (each a
"Pledge Account"), such accounts to be subject to the terms of this Agreement
and the Custody Agreement between Customer and Bank (the "Custody Agreement");
AND
NOW, THEREFORE, it is agreed as follows:
1. As used herein the following terms shall have the following
meanings (such meaning to be equally applicable to both the
singular and plural forms of the terms defined):
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"Initial Margin" means the minimum margin required by an Exchange
on which a transaction is effected in order to purchase or sell a
Futures Contract or to sell an Option on such Exchange.
"Instructions from Broker" means a request, direction or
certification in writing signed in the name of Broker by a person
authorized to sign for Broker as certified in writing to Bank by
an officer of Broker.
"Instructions from Customer" means a request, direction or
certification in writing signed in the name of Customer by a
person authorized to sign for Customer and hand-delivered to Bank
or transmitted to it by a facsimile sending device except that
instructions to transfer to or from each Pledge account cash or
Government securities, or cash or securities denominated in a
currency other than US dollars will be given by telephone and
thereafter confirmed in writing.
"Notice by Broker to Customer" or "Notice by Bank to Customer"
means notice by Broker or by Bank, respectively, to any person
designated by Customer in writing as eligible to receive such
notice. When notice is given pursuant to paragraphs 10 (B), (C)
and (D), telephone notice must be followed by a hand-delivered
notice or facsimile notice.
"Notice by Broker to Bank" means notice by Broker to any person
designated by Bank in writing as eligible to receive such notice,
or, in the event no such person is available, to any officer in
the Custody Administration Department of Bank.
"Business Day" means a day on which and at a time at which
Customer, Bank and Broker are all open for business.
"Variation Margin" means any additional margin required by any
Exchange on which any Contract transaction is effected by Broker
for Customer due to the variation in value of one or more
outstanding Futures Contracts purchased or sold or Options sold
for Customer.
2. With respect to Contracts traded on any contract market designated
by the CFTC pursuant to Section 5 of the Commodity Exchange Act,
as amended ("CEA"), Customer hereby requests Bank to open and
maintain, and Bank hereby agrees to open and maintain a Pledge
Account for Broker as pledgee of Customer with respect to each
Trading Account. Each such Pledge Account shall be entitled
"Xxxxxxx, Sachs & Co., Commodity Customer Funds for the benefit of
Prudential Variable Contract Account-2 (Customer Segregated
Account)". With respect to Contracts traded on any foreign board
of trade or exchange, Customer hereby requests Bank to open and
maintain, and Bank hereby agrees to open and maintain, a Pledge
Account for Broker
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as pledgee of Customer with respect to each Trading Account. Each
such Pledge Account shall be entitled "Xxxxxxx, Xxxxx & Co.,
Commodity Customer Funds for the benefit of Prudential Variable
Contract Account-2 (Customer Secured Account)".
Each Pledge Account is a segregated or secured (as applicable)
account within the meaning of the CEA, and regulations promulgated
by the CFTC pursuant thereto and all cash, securities and other
property deposited therein will be held by Bank in accordance
therewith. Bank hereby acknowledges that: (1) in the case of any
property deposited in the Customer Segregated Account, such
property is that of a commodity or options customer of Broker and
is being held in accordance with the CEA and the regulations of
the CFTC thereunder; and (2) in the case of any property deposited
in the Customer Secured Account, such property is being held for
or on behalf of a foreign futures and foreign options customer of
Broker and is being held in accordance with the regulations of the
CFTC under the CEA.
3. Customer shall give instructions from Customer to bank to hold in
the Pledge Account cash, U.S. Government securities, cash or
securities denominated in a foreign currency or any combination
thereof (collectively, "Collateral"), in the amount of Initial
Margin required with respect to any Contract for the Trading
Account. In the case of Initial Margin in connection with Options
written by Customer, such margin shall be increased or reduced
daily in accordance with the requirements of the Exchange on which
the Options were sold. Such Collateral shall be maintained in the
Pledge Account until termination or satisfaction of the related
Futures Contract or Option. Customer may give Instructions from
Customer to Bank to hold Collateral in the Pledge Account in
excess of such requirements ("Excess Collateral"). In determining
whether Collateral is sufficient to satisfy Initial Margin
requirements of any Exchange, U.S. Government securities will be
valued at 90% of current market value ("Value").
Customer may enter into a transaction in a contract that is
denominated in a currency (the "Contract Currency") other than the
currency of Customer's jurisdiction. At Customer's discretion,
Customer may deposit in a Pledge Account Collateral in the form of
cash or securities denominated in a currency other than the
Contract Currency (the "Base Currency"). In that event, Broker
shall determine Customer's margin requirements in the Base
Currency on any day in a commercially reasonable manner based on
current exchange rates between the Base Currency and the Contract
Currency. Furthermore, Customer shall pay Broker's fee as in
effect from the time from Broker's deposit of margin in the
Contract Currency with applicable Exchange.
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In determining whether Collateral is sufficient to satisfy Initial
Margin requirements of any Exchange, the Value of securities
denominated in a currency other than the currency of Customer's
jurisdiction shall be determined by Broker. In the event that
Customer disagrees with the Value determined by Broker, Customer
shall have one Business Day to submit a different Value. If Broker
disagrees with the Value submitted by Customer, Broker and
Customer shall promptly agree on a third-party pricing source to
provide the Value. The Value determined by the third-party pricing
source shall be conclusive. Notwithstanding the foregoing, if the
Value assigned by Broker is the same as the price assigned thereto
by the relevant Exchange, then that Value shall be conclusive and
Customer shall not have the opportunity to object.
4. Bank at no time shall have any responsibility for determining
eligibility, value or adequacy of Collateral held in the Pledge
Account. Collateral held in any Pledge Account:
(i) will be held by Bank as agent of Broker subject to the
terms and conditions of the Custody Agreement, as modified
by this Agreement. This Agreement shall be controlling with
respect to each Pledge Account in the event of conflicting
provisions;
(ii) may be released, transferred or sold only in accordance
with the terms of this Agreement; and
(iii) except as provided herein, shall not be made available to
Broker or to any person claiming through Broker, including
creditors of Broker.
Customer hereby grants to Broker a continuing security interest in
the Collateral and the proceeds thereof (but not such portion of
the Collateral which constitutes Excess Collateral) subject to the
terms and conditions of this Agreement. Such security interest
will terminate at the earlier of (1) release of such Collateral by
Broker as provided herein, or (2) such time as such Collateral
becomes Excess Collateral. The Collateral shall at all times
remain the property of Customer subject only to the interest and
rights therein of Broker as secured party thereof as provided in
this Agreement.
5. Other than pursuant to paragraph 10, Collateral shall only be
transferred or released from any Pledge Account upon both (x)
Instructions from Broker and (y) Instructions from Customer.
Customer and Bank represent to Broker that Bank is not an
affiliate of Customer.
6. Customer may substitute as Collateral, cash, U.S. Government
securities (or any combination thereof) of equal or greater Value,
or, if applicable, cash or securities (or any combination thereof)
denominated in a foreign currency
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(collectively "Assets"), of equal or greater Value. Upon request
from Customer identifying the Collateral to be substituted, Broker
agrees to promptly give Instructions to Bank to release from the
Pledge Account Assets of an equal Value, or such lesser amount as
may be directed by Customer, upon receipt of substitute
Collateral.
7. Broker shall promptly notify Customer of the amount of any Excess
Funds in a Pledge Account. Upon request of Customer, Broker shall
promptly give Instructions to Bank to release Assets, the Value of
which in the aggregate does not exceed the amount of such Excess
Collateral.
8. Interest on U.S. Government securities held in any Pledge Account
will be automatically credited by Bank in immediately available
funds to an account designated in writing by Customer the date
that such funds become due and payable. Amounts due on U.S.
Government securities which mature or are redeemed will be
credited to the Pledge Account or an account designated by
Customer in immediately available funds on the date funds are
received by Bank.
9. Bank shall promptly give Notice by Bank to Customer, and Broker
of, and transmit to both, written confirmation of each transfer
into or out of any Pledge Account.
10. Broker shall have access to the Collateral only in accordance with
the following:
(A) If Variation Margin is required, then Broker shall
give Instructions from Broker to Customer and such
Variation Margin shall first be satisfied by
reducing the balance, if any, of the Trading Account
with Broker. If the balance of such Trading Account
is insufficient, then Broker shall include in such
Instructions the amount of the Variation Margin.
Unless a shorter notice period is required by the
Exchange on which the futures positions are carried,
or, a longer notice period is agreed upon by Broker
and Customer,
(i) if Notice by Broker to Customer is given that
additional margin is required due to variation in
the value of one or more outstanding Futures
Contracts purchased or sold for Customer or assigned
to Customer as a result of exercise of Options
written by Customer ("Variation Margin") prior to
11:30 a.m. New York time on a day on which Customer
is open for business, which Variation Margin shall
first have been satisfied from any amounts currently
credited to Customer's Trading Account with Broker
in connection with which the Variation
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Margin is required, Customer shall transfer to
Broker such Variation Margin not later than the end
of the Business Day on which such notice was given.
Unless a shorter period of time is required or
specified as referenced above.
(ii) if Notice by Broker to Customers is given of
the need for Variation Margin subsequent to 11:30
a.m. but prior to 4:00 p.m. New York time on a
Business Day, then, Customer shall cause such
Variation Margin to be transferred to Broker not
later than 11:30 a.m. New York time on the next
succeeding Business Day or if not in US Dollars,
then the transfer is to be completed in accordance
with market standards. (Any Notice by Broker to
Customer after 4:00 p.m. New York time but before
the end of a Business Day shall be deemed to have
been given prior to 11:30 a.m. New York time on the
next succeeding Business Day.)
In either case, Broker shall immediately notify
Customer in writing of the receipt of Variation
Margin.
(B) If Broker has not received the requested Variation
Margin within the applicable time period as provided
in paragraph (A) above, then Notice by Broker to
Customer of such failure shall be given immediately.
(C) If Broker does not receive the Variation Margin
within the time periods required in paragraph (A)
above, then Broker may give
(i) Notice by Broker to Bank of Customer's failure
to provide Variation Margin and the amount of
Variation Margin required, and
(ii) Notice by Broker to Customer that such Notice
has been given to Bank. Immediately upon receipt of
Notice by Broker to Bank, Bank shall give Notice by
Bank to Customer of its receipt of such Notice by
Broker.
(D) If Customer has failed to transfer the required
Variation Margin to Broker during the period
specified in paragraph (A) above, then
(i) Broker may give Instructions from Broker to Bank
to (a) transfer eligible securities from such Pledge
Account to Broker, (b) to sell at the prevailing
market price such of the Collateral in the Pledge
Account as necessary to provide for payment to
Broker of the amount of Variation Margin that Broker
shall have
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specified in the Notice and transfer the proceeds of
such sale to Broker, or
(ii) with respect to Collateral in the form of cash,
Broker may give Instructions from Broker to Bank
immediately to transfer cash in the amount of the
Variation Margin that Broker shall have specified in
such Notice from such Pledge Account to the account
of Broker.
Bank shall contemporaneously therewith give Notice
by Bank to Customer of its receipt of such
Instructions from Broker to Bank and, upon taking
any action pursuant to such Instructions, shall
contemporaneously therewith give Notice by Bank to
Customer of such actions.
(E) Bank shall retain in such Pledge Account any
Collateral in excess of the amount specified in
Instructions by Broker to Bank, including any
proceeds from the sale of securities in excess of
such amount. Bank shall give consideration to any
timely requests by Customer with respect to
particular securities to be transferred or sold, and
shall sell any securities in the principal market
for such securities, or in the event such principal
market is closed, to sell them in a commercially
reasonable manner.
11. Neither Broker nor any person claiming through Broker shall have
access to Collateral in any Pledge Account established and
maintained by Customer other than the applicable Pledge Account
established and maintained pursuant to this Agreement and only in
accordance with the provisions of this Agreement.
12. Any and all expenses of establishing, maintaining, or terminating
the Pledge Account, including without limitation any and all
expenses incurred by Bank in connection with the Pledge Account,
shall be borne by Broker.
13. No amendment of this Agreement shall be effective unless in
writing and signed by a duly authorized officer of each of Broker,
Customer and Bank
14. All notices, instructions, notification and other communications
hereunder (each a "Notice") shall be, unless otherwise stated
herein, hand-delivered or transmitted by a facsimile sending
device (except that notice of termination shall be sent by
certified mail) addressed as set forth below (or as set forth in a
subsequent Notice). Each of Broker, Customer and Bank may act upon
any such Notice reasonably believed by such party to be authorized
to be given in accordance with this Agreement and to be genuine.
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(a) if to Bank, to:
Investors Fiduciary Trust Company
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx Xxxxx
Xxxxxx Xxxx, Xxxxxxxx 00000-0000
Attention: Xxxxx Both
(b) if to Customer, to:
Prudential Insurance Company of America, VCA-2
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxxxxx, Xxx Xxxxxx 00000
Attention: Xxxx Xxxxxx
(c) if to Broker, to:
Xxxxxxx, Sachs & Co.
00 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Futures Services Administrator
15. Except as specifically provided herein, this Agreement does not
affect any other agreement entered into among the parties.
16. Any of the parties may terminate this Agreement upon 30 days'
written Notice to the other parties hereto; provided, however,
that Collateral which has not been released by Broker at or prior
to the time of termination shall be transferred to a substitute
custodian designated by Customer and reasonably acceptable to
Broker.
17. This Agreement shall be construed according to, and the rights and
liabilities of the parties hereto shall be governed by the laws of
the State of New York. This Agreement shall be binding on Broker,
Bank and Customer and their respective successors and assigns.
18. This Agreement may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all
of which taken together shall constitute one and the same
Agreement. If any provision or condition of this Agreement shall
be held to be invalid or unenforceable by any court, regulatory or
self-regulatory agency or body, such invalidity or
unenforceability shall attach only to that provision or condition,
to the extent permitted by applicable law.
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19. Bank's duties and responsibilities are as set forth in this
Agreement and no implied duties, covenants or obligations shall be
read into this Agreement against Bank. Bank 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 or willful misconduct.
As between Customer and Bank, the terms of the Custody Agreement
shall apply with respect to any Bank losses or liabilities arising
out of matters covered by this Agreement.
As between Bank and Broker, Broker agrees to reimburse and hold
Bank harmless against any claims, costs, damages, taxes, actions,
expenses, (including reasonable counsel fees) or other liabilities
whatsoever which may be imposed upon Bank or incurred by Bank
(other than as a result of Bank's or Customer's negligence or
willful misconduct) in connection with actions taken or not taken
by Bank solely at the request or order of Broker in accordance
with the terms hereof.
Under no circumstances shall Bank be liable to Customer or Broker
for consequential damages. However, while this is not a complete
list of recoverable damages, Bank acknowledges liability for the
following: (a) interest losses for the period until misdelivered
securities or funds are correctly delivered (and receipt
acknowledged); (b) direct expenses from any necessary alternative
means of delivery of securities or funds; (c) fines; (d)
penalties; and (e) reasonably attorney's fees are not
consequential damages.
20. Notwithstanding anything to the contrary in this or any other
Agreement, it is hereby agreed that:
(a) Liabilities or other obligations relating to a particular
Pledge Account shall be liabilities or obligations of that Pledge
Account only and not of any other Pledge Account and shall be paid
or performed only from the assets in that Pledge Account or the
proceeds thereof without access to any other assets of Customer.
(b) Property held in a particular Pledge Account shall not be
commingled with the property of any other Pledge Account.
(c) Broker shall not have access to Collateral in any Pledge
Account established and maintained by Customer other than the
applicable Pledge Account established and maintained pursuant to
this Agreement. Such access shall be governed by, and shall only
be in accordance with, this Agreement.
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20. Paragraphs 19 and 20 shall survive the termination of this
Agreement.
DATE: PRUDENTIAL INSURANCE COMPANY OF AMERICA, ON
BEHALF OF PRUDENTIAL VARIABLE CONTRACT ACCOUNT-2
By: [SIG]
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TITLE: MANAGING DIRECTOR
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DATE: XXXXXXX XXXXX & CO.
BY: [SIG]
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TITLE: VP
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DATE: INVESTORS FIDUCIARY TRUST COMPANY
BY: [SIG]
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TITLE: VICE PRESIDENT
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