SECOND AMENDED AND RESTATED
CUSTOMER AGREEMENT
SMITH BARNEY POTOMAC FUTURES FUND L.P.
This Second Amended and Restated Customer Agreement (this "Agreement") is
made and entered into as of the 1st day of April, 2001, by and between SMITH
BARNEY POTOMAC FUTURES FUND L.P., a New York limited partnership (the
"Partnership"), and SALOMON SMITH BARNEY INC., a Delaware corporation ("SSB").
W I T N E S S E T H :
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WHEREAS, the Partnership has been organized under the laws of the State of
New York for the purpose of achieving substantial capital appreciation through
speculative trading of commodity interests, including, but not limited to,
futures contracts, options, spot and forward contracts; and
WHEREAS, Smith Barney Futures Management LLC ("SBFM" or the "General
Partner") has been elected general partner of the Partnership and SFG Global
Investments, Inc. ("SFG") has withdrawn as general partner of the Partnership
effective as of the date hereof; and
WHEREAS, the Trading Manager Agreement, dated as of March 1, 1999, among
Smith Barney Futures Management Inc., a predecessor of SBFM, the Partnership and
SFG has been terminated as of the date hereof; and
WHEREAS, the Partnership entered into a Customer Agreement, dated April 22,
1997, with SSB's predecessor and entered into an Amended and Restated Customer
Agreement, dated as of March 1, 1999, with SSB; and
WHEREAS, the Partnership and SSB wish to enter into this Second Amended and
Restated Customer Agreement setting forth the terms and conditions upon which
SSB will continue to perform brokerage and other services for the Partnership;
NOW, THEREFORE, in consideration of the promises and the mutual covenants
contained herein, it is agreed as follows:
1. Appointment of Broker/Dealer and Opening of Account. The Partnership hereby
appoints SSB as its commodity broker/dealer through whom the Partnership will
execute trades in commodity interests including futures contracts, options, spot
and forward contracts. The Partnership shall deposit or cause to be deposited
the partners' capital contributions in a commodity brokerage account with SSB,
and will maintain all of its assets, as they from time to time exist, in such
account except for such amounts as may be necessary or desirable to be
maintained in a bank account or with a broker to facilitate trading in interbank
forward foreign currency transactions and the payment of Partnership expenses,
redemptions or distributions. The Partnership shall execute such other documents
as shall be necessary or appropriate to permit SSB to perform its services
hereunder.
2. Services of SSB. SSB agrees to use its best efforts to effect transactions
for the Partnership's account. SSB agrees to assist the Partnership in
performing various functions. These include, but are not limited to: (a)
calculating the Partnership's Net Assets and Net Asset Value (as such terms are
defined in the Partnership's Limited Partnership Agreement) at such times as may
be required, (b) calculating any fees due the Partnership's trading advisor (the
"Advisor"), (c) preparing and confirming financial information for annual or
interim audits and reports and (d) establishing procedures for effecting
redemptions, cash distributions and the liquidation of the Partnership upon
termination. SSB further agrees to furnish clerical and bookkeeping support for
the administration of the Partnership.
3. (a) Brokerage and Other Fees. The Partnership shall pay to SSB, in lieu of
brokerage commissions on a per trade basis, a monthly flat rate brokerage fee
equal to 6.5% per year of the Partnership's month-end Net Assets (computed
monthly by multiplying the Partnership's Net Assets as of the last business day
of each month by 6.5% and dividing the result thereof by the ratio which the
total number of calendar days in that month bears to 365 days) less $3,000. The
Partnership shall also pay all National Futures Association, exchange, clearing,
user, give-up and floor brokerage fees, or shall reimburse SSB for all such fees
previously paid by SSB on behalf of the Partnership. SSB's fee may be increased
or decreased at any time at SSB's discretion upon notice to the Partnership.
4. Payment of Interest. All of the assets of the Partnership which are deposited
in the Partnership's accounts at SSB will be deposited and maintained in cash.
During the term of this Agreement, SSB will, within 10 days following the end of
each calendar month, credit the Partnership's brokerage accounts with a sum
representing interest on eighty percent (80%) of the average daily equity
maintained in cash in such accounts during each month (i.e., the sum of the
daily cash balances in such accounts divided by the total number of calendar
days in that month) at a 30-day Treasury bill rate determined weekly by SSB
based on the average non-competitive yield on 3-month U.S. Treasury bills
maturing in 30 days (or on the closest maturity date thereto) from the date on
which such weekly rate is determined. The equity maintained in cash in the
account on Saturdays, Sundays and holidays shall be the equity maintained in
cash in the account as of the close of business on the immediately preceding
business day.
5. Trading Authorization. (a) Management Agreement. The General Partner has
entered into an individual management agreement with Campbell & Company, Inc.,
as the Partnership's Advisor. Pursuant to the management agreement, the
Partnership's Advisor shall have discretion to order purchases and sales of
commodity interests including futures contracts, options, spot, and forward
contracts. SBFM, as the Partnership's general partner, may allocate or
reallocate all or a portion of the Partnership's assets among trading programs
operated by the Partnership's Advisor or select or appoint additional or
replacement trading advisors. SSB is hereby authorized to execute all orders
placed by the Partnership's Advisor for the account of the Partnership until
notified by SBFM to the contrary, and shall have no obligation to inquire into
the reason for or method of determining such orders, nor any obligation to
monitor such orders in relation to the Partnership's trading policies. The
provisions of this Paragraph 5 shall apply with equal force and effect to any
other commodity trading advisor designated in the future by SBFM.
6. Terms of the Account. The following terms and conditions shall be applicable
to the Partnership's account:
(a) The word "property" is used herein to mean securities of all kinds,
monies, options, commodities and contracts for the future delivery of, or
otherwise relating to, commodities or securities and all property usually and
customarily dealt in by brokerage firms.
(b) All transactions for the Partnership's account shall be subject to the
regulations of all applicable federal, state and self-regulatory agencies
including, but not limited to, the various commodity exchanges and the
constitutions, rules and customs, as the same may be constituted from time to
time, of the exchange or market (and its clearing house, if any) where executed.
Actual deliveries are intended on all transactions. The Partnership also agrees
not to exceed the speculative position limits for its own account, acting alone
or in concert with others, and promptly to advise SSB if it is required to file
reports of its commodity positions with the Commodity Futures Trading
Commission.
(c) Any and all property belonging to the Partnership, or in which it may
have an interest, held by SSB or carried in the Partnership's account (either
individually or jointly with others) shall be subject to a general lien for the
discharge of the Partnership's obligations to SSB, wherever or however arising
and without regard to whether or not SSB has made advances with respect to such
property, and SSB is hereby authorized to sell and/or purchase any and all
property in the Partnership's account without notice to satisfy such general
lien.
(d) The Partnership agrees to maintain such collateral and/or margin as SSB
may, in its discretion, require from time to time and will pay on demand any
amount owing with respect to its account. Against a "short" position in any
commodity contract, prior to the maturity thereof, the Partnership will give SSB
instructions to cover, or furnish SSB with all necessary delivery documents, and
in default thereof, SSB may, without demand or notice, cover the contracts, or
if an order to buy in such contracts cannot be executed under prevailing
conditions, SSB may procure the actual commodity and make delivery thereof upon
any terms and by any method which may be feasible. It is further agreed that if
the Partnership fails to receive sufficient funds to pay for any commodities and
commodity futures contracts and/or to satisfy any demands for original and/or
variation margin, SSB may, without prior demand and notice, sell any property
held by it in the Partnership's account and any loss resulting therefrom will be
charged to the Partnership's account.
(e) SSB may, whenever in its discretion it considers it necessary for its
protection, sell any or all property held in the Partnership's account, cancel
any open orders for the purchase or sale of any property with or without notice
to the Partnership, and SSB may borrow or buy in any property required to make
delivery against any sales, including a short sale, effected for the
Partnership. Such sale or purchase may be public or private and may be made
without advertising or notice to the Partnership and in such manner as SSB may,
in its discretion, determine, and no demands, calls, tenders or notices which
SSB may make or give in any one or more instances shall invalidate the aforesaid
waiver on the Partnership's part. At any such sale SSB may purchase the property
free of any right of redemption and the Partnership shall be liable for any
deficiency in its account.
(f) SSB and the Partnership agree that the parties shall have the right to
offset any unrealized gains and losses on the Partnership's open positions and
to net any open orders for the purchase or sale of any property of the
Partnership.
(g) The Partnership agrees to pay service fees and/or interest charges upon
its account monthly at the prevailing and/or allowable rates according to the
laws of the State of New York, as determined by SSB at the time of the
acceptance of this Agreement in its New York office and thereafter.
(h) If any provisions herein are or should become inconsistent with any
present or future law, rule or regulation of any sovereign government or a
regulatory body having jurisdiction over the subject matter of this Agreement,
such provision shall be deemed to be rescinded or modified in accordance with
any such law, rule or regulation. In all other respects, this Agreement shall
continue and remain in full force and effect.
7. Indemnification.
(a) In any action, suit or proceeding to which SSB was or is a party or is
threatened to be made a party by reason of the fact that it is or was the
commodity broker for the Partnership (other than an action by or in the right of
the Partnership), the Partnership shall indemnify and hold harmless SSB, subject
to subparagraph (c), against any loss, liability, damage, cost, expense
(including attorneys' fees and accountants' fees), judgments and amounts paid in
settlement actually and reasonably incurred by it in connection with such
action, suit or proceeding if SSB acted in good faith and in a manner it
reasonably believed to be in the best interests of the Partnership, except that
no indemnification shall be made in respect of any claim, issue or matter which
as to SSB constituted negligence, misconduct or breach of its fiduciary
obligations to the Partnership, unless, and only to the extent that, the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all circumstances of the
case, SSB is fairly and reasonably entitled to indemnification for such expenses
which such court shall deem proper; and further provided that no indemnification
shall be available from the Partnership if such indemnification is prohibited by
Section 16 of the Partnership's Limited Partnership Agreement. The termination
of any action, suit or proceeding by judgment, order or settlement shall not, of
itself, create a presumption that SSB did not act in good faith, and in a manner
which it reasonably believed to be in or not opposed to the best interests of
the Partnership.
(b) To the extent that SSB has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in subparagraph (a)
above, or in defense of any claim, issue or matter therein, the Partnership
shall indemnify it against the expenses, including attorneys' fees, actually and
reasonably incurred by it in connection therewith.
(c) Any indemnification under subparagraph (a) above, unless ordered by a
court, shall be made by the Partnership only as authorized in the specific case
and only upon a determination by independent legal counsel in a written opinion
that indemnification is proper in the circumstances because SSB has met the
applicable standard of conduct set forth in subparagraph (a) above.
(d) The term SSB as used in this Paragraph 7 shall include SSB, its
officers, directors, stockholders, employees and affiliates.
8. Termination. This Agreement may be terminated at any time by either party
hereto upon notice to the other, in which event the brokerage accounts shall be
closed and all positions open at such time shall be liquidated or shall be
transferred to another broker as directed by the Partnership.
9. Miscellaneous. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns. This
Agreement shall be governed by the laws of the State of New York.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
SMITH BARNEY POTOMAC FUTURES FUND L.P.
By: Smith Barney Futures Management LLC.
(General Partner)
By: /s/ David J. Vogel
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Name: David J. Vogel
Title: President
SALOMON SMITH BARNEY INC.
(Commodity Broker/Dealer)
By: /s/ David J. Vogel
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Name: David J. Vogel
Title: