INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT, dated as of _____________ by
and among Hatteras Global Private Equity Partners Institutional Fund, LLC (the
“Fund”), Hatteras Capital Investment Management, LLC, a Delaware limited
liability company (the “Adviser”), and Capvent US Advisors LLC (the
“Sub-Adviser”).
WHEREAS, the Adviser is registered as
an investment adviser under the Investment Advisers Act of 1940, as amended
(“Advisers Act”);
WHEREAS, the Adviser has entered into
an investment management agreement (the “Investment Management Agreement”) dated
____________ with the Fund, an investment company registered under the
Investment Company Act of 1940, as amended (“Investment Company
Act”);
WHEREAS, the Sub-Adviser is registered
as an investment adviser under the Advisers Act;
WHEREAS, the Board of Managers (each
Board member individually a “Manager” and together the “Managers”) of the Fund
and the Adviser desire to retain the Sub-Adviser to render investment advisory
and other services to the Fund, in the manner and on the terms hereinafter set
forth;
WHEREAS, the Adviser has the authority
under the Investment Management Agreement with the Fund to retain sub-advisers;
and
WHEREAS, the Sub-Adviser is willing to
furnish such services to the Adviser and the Fund;
NOW, THEREFORE, in consideration of the promises and
mutual covenants contained herein, and intending to be legally bound hereby,
the Fund, the Adviser and the Sub-Adviser agree as follows:
1.
APPOINTMENT OF THE SUB-ADVISER
The Adviser hereby appoints the
Sub-Adviser to act as an investment adviser for the Fund, subject to the
supervision and oversight of the Adviser and the Managers of the Fund, and in
accordance with the terms and conditions of this Agreement. The
Sub-Adviser will be an independent contractor and will have no authority to act
for or represent the Fund or the Adviser in any way or otherwise be deemed an
agent of the Fund or the Adviser except as expressly authorized in this
Agreement or another writing by the Fund, the Adviser and the
Sub-Adviser.
2.
ACCEPTANCE OF APPOINTMENT
The Sub-Adviser accepts that
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
The assets of the Fund will be
maintained in the custody of a custodian (who shall be identified by the Adviser
in writing). The Sub-Adviser will not have custody of any securities,
cash or other assets of the Fund and will not be liable for any loss resulting
from any act or omission of the custodian other than acts or omissions arising
in reliance on instructions of the Sub-Adviser.
3.
SERVICES TO BE RENDERED BY THE SUB-ADVISER TO THE FUND
A. As
an investment adviser to the Fund, the Sub-Adviser will be involved with all
aspects of the Fund’s investment program including, without limitation, asset
allocation, portfolio construction, and manager search and
selection.
B. As
part of the services it will provide hereunder, the Sub-Adviser
will:
(i) obtain
and evaluate, to the extent deemed necessary and advisable by the Sub-Adviser in
its discretion, pertinent economic, statistical, financial, and other
information affecting the economy generally and individual underlying funds,
companies or industries;
(ii) formulate
and implement a continuous investment program for the Fund as outlined in a
Prospectus (as defined below);
(iii) take
whatever steps are necessary to implement the investment program for the Fund
including, without limitation, securing capacity with underlying
funds;
(iv) perform
extensive preliminary due diligence on underlying funds and managers and provide
formal written recommendations to the Adviser for each investment;
(v) keep
the Managers of the Fund and the Adviser fully informed in writing on an ongoing
basis as agreed by the Adviser and the Sub-Adviser as to (1) all material facts
concerning the investment and reinvestment of the assets in the Fund and (2) the
Sub-Adviser and its key investment personnel and operations, make regular and
periodic special written reports of such additional information concerning the
same as may reasonably be requested from time to time by the Adviser or the
Managers of the Fund; and attend meetings with the Adviser and/or the Managers,
as reasonably requested, to discuss the foregoing;
(vi) in
accordance with procedures and methods established by the Managers of the Fund,
which may be amended from time to time, provide assistance in determining the
fair value of all securities and other investments/assets in the
Fund;
(vii) provide
any and all material composite performance information, records and supporting
documentation about accounts the Sub-Adviser manages, if appropriate, which are
relevant to the Fund and that have investment objectives, policies, and
strategies substantially similar to those employed by the Sub-Adviser in
managing the Fund that may be reasonably necessary, under applicable laws, to
allow the Fund or its agent to present information concerning the Sub-Adviser’s
prior performance in any Prospectus, SAI or Offering Memorandum (as hereinafter
defined) and any permissible reports and materials prepared by the Fund;
and
(viii) cooperate
with and provide reasonable assistance to the Adviser, the Fund’s administrator,
the Fund’s custodian and foreign custodians, the Fund’s transfer agent and
pricing agents and all other agents and representatives of the Fund and the
Adviser; keep all such persons fully informed as to such matters as they may
reasonably deem necessary to the performance of their obligations to the Fund
and the Adviser; provide prompt responses to reasonable requests made by such
persons; and maintain any appropriate interfaces with each such person so as to
promote the efficient exchange of information.
C. In
furnishing services hereunder, the Sub-Adviser shall be subject to, and shall
perform in accordance with, the following: (i) the Fund’s operating
agreement and/or other governing instruments, as the same may be hereafter
modified and/or amended from time to time (“Governing Documents”); (ii) the
currently effective registration statement of the Fund as filed with the
Securities and Exchange Commission (“SEC”) and delivered to the Sub-Adviser;
(iii) the Investment Company Act and the Advisers Act and the rules under each,
and all other federal and state laws or regulations applicable to the Fund; (iv)
the Fund’s Compliance Manual and other policies and procedures adopted from time
to time by the Board of Managers of the Fund; and (v) the written instructions
of the Adviser. Prior to the commencement of the Sub-Adviser’s
services hereunder, the Adviser shall provide the Sub-Adviser with current
copies of any Governing Documents, Prospectus and SAI, Offering Memorandum,
Compliance Manual and other relevant policies and procedures that are adopted by
the Board of Managers of the Fund. The Adviser undertakes to provide
the Sub-Adviser with copies or other written notice of any amendments,
modifications or supplements to any such above-mentioned document.
D. The
Sub-Adviser, at its expense, will furnish: (i) all necessary
facilities (including office space, furnishings, and equipment) and personnel,
including salaries, expenses and fees of any personnel required for the
Sub-Adviser to faithfully perform its duties under this Agreement; and (ii)
administrative facilities, including bookkeeping, and all equipment necessary
for the efficient conduct of the Sub-Adviser’s duties under this
Agreement.
E. On
occasions when the Sub-Adviser deems the purchase of a security to be in the
best interest of the Fund as well as other clients of the Sub-Adviser,
allocation of the securities so purchased, as well as the expenses incurred in
the transaction, will be made by the Sub-Adviser in the manner which the
Sub-Adviser considers to be the most equitable and consistent with its fiduciary
obligations to the Fund and to its other clients over time. The
Adviser agrees that the Sub-Adviser and its affiliates may give advice and take
action in the performance of their duties with respect to any of their other
clients that may differ from advice given, or the timing or nature of actions
taken, with respect to the Fund. The Adviser also acknowledges that
the Sub-Adviser and its affiliates are fiduciaries to other entities, some of
which have the same or similar investment objectives (and will hold the same or
similar investments) as the Fund, and that the Sub-Adviser will carry out its
duties hereunder together with its duties under such
relationships. Nothing in this Agreement shall be deemed to confer
upon the Sub-Adviser any obligation to purchase or to recommend for purchase for
the Fund any investment that the Sub-Adviser, its affiliates, officers or
employees may purchase or sell for its or their own account or for the account
of any client, if in the sole and absolute discretion of the Sub-Adviser it is
for any reason impractical or undesirable to take such action or make such
recommendation for the Fund.
F. The
Sub-Adviser will maintain all accounts, books and records with respect to the
Fund as are required of an investment adviser of a registered investment company
pursuant to the Investment Company Act and Advisers Act and the rules
thereunder.
4.
COMPENSATION OF THE SUB-ADVISER
The Adviser will pay the Sub-Adviser a
quarterly advisory fee with respect to the Fund equal to 0.625% on an annualized
basis of the Net Asset Value of the Fund. However, during the
offering period, the compensation shall be paid to the Sub-Adviser at the end of
the month at a rate equal to 0.625% on an annualized basis of the Net Asset
Value of the Fund. Except as may otherwise be prohibited by law or regulation
(including, without limitation, any then current SEC staff interpretation), the
Sub-Adviser may, in its discretion and from time to time, waive all or any
portion of its advisory fee. In accordance with the terms of the
Governing Documents of the Fund, the Sub-Adviser is also entitled to receive an
incentive allocation or fee equal to 5% of the net profits of the Fund over a
hurdle rate, calculated in accordance with the Governing Documents and as
described in more detail in attached Schedule A.
5.
LIABILITY AND INDEMNIFICATION
A. Except
as may otherwise be provided by the Investment Company Act or any other federal
securities law, neither the Sub-Adviser nor any of its officers, directors,
partners, members or employees (its “Affiliates”) shall be liable for any
losses, claims, damages, liabilities or litigation (including legal and other
expenses) incurred or suffered by the Adviser or the Fund as a result of any
error of judgment or mistake of law by the Sub-Adviser or its Affiliates with
respect to the Fund, except that nothing in this Agreement shall operate or
purport to operate in any way to exculpate, waive or limit the liability of the
Sub-Adviser or its Affiliates for, and the Sub-Adviser shall indemnify and hold
harmless the Fund, the Adviser, all affiliated persons thereof (within the
meaning of Section 2(a)(3) of the Investment Company Act) and all controlling
persons (as described in Section 15 of the Securities Act of 1933, as amended
(“1933 Act”)) (collectively, “Adviser Indemnitees”) against, any and all losses,
claims, damages, liabilities or litigation (including reasonable legal and other
expenses) to which any of the Adviser Indemnitees may become subject under the
1933 Act, the Investment Company Act, the Advisers Act, or under any other
statute, at common law or otherwise arising out of or based on (i) any willful
misconduct, bad faith, reckless disregard or gross negligence of the Sub-Adviser
in the performance of any of its duties or obligations hereunder or (ii) any
untrue statement of a material fact contained in any Prospectus, SAI, Offering
Memorandum, proxy materials, reports, advertisements, sales literature, or other
materials pertaining to the Fund or the omission to state therein a material
fact known to the Sub-Adviser which was required to be stated therein or
necessary to make the statements therein not misleading, if such statement or
omission was made in reliance upon written information furnished to the Adviser
or the Fund by the Sub-Adviser Indemnitees (as defined below) for use
therein.
B. Except
as may otherwise be provided by the Investment Company Act or any other federal
securities law, the Adviser, the Fund and their respective Affiliates shall not
be liable for any losses, claims, damages, liabilities or litigation (including
legal and other expenses) incurred or suffered by the Sub-Adviser as a result of
any error of judgment or mistake of law by the Adviser, the Fund and their
respective Affiliates with respect to the Fund, except that nothing in this
Agreement shall operate or purport to operate in any way to exculpate, waive or
limit the liability of the Adviser for, and the Adviser shall indemnify and hold
harmless the Sub-Adviser, all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the Investment Company Act) and all controlling persons (as
described in Section 15 of the 1933 Act) (collectively, “Sub-Adviser
Indemnitees”) against any and all losses, claims, damages, liabilities or
litigation (including reasonable legal and other expenses) to which any of the
Sub-Adviser Indemnitees may become subject under the 1933 Act, the Investment
Company Act, the Advisers Act, or under any other statute, at common law or
otherwise arising out of or based on (i) any willful misconduct, bad faith,
reckless disregard or gross negligence of the Adviser in the performance of any
of its duties or obligations hereunder or (ii) any untrue statement of a
material fact contained in any Prospectus, SAI, Offering Memorandum, proxy
materials, reports, advertisements, sales literature, or other materials
pertaining to the Fund or the omission to state therein a material fact known to
the Adviser that was required to be stated therein or necessary to make the
statements therein not misleading, unless such statement or omission was made in
reliance upon information furnished to the Sub-Adviser or the Fund by the
Adviser Indemnitees for use therein.
6.
REPRESENTATIONS OF THE ADVISER
The Adviser represents, warrants and
agrees that:
A. The
Adviser has been duly authorized by the Board of Managers of the Fund to
delegate to the Sub-Adviser the provision of investment services to the Fund as
contemplated hereby.
B. The
Adviser has adopted a written code of ethics complying with the requirements of
Rule 17j-1 under the Investment Company Act and will provide the Sub-Adviser
with a copy of such code of ethics.
C. The
Adviser is currently in material compliance and shall at all times continue to
materially comply with the requirements imposed upon the Adviser by applicable
law and regulations.
D. The
Adviser (i) is registered as an investment adviser under the Advisers Act and
will continue to be so registered for so long as this Agreement remains in
effect; (ii) is not prohibited by the Investment Company Act, the Advisers Act
or other law, regulation or order from performing the services contemplated by
this Agreement; (iii) to the best of its knowledge, has met and will seek to
continue to meet for so long as this Agreement is in effect, any other
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency necessary to be met in order to
perform the services contemplated by this Agreement; and (v) will promptly
notify the Sub-Adviser of the occurrence of any event that would disqualify the
Adviser from serving as investment manager of an investment company pursuant to
Section 9(a) of the Investment Company Act or otherwise. The Adviser
will also promptly notify the Sub-Adviser if it is served or otherwise receives
notice of any action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, public board or body, involving the affairs of
the Fund, provided, however, that routine regulatory examinations shall not be
required to be reported by this provision.
E. The
execution, delivery and performance of this Agreement do not, and will not,
conflict with, or result in any violation or default under, any agreement to
which Adviser or any of its Affiliates are a party.
7.
REPRESENTATIONS OF THE SUB-ADVISER
The Sub-Adviser represents, warrants
and agrees that:
A. The
Sub-Adviser is currently in material compliance and shall at all times continue
to materially comply with the requirements imposed upon the Sub-Adviser by
applicable law and regulations.
B. The
Sub-Adviser (i) is registered as an investment adviser under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect; (ii) is not prohibited by the Investment Company Act, the Advisers Act
or other law, regulation or order from performing the services contemplated by
this Agreement; (iii) has met and will seek to continue to meet for so long as
this Agreement remains in effect, any other applicable federal or state
requirements, or the applicable requirements of any regulatory or industry
self-regulatory agency necessary to be met in order to perform the services
contemplated by this Agreement; (iv) has the authority to enter into and perform
the services contemplated by this Agreement; and (v) will promptly notify the
Adviser of the occurrence of any event that would disqualify the Sub-Adviser
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the Investment Company Act or otherwise. The
Sub-Adviser will also promptly notify the Fund and the Adviser if it is served
or otherwise receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public board or
body, involving the affairs of the Fund, provided, however, that routine
regulatory examinations shall not be required to be reported by this
provision.
C. The
Sub-Adviser has adopted a written code of ethics complying with the requirements
of Rule 17j-1 under the Investment Company Act and Rule 204A-1 under the
Advisers Act and will provide the Adviser and the Board with a copy of such code
of ethics, together with evidence of its adoption. Within forty-five
days of the end of the last calendar quarter of each year that this Agreement is
in effect, and as otherwise requested, the president, Chief
Compliance Officer or a vice-president of the Sub-Adviser shall certify to the
Adviser that the Sub-Adviser has complied with the requirements of Rule 17j-1
and Rule 204A-1 during the previous year and that there has been no material
violation of the Sub-Adviser’s code of ethics or, if such a material violation
has occurred, that appropriate action was taken in response to such
violation. Upon the written request of the Adviser, the Sub-Adviser
shall permit the Adviser, its employees or its agents to examine the reports
required to be made to the Sub-Adviser by Rule 17j-1(c)(1) and Rule 204A-1(b)
and all other records relevant to the Sub-Adviser’s code of ethics.
D. The
Sub-Adviser has provided the Fund and the Adviser with a copy of its Form ADV
Part I, which as of the date of this Agreement is its Form ADV as most recently
filed with the SEC and ADV Part II and promptly will furnish a copy of all
amendments to the Fund and the Adviser at least annually. Such
amendments shall reflect all changes in the Sub-Adviser’s organizational
structure, professional staff or other significant developments affecting the
Sub-Adviser, as required by the Advisers Act.
E. The
Sub-Adviser will notify the Fund and the Adviser of any assignment of this
Agreement or change of control of the Sub-Adviser, as applicable, and any
changes in the key personnel who are either the portfolio manager(s) of the Fund
or senior management of the Sub-Adviser, in each case prior to or promptly
after, such change. The Sub-Adviser agrees to bear all reasonable
expenses of the Fund, if any, arising out of an assignment or change in
control.
F. The
Sub-Adviser will promptly notify the Adviser of any financial condition that is
likely to impair the Sub-Adviser’s ability to fulfill its commitment under this
Agreement.
G. The
Sub-Adviser agrees to maintain an appropriate level of errors and omissions or
professional liability insurance coverage.
H. The
execution, delivery and performance of this Agreement do not, and will not,
conflict with, or result in any violation or default under, any agreement to
which Sub-Adviser or any of its Affiliates are a party.
8.
SUPPLEMENTAL ARRANGEMENTS
The Sub-Adviser may from time to time
employ or associate itself with any person it believes to be particularly suited
to assist it in providing the services to be performed by such Sub-Adviser
hereunder, provided that no such person shall perform any services with respect
to the Fund that would constitute an assignment or require a written advisory
agreement pursuant to the Investment Company Act. Any compensation
payable to such persons shall be the sole responsibility of the Sub-Adviser, and
neither the Adviser nor the Fund shall have any obligations with respect thereto
or otherwise arising under the Agreement.
9.
REGULATION
The Sub-Adviser shall submit to all
regulatory and administrative bodies having jurisdiction over the services
provided pursuant to this Agreement any information, reports, or other material
which any such body by reason of this Agreement may request or require pursuant
to applicable laws and regulations.
10. RECORDS
The records relating to the services
provided under this Agreement shall be the property of the Fund and shall be
under its control; however, the Fund shall furnish to the Sub-Adviser such
records and permit the Sub-Adviser to retain such records (either in original or
in duplicate form) as the Sub-Adviser shall reasonably require in order to carry
out its business. In the event of the termination of this Agreement,
such other records shall promptly be returned to the Fund by the Sub-Adviser
free from any claim or retention of rights therein, provided that the
Sub-Adviser may retain any such records that are required to be retained by it
by law or regulation. The Adviser and the Sub-Adviser shall keep
confidential any information obtained in connection with their respective duties
hereunder and shall disclose such information only if the Fund has authorized
such disclosure or if such disclosure is expressly required or requested by
applicable federal or state regulatory authorities, or otherwise required by
law.
11. DURATION
OF AGREEMENT
This Agreement shall become effective
upon the date first above written, provided that this Agreement shall not take
effect unless it has first been approved: (i) by a vote of a majority
of those Managers of the Fund who are not “interested persons” (as defined in
the Investment Company Act) of any party to this Agreement (“Independent
Managers”), cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of the Fund’s outstanding voting
securities. This Agreement shall continue in effect for a period more
than two years from the date of its execution only so long as such continuance
is specifically approved at least annually by the Board of Managers provided
that in such event such continuance shall also be approved by the vote of a
majority of the Independent Managers cast in person at a meeting called for the
purpose of voting on such approval.
12. TERMINATION
OF AGREEMENT
This Agreement may be terminated at any
time, without the payment of any penalty, by the Board of Managers, including a
majority of the Independent Managers, or by the vote of a majority of the
outstanding voting securities of the Fund, on sixty (60) days’ written notice to
the Adviser and the Sub-Adviser, [or by the Adviser or Sub-Adviser on sixty (60)
days’ written notice to the Fund and the other party.] This Agreement
will automatically terminate, without the payment of any penalty, (i) in the
event of its assignment (as defined in the Investment Company Act), or (ii) in
the event the Investment Management Agreement between the Adviser and the Fund
is assigned (as defined in the Investment Company Act) or terminates for any
other reason. This Agreement will also terminate upon written notice
to the other party that the other party is in material breach of this Agreement,
unless the party in material breach of this Agreement cures such breach to the
reasonable satisfaction of the party alleging the breach within thirty (30) days
after written notice.
13. AMENDMENTS
TO THE AGREEMENT
Except to the extent permitted by the
Investment Company Act or the rules or regulations thereunder or pursuant to
exemptive relief granted by the SEC, this Agreement may be amended by the
parties only if such amendment, if material, is specifically approved by the
vote of a majority of the outstanding voting securities of the Fund (unless such
approval is not required by Section 15 of the Investment Company Act as
interpreted by the SEC or its staff or unless the SEC has granted an exemption
from such approval requirement) and by the vote of a majority of the Independent
Managers cast in person at a meeting called for the purpose of voting on such
approval.
14. ASSIGNMENT
Any assignment (as that term is defined
in the Investment Company Act) of this Agreement made by the Sub-Adviser shall
result in the automatic termination of this Agreement, as provided in Section 12
hereof. Notwithstanding the foregoing, no assignment shall be deemed
to result from any changes in the directors, officers or employees of such
Sub-Adviser except as may be provided to the contrary in the Investment Company
Act or the rules or regulations thereunder.
15. ENTIRE
AGREEMENT
This Agreement contains the entire
understanding and agreement of the parties with respect to the
Fund.
16. HEADINGS
The headings in the sections of this
Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
17. NOTICES
All notices required to be given
pursuant to this Agreement shall be delivered or mailed to the address listed
below of each applicable party in person or by registered or certified mail or a
private mail or delivery service providing the sender with notice of receipt or
to such other address as specified in a notice duly given to the other
party. Notice shall be deemed given on the date delivered or mailed
in accordance with this paragraph.
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For:
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Hatteras
Capital Investment Management, LLC
0000
Xxxxxxxxx Xxxxxx Xxxxx
Xxxxx
000
Xxxxxxx,
XX 00000
Attn:
J. Xxxxxxx Xxxxxx
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For:
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Capvent
US Advisors LLC
Xxxxxxxxxxxxx
00
Xxxxxx,
Xxxxxxxxxxx CH-8008
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18. SEVERABILITY
Should any portion of this Agreement
for any reason be held to be void in law or in equity, the Agreement shall be
construed, insofar as is possible, as if such portion had never been contained
herein.
19. GOVERNING
LAW
The provisions of this Agreement shall
be construed and interpreted in accordance with the laws of the State of
Delaware, without reference to
conflict of law or choice of law doctrines, or any of the applicable
provisions of the Investment Company Act. To the extent that the laws
of the State of Delaware, or any of the provisions in this Agreement, conflict
with applicable provisions of the Investment Company Act, the latter shall
control.
20. INTERPRETATION
Any question of interpretation of any
term or provision of this Agreement having a counterpart in or otherwise derived
from a term or provision of the Investment Company Act shall be resolved by
reference to such term or provision of the Investment Company Act and to
interpretations thereof, if any, by the United States courts or, in the absence
of any controlling decision of any such court, by rules, regulations or orders
of the SEC validly issued pursuant to the Investment Company
Act. Specifically, the terms “vote of a majority of the outstanding
voting securities,” “interested persons,” “assignment,” and “affiliated
persons,” as used herein shall have the meanings assigned to them by Section
2(a) of the Investment Company Act. In addition, where the effect of
a requirement of the Investment Company Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the SEC, whether of
special or of general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
21. THIRD
PARTY BENEFICIARY
The Adviser and Sub-Adviser expressly
agree that the Fund shall be deemed an intended third party beneficiary of this
Agreement.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their duly authorized officers as of the date first mentioned
above.
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HATTERAS
CAPITAL INVESTMENT
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CAPVENT
US ADVISORS LLC
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MANAGEMENT,
LLC
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By:_______________________________
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By:_______________________________
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Name:
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Name:
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Title:
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Title:
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HATTERAS
GLOBAL PRIVATE EQUITY
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PARTNERS
INSTITUTIONAL FUND, LLC
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By:_______________________________
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Name:
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Title:
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Schedule
A
Capvent
US Advisors LLC (the “Sub-Adviser”) will receive an Incentive Allocation as of
the last day of each allocation period (as defined below) with respect to the
Fund, of 5% of the net profits of the Fund (taking into account any unrealized
appreciation or depreciation of investments, but without giving effect to the
Incentive Allocation and any item not charged ratably to all persons who are
admitted as members of the Fund (each a “Member”), if any, over the then balance
of the Fund’s Loss Recovery Account (as defined below), appropriately adjusted
for any partial repurchases, partial distributions or partial transfers;
provided that the net profits of the Fund equals or exceeds an annualized return
of at least a 6% (adjusted for contributions, repurchases and distributions) for
such allocation period. The Sub-Adviser holds non-voting interests of
limited liability company interest in the Fund (“Interests”) in an incentive
allocation account (“Incentive Allocation Account”) solely for the purpose of
receiving the Incentive Allocation with respect to the Fund. The
Adviser may transfer its Interests therein to an affiliate without notice to the
Members.
An
Incentive Allocation will be charged only with respect to any net profits in
excess of the positive balance of the Fund’s Loss Recovery Account (as defined
below). The Fund will maintain a memorandum account (a “Loss Recovery
Account”), which has an initial balance of zero and is (1) increased after the
close of each allocation period by the amount of the net losses of the Fund for
such allocation period, and (2) decreased (but not below zero) after the close
of each allocation period by the amount of the net profits of the Fund for such
allocation period. Any positive balance in the Loss Recovery Account
shall be appropriately reduced as the result of a repurchase or
distribution.
An
“allocation period” is a period commencing on commencement of operations of the
Fund and, thereafter, each period commencing as of the day following the last
day of the preceding allocation period and ending on the first to occur of
(1) the last day of each calendar year, (2) the valuation date with
respect to any repurchase of Interests or a portion of the Interests, or the day
preceding the effective date of any redemption of Interests or portion of
Interests or the complete withdrawal by a Member, (3) the day as of which
the Adviser’s or Sub-Adviser’s status as an investment adviser or sub-adviser,
respectively, is terminated (provided that no Incentive Allocation will be
payable to the Adviser or Sub-Adviser if such status is terminated voluntarily
by the Adviser or Sub-Adviser, as the case may be, or by the Board of Managers
of the Fund due to gross negligence or willful misconduct), or (4) such other
date as determined by the Board of Managers.
After the
close of an allocation period with respect to a Member, and subject to certain
limitations, the Sub-Adviser may withdraw up to 95% of the Incentive Allocation,
computed on the basis of unaudited data, that was credited to its Incentive
Allocation Account with respect to such allocation period. The Fund
will pay any balance, subject to audit adjustments, as promptly as practicable
after the completion of the audit of the Fund’s books. As promptly as
practicable after the completion of the audit of the books of the Fund for the
year in which allocations to the Incentive Allocation Account are made, the Fund
shall allocate to the Incentive Allocation Account any additional amount of
Incentive Allocation determined to be owed to the Sub-Adviser based on such
audit, and the Sub-Adviser shall remit to the Fund any excess amount of
Incentive Allocation determined to be owed to the Fund.
