Exhibit G-1
INVESTMENT MANAGEMENT AGREEMENT
dated as of July 31, 2006
BY AND BETWEEN
SPECIAL VALUE CONTINUATION FUND, LLC,
a Delaware limited liability company
AND
XXXXXXXXXX CAPITAL PARTNERS, LLC,
a Delaware limited liability company
TABLE OF CONTENTS
Page
1. General Duties of the Investment Manager..................................1
2. Duties and Obligations of the Investment Manager with Respect
to the Administration of the Company...........................................3
3. Authority to Bind the Company; No Joint Venture...........................5
4. Limitations Relating to Investments.......................................6
5. Brokerage.................................................................7
6. Compensation..............................................................7
7. Expenses..................................................................9
8. Services to Other Companies or Accounts..................................10
9. Duty of Care and Loyalty.................................................11
10. Indemnification..........................................................11
11. Term of Agreement; Events Affecting the Investment Manager;
Survival of Certain Terms ...................................................12
12. Power of Attorney; Further Assurances....................................14
13. Amendment of this Agreement..............................................15
14. Notices..................................................................15
15. Binding Nature of Agreement; Successors and Assigns......................16
16. Entire Agreement.........................................................16
17. Costs and Expenses.......................................................16
18. Books and Records........................................................16
19. Titles Not to Affect Interpretation......................................17
20. Provisions Separable.....................................................17
21. Governing Law............................................................17
22. Execution in Counterparts................................................17
INVESTMENT MANAGEMENT AGREEMENT
This Investment Management Agreement (the "Agreement"), dated as of July
31, 2006, is made by and between Special Value Continuation Fund, LLC (the
"Company"), a Delaware limited liability company which will be registered as a
nondiversified closed-end management investment company act under the
Investment Company Act of 1940 (the "1940 Act"), and Xxxxxxxxxx Capital
Partners, LLC (the "Investment Manager"), a Delaware limited liability company
registered as an investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act"). Capitalized terms used but not otherwise defined in this
Agreement shall have the meanings given to them in the Operating Agreement of
the Company dated as of July 31, 2006 (as the same may be amended from time to
time, the "Operating Agreement").
1. General Duties of the Investment Manager.
Subject to the direction and control of the Company's Board of Directors
(the "Board") and subject to and in accordance with the terms of the Credit
Agreement, the Operating Agreement, the Pledge and Intercreditor Agreement (as
defined in the Credit Agreement), the Custodial Agreement (as defined in the
Credit Agreement), the Co-Management Agreement (as defined in the Credit
Agreement), the policies adopted or approved by the Board, the conditions of
any exemptive order obtained by or for the benefit of the Company from the
Securities and Exchange Commission (the "SEC") and this Agreement, the
Investment Manager agrees to supervise and direct the investment and
reinvestment of the Assets and perform the duties set forth herein or in the
Operating Agreement (subject to the approval of the Investment Committee (as
defined in Section 4(a) hereof) to the extent provided in Section 4 hereof),
and shall perform on behalf of the Company those investment and leverage
related duties and functions assigned to the Company or the Investment Manager
in the Credit Agreement, the Pledge and Intercreditor Agreement, the
Statements of Preferences for any Preferred Shares and the Custodial Agreement
(collectively, the "Transaction Documents"), and shall have such other powers
with respect to the investment and leverage related functions of the Company
as shall be delegated from time to time to the Investment Manager by the
Board. The Company has executed the Transaction Documents and the
Co-Management Agreement, and the Investment Manager is hereby granted, and
shall have, full power to take all actions and execute and deliver all
necessary and appropriate documents and instruments on behalf of the Company
in accordance with the Transaction Documents, the Operating Agreement, the
policies adopted or approved by the Board, the conditions of any exemptive
order obtained by or for the benefit of the Company or the Investment Manager
from the SEC and this Agreement. The Investment Manager shall endeavor to
comply in all material respects with the 1940 Act and all rules and
regulations thereunder, all other applicable federal and state laws and
regulations and the applicable provisions of the Transaction Documents in
performing its duties under this Agreement. Subject to the foregoing and the
other provisions of this Agreement, and subject to the decisions of the
Investment Committee and the direction and control of the Board, the
Investment Manager is hereby appointed as the Company's agent and
attorney-in-fact with authority to negotiate, execute and deliver all
documents and agreements on behalf of the Company and to do or take all
related acts, with the power of substitution, to acquire, dispose of or
otherwise take action with respect to or affecting the Investments (as defined
in Section 4(b) hereof), including, without limitation:
(a) identifying and originating Investments (defined below) to be
purchased by the Company, selecting the dates for such purchases, and
purchasing or directing the purchase of such Investments on behalf of the
Company;
(b) identifying Investments owned by the Company to be sold by the
Company, selecting the dates for such sales, and selling such Investments on
behalf of the Company;
(c) negotiating and entering into, on behalf of the Company,
documentation providing for the purchase and sale of Investments, including
without limitation, confidentiality agreements and commitment letters;
(d) structuring the terms of, and negotiating, entering into and/or
consenting to, on behalf of the Company, documentation relating to Investments
to be purchased, held, exchanged or sold by the Company, including any
amendments, modifications or supplements with respect to such documentation;
(e) exercising, on behalf of the Company, rights and remedies associated
with Investments, including without limitation, rights to petition to place an
obligor or issuer in bankruptcy proceedings, to vote to accelerate the
maturity of an Investment, to waive any default, including a payment default,
with respect to an Investment and to take any other action which the
Investment Manager deems necessary or appropriate in its discretion in
connection with any restructuring, reorganization or other similar transaction
involving an obligor or issuer with respect to an Investment, including
without limitation, initiating and pursuing litigation;
(f) responding to any offer in respect of Investments by tendering the
affected Investments, declining the offer, or taking such other actions as the
Investment Manager may determine;
(g) exercising all voting, consent and similar rights of the Company on
its behalf and advising the Company with respect to matters concerning the
Investments;
(h) advising and assisting the Company with respect to the valuation of
the Assets;
(i) retaining legal counsel and other professionals (such as financial
advisers) to assist in the structuring, negotiation, documentation,
administration and modification and restructuring of Investments;
(j) providing the Company with such assistance as the Board may request
in processing subscription and/or transfer applications for the Membership
Interests, including assistance in determining whether such applications and
prospective or existing Members of the Company satisfy applicable requirements
under the Operating Agreement; and
(k) if the Portfolio Partnership exists, the Investment Manager will
invest substantially all of the Company's assets for a common limited partner
interest in the Portfolio Partnership.
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2. Duties and Obligations of the Investment Manager with Respect to the
Administration of the Company.
The Investment Manager also agrees to furnish office facilities and
equipment and clerical, bookkeeping and administrative services (other than
such services, if any, provided by the Company's custodian and other service
providers) to the Company. To the extent requested by the Company, the
Investment Manager agrees to provide the following administrative services:
(a) oversee the determination and publication of the Company's net asset
value in accordance with the Company's policy as adopted from time to time by
the Board and communicated to the Investment Manager in writing;
(b) maintain or oversee the maintenance of the books and records of the
Company as required under the 1940 Act and maintain (or oversee maintenance by
other persons) such other books and records required by law or for the proper
operation of the Company;
(c) oversee the preparation and filing of the Company's federal, state
and local income tax returns and any other required tax returns or reports;
(d) review the appropriateness of and arrange for payment of the
Company's expenses;
(e) prepare for review and approval by officers and other Authorized
Signatories of the Company (collectively, the "Authorized Signatories")
financial information for the Company's semi-annual and annual reports and
other communications with shareholders required or otherwise to be sent to
Company shareholders, and arrange for the printing and dissemination of such
reports and communications to shareholders;
(f) prepare for review by the Authorized Signatories and Board of the
Company the Company's periodic financial reports required to be filed with the
SEC on Form N-SAR, Form N-CSR, Form N-PX, Form N-Q and such other reports,
forms and filings, as may be mutually agreed upon or as may be required by
law, the Credit Agreement or any Statement of Preferences;
(g) prepare reports relating to the business and affairs of the Company
as may be mutually agreed upon and not otherwise prepared by others;
(h) make such reports and recommendations to the Board concerning the
performance and fees of any of the Company's service providers as the Board
may reasonably request or deem appropriate;
(i) oversee and review calculations of fees paid to the Company's service
providers;
(j) oversee the Company's portfolio and perform necessary calculations as
required under Section 18 of the 1940 Act;
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(k) consult with the Audit Committee of the Board, the Authorized
Signatories, and the Company's independent accountants, legal counsel,
custodian and other service providers in establishing the accounting policies
of the Company and monitor financial and shareholder accounting services;
(l) review implementation of any share purchase programs authorized by
the Board;
(m) determine the amounts available for distribution as dividends and
distributions to be paid by the Company to its shareholders;
(n) prepare and arrange for the printing of dividend notices to
shareholders;
(o) provide the Company's dividend disbursing agent and custodian with
such information as is required for such parties to effect the payment of
dividends and distributions;
(p) prepare such information and reports as may be required under the
Credit Agreement and by any other banks, if any, from which the Company
borrows funds;
(q) provide such assistance to the Company's custodian, counsel, auditors
and other service providers as generally may be required to properly carry on
the business and operations of the Company;
(r) assist in the preparation and filing of Forms 3, 4, and 5 pursuant to
Section 16 of the Securities Exchange Act of 1934, as amended, and Section
30(h) of the 1940 Act for the officers, Authorized Signatories and directors
of the Company, such filings to be based on information provided by those
persons;
(s) respond to or refer to the Company's officers or Authorized
Signatories shareholder (including any potential shareholder) inquiries
relating to the Company; and
(t) supervise any other aspects of the Company's administration as may be
agreed to by the Company and the Investment Manager.
All services are to be furnished through the medium of any directors,
officers, Authorized Signatories or employees of the Investment Manager or its
affiliates as the Investment Manager deems appropriate in order to fulfill its
obligations hereunder.
The Company will reimburse the Advisor or its affiliates for all
out-of-pocket expenses incurred by them in connection with the performance of
the administrative services described in this paragraph 2.
3. Authority to Bind the Company; No Joint Venture.
(a) Except as provided in or pursuant to Sections 1 and 12 hereof, the
Investment Manager shall have no authority to bind or obligate the Company.
The Board shall retain the sole authority to act on behalf of the Company, and
all acts of the Investment Manager
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(other than as provided in the Transaction Documents, the Operating Agreement
or in Section 1 or Section 12 hereof with respect to any Approved Investment)
shall require the Board's consent and approval to bind the Company. Nothing in
this Agreement shall be deemed to create a joint venture or partnership
between the parties with respect to the arrangements set forth in this
Agreement. For all purposes hereof, the Investment Manager shall be deemed to
be an independent contractor and, unless otherwise provided herein or
specifically authorized by the Board from time to time, shall have no
authority to act for or represent the Company.
(b) The Investment Manager shall act in conformity with the written
instructions and directions of the Board, except to the extent that authority
has been delegated to the Investment Manager pursuant to the terms of this
Agreement, the Operating Agreement and the Transaction Documents. The
Investment Manager will not be bound to follow any amendment to any
Transaction Document or the Operating Agreement until it has received written
notice thereof and until it has received a copy of the amendment from the
Company or the Administrative Agent (as defined in the Credit Agreement);
provided that if any such amendment materially and adversely affects the
rights or duties of the Investment Manager, the Investment Manager shall not
be obligated to respect or comply with the terms of such amendment unless it
consents thereto. Subject to the fiduciary duty of the Board, the Company
agrees that it shall not permit any amendment to any Transaction Document or
the Operating Agreement that materially and adversely affects the rights or
duties of the Investment Manager to become effective unless the Investment
Manager has been given prior written notice of such amendment and has
consented thereto in writing.
(c) The Investment Manager may, with respect to the affairs of the
Company, consult with Babson Capital Management, LLC (the "Co-Manager") and
its Affiliated Persons (collectively, "Babson"), as co-investment manager, and
with such legal counsel, accountants and other advisors as may be selected by
the Investment Manager. The Investment Manager shall be fully protected, to
the extent permitted by applicable law, in acting or failing to act hereunder
if such action or inaction is taken or not taken in good faith by the
Investment Manager in accordance with the advice or opinion of Babson or such
counsel, accountants or other advisors. The Investment Manager shall be fully
protected in relying upon any writing signed in the appropriate manner with
respect to any instruction, direction or approval of any of the Board or
Babson and may also rely on opinions of the Investment Manager's counsel with
respect to such instructions, directions and approvals. The Investment Manager
shall also be fully protected when acting upon any instrument, certificate or
other writing the Investment Manager believes in good faith to be genuine and
to be signed or presented by the proper person or persons. The Investment
Manager shall be under no duty to make any investigation or inquiry as to any
statement contained in any such writing and may accept the same as conclusive
evidence of the truth and accuracy of the statements therein contained if the
Investment Manager in good faith believes the same to be genuine.
4. Limitations Relating to Investments.
(a) Investments Requiring the Investment Committee's Approval. The
Investment Manager will establish an Investment Committee (the "Investment
Committee") comprised initially of 11 persons (such number of members being
subject to increase or decrease at any time in the sole discretion of the
Investment Manager). Six of the persons on the
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Investment Committee will be voting members (such number of voting members
being subject to increase or decrease at any time in the sole discretion of
the Investment Manager). Subject to the following sentence and Section 11(b),
all of the voting members of the Investment Committee will be appointed by the
Investment Manager, and initially such voting members will be Xxxxxxx X.
Xxxxxxxxxx, Xxxx X. Xxxxxxxxxx Xxxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxx and Xxxx
Xxxxxxxxx or such other persons as may be appointed by the Investment Manager.
Except as provided by Section 11(b), one voting member of the Investment
Committee will be appointed by Babson, with the approval of the Investment
Manager. Xxxxxxx X. Xxxxxxx XX shall be Babson's representative on the
Investment Committee until removed or until replaced by Babson with the
approval of the Investment Manager for such replacement. Additionally, the
Investment Manager shall have the right to appoint any number of non-voting
members to the Investment Committee. The Investment Committee will review and
discuss the purchase and sale of all Investments other than short-term
Investments in high quality debt, securities maturing in less than 367 days or
investment funds whose portfolios at all times have an effective duration of
less than 367 days and other than hedging and risk management transactions,
and approval by a majority vote of the voting members of the Investment
Committee will be required prior to the purchase or sale of any Investment
required to be reviewed by the Investment Committee. The Company shall not be
bound by any Investment made by the Investment Manager on behalf of the
Company for which the necessary approval has not been obtained.
(b) Investments. Except as otherwise provided in this Section 4 and
subject to the requirements of the Transaction Documents, the Operating
Agreement and applicable law, the Investment Manager may advise the Company
from time to time to purchase:
(i) debt securities or debt obligations, including bank loans or
interests therein ("Debt Obligations");
(ii) stock, warrants or other equity securities ("Securities"); and
(iii) any other investments of any type of asset the Company is
permitted to make (together with Securities and Debt Obligations,
"Investments").
(c) Company is not a Bank. The Investment Manager may not purchase any
Debt Obligation if the related credit agreement, note, indenture or other
documentation by its terms requires any such purchase to be made only by a
bank, savings and loan, thrift, trust company or other similar deposit-taking
institution.
(d) Origination Fees. The Company shall, except to the extent the
Investment Manager determines such sharing could cause the Company to fail to
satisfy any requirement for qualification as a regulated investment company
under Subchapter M of the Code, receive its pro-rata share, measured by the
amount invested or proposed to be invested by the investors in any Investment,
of any origination, structuring, or similar fees normally payable to lenders
or structurers as compensation for services ("Origination or Similar Fees")
payable with respect to any Investment, whether or not any other investment
funds or accounts for which the Investment Manager or its Affiliated Persons
acts as investment adviser (the "Xxxxxxxxxx Accounts") share in such fees.
Notwithstanding anything herein, in the Operating Agreement or in any
Transaction Document to the contrary, to the extent that any Origination or
Similar Fees with
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respect to the Company's share of such Investment are paid to the Investment
Manager, Babson or any of their respective Affiliated Persons as additional
compensation, such amount shall be reimbursed to the Company unless the
exception to the preceding sentence is in effect, in which case such amount
shall be paid to the other accounts participating in such Investment or
returned to the party paying such Origination or Similar Fees.
(e) Co-Investments. The Company may not co-invest with any account
managed by the Investment Manager or its Affiliated Persons in any Investment
subject to any exemptive order obtained by or on behalf of the Company, except
(i) to the extent permitted by such exemptive relief, including conditions to
such relief, and (ii) pursuant to any policies and procedures adopted by the
Board with respect to such co-investments and any other applicable provisions
of any Transaction Document, the Operating Agreement and this Agreement.
5. Brokerage.
The Investment Manager shall effect all purchases and sales of securities
in a manner consistent with the principles of best execution, taking into
account net price (including commissions) and execution capability and other
services which the broker or other intermediary may provide. In this regard,
the Investment Manager may effect transactions which cause the Company to pay
a commission in excess of a commission which another broker or other
intermediary would have charged; provided, however, that the Investment
Manager shall have first determined that such commission is reasonable in
relation to the value of the brokerage or research services performed by that
broker or other intermediary or that the Company is the sole beneficiary of
the services paid for by such broker or other intermediary.
6. Compensation.
(a) Subject to the last sentence of this Section 6(a), the Company agrees
to pay to the Investment Manager and the Investment Manager agrees to accept
as partial compensation for all services rendered by the Investment Manager as
such, a fee (the "Management Fee"), payable monthly in arrears at an annual
rate equal to 1.00% of the sum of (i) Net Asset Value of the Company as of the
Closing Date, (ii) the maximum amount available to be borrowed by the Company
and/or the Portfolio Partnership under the Credit Agreement, regardless of
whether the Company and/or the Portfolio Partnership has borrowed any amounts
under the Credit Agreement and (iii) the maximum aggregate liquidation
preference of preferred securities the Company and/or the Portfolio
Partnership would be authorized to issue under the 1940 Act based upon the
total Net Asset Value of the Company as of the Closing Date and assuming that
the Company and/or the Portfolio Partnership has borrowed the maximum amount
available to be borrowed under the Credit Agreement, regardless of whether the
Company and/or the Portfolio Partnership has issued such preferred securities
(the sum of (i) through (iii), as adjusted pursuant to this Section 6(a),
being referred to as the "Management Fee Capital"). At such time as all
borrowings under the Credit Agreement have been repaid and no further
borrowings are permitted thereunder, Management Fee Capital shall be equal to
the sum of the Net Asset Value of the Company as of the Closing Date, plus the
aggregate liquidation preference of preferred securities then outstanding,
thereby reducing the amounts on which the Management Fee is paid. At such time
as all borrowings under the Credit Agreement have been repaid and no further
borrowings are permitted thereunder, and no more than $1,000,000 in
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liquidation preference of preferred securities remains outstanding, Management
Fee Capital shall be equal to the Net Asset Value of the Company as of the
Closing Date, thereby further reducing the amounts on which the Management Fee
is paid. The Management Fee shall be prorated for any partial payment period.
The Management Fee payable pursuant to this Section 6(a) shall be reduced by
the amount of management fees paid to the Investment Manager by the Portfolio
Partnership pursuant to Section 6(a) of the Investment Management Agreement
dated as of July 1, 2006 between the Portfolio Partnership and the Investment
Manager.
(b) If the Company sells and issues to SVOF/MM, LLC, a company
wholly-owned by the Investment Manager, its affiliates and the Co-Manager, one
or more shares of Series S Preferred Stock (the "Special Share") at a price
equal to its liquidation preference of $1,000 per share, the Company shall not
be obligated to conduct its investment operations through the Portfolio
Partnership or pay the incentive fee determined in accordance with the last
sentence of this Section 6(b). As set forth in the Statement of Preferences
for such Special Share, the Special Share will pay dividends at a rate equal
to the greater of (i) 4% per year of the liquidation preference of such
Special Share, but in no event greater than $40 per year, or (ii) (A) 100% of
the amount by which the cumulative distributions and amounts distributable in
respect of the Common Shares exceed an 8% annual weighted average return on
undistributed capital attributable to the aggregate cost basis of the
membership interests in Special Value Bond Fund II, LLC and Special Value
Absolute Return Fund, LLC redeemed on the Closing Date in exchange for the
Common Shares (the "Hurdle") until the total of (1) the cumulative
distributions that had been made in respect of the Special Share for the time
it was outstanding or held by the Investment Manager or an Affiliated Person
thereof and (2) any amounts paid to the Investment Manager or an Affiliated
Person pursuant to the Partnership Agreement of the Portfolio Partnership
equals 25% of the aggregate cumulative distributions for federal income tax
purposes of net income and gain in respect of the Common Shares (such amounts,
the "Catch-up Amount"), and thereafter (B) an amount (payable at the same time
as, and not in advance of, any distributions in respect of the Common Shares)
such that, after payment thereof, the total of (y) the cumulative
distributions that have been made in respect of the Special Share or an
Affiliated Person for the time it was outstanding or held by the Investment
Manager or an Affiliated Person thereof and (z) any amounts paid to the
Investment Manager or an Affiliated Person thereof pursuant to the Partnership
Agreement of the Portfolio Partnership equals 20% of the aggregate incremental
distributions of net income and gain in respect of the Common Shares and the
Special Share. For purposes of calculating whether the Hurdle has been
exceeded and whether the Catch-up Amount has been paid, the Company's
performance will include the performance of SVARF for the period preceding the
Closing Date and the distributions of the Company will include an amount equal
to (x) the portion of SVARF's distributions for the period preceding the
Closing Date attributable to SVARF's investors who are investors in the
Company multiplied by (y) the ratio of the Net Asset Value of the Company
immediately after giving effect to the Closing transactions to such Net Asset
Value attributable to the Common Shares of the Company acquired by such
investors. If the Investment Manager or the Company determines on the advice
of counsel that the sale and issuance of the Special Share or its Statement of
Preferences is inconsistent with the requirements of the 1940 Act in any
material respect and that such inconsistency is unlikely to be able to be
remedied without fundamental alteration of such Statement of Preferences, the
Company and the Investment Manager agree that the Company will repurchase such
share at liquidation preference plus accumulated and unpaid distributions. If
for any reason the Investment Manager or the Company makes the determination
set forth in
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the preceding sentence and determines on the advice of counsel that the profit
allocation set forth in the Partnership Agreement of the Portfolio Partnership
would be inconsistent with the requirements of the 1940 Act in any material
respect and that such inconsistency would be unlikely to be able to be
remedied without fundamental alteration of such profit allocation and without
having a material adverse effect on any shareholder of the Company, the
Company will pay to the Investment Manager as a fee the amounts computed in
accordance with the second and third sentences of this paragraph; provided,
however, that the amount paid pursuant to this sentence shall be reduced by
the amount paid by the Portfolio Partnership pursuant to the paralleled
sentence in Section 6(b) of the Investment Management Agreement dated as of
July 31, 2006 between the Portfolio Partnership and the Investment Manager.
(c) If this Agreement is terminated for any reason prior to the end of
the Investment Period, the Company will engage at its own expense a firm
acceptable to the Company and the Investment Manager to determine the maximum
reasonable fair value as of the termination date of the Company's consolidated
assets (assuming each asset is readily marketable among institutional
investors without minority discount and with an appropriate control premium
for any control positions and ascribing a net present value (discounted at AA
borrowing rates) to any unamortized portion of the Company's organizational,
offering and issuance expenses and to any going concern value identified by
such firm). After review of such firm's work papers by the Investment Manager
and the Company and resolution of any comments therefrom, such firm shall
render its report as to valuation, and the Company shall pay to the Investment
Manager any Management Fees or other dividends or fees due under this
Agreement (which, for the avoidance of doubt, includes any amount pursuant to
Section 6(b) hereof), as the case may be, payable pursuant to the terms of
this Agreement as if all of the consolidated assets of the Company had been
sold or realized at the values indicated in such report and any net income and
gain distributed. Such report shall be completed within 90 days after notice
of termination of the relevant agreement.
7. Expenses.
The Company will be responsible for paying the compensation of the
Investment Manager and any placement agent of any of its securities, due
diligence and negotiation expenses, fees and expenses of custodians,
administrators, transfer and distribution agents, counsel and directors,
insurance, filings and registrations, proxy expenses, expenses of
communications to investors, interest, taxes, portfolio transaction expenses,
indemnification, litigation and other extraordinary expenses and such other
expenses as the Investment Manager is not obligated to provide (such as
services the Investment Manager is required to supervise) and as are approved
by the directors as being reasonably related to the organization, offering,
capitalization, operation, regulatory compliance or administration of the
Company and any portfolio investments. Expenses associated with the general
overhead of the Investment Manager or Co-Manager will not be covered by the
Company. Notwithstanding the foregoing, and subject to review by the Board,
the Company will bear the costs and expenses of the Investment Manager as set
forth in Section 9 of the Operating Agreement, which may not be amended
without the Investment Manager's written consent. On behalf of the Company,
the Investment Manager may advance payment of any such fees and expenses of
the Company, and the Company shall reimburse the Investment Manager therefor
within 30 days following written request from the Investment Manager. Nothing
in this Section 7 shall limit the ability of the
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Investment Manager to be reimbursed by any Person (including issuers or
obligors of securities, instruments or obligations owned by the Company) for
out-of-pocket expenses incurred by the Investment Manager in connection with
the performance of services hereunder. The Investment Manager shall maintain
complete and accurate records with respect to costs and expenses and shall
furnish the Board with receipts or other written vouchers with respect thereto
upon request of the Board. The Investment Manager will be responsible for
paying the Co-Manager the amounts set forth in the Co-Management Agreement.
8. Services to Other Companies or Accounts.
(a) The Investment Manager and its Affiliated Persons, employees or
associates are in no way prohibited from, and intend to, spend substantial
business time in connection with other businesses or activities, including,
but not limited to, managing investments, advising or managing entities whose
investment objectives are the same as or overlap with those of the Company,
participating in actual or potential investments of the Company or any Member,
providing consulting, merger and acquisition, structuring or financial
advisory services, including with respect to actual, contemplated or potential
investments of the Company, or acting as a director, officer or creditors'
committee member of, adviser to, or participant in, any corporation,
partnership, trust or other business entity. The Investment Manager and its
Affiliated Persons may, and expect to, receive fees or other compensation from
third parties for any of these activities, which fees will be for the benefit
of their own account and not the Company.
(b) In addition, the Investment Manager and its Affiliated Persons may
manage Xxxxxxxxxx Accounts other than the Company that invest in assets
eligible for purchase by the Company.
(c) The Company may have the ability, under certain circumstances, to
take certain actions that would have an adverse effect on Xxxxxxxxxx Accounts
other than the Company. In these circumstances, the Investment Manager and its
Affiliated Persons will act in a manner believed to be equitable to the
Company and such other Xxxxxxxxxx Accounts, including co-investment in
accordance with the conditions of any exemptive relief obtained by the company
and the Investment Manager.
9. Duty of Care and Loyalty. Except as otherwise required by law, none of
the Investment Manager, or any its Affiliated Persons, directors, officers,
employees, shareholders, managers, members, assigns, representatives or agents
(each, an "Indemnified Person" and, collectively, the "Indemnified Persons")
shall be liable, responsible or accountable in damages or otherwise to the
Company, any Member or any other Person for any loss, liability, damage,
settlement cost, or other expense (including reasonable attorneys' fees)
incurred by reason of any act or omission or any alleged act or omission
performed or omitted by such Indemnified Person (other than solely in such
Indemnified Person's capacity as a Member, if applicable) in connection with
the establishment, management or operations of the Company or the management
of its Assets (including those in connection with serving on boards of
directors of, or creditors' committees for, any Portfolio Company) except that
the Investment Manager shall be liable to the Company or any Member, as the
case may be, if such act or failure to act arises out of the bad faith,
willful misfeasance, gross negligence or reckless disregard of an
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Indemnified Person's duty to the Company or such Member, as the case may be
(such conduct, "Disabling Conduct"). Subject to the foregoing, all such
Indemnified Persons shall look solely to the Assets for satisfaction of claims
of any nature arising in connection with the affairs of the Company. If any
Indemnified Person is made a party to any suit or proceeding to enforce any
such liability, subject to the foregoing exception, such Indemnified Person
shall not, on account thereof, be held to any personal liability.
10. Indemnification.
(a) To the fullest extent permitted by applicable law, each of the
Indemnified Persons shall be held harmless and indemnified by the Company (out
of the Assets (including, without limitation, the Unfunded Commitments) and
not out of the separate assets of any Member) against any liabilities and
expenses, including amounts paid in satisfaction of judgments, in compromise
or as fines and penalties, and reasonable counsel fees reasonably incurred by
such Indemnified Person in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, before any court
or administrative or investigative body in which such Indemnified Person may
be or may have been involved as a party or otherwise (other than as authorized
by the Directors, as the plaintiff or complainant) or with which such
Indemnified Person may be or may have been threatened, while acting in such
Person's capacity as an Indemnified Person, except with respect to any matter
as to which such Indemnified Person shall not have acted in good faith in the
reasonable belief that such Person's action was in the best interest of the
Company or, in the case of any criminal proceeding, as to which such
Indemnified Person shall have had reasonable cause to believe that the conduct
was unlawful, provided, however, that an Indemnified Person shall only be
indemnified hereunder if (i) such Indemnified Person's activities do not
constitute Disabling Conduct and (ii) there has been a determination (a) by a
final decision on the merits by a court or other body of competent
jurisdiction before whom the issue of entitlement to indemnification was
brought that such Indemnified Person is entitled to indemnification or, (b) in
the absence of such a decision, by (1) a majority vote of a quorum of those
Directors who are neither "interested persons" of the Company (as defined in
Section 2(a)(19) of the 0000 Xxx) nor parties to the proceeding (the
"Disinterested Non-Party Directors") that the Indemnified Person is entitled
to indemnification, or (2) if such quorum is not obtainable or even if
obtainable, if a majority so directs, independent legal counsel in a written
opinion that concludes that the Indemnified Person should be entitled to
indemnification. Notwithstanding the foregoing, with respect to any action,
suit or other proceeding voluntarily prosecuted by any Indemnified Person as
plaintiff, indemnification shall be mandatory only if the prosecution of such
action, suit or other proceeding by such Indemnified Person was authorized by
a majority of the Directors. All determinations to make advance payments in
connection with the expense of defending any proceeding shall be authorized
and made in accordance with the immediately succeeding paragraph (b) below.
(b) The Company shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might
be sought hereunder if the Company receives a written affirmation by the
Indemnified Person of the Indemnified Person's good faith belief that the
standards of conduct necessary for indemnification have been met and a written
undertaking to reimburse the Company unless it is subsequently determined that
he is entitled to such indemnification and if a majority of the Directors
determine that the applicable standards of conduct necessary for
indemnification
11
appear to have been met. In addition, at least one of the following conditions
must be met: (i) the Indemnified Person shall provide adequate security for
his undertaking, (ii) the Company shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a quorum of the
Disinterested Non-Party Directors, or if a majority vote of such quorum so
direct, independent legal counsel in a written opinion, shall conclude, based
on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is substantial reason to believe that the Indemnified
Person ultimately will be found entitled to indemnification.
(c) The rights accruing to any Indemnified Person under these provisions
shall not exclude any other right to which he may be lawfully entitled.
(d) Each Indemnified Person shall, in the performance of its duties, be
fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Company, upon an opinion of counsel, or upon reports
made to the Company by any of the Company's officers or employees or by any
advisor, administrator, manager, distributor, selected dealer, accountant,
appraiser or other expert or consultant selected with reasonable care by the
Directors, officers or employees of the Company, regardless of whether such
counsel or other person may also be a Director.
11. Term of Agreement; Events Affecting the Investment Manager; Survival
of Certain Terms.
(a) This Agreement shall become effective as of the time at which the
Company registers as an investment company with the SEC and, unless sooner
terminated by the Company or Investment Manager as provided herein, shall
continue in effect for a period of two years. Thereafter, if not terminated,
this Agreement shall continue in effect with respect to the Company for
successive periods of 12 months, provided such continuance is specifically
approved at least annually by both (i) the vote of a majority of the Board or
the vote of a majority of the outstanding voting securities of the Company at
the time outstanding and entitled to vote, and (ii) by the vote of a majority
of the Directors who are not parties to this Agreement or interested persons
of any party to this Agreement, cast in person at a meeting called for the
purpose of voting on such approval. Notwithstanding the foregoing, this
Agreement may be terminated by the Company at any time, without the payment of
any penalty, upon giving the Investment Manager 60 days' notice (which notice
may be waived by the Investment Manager), provided that such termination by
the Company shall be directed or approved by the vote of a majority of the
Directors of the Company in office at the time or by the vote of the holders
of a majority of the voting securities of the Company at the time outstanding
and entitled to vote, or by the Investment Manager on 60 days' written notice
(which notice may be waived by the Company). This Agreement will also
immediately terminate in the event of its assignment. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such
terms are given in the 0000 Xxx.
(b) If Xxxxxxx X. Xxxxxxxxxx dies, becomes incapacitated or departs from
the Investment Manager, the Investment Manager will promptly notify Babson,
the credit agent for the Company's senior credit facility, the credit
enhancer, if any, and the Members of such event, will increase the number of
voting Babson representatives on the Investment Committee
12
to a number that is equivalent at all times to the number of voting Investment
Manager representatives on such committee and will promptly replace Xx.
Xxxxxxxxxx with another individual with skills reasonably comparable to those
which Xx. Xxxxxxxxxx employed on behalf of the Investment Manager for the
benefit of the Company (a person having such skills being a "Replacement
Principal"), as determined in good faith by Babson over a four-month period,
beginning on the date on which such Replacement Principal is appointed to the
Investment Committee. Babson will, within such four-month period, inform the
Investment Manager if Babson disapproves of such Replacement Principal, which
disapproval must be made in good faith and be based upon such Replacement
Principal's performance, including investment performance, investment strategy
and working relationship with the other voting members of the Investment
Committee. If Babson fails to disapprove of such Replacement Principal within
such four-month period, the number of Babson representatives on the Investment
Committee shall be reduced to one. In the event Babson disapproves of such
Replacement Principal, Babson will retain its increased representation on the
Investment Committee and will periodically reassess in good faith whether it
is willing to approve such Replacement Principal or any successor Replacement
Principal (based upon the criteria set forth above), and if it does so approve
in the future, its representation on the Investment Committee will be reduced
to one at the time of such future approval.
(c) If both (i) either Xxxxxx Xxxxxxxxx or Xxxx Xxxxxxxxxx dies, becomes
incapacitated or departs from the Investment Manager and ceases to be actively
involved in the management of the Company and (ii) the Investment Manager
fails to notify the credit agent for the Company's senior credit facility and
the credit enhancer, if any, promptly and identify a replacement with
reasonably comparable skills within 180 days, the credit agent for the
Company's senior credit facility and the credit enhancer, if any, for so long
as it is enhancing the creditworthiness of outstanding borrowings under the
senior credit facility and any outstanding amount of Preferred Shares or
Preferred Interests and is not in default on its obligations under the
arrangements governing such credit enhancement, may call a default under the
senior credit facility. If both Xxxxxx Xxxxxxxxx and Xxxx Xxxxxxxxxx die,
become incapacitated or depart from the Investment Manager and cease to be
actively involved in the management of the Company, the credit agent for the
Company's senior credit facility and/or the credit enhancer, if any, for so
long as it is enhancing the creditworthiness of outstanding borrowings under
the Credit Facility and any outstanding amount of Preferred Shares or
Preferred Interests and is not in default on its obligations under the
arrangements governing such credit enhancement, may veto a proposed
replacement for one of such individuals and may veto portfolio transactions in
excess of 15% of the total assets of the Company until a replacement has been
appointed to fill one of such positions.
(d) Notwithstanding anything herein to the contrary, Sections 6(c), 7, 9
and 10 of this Agreement shall survive any termination hereof.
(e) From and after the effective date of termination of this Agreement,
the Investment Manager and its Affiliated Persons shall not be entitled to
compensation for further services hereunder, but shall be paid all
compensation and reimbursement of expenses accrued to the date of termination.
Upon such termination, and upon receipt of payment of all compensation and
reimbursement of expenses owed, the Investment Manager shall as soon as
practicable (and in any event within 90 days after such termination) deliver
to the Company all
13
property (to the extent, if any, that the Investment Manager has custody
thereof) and documents of the Company or otherwise relating to the Assets of
the Company then in the custody of the Investment Manager (although the
Investment Manager may keep copies of such documents for its records). The
Investment Manager agrees to use reasonable efforts to cooperate with any
successor investment manager in the transfer of its responsibilities
hereunder, and will, among other things, provide upon receipt of a written
request by such successor investment manager any information available to it
regarding any Assets of the Company. The Investment Manager agrees that,
notwithstanding any termination, it will reasonably cooperate in any
proceeding arising in connection with this Agreement, any of the Transaction
Documents or any Investment (excluding any such proceeding in which claims are
asserted against the Investment Manager or any Affiliated Person of the
Investment Manager) upon receipt of appropriate indemnification and expense
reimbursement.
12. Power of Attorney; Further Assurances.
In addition to the power of attorney granted to the Investment Manager in
Section 1 of this Agreement, the Company hereby makes, constitutes and
appoints the Investment Manager, with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead, in accordance with the terms of this Agreement (a) to
sign, execute, certify, swear to, acknowledge, deliver, file, receive and
record any and all documents which the Investment Manager reasonably deems
necessary or appropriate in connection with its investment management duties
under this Agreement and as required by the 1940 Act and (b) to (i) subject to
any policies adopted by the Board with respect thereto, exercise in its
discretion any voting or consent rights associated with any securities,
instruments or obligations included in the Company's Assets, (ii) execute
proxies, waivers, consents and other instruments with respect to such
securities, instruments or obligations, (iii) endorse, transfer or deliver
such securities, instruments and obligations and (iv) participate in or
consent (or decline to consent) to any modification, work-out, restructuring,
bankruptcy proceeding, class action, plan of reorganization, merger,
combination, consolidation, liquidation or similar plan or transaction with
regard to such securities, instruments and obligations. To the extent
permitted by applicable law, this grant of power of attorney is irrevocable
and coupled with an interest, and it shall survive and not be affected by the
subsequent dissolution or bankruptcy of the Company; provided that this grant
of power of attorney will expire, and the Investment Manager will cease to
have any power to act as the Company's attorney-in-fact, upon termination of
this Agreement in accordance with its terms. The Company shall execute and
deliver to the Investment Manager all such other powers of attorney, proxies,
dividend and other orders, and all such instruments, as the Investment Manager
may reasonably request for the purpose of enabling the Investment Manager to
exercise the rights and powers which it is entitled to exercise pursuant to
this Agreement. Each of the Investment Manager and the Company shall take such
other actions, and furnish such certificates, opinions and other documents, as
may be reasonably requested by the other party hereto in order to effectuate
the purposes of this Agreement and to facilitate compliance with applicable
laws and regulations and the terms of this Agreement.
14
13. Amendment of this Agreement.
No provision of this Agreement may be amended, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the amendment, waiver, discharge or termination
is sought. Any amendment of this Agreement shall be subject to the 0000 Xxx.
The Company shall promptly provide a copy of any such amendment or waiver to
S&P and Xxxxx'x.
14. Notices.
Unless expressly provided otherwise herein, any notice, request,
direction, demand or other communication required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly given,
made and received if sent by hand or by overnight courier, when personally
delivered, if sent by telecopier, when receipt is confirmed by telephone, or
if sent by registered or certified mail, postage prepaid, return receipt
requested, when actually received if addressed as set forth below:
(a) If to the Company:
Special Value Continuation Fund, LLC
Attn: Xxxx X. Xxxxxxxxxx
0000 00xx Xx., Xxxxx 0000
Xxxxx Xxxxxx Xxxx., XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
(b) If to the Investment Manager:
Xxxxxxxxxx Capital Partners, LLC
Attn: Xxxxxx X. Xxxxxxxxx
0000 00xx Xx., Xxxxx 0000
Xxxxx Xxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
(c) If to any of the Members, as provided in the Operating Agreement,
and if to the Administrative Agent or any Lender under the Credit
Agreement, as provided in the applicable Transaction Document.
Either party to this Agreement may alter the address to which communications
or copies are to be sent to it by giving notice of such change of address in
conformity with the provisions of this Section 14. Other addresses set forth
in this Section 14 shall be changed only with the consent of the relevant
addressee.
15
15. Binding Nature of Agreement; Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns as provided herein.
16. Entire Agreement.
This Agreement contains the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof, and supersedes
all prior and contemporaneous agreements, understandings, inducements and
conditions, express or implied, oral or written, of any nature whatsoever with
respect to the subject matter hereof. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with
any of the terms hereof.
17. Costs and Expenses.
The costs and expenses (including the fees and disbursements of counsel
and accountants) incurred in connection with the negotiation, preparation and
execution of this Agreement, and all matters incident thereto, shall be borne
by the Company.
18. Books and Records. In compliance with the requirements of Rule 31a-3
under the Investment Company Act, the Investment Manager hereby agrees that
all records which it maintains for the Company are the property of the Company
and further agrees to surrender promptly to the Company any such records upon
the Company's request. The Investment Manager further agrees to preserve for
the periods prescribed by Rule 31a-2 under the Investment Company Act the
records required to be maintained by Rule 31a-1 under the Investment Company
Act.
19. Titles Not to Affect Interpretation.
The titles of sections contained in this Agreement are for convenience
only, and they neither form a part of this Agreement nor are they to be used
in the construction or interpretation hereof.
20. Provisions Separable.
The provisions of this Agreement are independent of and separable from
each other, and, to the extent permitted by applicable law, no provision shall
be affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable in
whole or in part.
21. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York and, to the extent inconsistent therewith, the
1940 Act.
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22. Execution in Counterparts.
This Agreement may be executed in separate counterparts, each of
which shall be an original and all of which taken together shall
constitute one and the same instrument.
[Remainder of page intentionally left blank.]
17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
XXXXXXXXXX CAPITAL PARTNERS, LLC
By: XXXXXXXXXX & CO., LLC, its Managing
Member
By:
-----------------------------------------
Xxxxxxx X. Xxxxxxxxxx
Member
SPECIAL VALUE CONTINUATION
FUND, LLC
By:
-----------------------------------------
Xxxxxx X. Xxxxxxxxx
Chief Executive Officer
