EXHIBIT 2
Page 17 of 34 Pages
NETWORK FUND III, LTD.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is entered into as
of February 26, 1996 by and between XXXXXX MANAGEMENT COMPANY, a Delaware
corporation (the "Investment Advisor"), and NETWORK FUND III, LTD., a Cayman
Islands exempted company (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund has been formed as a closed-end investment company,
the objective of which is to achieve capital appreciation in accordance with the
investment objectives and strategies as more fully described in the Confidential
Private Placement Memorandum of the Fund dated February 1996 (the "Memorandum");
and
WHEREAS, the Fund wishes to engage the Investment Advisor to provide
investment advisory services with respect to the Fund's assets; and
WHEREAS, the Investment Advisor wishes to accept the same upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, the parties agree as follows:
1. Investment Management Services. In accordance with the provisions of
the Memorandum and Articles of Association of the Fund, and under the ultimate
supervision of the Board of Directors of the Fund (the "Directors") from time to
time as provided therein, and in accordance with the investment objectives,
policies, guidelines and restrictions which are set forth in the Memorandum or
which are otherwise communicated to the Investment Advisor in writing by the
Fund, the Investment Advisor shall use its reasonable efforts to invest the
assets of the Fund according to the strategy set forth in the Memorandum.
Capitalized terms not otherwise defined herein shall be used herein as defined
in the Memorandum.
2. Authority of the Investment Advisor. The Investment Advisor shall
have full discretion and authority, without obtaining the Fund's prior approval,
to manage the investment and reinvestment of the assets of the Fund in such
manner as the Investment Advisor considers appropriate consistent with the
Memorandum. In furtherance of the foregoing, the Fund hereby designates and
appoints the Investment Advisor as its agent and attorney-in-fact, with full
power and authority and without the need for further approval of the Fund
(except as may be required by law), to carry out the following with respect to
the assets of the Fund:
(a) to effect purchases and sales (including short sales) of
(i) securities of any type whatsoever, denominated in any currency, whether or
not issued by government entities, partnerships, trusts or corporations, (ii)
any put or call options thereon (including the writing of options, whether
covered or uncovered), and (iii) other securities and instruments consistent
with the Fund's investment policies and program;
(b) to make all decisions relating to the manner, method and
timing of investment transactions, and to select brokers and dealers for the
execution, clearance and settlement of any transactions;
Page 18 of 34 Pages
(c) to borrow from banks, brokers or other financial
institutions to the extent permitted by the Memorandum and to pledge assets of
the Fund in connection therewith;
(d) to direct custodians to deliver funds or securities for
the purpose of effecting transactions, and to instruct custodians to exercise or
abstain from exercising any privilege or right attaching to such assets; and
(e) to make and execute, in the name and on behalf of the
Fund, all such documents (including, without limitation, customer agreements and
other documents in connection with the establishment and maintenance of
brokerage accounts) and to take all such other actions as the Investment Advisor
considers necessary or advisable to carry out its investment management duties
hereunder.
3. Brokerage. In the course of selecting brokers, dealers, banks and
intermediaries to effect transactions for the Fund, the Investment Advisor may
agree to such commissions, fees and other charges on behalf of the Fund as the
Investment Advisor shall deem reasonable in the circumstances taking into
account all such factors as it deems relevant, including the quality of research
and other services made available to it (even if such services are not for the
exclusive benefit of the Fund). It is understood that the costs of such services
will not necessarily represent the lowest costs available and that the
Investment Advisor is under no obligation to combine or arrange orders so as to
obtain reduced charges.
4. Investments for the Accounts of Others and Allocation of
Opportunities.
(a) It is understood that the Investment Advisor and its
directors, officers, employees and principals may from time to time purchase and
sell securities or other investment assets for their own accounts, for the
accounts of their families, for the account of any entity in which they have a
beneficial interest or for the accounts of others for whom they may provide
investment advisory or other services (collectively, "Managed Accounts"),
notwithstanding the fact that the Fund may have or may take an investment
position in the same security; provided, however, that the Investment Advisor
shall not cause the Fund to purchase any asset from or sell any asset to the
Investment Advisor, or any of its directors, officers, employees or principals
or any account or entity controlled by such persons without the consent of the
Fund.
(b) It is understood that when the Investment Advisor
determines that it would be appropriate for the Fund and one or more Managed
Accounts to participate in an investment opportunity, the Investment Advisor
will seek to execute orders for the Fund and for such Managed Accounts on an
equitable basis. In such situations, the Investment Advisor may place orders for
the Fund and each Managed Account simultaneously, and if all such orders are not
filled at the same price, the Investment Advisor may cause the Fund and each
Managed Account to pay or receive the average of the prices at which the orders
were filled for the Fund and all Managed Accounts. If all such orders cannot be
fully executed under prevailing market conditions, the Investment Advisor may
allocate the securities traded among the Fund and the Managed Accounts in a
manner which it considers equitable, taking into account the size of the order
placed for the Fund and each such Managed Account as well as any other factors
which it deems relevant.
(c) The Investment Advisor will not organize any other
investment fund with the same objectives as the Fund (other than a parallel U.S.
limited partnership for U.S. investors) unless at least sixty percent (60%) of
the capital of the Fund has been invested in portfolio securities consistent
with the Fund's objectives.
Page 19 of 34 Pages
5. Compensation.
(a) For its services hereunder, the Investment Advisor shall
be entitled to receive a quarterly management fee from the Fund at an annual
rate equal to 1.75% of the Net Value of the Fund (as defined in the Memorandum).
The management fee shall be calculated and payable in arrears after the end of
each calendar quarter based on the Net Value of the Fund as of the end of the
calendar quarter. The management fee shall be paid promptly to the Investment
Advisor after the close of each calendar quarter.
(b) In addition to the management fee, once the Fund has made
aggregate distributions to holders of its Common Shares equal to their initial
investment plus a 7% non-compounded annual return (the "Preferred Return"), then
the Investment Advisor will receive distributions in its capacity as holder of
the Fund's Founders Shares until it has received cumulative distributions equal
to a 1.75% non-compounded annual return on the Fund's capital, and thereafter
distributions will be made 80% to holders of Common Shares of the Fund and 20%
to the Investment Advisor in its capacity as holder of Founders Shares, in each
case as provided in the Memorandum and in the Articles and Memorandum of
Association of the Fund.
6. Scope of Liabilities. The Investment Advisor shall not be liable to
the Fund, its affiliates or shareholders for any losses, damages, expenses or
claims occasioned by any act or omission of the Investment Advisor in connection
with the performance of its services hereunder, other than as a result of its
own willful misconduct, gross negligence or reckless disregard of its duties
hereunder, or as otherwise required by applicable law.
7. Indemnification. The Fund shall indemnify the Investment Advisor
(which shall include solely for purposes of this Section 9 any of its directors,
officers, employees and shareholders) against and hold them harmless from any
expense, loss, liability or damage arising out of any claim asserted or
threatened to be asserted by any third party, in connection with the Investment
Advisor's serving or having served as such pursuant to this Agreement; provided,
however, that the Investment Advisor shall not be entitled to indemnification
with respect to any expense, loss, liability or damage which was caused by its
own gross negligence, willful misconduct or reckless disregard of its duties
hereunder. The Fund shall advance to the Investment Advisor the reasonable costs
and expenses of investigating and/or defending any such claim, subject to
receiving a written undertaking from the Investment Advisor to repay any such
amounts advanced to it in the event and to the extent of any subsequent
determination that the Investment Advisor was not entitled to indemnification
hereunder. In the event that the Investment Advisor is or becomes a party to any
action or proceeding in respect of which indemnification may be sought
hereunder, the Investment Advisor shall promptly notify the Fund thereof.
Following such notice, the Fund shall be entitled to participate therein and, to
the extent that it may wish, to assume the defense thereof with counsel
reasonably satisfactory to the Investment Advisor. After notice from the Fund to
the Investment Advisor of an election so to assume the defense thereof, the Fund
will not be liable to the Investment Advisor hereunder for any legal or other
expenses subsequently incurred by the Investment Advisor in connection with the
defense thereof other than reasonable costs of investigation unless counsel for
the Investment Advisor shall reasonably determine that there is a conflict of
interest which requires separate representation of the parties. The Fund shall
not be liable hereunder for any settlement of any action or claim effected
without its written consent thereto, which consent shall not be unreasonably
withheld, nor shall the Fund enter into any settlement which shall impose any
obligation on the Investment Advisor without its written consent.
8. Independent Contractor. For all purposes of this Agreement, the
Investment Advisor shall be an independent contractor and not an employee or
agent of the Fund, nor shall anything herein be construed as making the Fund a
partner or co-venturer with the Investment Advisor or any of its affiliates.
Except as provided in this Agreement, the Investment Advisor shall not have
authority to bind,
Page 20 of 34 Pages
obligate or represent the Fund. Without limiting the generality of the
foregoing, the Investment Advisor shall have no authority whatsoever (nor shall
it have any duty) on behalf of the Fund to: (i) communicate with shareholders of
the Fund or with the general public; (ii) solicit sales of the Shares of the
Fund or accept subscriptions therefor; (iii) maintain the principal corporate
records or books of account of the Fund; (iv) disburse payments of dividends,
legal and accounting fees, and directors' and officers' salaries; or (v) make
redemptions of the shares of the Fund.
9. Information Concerning Activities. The Investment Advisor shall send
or arrange that there be sent to the Fund confirmations of all transactions for
its account. The Investment Advisor shall also furnish from time to time such
further information and reports concerning the activities undertaken by the
Investment Advisor on behalf of the Fund as the Fund may reasonably request.
10. Expenses. All expenses incurred directly in connection with
transactions effected or positions held on behalf of the Fund pursuant to the
Investment Advisor's exercise of its duties hereunder (including, without
limitation, custodial fees, clearing fees, brokerage commissions, interest and
commitment fees on loans and debit balances, withholding or transfer taxes and
other expenses as described in the Memorandum) shall be paid or reimbursed by
the Fund. The Investment Advisor shall bear its own overhead and other internal
operating costs, except that the Investment Advisor may cause certain of such
expenses to be paid out of brokerage commissions generated by trading on behalf
of the Fund as described in the Memorandum.
11. Term, Termination, Renewal and Survival.
(a) The initial term of this Agreement shall commence on the
date hereof and shall continue until the final dissolution and liquidation of
the Fund, subject to termination by either party upon not less than thirty (30)
days prior written notice to the other in the event of any material breach by
the other party of its obligations under this Agreement, which breach is not
remedied within such period.
(b) In the event of the termination of this Agreement, (i) the
Investment Advisor shall be entitled to the management fee accrued through the
date of termination, (ii) the provisions of Sections 6 and 7 shall survive any
termination, and (iii) the Investment Advisor shall have the right, at its
option, to resell the Founders Shares to the Fund at a purchase price equal to
the accrued but unpaid distributions due to the holders of Founders Shares
through the date of such termination based upon the Net Value of the Fund (as
defined in the Memorandum) as of such date.
12. Modification; Waiver. Except as otherwise expressly provided
herein, this Agreement shall not be amended nor shall any provision of this
Agreement be considered modified or waived unless evidenced by a writing signed
by the parties to be charged with such amendment, waiver or modification.
13. Entire Agreement; Binding Effect; Assignment. This Agreement
represents the entire agreement among the parties, shall be binding upon and
inure to the benefit of the parties hereto and their respective successors, and
their rights and obligations hereunder shall not be assignable, transferable or
delegable without the written consent of the other party hereto. Any attempted
assignment, transfer or delegation hereof without such consent shall be void.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Cayman Islands, without giving effect to
conflicts of law.
15. Counterparts. This Agreement may be signed in any number of
counterparts. Any single counterpart or a set of counterparts signed in either
case by the parties hereto shall constitute a full and original agreement for
all purposes.
Page 21 of 34 Pages
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
NETWORK FUND III, LTD.
By: /s/ X. Xxxxxx
--------------------------
Name: X. Xxxxxx
Title: Director
XXXXXX MANAGEMENT COMPANY
By: /s/ Xxxxxxx X. X'Xxxxxxx
--------------------------
Name: Xxxxxxx X. X'Xxxxxxx
Title: Vice President
Page 22 of 34 Pages
