FORM OF
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of this 1st, day of December 2002 by and between
Mercantile Absolute Return Fund LLC, a Delaware limited liability company (the
"Company"), and Mercantile Capital Advisors, Inc., a Maryland corporation (the
"Manager").
1. Duties of Manager.
(a) The Company hereby appoints the Manager to act as investment
manager to the Company, for the period and on the terms set forth in this
Agreement, pursuant to the policies set forth in the Company's Private Placement
Memorandum (the "Memorandum") and in the Company's Limited Liability Company
Agreement dated as of December 1, 2002 (the "LLC Agreement"), as the LLC
Agreement may be amended from time to time with notice to the Manager. The
Manager specifically acknowledges its obligations as set forth in the Memorandum
and the LLC Agreement, provided that the Manager shall not be obligated to
follow any amendment to the policies to the Company or the LLC Agreement that
increases its obligations, responsibilities or liabilities thereunder until it
has received actual notice of such amendment and has agreed thereto in writing.
The Company employs the Manager to formulate a continuing investment program in
accordance with the investment objective and strategies set forth in the
Memorandum and to manage the investment and reinvestment of the assets of the
Company, to continuously review, supervise and administer the investment program
of the Company, to determine in its discretion the securities to be purchased or
sold and the portion of the Company's assets to be held uninvested, to provide
the Company with records concerning the Manager's activities which the Company
is required to maintain and, upon request, to render regular reports to the
Company's officers and Board of Directors (the "Board") concerning the Manager's
discharge of the foregoing responsibilities. Without limiting the generality of
the foregoing, the Manager is specifically authorized to (i) invest the
Company's assets (which may constitute, in the aggregate, all of the Company's
assets) in unregistered investment funds or other investment vehicles and
registered investment companies ("Investment Funds") that are managed by
investment managers ("Investment Managers"); (ii) invest the Company's assets in
separate investment vehicles for which the Investment Managers serve as general
partners or managing members and in which the Company is the sole investor (also
"Investment Funds"); and (iii) invest discrete portions of the Company's assets
with Investment Managers who are retained to manage the Company's assets
directly through separate managed accounts (Investment Managers who directly
manage Investment Funds and managed accounts for which the Company is the sole
investor are collectively referred to as "Sub-advisers"). The selection of
Subadvisers shall, however, be subject to the approval by the Board in
accordance with requirements of the Investment Company Act of 1940 as amended
(the "1940 Act"), and a vote of a majority of the outstanding voting securities
of the Company, unless the Company acts in reliance on exemptive or other relief
granted by the Securities and Exchange Commission from the provisions of the
1940 Act requiring such approval by security holders. The Manager shall
discharge the foregoing responsibilities subject to the control of the officers
and the Board, and in compliance with the objectives, policies and limitations
set forth in the Memorandum, as the same may be amended or supplemented from
time to time with notice to the Manager, and applicable laws and regulations.
(b) Without limiting the forgoing, the Manager acknowledges its
responsibility and agrees to conduct proper due diligence on the Investment
Funds and Investment Managers as is required by its fiduciary role, including,
without limitation, reviewing the valuation procedures of each Investment Fund
and making a determination that such Investment Fund complies with the valuation
procedures adopted by the Company.
(c) The Manager accepts such employment and agrees to render the
services and to provide, at its own expense, the office space, furnishings and
equipment and the personnel required by it to perform the services on the terms
and for the compensation provided herein.
(d) The Manager is fully authorized to delegate any and all
obligations under this Agreement to qualified third parties, provided (i) the
Manager takes responsibility for the selection of such delegatee (subject to the
approval of the Board and further in accordance with the requirements of the
1940 Act); (ii) the Manager reviews the activities of such delegatee to ensure
compliance with the investment objective and strategies of the Company, as set
forth in the Memorandum; and (iii) the Manager updates the Board with respect to
the performance and activities of the delegatee, and makes recommendations
whether or not to terminate such delegatee to the Board.
2. Portfolio Transactions.
(a) To the extent applicable, the Manager is authorized to select
the brokers or dealers that will execute the purchases and sales of securities
for the Company and is directed to use its best efforts to obtain the best
available price and most favorable execution, except as prescribed herein.
(b) The Manager will promptly communicate to the officers and the
Board such information relating to portfolio transactions as they may reasonably
request.
3. Compensation of the Manager.
(a) For the services to be rendered by the Manager as provided in
Section 1 of this Agreement, the Company shall pay the Manager, pursuant to the
LLC Agreement, at the end of each quarter a management fee (the "Management
Fee"). The Management Fee received by the Manager from the Company is equal to
0.3125% (approximately 1.25% on an annualized basis) of the Company's net
assets. The Management Fee will be computed based on the capital account of each
member of the Company as of the end of business on the last business day of each
quarter in the manner set out in the LLC Agreement.
(b) The Management Fee provided above shall be computed on the basis
of the period ending on the last business day prior to the termination or
redemption date subject to a pro rata adjustment based on the number of days
elapsed in the current fiscal quarter as a percentage of the total number of
days in such quarter.
(c) The Company shall also pay to the Manager an amount equal to 10%
of the increase in net profits of the Company in excess of the Loss Carryforward
amount and
1
Benchmark Return (as described more fully in the Memorandum and the LLC
Agreement). The Incentive Fee shall be due and payable by the Company at the end
of each fiscal year.
(d) In addition to the Management Fee and Incentive Fee
stated above, the Adviser will be reimbursed by the
Company for all out-of-pocket expenses relating to services provided by the
Company, including travel and other expenses related to the selection and
monitoring of Investment Managers.
4. Other Services.
It is understood by both parties that the Manager will also be
retained to serve in other capacities for the Company, through separate
contracts, and shall be compensated for such additional services in accordance
with the terms set forth thereunder. Such other responsibilities may include,
but are not limited to, serving in a management role pursuant to the LLC
Agreement and serving as Administrator pursuant to the Administrative Services
Agreement.
5. Reports.
The parties agree to furnish to each other current prospectuses,
proxy statements, reports to partners, certified copies of their financial
statements, and such other information with regard to their affairs as each may
reasonably request in connection with this Agreement.
The Manager shall submit and present to the Board reports of the
assets of the Company, the value of such assets, and the performance of the
Investment Funds on a quarterly basis. All investment information supplied by
the Adviser to the Manager and the Board is confidential and is to be used by
the Company for internal purposes only. Upon termination of this Agreement, the
Manager shall promptly, upon demand, return to the Company all records (or
copies of such records) that the Company reasonably believes are necessary in
order to discharge its responsibilities to the Account.
6. Status of Manager.
The services of the Manager to the Company are not to be deemed
exclusive, and the Manager shall be free to render similar services to others.
7. Liability of Manager.
In the absence of (a) willful misfeasance, bad faith or gross
negligence on the part of the Manager, in performance of its obligations and
duties hereunder, the Manager shall not be subject to any liability whatsoever
to the Company, or to any member of the Company (each, a "Member," and
collectively, the "Members") for any error of judgment, mistake of law or any
other act or omission in the course of, or connected with, rendering services
hereunder including, without limitation, for any losses that may be sustained in
connection with the purchase, holding, redemption or sale of any security on
behalf of the Company.
8. Indemnification.
(a) To the fullest extent permitted by law, the Company shall,
subject to this Section 8(c), indemnify the Manager (including for this purpose
each officer, director, partner, principal, employee or agent of, or any person
who controls, is controlled by or is under common control with, the Manager, and
their respective executors, heirs, assigns, successors or other legal
representatives) (each such person being referred to as an "indemnitee") against
all losses, claims, damages, liabilities, costs and expenses arising by reason
of being or having been Manager to the Company, or the past or present
performance of services to the Company in accordance with this Agreement by the
indemnitee, except to the extent that the loss, claim, damage, liability, cost
or expense was caused by reason of willful misfeasance, bad faith or gross
negligence of the duties involved in the conduct of the indemnitee's office.
These losses, claims, damages, liabilities, costs and expenses include, but are
not limited to, amounts paid in satisfaction of judgments, in compromise, or as
fines or penalties, and counsel fees and expenses, incurred in connection with
the defense or disposition of any action, suit, investigation or other
proceeding, whether civil or criminal, before any judicial, arbitral,
administrative or legislative body, in which the indemnitee may be or may have
been involved as a party or otherwise, or with which such indemnitee may be or
may have been threatened, while in office or thereafter. The rights of
indemnification provided under this Section 8 are not to be construed so as to
provide for indemnification of an indemnitee for any liability (including
liability under U.S. federal securities laws which, under certain circumstances,
impose liability even on persons that act in good faith) to the extent that
indemnification would be in violation of applicable law, but shall be construed
so as to effectuate the applicable provisions of this Section 8.
(b) Expenses, including counsel fees and expenses, incurred by any
indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties) may be paid from time to time by the
Company in advance of the final disposition of any action, suit, investigation
or other proceeding upon receipt of an undertaking by or on behalf of the
indemnitee to repay to the Company amounts paid if a determination is made that
indemnification of the expenses is not authorized under Section 8(a) of this
Agreement, so long as (i) the indemnitee provides security for the undertaking,
(ii) the Company is insured by or on behalf of the indemnitee against losses
arising by reason of the indemnitee's failure to fulfill his, her or its
undertaking, or (iii) a majority of the directors (each, a "Director," and
collectively, the "Directors") of the Company who are not "interested persons"
(as that term is defined in the 0000 Xxx) of the Company ("Independent
Directors") (excluding any Director who is or has been a party to any other
action, suit, investigation or other proceeding involving claims similar to
those involved in the action, suit, investigation or proceeding giving rise to a
claim for advancement of expenses under this Agreement) or independent legal
counsel in a written opinion determines based on a review of readily available
facts (as opposed to a full trial-type inquiry) that reason exists to believe
that the indemnitee ultimately shall be entitled to indemnification.
(c) As to the disposition of any action, suit, investigation or
other proceeding (whether by a compromise payment, pursuant to a consent decree
or otherwise) without an adjudication or a decision on the merits by a court, or
by any other body before which the proceeding has been brought, that an
indemnitee is liable to the Company or its Members by
reason of willful misfeasance, bad faith or gross negligence of the indemnitee's
office, indemnification shall be provided in accordance with Section 8(a) of
this Agreement if (i) approved as in the best interests of the Company by a
majority of the Independent Directors (excluding any Director who is or has been
a party to any other action, suit, investigation or other proceeding involving
claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for indemnification under this Agreement) upon
a determination based upon a review of readily available facts (as opposed to a
full trial-type inquiry) that the indemnitee acted in good faith and in the
reasonable belief that the actions were in the best interests of the Company and
that the indemnitee is not liable to the Company or its Members by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of the indemnitee's office, or (ii) the Directors
secure a written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry) to the effect
that indemnification would not protect the indemnitee against any liability to
the Company or its Members to which the indemnitee would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence.
(d) Any indemnification or advancement of expenses made in
accordance with this Section 8 shall not prevent the recovery from any
indemnitee of any amount if the indemnitee subsequently is determined in a final
judicial decision on the merits in any action, suit, investigation or proceeding
involving the liability or expense that gave rise to the indemnification or
advancement of expenses to be liable to the Company or its Members by reason of
willful misfeasance, bad faith or gross negligence. In any suit brought by an
indemnitee to enforce a right to indemnification under this Section 8 it shall
be a defense that, and in any suit in the name of the Company to recover any
indemnification or advancement of expenses made in accordance with this Section
8 the Company shall be entitled to recover the expenses upon a final
adjudication from which no further right of appeal may be taken that, the
indemnitee has not met the applicable standard of conduct described in this
Section 8. In any suit brought to enforce a right to indemnification or to
recover any indemnification or advancement of expenses made in accordance with
this Section 8, the burden of proving that the indemnitee is not entitled to be
indemnified, or to any indemnification or advancement of expenses, under this
Section 8 shall be on the Company (or on any Member acting derivatively or
otherwise on behalf of the Company or its Members).
(e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 8 or to which he, she or it may
otherwise be entitled except out of the assets of the Company, and no Member
shall be personally liable with respect to any such claim for indemnification or
advancement of expenses.
(f) The rights of indemnification provided in this Section 8 shall
not be exclusive of or affect any other rights to which any person may be
entitled by contract or otherwise under law. Nothing contained in this Section 8
shall affect the power of the Company to purchase and maintain liability
insurance on behalf of the Manager or any indemnitee.
9. Duration and Termination.
This Agreement will become effective as of the date first written
above and will continue for an initial two-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (a) by the vote of a majority of the Directors who are not parties to
this Agreement or Interested Persons (as defined in the 0000 Xxx) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the Board or by vote of a majority of the outstanding
voting securities of the Company; provided however, that if the Members of the
Company fail to approve the Agreement as provided herein, the Manager may
continue to serve in such capacity in the manner and to the extent permitted by
the 1940 Act and the rules thereunder. This Agreement may be terminated by the
Manager at any time, without the payment of any penalty, upon 90 days' written
notice to the Company. This Agreement will automatically and immediately
terminate in the event of its assignment by the Manager, provided that an
assignment to a successor to all or substantially all of the Manager's business
or to a wholly-owned subsidiary of such successor which does not result in a
change of actual control of the Manager's business shall not be deemed to be an
assignment for the purposes of this Agreement.
10. Definitions.
As used in this Agreement, the terms "assignment," "interested
persons," and a "vote of a majority of the outstanding voting securities" shall
have the respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and
Section 2(a)(42) of the 1940 Act.
11. Amendment of Agreement.
This Agreement may be amended by mutual consent, but the consent of
the Manager must be approved (a) by vote of a majority of those members of the
Board who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
amendment, and (b) by vote of a majority of the outstanding voting securities of
the Company.
12. Severability.
If any provisions of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13. Applicable Law.
This Agreement shall be construed in accordance with the laws of the
State of New York, provided, however, that nothing herein shall be construed in
a manner inconsistent with the 1940 Act.
14. Notices.
Any notice under this Agreement shall be given in writing and deemed
to have been duly given when delivered by hand or facsimile or five days after
mailed by certified mail, post-paid, by return receipt requested to the other
party at the principal office of such party.
15. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
16. Form ADV; Company Changes.
The Company acknowledges receiving Part II of the Manager's Form
ADV.
17. Company Obligations.
The parties to this Agreement agree that the obligations of the
Company under this Agreement shall not be binding upon any of the Directors,
Members or any officers, employees or agents, whether past, present or future,
of the Company, individually, but are binding only upon the assets and property
of the Company.
[Signature page to follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the day and year first
written above.
MERCANTILE CAPITAL ADVISORS, INC.
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By:
Title:
MERCANTILE ABSOLUTE RETURN FUND LLC.
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Authorized Signature
By:
Title:
