INVESTMENT ADVISORY AGREEMENT
This Investment Advisory Agreement (the "Agreement") is entered into
this 18th day of September, 1997, by and between Diversified Strategies Fund,
L.P. (the "Client"), Encore Capital Management, L.L.C. (the "Advisor").
WHEREAS, the Client wishes to selectively invest in private placement
offerings of publicly traded companies and options thereon pursuant to
Regulation D of the Securities Exchange Commission Act of 1933 (collectively,
"Investments"); and
WHEREAS, the Advisor has experience in making such Investments; and
WHEREAS, the Client wishes to retain the Advisor to manage a portion of
its assets in such manner; and
WHEREAS, the Advisor has agreed to provide such advisory services.
NOW THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:
1. Appointment of Advisor. Client will establish an account (the
"Account") at Xxxxxx Brothers, in an initial amount of $4,000,000.00 and
appoints the Advisor as its exclusive investment advisor for the Account.
2. Authority. Advisor will supervise and direct Investments for the
Account. Advisor will make investment decisions with respect to the
Investments and place transaction orders with brokers and dealers as
determined in good faith by Advisor.
3. Investment Objectives and Restrictions. The Account will be
managed by the Advisor in a manner substantially identical to that set forth
in the Private Placement Memorandum for Encore Opportunity Fund, L.L.C.,
dated February 19, 1997 ("Investment Objectives"). While the Investment
Objectives will be substantially identical, Client acknowledges that the
trading of the Account will not necessarily be identical to the trading of
Encore Opportunity Fund, L.L.C. in all respects, although it may be the same.
4. Prime Broker. Advisor will not take custody of any assets of the
Account, but will issue settlement instructions to the Prime Broker
designated by Client ("Prime Broker"). The initial Prime Broker shall be
Xxxxxx Brothers. The Prime Broker may be changed from time to time upon the
written instructions of Client. All transactions authorized by this
Agreement shall be made by payment to or delivery by Prime Broker. Advisor
shall not act as Prime Broker or at any time have possession of cash or
securities of the Account with the exception where the Advisor would have
custody of the certificates of unregistered convertible securities in order
to effectively manage the conversion process.
5. Brokerage. In executing all transactions, the Advisor will select
a broker/dealer who will not charge a commission in excess of similar
customary institutional transactions. Brokerage commissions shall not exceed
$.06 (six cents) per share without prior authorization from the Client.
6. Account Information. Client will provide, or instruct Prime Broker
to provide, Advisor with information Advisor may request, including account
status on a daily basis.
7. Valuation. Any equity security listed on a national securities
exchange shall be valued at the last quoted bid price on the valuation date
on the principal exchange on which the security is traded. Any other
security or asset shall be valued in a manner determined in good faith by the
Advisor to reflect its fair market value. Notwithstanding the foregoing, the
Private Placement Memorandum for Encore Opportunity Fund, L.L.C. ("PPM")
shall govern the valuation methodology.
8. Compensation. The compensation of Advisor shall be calculated and
paid in accordance with the attached Schedule A.
9. Service to Other Clients. It is understood that Advisor and its
affiliates may give advice and take action for other clients which differs
from advice given or the timing or nature of action taken for the Account.
Advisor is not obligated to initiate transactions for the Account in any
security which Advisor, its principals, affiliates or employees may purchase
or sell for their own accounts or for other clients.
10. Confidential Relationship. Information furnished by either party
to the other, including their respective agents and employees, is
confidential and shall not be disclosed to third parties unless requested by
a regulatory authority or otherwise required by law.
11. Proxies. Client hereby agrees, until further notice, that Advisor
shall have the right to vote all proxies for securities held in the Account.
12. Expenses. The Advisor will render its management and advisory
services pursuant to this Agreement at its own expense. The Client will be
responsible for all other expenses relating to the Account, including, but
not limited to, brokerage commissions, interest on debit balances and taxes.
13. Liability for Losses. Advisor will not be liable for any loss
suffered by reason of any investment decision, recommendation or other action
taken or omitted in what Advisor in good faith believes to be the proper
performance of its duties hereunder. Advisor will be liable, however, for
any loss suffered due to material lack of conformance with the Investment
Objectives set forth in Section 3. Advisor will not, in any event, be liable
for any act or failure to act by any Prime Broker or broker with whom the
Client or Advisor may deal in connection with the subject matter of this
Agreement. Nothing contained herein, however, shall constitute a waiver of
any rights of Client under applicable Federal or State securities law.
14. Representations and Warranties of the Advisor. The Advisor hereby
represents and warrants to the Client that:
(a) It is a corporation duly organized and validly existing under
the laws of the State of Delaware and is qualified to do business and is in
good standing in each other jurisdiction in which the nature or conduct of
its business requires such qualification and in which the failure to so
qualify would materially adversely affect its ability to conduct its business
activities.
(b) It has full corporate power and authority to perform its
obligations under this Agreement.
(c) This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Advisor and is a valid and binding agreement
of the Advisor enforceable in accordance with its terms.
(d) The execution and delivery of this Agreement, the incurring of
the obligations set forth in this Agreement and the performance of such
obligations will not violate, or constitute a breach of or default under the
Articles of Incorporation of the Advisor or any agreement or instrument by
which it is bound or, to the best of the Advisor's knowledge, any order,
rule, law or regulation applicable to the Advisor of any court or any
governmental body or administrative agency or self-regulatory authority
having jurisdiction over the Advisor.
(e) There is not pending or, to the best of the Advisor's
knowledge, threatened, any action, suit or proceeding before or by any court
or other governmental or self-regulatory authority to which the Advisor is a
party which might reasonably be expected to result in any material adverse
change in the financial condition or regulatory qualifications of the
Advisor.
(f) It will exercise good faith and due care and will, under no
circumstances, deliberately use any procedures in discharging its obligations
hereunder that it or any of its principals knows or has reason to believe is,
in view of the constraints imposed on the Advisor by the Client, materially
inferior to the procedures employed for any other account for which the
Advisor or any of its principals or affiliates discharges obligations (either
alone or in conjunction with others) similar to those undertaken by the
Advisor hereunder.
(g) It will promptly notify the Client of any material change in
any of the foregoing representations and warranties or of any material change
in the investment approaches or strategies to be utilized in connection with
this Agreement.
15. Representations and Warranties of the Client. The Client hereby
represents and warrants to, the Advisor that:
(a) It is a limited partnership duly organized and validly
existing under the laws of the State of Illinois and is qualified to do
business and is in good standing in each other jurisdiction in which the
nature or conduct of its business requires such qualification and in which
the failure to so qualify would materially adversely affect its ability to
conduct its business activities.
(b) It has full discretionary power and authority to perform its
obligations under this Agreement.
(c) This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Client and is a valid and binding agreement of
the Client enforceable in accordance with its terms
(d) There is not pending or, to the best of the Client's
knowledge, threatened, any action, suit or proceeding before or by any court
or other governmental or self-regulatory authority to which the Client is a
party which might reasonably be expected to result in any material adverse
change in the financial condition or regulatory qualifications of the Client.
(e) It understands and acknowledges that (i) the trading of
securities is speculative and involves a high degree of risk (ii) there can
be no assurance that profits will be realized, or losses avoided or limited,
as a result of the investment activities by the Advisor hereunder, and (iii)
no "safe" investment system has ever been devised and that the Advisor cannot
guarantee profits or freedom from losses.
(f) It will promptly notify the Advisor of any material change in
any of the foregoing representations and warranties.
16. Termination: Assignment. This Agreement may be terminated by
either party at any time upon three (3) days prior written notice to the
other. In the event that this Agreement is terminated on a date which is not
the end of the fiscal year, the Incentive Fee compensation due to Advisor
pursuant to Schedule A shall be prorated to the date of termination and shall
be due and payable as though the termination date were the last day of the
fiscal year. No assignment of this Agreement by Advisor shall be effective
without the prior written consent of Client.
17. Indemnification.
(a) To induce Advisor to act under this Agreement, Client agrees
for itself and its successor or assigns, if any, that in the event of the
termination of the Agreement, it or its successor or assigns will indemnify
Advisor against and hold Advisor harmless from any loss suffered or liability
incurred as a result of any action taken by Advisor after such termination
except if such action was in direct violation of the Investment Objectives.
The foregoing obligation of Client to hold Advisor harmless and to indemnify
same shall include, without limitation, the reimbursement of all expenses and
damages incurred by Advisor including without limitation, reasonable
attorney's fee incurred at the trial and appellate levels. The term
"Advisor," as used in subparagraph (a) shall include the Advisor and any
officer, director or controlling shareholder of Advisor.
(b) Advisor shall indemnify and hold harmless Client and its
controlling persons from and against any and all losses, claims, damages,
liabilities, costs, and expenses, including any reasonable attorney's fees
related to, based upon or arising from the Advisor's acts or omissions
constituting (i) willful misconduct or gross negligence or a material breach
of any fiduciary obligation to Client or conduct not done in good faith or in
the reasonable belief that it was in, or not opposed to, the best interest of
Client, or (ii) a material breach of this Agreement on the part of Advisor.
18. Status of the Advisor. It is understood and agreed that the
Advisor shall be deemed to be an independent contractor of the Client and
that the Advisor shall not have authority to act for or represent the Client
in any way and shall not otherwise be deemed to be agent of the Client.
Nothing contained herein shall create or constitute the Advisor and the
Client as members of any partnership, joint venture, association, syndicate,
unincorporated business, or other separate entity, nor shall be deemed to
confer on any of them any express, implied, or apparent authority to incur
any obligation or Liability on behalf of any other such entity.
19. Notices. Notices under this Agreement shall be in writing and
shall be delivered at the addresses specified herein, or at such other
address as either party may specify by notice given in accordance herewith.
If to the Client, to:
Diversified Strategies Fund, L. P.
000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attn: Xxxx X. Ramspy
Facsimile Number: 000-000-0000
If to the Advisor, to:
Encore Capital Management, L.L.C.
00000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxx
Facsimile Number: 000-000-0000
20. Governing Law. The validity of this Agreement and the rights and
liabilities of the parties hereunder shall be determined in accordance with
the laws of the State of Illinois, United States of America.
21. Entire Agreement; Counterparts. This Agreement sets forth the
entire agreement of the parties relating to the subject matter hereof, except
as otherwise set forth herein. This Agreement may be executed in one or more
counterparts, each of which shall, however, together constitute one and the
same document.
22. Severability. If any provision of this Agreement is held to be
invalid or unenforceable, the remaining provisions of this Agreement shall
continue in full force and effect. No failure or delay on the part of any
party hereto in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise or any such
right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. Any waiver granted hereunder
must be in writing and shall be valid only in the specific instance in which
given.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf
of the undersigned as of the day and year first above written.
DIVERSIFIED STRATEGIES FUND, L.P.
By: /s/ Xxxx X. Xxxxxx
--------------------------------
Xxxx X. Xxxxxx
President, Xxxxxx Financial, Inc.
General Partner
Diversified Strategies Fund, L.P.
ENCORE CAPITAL MANAGEMENT, L.L.C.
By: /s/ Xxxxx X. Xxxx
--------------------------------
Xxxxx X. Xxxx
Managing Member and President
SCHEDULE A
COMPENSATION
As compensation for the management services to be provided hereunder, the
Client shall pay the Advisor the following compensation;
(a) A management fee, for each calendar quarter during which the
Advisor is engaged in the management of the Assets hereunder, in an amount
equal to 1/4 of 1-1/2% (1-1/2% per annum) of the Net Asset Value of the
Assets (as defined below) on the last business day of such quarter. The
management fee for any calendar quarter during which the Advisor is engaged
in the management of the Assets for less than a full quarter shall be
calculated on a pro rata basis. This management fee will be payable on the
following schedule if client increases their account size above the original
$4,000,000:
Annual Management
Assets Fee (Incremental Rate)
------ ----------------------
$0-$4MM 1.5%
$4-$6MM 1.0%
$6MM+ .5%
Eg. +$7MM Account Size
4,000,000 (1.5%) + 2,000,000 (1.0%) + 1,000,000 (0.5%) = $85,000
annually (prorated quarterly)
(b) A performance fee, for each calendar year during which the
Advisor is engaged in the management of the Assets hereunder, in an amount
equal to 20% of any Trading Profits (as defined herein) generated by the
Advisor in the Account during such year. For any calendar year during which
the Advisor is engaged in the management of Assets for less than a full year,
Client shall pay Advisor an asset based fee calculated at 20% of any Trading
Profits for such period.
(c) Any fees due to the Advisor hereunder shall be paid from the
Account, not later than the twentieth business day of the month immediately
following the conclusion of the respective payment period for which such fees
are due. The Advisor shall provide the Client with a statement reflecting
the amount of any fees due for a given period, by not less than the fifth
business day of the month immediately following the conclusion of such
payment period.
(d) For purposes of this Agreement, the Net Asset Value of the
Assets shall be defined as (i) the sum of (A) the value of all cash on
deposit in the Account(s), (B) the net unrealized profit or loss on all open
Investments held in the Accounts as of the end of the period for which the
calculation is made, based on the settlement price on the exchange on which
such positions were established on the last business day of such period (C)
the net unrealized profit or loss on all open Investments, based on
quotations furnished by dealers or pricing services selected by the Client
provided that, if no such quotations are available, such positions shall be
valued by the Client in its reasonable good faith judgment, (D) the purchase
price of any Treasury Bills held in the Account(s), and (E) the value of any
portion of the Assets held in the Custodial Account(s); less (ii) the sum of
(A) commissions paid on liquidated positions and accrued on open positions
during such period, and (B) management and performance fees paid or accrued
to the Advisor for such period. To the extent there is any inconsistency
with respect to the determination of the Net Asset Value, the methodology
stipulated in the PPM shall govern.
(e) "Trading Profits," for the purposes of this Agreement, shall be
defined as (i) the sum of: (A) the net of all realized profits and losses on
Account positions liquidated during the respective period, after subtraction
of brokerage commissions, and (B) the net of all unrealized profits and
losses on Account positions open as of the end of the calendar respective
period, including brokerage commissions which would be incurred in
liquidating the open positions; (ii) less: (C) the net of all unrealized
profits and losses on Account positions open at the end of the previous
calendar respective period, plus the accrued commissions on open positions
from the previous calendar respective period, (D) any expenses directly
related to trading (i.e. give up charges) incurred during the respective
period, and (E) any cumulative net realized trading losses (which shall not
include performance fee expenses) from the Advisor trading of the Account
carried forward from all previous periods since the last period for which a
performance fee was payable. Interest income shall not be included in the
calculation of Trading Profits.
(f) With regard to the carry-forward loss referred to above, it
the Client withdraws funds from the Account during a period when there is
such a carry-forward loss, the loss shall be reduced, at the time of the
withdrawal, by the percentage obtained by dividing the amount of the
withdrawal by the Net Asset Value of the Account immediately before the
withdrawal.
