FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this 1st day of January, 2003 by and between
Mercantile Capital Advisors, Inc., a Maryland corporation, in its role as
Manager (the "Manager") of the Mercantile Alternative Strategies Fund LLC, a
Delaware limited liability company (the "Company"); and Agio Alternative Assets,
LLC, a Delaware limited liability company (the "Adviser") and the Company.
1. Duties of Adviser.
(a) The Manager hereby appoints the Adviser to act as investment
adviser 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 and the Investment Management Agreement between the Company and the
Manager (the "Management Agreement"), as the Management Agreement may be amended
from time to time with notice to the Adviser. The Adviser specifically
acknowledges its obligations to follow the policies as set forth in the
Company's Private Placement Memorandum and the Management Agreement, provided
that the Adviser shall not be obligated to follow any amendment to the policies
to the Company or the Management 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 Manager employs the
Adviser to formulate a continuing investment program in accordance with the
investment objective and strategies set forth in the Company's Private Placement
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 Manager and the Company with records concerning the Adviser'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 Adviser's discharge of the foregoing responsibilities. Without
limiting the generality of the foregoing, the Adviser is specifically authorized
to 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") which are
managed by investment managers ("Investment Managers"). The Adviser 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 Company's private placement memorandum, as the same may be
amended or supplemented from time to time with notice to the Adviser, and
applicable laws and regulations.
(b) Without limiting the forgoing, the Adviser 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 Adviser 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.
2. Portfolio Transactions.
(a) To the extent applicable, the Adviser 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 Adviser will promptly communicate to the officers and the
Board such information relating to portfolio transactions as they may reasonably
request.
3. Compensation of the Adviser.
(a) For the services to be rendered by the Adviser as provided in
Section 1 of this Agreement, the Manager shall pay to the Adviser a portion of
the management fee (the "Management Fee") received by the Manager from the
Company, pursuant to the LLC Agreement, at the end of each quarter. 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
Adviser's portion of the Management Fee shall be equal to 50% of the Management
Fee paid to the Manager and shall be payable within 15 days of receipt by the
Manager of such fee from the Company. 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 Manager shall also pay to the Adviser an amount equal to 50%
of any Incentive Fee (as described in the Company's Private Offering Memorandum
and LLC Agreement) paid to the Manager at the end of each fiscal year. The
Incentive Fee shall be due and payable by the Manager within 15 days after it
has been received by the Manager at the end of each fiscal year.
(c) In addition to its portion of the Management Fee and the
Incentive Fee stated above, the Adviser will be reimbursed by the Company for
all out-of-pocket expenses relating to services provided to the Company.
4. Other Services.
The Adviser will provide to the Company, or will arrange at its
expense to be provided to the Company, such management and administrative
services as may be agreed upon from time to time by the Adviser and the Manager.
These services initially will include, among other things, providing to the
Company office facilities, equipment, personnel and other services.
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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 Adviser 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
Adviser shall promptly, upon demand, return to the Manager all records (or
copies of such records) that the Manager reasonably believes are necessary in
order to discharge its responsibilities to the Account.
6. Basic Business Records.
The Adviser shall comply with the record-keeping requirements of a
registered investment adviser of a registered investment company outlined in the
1940 Act and in the Advisers Act, and as otherwise set forth in Exhibit A.
7. Status of Adviser.
The services of the Adviser to the Company are not to be deemed
exclusive, and the Adviser shall be free to render similar services to others.
8. Liability of Adviser.
In the absence of (a) willful misfeasance, bad faith or gross
negligence on the part of the Adviser in performance of its obligations and
duties hereunder, the Adviser 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. The Adviser does not represent that any level of
performance will be achieved.
9. Indemnification.
(a) To the fullest extent permitted by law, the Company shall,
subject to Section 9(c) of this Agreement, indemnify the Adviser (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 Adviser, 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 Adviser 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
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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 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.
(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 9(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, gross negligence, or reckless disregard of the duties
involved in the conduct of the indemnitee's office, indemnification shall be
provided in accordance with Section 9(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
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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 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 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
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. 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, the burden of
proving that the indemnitee is not entitled to be indemnified, or to any
indemnification or advancement of expenses, under this Section 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 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 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 shall
affect the power of the Company to purchase and maintain liability insurance on
behalf of the Adviser or any indemnitee.
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10. Duration and Termination.
This Agreement will become effective as of the date first written
above and will continue for an initial one-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 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. If
the Board officially considers terminating this Agreement at any Board meeting,
the Company agrees to provide the Adviser with written notice that such matter
has been officially considered by the Board. This Agreement may be terminated by
the Manager at any time, without the payment of any penalty, by the Manager's
recommendation to, and by a vote of a majority of the entire Board or by vote of
a majority of the outstanding voting securities of the Company on 60 days'
written notice to the Adviser. This Agreement may be terminated by the Adviser
at any time, without the payment of any penalty, upon 60 days' written notice to
the Manager. This Agreement will automatically and immediately terminate in the
event of its assignment by the Adviser, provided that an assignment to a
successor to all or substantially all of the Adviser's business or to a
wholly-owned subsidiary of such successor that does not result in a change of
actual control of the Adviser's business shall not be deemed to be an assignment
for the purposes of this Agreement.
11. 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.
12. 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 of the Company 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.
13. 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.
14. Applicable Law.
This Agreement shall be construed in accordance with the laws of the State of
Delaware, provided, however, that nothing herein shall be construed in a manner
inconsistent with the 1940 Act.
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15. 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.
16. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
17. Form ADV; Company Changes.
The Manager acknowledges receiving Part II of the Adviser's Form
ADV. The Adviser covenants that it will notify the Manager of any changes to its
membership within a reasonable time after such change.
18. 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.
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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.
-------------------------------------------
By:
Title:
MERCANTILE ALTERNATIVE STRATEGIES FUND LLC.
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Authorized Signature
By:
Title:
AGIO ALTERNATIVE ASSETS, LLC
-------------------------------------------
By:
Title:
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EXHIBIT A
The following is a list of records the Adviser is to keep on behalf of the
Company.
Basic Business Records. The Adviser will maintain true, accurate, current,
and complete copies, where necessary, of each of the following books and
records:
a. Originals of all written communications received and copies of
all written communications sent by the Adviser relating to:
(1) recommendations or advice given or proposed;
b. A list of all discretionary accounts;
x. Xxxxxx of attorney and other evidences of the granting of any
discretionary authority;
d. Written agreements (or copies thereof) entered into by the
Adviser on behalf of the Company;
e. A copy of each written disclosure statement and amendment or
revision given to any person and a record of the dates and
persons to whom such statements were given or offered to be
given;
f. All written acknowledgments of receipt obtained from advisory
clients relating to disclosure of soliciting fees paid by the
Adviser and copies of all disclosure statements delivered to
advisory clients by such solicitors on behalf of the Company.
2. Records for Investment Supervisory Accounts. The Adviser must
maintain a record for the Company, showing each Interest bought
or sold and the date, amount, and price of each purchase and
sale. The Adviser must also maintain a record, by Investment
Fund, for each investment in which the Company has a current
position, the type of interest and the amount of the Company's
current position. These records need to be maintained and be
true, accurate, current, and complete only to the extent that
this information is reasonably available to, or obtainable by,
the Adviser.
3. Records pursuant to the Company's Code of Ethics
a. A record of any violation of the Company's Code of Ethics, and
any action taken as a result of the violation, in an easily
accessible place for at least five years after the end of the
fiscal year in which the violation occurs;
b. A copy of each report made by an Access Person as required by
Rule 17j-1(f) under the 1940 Act, including any information
provided in lieu of the reports under Rule 17j-1(d)(2)(v), in
an easily accessible place for at least five years after the
end of the fiscal year in which the report is made or the
information is provided;
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c. A record of all persons, currently or within the past five
years, who are or were required to make reports under Rule
17j-1(d) or who are or were responsible for reviewing these
reports, in an easily accessible place; and
d. A copy of each report required by Rule 17j-1(c), for at least
five years after the end of the fiscal year in which it is
made, the first two years in an easily accessible place.
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