FORM OF
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of this 1st, day of December 2002 by and
between Mercantile Small Cap Manager 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;
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 each Member's Investment Return (as defined in the LLC Agreement) in
excess of the Loss
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Carryforward amount applicable to such Member's Capital Account. 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 Manager 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 an 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.
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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
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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.
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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 Delaware, 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]
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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 SMALL CAP MANAGER FUND LLC.
___________________________________________
Authorized Signature
By:
Title:
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