DIRECT INVESTMENT MANAGEMENT AGREEMENT
Agreement, dated as of April, 2007 between THE CHINA
FUND, INC., a Maryland corporation (the Fund), and Xxxxxx Xxxxxx
Inc., a company incorporated in New York, and regulated in the conduct
of its investment business by the U.S. Securities and Exchange
Commission (the SEC) and by the Financial Services Authority of the
United Kingdom, the regulator for financial services institutions in the
United Kingdom (the FSA) (the Investment Manager).
WHEREAS, the Fund is a closed-end, non-diversified
management investment company registered under the U.S. Investment
Company Act of 1940, as amended (the 1940 Act), shares of common
stock of which are registered under the Securities Act of 1933, as
amended; and
WHEREAS, the Funds investment objective is long-term capital
appreciation which it seeks to achieve by investing primarily in equity
securities of China companies (as that term is defined in the Prospectus,
dated June 27, 2005 (the Prospectus) contained in the Funds
Registration Statement on Form N-2 (File No. 333-124392)
(the Registration Statement)); and
WHEREAS, the Fund and the Investment Manager are parties to
an Investment Advisory and Management Agreement dated as of
March 19, 2004 (the Listed Agreement) relating to management of the
Funds investments in listed securities; and
WHEREAS, the Fund desires to retain the Investment Manager
to render investment management services with respect to investment of
certain of the Funds assets in direct investments (as that term is defined
below), and the Investment Manager is willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants
hereafter contained, it is hereby agreed by and between the parties hereto
as follows:
1. Appointment of Investment Manager of Direct Investments.
(a) The Fund hereby employs the Investment Manager for
the period and on the terms and conditions set forth herein, subject at all
times to the supervision of the Board of Directors of the Fund, to:
i. (A) Invest assets of the Fund in securities
that at the time of such investment are not listed (or approved for
listing) on a securities exchange (direct investments), and
(A) manage the investment and reinvestment of
(x) those assets of the Fund that were invested in direct investments at
the direction of the Investment Manager, and (y) if requested by the
Board of Directors of the Fund, any other assets of the Fund invested in
direct investments ((x) and (y), collectively, the Investment Managers
Direct Investments),and with respect to clauses (A) and (B), in each case
in accordance with the investment objective and policies of the Fund set
forth in the Funds Prospectus, and as such investment objective and
policies are amended from time to time by the Funds Board of Directors,
and subject always to the restrictions of the Funds Articles of
Incorporation and By-Laws, as amended or restated from time to time,
and the provisions of the 1940 Act.
Should the Board of Directors of the Fund at any time make any
definite determination as to investment policy and notify the Investment
Manager thereof, the Investment Manager shall be bound by such
determination for the period, if any, specified in such notice or until
similarly notified that such determination has been revoked. For
purposes of this Agreement, direct investments shall not include (a) any
investment by the Fund in an instrument, such as, but not limited to, a
warrant, swap, structured note or other equity derivative, that provides
the Fund with exposure to a security that is listed on a securities
exchange or (b) any security owned by the Fund that is listed on a
securities exchange even if that security was a direct investment at the
time of its purchase by the Fund. The Investment Manager shall vote the
Funds proxies in connection with the Investment Managers Direct
Investments, in accordance with the Funds proxy voting policies which
may be amended from time to time by the Board and communicated to
the Investment Manager. The Investment Manager shall make such
reports to the Board concerning such proxy voting as the Board may
deem necessary or advisable. It is understood and acknowledged that no
assurance has been or can be provided that the investment objective of
the Fund can or will be achieved. The Investment Manager shall take, on
behalf of the Fund, all actions which it deems necessary to implement the
investment policies of the Fund applicable to the Investment Managers
Direct Investments and to monitor the execution of transactions and the
settlement and clearance of the Funds securities transactions in such
direct investments. By and in connection therewith, the Investment
Manager is authorized as agent of the Fund to give instructions to the
custodians from time to time of the Investment Managers Direct
Investments as to deliveries of securities and payments of cash for the
account of the Fund;
ii. Identify regulatory and other governmental
requirements applicable to the Fund in connection with the
Investment Managers Direct Investment program, but only as far
as its duties as a professional investment manager so require;
iii. Provide information regarding corporate actions,
repatriation restrictions, currency restrictions and other matters
of which the Fund Manager is aware as may be requested by the
Fund; and
iv. Maintain or cause to be maintained for the Fund
all books and records required under the 1940 Act, to the extent
that such books and records are not maintained or furnished by
administrators, custodians or other agents of the Fund.
(b) The Investment Manager accepts such appointment and
agrees during the term of this Agreement to render such services, to
permit any of its directors, officers or employees to serve without
compensation as directors or officers of the Fund if elected to such
positions and to assume the obligations herein for the compensation
herein provided. The Investment Manager shall for all purposes herein
provided be deemed to be an independent contractor, and unless
otherwise expressly provided or authorized, shall have no authority to act
for or represent the Fund in any way or otherwise be deemed an agent of
the Fund.
(c) The Fund and the Investment Manager hereby
acknowledge that the Fund has allocated 25% of the net proceeds of its
offerings of its Common Stock less 25% of the aggregate repurchase
price of any shares of the Funds Common Stock repurchased by the Fund
to direct investments; provided, however, that such allocation shall be
subject to review and modification by the Board of Directors of the Fund
(the Direct Investment Amount). The portion of the Direct Investment
Amount as is invested in direct investments shall be managed by the
Investment Manager and such other entity, if any, as may be appointed
by the Fund to manage the assets of the Fund invested in direct
investments. The portion of the Direct Investment Amount as is not
invested in direct investments shall be managed by the Investment
Manager pursuant to the terms of the Listed Agreement. Upon the sale
of a direct investment, the Investment Manager shall make the net
proceeds thereof available as soon as reasonably practicable for
investment pursuant to the Listed Agreement.
2. Compensation. For the services and facilities described
in Section 1, the Fund agrees to pay in United States dollars to the
Investment Manager, a fee in accordance with the schedule set forth as
Exhibit A hereto. For the month and year in which this Agreement
becomes effective or terminates, there shall be an appropriate proration
on the basis of the number of days that this Agreement is in effect during
such month and year, respectively.
3. Investment in Fund Stock. The Investment Manager
agrees that it will not make a short sale of any capital stock of the Fund,
or purchase any share of the capital stock of the Fund.
4. Non-Exclusivity of Services. Nothing herein shall be
construed as prohibiting the Investment Manager or any of its affiliates
from providing investment advisory services to, or entering into
investment advisory agreements with, any other clients (including other
registered investment companies), including clients which may invest in
Chinese equity securities, so long as the Investment Managers services to
the Fund pursuant to this Agreement are not materially impaired thereby.
The Investment Manager is not obligated to purchase or sell for the Fund
any security which the Investment Manager or its affiliates may purchase
or sell for their own accounts or other clients.
5. Standard of Care; Indemnification. The Investment
Manager may rely on information reasonably believed by it to be
accurate and reliable. Neither the Investment Manager nor its officers,
directors, employees, agents or controlling persons (as defined in the
0000 Xxx) shall be subject to any liability for any act or omission, error
of judgment or mistake of law, or for any loss suffered by the Fund, in
the course of, connected with or arising out of any services to be
rendered hereunder, except by reason of willful misfeasance, bad faith or
gross negligence on the part of the Investment Manager in the
performance of its duties or by reason of reckless disregard on the part of
the Investment Manager of its obligations and duties under this
Agreement. Any person, even though also employed by the Investment
Manager, who may be or become an employee of the Fund shall be
deemed, when acting within the scope of his employment by the Fund, to
be acting in such employment solely for the Fund and not as an
employee or agent of the Investment Manager. In no event will the
Investment Manager have any responsibility under this Agreement for
any portion of the Fund other than the Investment Managers Direct
Investments or for the acts or omissions of any other manager of direct
investments for the Fund or any other adviser of the Fund. In particular,
the Investment Manager shall have no responsibility for the Funds being
in violation of any applicable law or regulation or investment policy or
restriction or instruction applicable to the Fund as a whole or for the
Funds failing to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the Code), if the Funds
holding of the Investment Managers Direct Investments is such that the
Investment Managers Direct Investments would not be in such violation
or if the Fund would not fail to qualify if the Investment Managers Direct
Investments were deemed a separate series of the Fund or a separate
regulated investment company under the Code.
The Fund agrees to indemnify and hold harmless the Investment
Manager, its officers, directors, employees, agents, shareholders,
controlling persons or other affiliates (each an Indemnified Party), for
any losses, costs and expenses incurred or suffered by any Indemnified
Party arising from any action, proceeding or claims which may be
brought against such Indemnified Party in connection with the
performance or non-performance in good faith of its functions under this
Agreement, except losses, costs and expenses resulting from willful
misfeasance, bad faith or gross negligence in the performance of such
Indemnified Partys duties or from reckless disregard on the part of such
Indemnified Party of such Indemnified Partys obligations and duties
under this Agreement.
6. Allocation of Charges and Expenses.
(a) The Investment Manager shall assume and pay for
maintaining its staff and personnel, and shall at its own expense provide
the equipment, office space and facilities, necessary to perform its
obligations hereunder. The Investment Manager shall pay the salaries
and expenses of such of the Funds officers and employees and any fees
and expenses of such of the Funds Directors who are directors, officers
or employees of the Investment Manager or any of its affiliates,
provided, however, that the Fund, and not the Investment Manager, shall
bear travel expenses or an appropriate fraction thereof of Directors and
officers of the Fund who are directors, officers or employees of the
Investment Manager to the extent that such expenses relate to attendance
at meetings of the Board of Directors of the Fund or any committee
thereof and provided, further, that such expenses are incurred in
accordance with the Funds travel policy.
(b) In addition to the fee of the Investment Manager under
this Agreement, the Fund shall assume and pay the following expenses:
fees of the Investment Manager under the Listed Agreement; fees of any
manager of the Funds direct investments other than the Investment
Managers Direct Investments; legal fees and expenses of counsel to the
Fund; auditing and accounting expenses; taxes and governmental fees;
New York Stock Exchange listing fees; dues and expenses incurred in
connection with membership in investment company organizations; fees
and expenses of the Funds custodian, sub-custodian, transfer agents and
registrars; fees and expenses with respect to administration, except as
may be herein expressly provided otherwise; expenses for portfolio
pricing services by a pricing agent, if any; expenses of preparing share
certificates and other expenses in connection with the issuance, offering
and underwriting of shares issued by the Fund; expenses relating to
investor and public relations; expenses of registering or qualifying
securities of the Fund for public sale; freight, insurance and other charges
in connection with the shipment of the Funds portfolio securities;
brokerage commissions or other third-party costs of acquiring or
disposing of any portfolio holding of the Fund; expenses of preparation
and distribution of reports, notices and dividends to shareholders;
expenses of the Funds dividend reinvestment and cash purchase plan;
costs of stationery; any litigation expenses; and costs of stockholders and
other meetings.
(c) The Investment Manager shall cause to be filed with the
SEC as soon as reasonably practicable an application for an exemption
pursuant to Section 17(d) and Rule 17d-1 under the 1940 Act from
Section 17(d) and Rule 17d-1 with respect to the investments by the
Fund in direct investments together with the other clients of the
Investment Manager, and the Investment Manager shall use reasonable
efforts in attempting to have the SEC issue an exemptive order with
respect to such application, including filing with the SEC one or more
amendments to such application. The Fund shall pay 50% of the
reasonable out-of-pocket expenses incurred by the Investment Manager
in seeking such exemptive order. The parties agree that, if the exemptive
order is issued, the Investment Manager shall not be required to apply the
exemptive order if it is subject to conditions that are materially onerous
and which will operate to the detriment of any of Xxxxxx Curries clients.
For the purposes of this paragraph, the expression materially onerous
shall mean conditions that are not contained in the majority of similar
exemptive orders previously issued by the SEC as at the date of this
Agreement.
7. Potential Conflicts of Interest.
(a) Subject to applicable statutes and regulations, it is
understood that directors, officers or agents of the Fund are or may be
interested in the Investment Manager as directors, officers, employees,
agents, shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Investment Manager may be
interested in the Fund as a director, officer, agent or otherwise.
(b) If the Investment Manager considers the purchase or sale
of direct investments for the Fund and/or other advisory clients of the
Investment Manager, transactions in such direct investments will be
made for the Fund and/or such other clients in accordance with the
Investment Managers allocation procedures for direct investments, as
may be amended from time to time and approved by the Board of
Directors of the Fund.
8. Compliance with FSA requirements. In order for the
Investment Manager to comply with the requirements of the FSA, the
Fund and the Investment Manager will execute a Terms of Business
Letter, as such term is defined under the FSA rules. The Terms of
Business Letter will serve as the Funds acknowledgement that the
Investment Manager has made to the Fund certain prescribed disclosures
as required by the FSA.
9. Duration and Termination.
(a) This Agreement shall be effective for a period of two
years from the date hereof and will continue in effect from year to year
thereafter, provided that such continuance is specifically approved at
least annually by (i) a majority of the members of the Funds Board of
Directors who are neither parties to this Agreement nor interested
persons of the Fund or of the Investment Manager or of any entity
regularly furnishing investment advisory services with respect to the
Fund pursuant to an agreement with the Investment Manager, cast in
person at a meeting called for the purpose of voting on such approval,
and (ii) separately by the Funds Board of Directors (all Directors voting)
or by vote of a majority of the Funds outstanding voting securities.
(b) This Agreement may nevertheless be terminated at any
time, without payment of penalty by the Investment Manager or by the
Fund acting pursuant to a vote of its Board of Directors or by vote of a
majority of the Funds outstanding securities upon sixty (60) days written
notice. This Agreement shall automatically be terminated in the event of
its assignment, provided, however, that a transaction which does not, in
accordance with the 1940 Act, result in a change of actual control or
management of the Investment Managers business shall not be deemed to
be an assignment for the purposes of this Agreement. This Agreement
shall also be automatically terminated if the Investment Manager ceases
to be a member of the FSA or any successor organization. In addition,
this Agreement shall be terminated upon proper notice if the Investment
Manager is required to terminate the Agreement on the FSAs
instructions.
(c) Termination of this Agreement shall not (i) affect the
right of the Investment Manager to receive payments of any unpaid
balance of the compensation described in Section 2 earned prior to such
termination, or (ii) extinguish the Investment Managers right of
indemnification under Section 5.
As used herein, the terms interested person, assignment, and
vote of a majority of the outstanding voting securities shall have the
meanings set forth in the 1940 Act.
10. Amendment. This Agreement may be amended by
mutual agreement if required by the 1940 Act or other applicable law,
provided, that, any such amendment shall only become effective after the
affirmative vote of (i) the holders of a majority of the outstanding voting
securities of the Fund, and (ii) a majority of the members of the Funds
Board of Directors who are not interested persons of the Fund or of the
Investment Manager, cast in person at a meeting called for the purpose of
voting on such approval.
11. Governing Law. This Agreement shall be governed by
and 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.
12. Notices. Any communication hereunder must be in
writing and must be made by letter, telex or facsimile. Any
communication or document to be made or delivered by one person to
another pursuant to this Agreement shall (unless that other person has by
fifteen (15) days notice to the other specified another address) be made
or delivered to that other person at the following relevant address:
If to the Investment Manager:
Xxxxxx Xxxxxx Inc.
Saltire Court
00 Xxxxxx Xxxxxxx
Xxxxxxxxx
XX00XX
Attention: Xxxxx Xxxxxxxxxxx
Telephone No.: 00-000-000-0000
Facsimile No.: 00-000-000-0000
With copies to:
Ropes and Xxxx
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, XX 00000
Attention: X.X. Xxxxxxxxx, Xx.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
If to the Fund:
The China Fund, Inc.
x/x Xxxxx Xxxxxx Xxxx and Trust Company
X.X. Xxx 0000
Xxxxxx, XX 00000
Attention: Xxxx Xxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
With copies to:
Xxxxxxxx Chance US LLP
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
and shall, if made by letter, be deemed to have been received when
delivered by hand or if sent by mail within two days if both the sender
and the addressee are in Edinburgh and within 10 days if the sender
and/or the addressee are outside Edinburgh and the letter is sent by
prepaid airmail, and shall if made by e-mail be deemed to have been
received upon production of a read receipt, and shall, if sent by facsimile,
be deemed to have been received upon production of a transmission
report by the machine from which the facsimile was sent which indicates
that the facsimile was sent in its entirety to the facsimile number of the
recipient and provided that a hard copy of the notice so served by
facsimile was posted that same days as the notice was served by
electronic means.
13. Jurisdiction. Each party hereto irrevocably agrees that
any suit, action or proceeding against either of the Investment Manager
or the Fund arising out of or relating to this Agreement shall be subject
exclusively to the jurisdiction of the United States District Court for the
Southern District of New York or the Supreme Court of the State of New
York, New York County, and each party hereto irrevocably submits to
the jurisdiction of each such court in connection with any such suit,
action or proceeding. Each party hereto waives any objection to the
laying of venue of any such suit, action or proceeding in either such
court, and waives any claim that such suit, action or proceeding has been
brought in an inconvenient forum. Each party hereto irrevocably
consents to service of process in connection with any such suit, action or
proceeding by mailing a copy thereof in English by registered or certified
mail, postage prepaid, to their respective addresses as set forth in the
Agreement.
14. Representation and Warranty of the Investment
Manager. The Investment Manager represents and warrants that it is
duly registered as an investment adviser under the U.S. Investment
Advisers Act of 1940, as amended, and duly licensed by the FSA and
that it will use its reasonable efforts to maintain effective such
registration and license during the term of this Agreement.
15. Representation and Warranty of the Fund. The Fund
represents and warrants that it has full legal right to enter into this
Agreement and to perform the obligations hereunder and that it has
obtained all necessary consents and approvals to enter into this
Agreement.
16. Provision of Certain Information by the Fund. The Fund
shall furnish the Investment Manager with copies of the Funds Articles
of Incorporation, By-laws and Registration Statement on Form N-2, as
amended or restated from time to time, any press releases made by the
Fund and any reports made by the Fund to its stockholders, as soon as
practicable after such documents become available. The Fund shall not
be bound by the terms of these documents until delivered to the
Investment Manager in accordance with Section 11 herein. The Fund
shall furnish the Investment Manager with any further documents,
materials or information that the Investment Manager may reasonably
request to enable it to perform its duties pursuant to this Agreement.
17. Press Releases, Reports, Other Disclosures. Any
reports, press releases or other disclosures made by the Fund which
contain statements of the Investment Manager about the Investment
Manager or about the management of assets by the Investment Manager
shall be subject to the prior approval of the Investment Manager.
18. Severability. If any provision of the Agreement is
determined by a court of competent jurisdiction to be invalid or
unenforceable, such finding shall not affect the validity or enforceability
of the remaining portions of this Agreement.
19. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
20. Captions. The captions in this Agreement are included
for convenience of reference only and in no way define any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have executed this
Agreement by their officers thereunto duly authorized as
of the day and year first written above.
THE CHINA FUND,INC.
By: /s/Xxxx X. Xxxxxx
Name: Xxxx X. Xxxxxx
Title: President
XXXXXX XXXXXX INC.
By: /s/Xxxxx Xxxxxxxxxxx
Name: Xxxxx Xxxxxxxxxxx
Title: Vice President
EXHIBIT A
The Investment Manager shall receive a fee for its services under
the Agreement, computed weekly and payable monthly, at the annual
rate of 2.00% of the average weekly value of the Funds assets invested in
the Investment Managers Direct Investments.
The net asset value of Investment Managers Direct Investments
shall be determined in the manner provided in the Funds Prospectus.
