FORM OF
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this 1st day of [December], 2002 by and
between Mercantile Capital Advisors, Inc., a Maryland corporation, in its
role as Manager (the "Manager") of the Mercantile Small Cap Manager 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 (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") which 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
"Subadvisers"). 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 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.
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(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.
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. Lability 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.
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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 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
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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 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.
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.
AGIO ALTERNATIVE ASSETS, LLC
___________________________________________
By:
Title:
MERCANTILE CAPITAL ADVISORS, INC.
___________________________________________
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 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
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five years after the end of the fiscal year in which the
report is made or the information is provided;
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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