Exhibit (k)(5)
ADDITIONAL COMPENSATION AGREEMENT
February [ ], 2005
Xxxxx Xxxxx Management
000 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Ladies and Gentlemen:
Reference is made to the Purchase Agreement dated February [ ], 2005 (the
"Purchase Agreement"), by and among Xxxxx Xxxxx Short Duration Diversified
Income Fund (the "Fund"), a closed-end management investment company (the
"Fund"), Xxxxx Xxxxx Management ("Xxxxx Xxxxx" or the "Adviser"), and each of
the respective Underwriters named therein, with respect to the issue and sale of
the Fund's common shares of beneficial interest, par value $.01 per share (the
"Common Shares"), as described therein. Reference is also made to (i) the
Investment Advisory Agreement, dated [ ], 2005 (the "Advisory Agreement")
between Xxxxx Xxxxx and the Fund and (ii) the registration statement on Form N-2
regarding the Common Shares of the Fund (the "Registration Statement").
Capitalized terms used herein and not otherwise defined shall have the meanings
given to them in the Purchase Agreement.
The Adviser hereby confirms its agreement with UBS Securities LLC ("UBS
Securities") with respect to the additional compensation referred to in the
"Underwriting" section of the Registration Statement, payable by the Adviser to
UBS Securities. The Adviser agrees to pay to UBS Securities additional
compensation (the "Additional Compensation") as provided for in Section 3
hereof; provided, however, that such Additional Compensation shall not exceed an
amount equal to 0.15% of the Fund's average total leveraged assets attributable
to the Common Shares sold by UBS Securities in the offering; provided further,
that if investment leverage exceeds 40% of the Fund's total leveraged assets,
UBS Securities will not receive a fee on total leveraged assets attributable to
Common Shares sold by UBS Securities in excess of this amount; and provided,
further, that such payments shall not exceed the "Maximum Additional
Compensation Amount" (as defined in Section 4 hereof). The Additional
Compensation shall be payable as set forth in Section 3 hereof.
SECTION 1. Additional Compensation.
(a) Within 60 days following the Closing Date, UBS Securities shall
prepare or cause to be prepared and provide to the Adviser a chart indicating
the aggregate purchase price to the public of the Common Shares sold by UBS
Securities and the Pro Rata Percentage (as defined in Section 2 hereof) of UBS
Securities that shall be appended as Schedule A to this Additional Compensation
Agreement. Such Schedule A shall be prepared in good faith by UBS Securities and
subject to verification by the Adviser.
(b) The Adviser hereby employs UBS Securities, for the period and on the
terms and conditions set forth herein, to provide the following services at the
reasonable request of the Adviser:
(i) after-market support services designed to maintain the
visibility of the Fund on an ongoing basis;
(ii) relevant information, studies or reports regarding general
trends in the closed-end investment companies and asset management industries,
if reasonably obtainable, and consult with representatives of the Adviser in
connection therewith; and
(iii) information to and consult with the Adviser with respect to
applicable strategies designed to address market value discounts, if any, with
respect to the Fund.
SECTION 2. Pro Rata Percentage. UBS Securities shall be assigned a "Pro
Rata Percentage," the numerator of which shall equal the aggregate purchase
price to the public of the Common Shares sold by UBS Securities as set forth on
Schedule A hereto and the denominator of which shall equal the aggregate
purchase price to the public of all of the Common Shares purchased by the
Underwriters pursuant to the Purchase Agreement.
SECTION 3. Payment of Additional Compensation.
(a) The Adviser shall pay the Additional Compensation, quarterly in
arrears, to UBS Securities in an amount equal to the product of UBS Securities'
Pro Rata Percentage multiplied by 0.025% of the average weekly total leveraged
assets of the Fund for such quarter.
(b) All fees payable hereunder shall be paid to UBS Securities by wire
transfer of immediately available funds within 15 days following the end of each
calendar quarter to a bank account designated by UBS Securities. At the time of
each payment of Additional Compensation hereunder, the Adviser shall deliver to
UBS Securities a statement indicating the amount of the aggregate average total
leveraged assets of the Fund for such quarter (including assets attributable to
any preferred shares of the Fund that may be outstanding) on which such payment
was based.
(c) The initial payments of Additional Compensation hereunder shall be
paid with respect to the calendar quarter ending March 31, 2005. In the event
that this Additional Compensation Agreement terminates prior to the end of a
calendar quarter, the Additional Compensation required to be paid hereunder
shall be due and payable within 15 days following the termination hereof and
shall be pro-rated in respect of the period prior to such termination.
Notwithstanding the foregoing, if any payment hereunder would otherwise fall on
a day which is not a business day, it shall be due on the next day which is a
business day. All fees payable hereunder shall be in addition to any fees paid
by the Adviser pursuant to the Purchase Agreement.
SECTION 4. Maximum Additional Compensation Amount. The "Maximum Additional
Compensation Amount" payable by the Adviser hereunder shall be [ ]% of the
aggregate offering price of the Common Shares. The sum total of these fees, the
transaction processing fee payable by the Adviser to Xxxxxxx Lynch, Pierce,
Xxxxxx & Xxxxx Incorporated in the amount of $8,177, plus the amount of the
expense reimbursement of $.00667 per common share payable by the Fund to the
Underwriters pursuant to the Purchase Agreement shall not exceed 4.5% of the
total price of the Fund's common shares offered by the Prospectus. The sum
total of all compensation to the Underwriters in connection with the public
offering of the common shares of the Fund, including sales load and all forms
of additional compensation to the Underwriters, shall not exceed 9.0% of the
total price of the Fund's common shares offered by the Prospectus.
SECTION 5. Term. This Additional Compensation Agreement shall continue
coterminously with and so long as the Advisory Agreement remains in effect
between the Fund and Xxxxx Xxxxx, or any similar investment management agreement
with a successor in interest or affiliate of Xxxxx Xxxxx remains in effect, as
and to the extent that such investment management agreement is renewed
periodically in accordance with the Investment Company Act of 1940, as amended.
This Additional Compensation Agreement shall terminate on the earliest to occur
of (a) with respect to UBS Securities, the payment by the Adviser to UBS
Securities of the Maximum Additional Compensation Amount, (b) with respect to
the Fund, the dissolution and winding up of the Fund and (c) with respect to
Xxxxx Xxxxx, the date on which the Advisory Agreement or other investment
management agreement between the Fund and Xxxxx Xxxxx or any successor in
interest to Xxxxx Xxxxx, including but not limited to an affiliate of Xxxxx
Xxxxx, shall terminate.
SECTION 6. Except to the extent legally required (after consultation with
UBS Securities and its counsel, if reasonably possible), neither (i) the name of
UBS Securities nor (ii) any advice rendered by UBS Securities to the Adviser or
the Fund in connection with the services performed by UBS Securities pursuant to
this Agreement will be quoted or referred to orally or in writing, or in the
case of (ii),
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reproduced or disseminated, by the Fund or any of its affiliates or any of their
agents, without the prior written consent of UBS Securities, which consent will
not be unreasonably withheld.
SECTION 7. The Adviser will furnish UBS Securities with such information
as UBS Securities believes appropriate to its assignment (all such information
so furnished being the "Information"). The Adviser recognizes and confirms that
UBS Securities (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this Agreement without having assumed responsibility
for independently verifying the same, (b) does not assume responsibility for the
accuracy, completeness or reasonableness of the Information and such other
information and (c) will not make an appraisal of any assets or liabilities
(contingent or otherwise) of the Fund. To the best of the Adviser's knowledge,
the Information to be furnished by the Adviser when delivered, will be true and
correct in all material respects and will not contain any material misstatement
of fact or omit to state any material fact necessary to make the statements
contained therein not misleading. The Adviser will promptly notify UBS
Securities if it learns of any material inaccuracy or misstatement in, or
material omission from, any Information delivered to UBS Securities.
SECTION 8. Not an Investment Adviser. The Advisers acknowledges that UBS
Securities is not providing any advice hereunder as to the value of securities
or regarding the advisability of purchasing or selling any securities for the
Fund. No provision of this Additional Compensation Agreement shall be considered
as creating, nor shall any provision create, any obligation on the part of UBS
Securities, and UBS Securities is not hereby agreeing, to: (i) furnish any
advice or make any recommendations regarding the purchase or sale of portfolio
securities or (ii) render any opinions, valuations or recommendations of any
kind or to perform any such similar services. The Adviser acknowledges and
agrees that UBS Securities has been retained solely to provide the services
specified herein to the Adviser, and not to act as an adviser to any other
person, and the Adviser's engagement of UBS Securities is not intended to confer
rights upon any person (including the Fund or shareholders, employees or
creditors of the Adviser or the Fund) not a party hereto as against UBS
Securities or its affiliates, or their respective directors, officers, employees
or agents, successors, or assigns. UBS Securities shall act as an independent
contractor under this Agreement, and not in any other capacity including as a
fiduciary, and any duties arising out of its engagement shall be owed solely to
the Adviser.
SECTION 9. Not Exclusive. Nothing herein shall be construed as prohibiting
UBS Securities or its respective affiliates from acting as such for any other
clients (including other registered investment companies or other investment
advisers).
SECTION 10. No Liability. The Adviser agrees that UBS Securities shall not
have liability to the Adviser or the Fund for any act or omission to act by UBS
Securities in the course of its performance under this Additional Compensation
Agreement, in the absence of gross negligence or willful misconduct on the part
of UBS Securities. The Adviser agrees to indemnify and hold harmless UBS
Securities and its respective officers, directors, agents and employees against
any loss or expense arising out of or in connection with UBS Securities'
performance under this Additional Compensation Agreement. This provision shall
survive the termination, expiration or supersession of this Additional
Compensation Agreement.
SECTION 11. Assignment. This Additional Compensation Agreement may not be
assigned by any party without the prior written consent of each other party.
SECTION 12. Amendment; Waiver. No provision of this Additional
Compensation Agreement may be amended or waived except by an instrument in
writing signed by the parties hereto.
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SECTION 13. Governing Law. This Additional Compensation Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. No claim, counterclaim or dispute of any kind or nature whatsoever arising
out of or in any way relating to this Agreement ("Claim") may be commenced,
prosecuted or continued in any court other than the courts of the State of New
York located in the City and County of New York or in the United States District
Court for the Southern District of New York, which courts shall have exclusive
jurisdiction over the adjudication of such matters, and the Adviser and UBS
Securities consent to the jurisdiction of such courts and personal service with
respect thereto. The Adviser and UBS Securities waive all right to trial by jury
in any proceeding (whether based upon contract, tort or otherwise) in any way
arising out of or relating to this Agreement.
SECTION 14. Counterparts. This Additional Compensation Agreement may be
executed in any number of counterparts, each of which shall be an original, and
all of which, when taken together, shall constitute one agreement. Delivery of
an executed signature page of this Additional Compensation Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement among
Xxxxx Xxxxx and UBS Securities in accordance with its terms.
Very truly yours,
UBS SECURITIES LLC
By: _____________________________________
Name:
Title:
By: _____________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
XXXXX XXXXX MANAGEMENT
By: _______________________________
Name:
Title:
SCHEDULE A
AGGREGATE
NAME OF QUALIFYING PURCHASE PRICE TO PUBLIC PRO RATA
UNDERWRITER OF COMMON SHARES SOLD PERCENTAGE
----------- --------------------- ----------
UBS Securities LLC $[ ]
UBS SECURITIES LLC INDEMNIFICATION AGREEMENT
February [ ], 2005
UBS Securities LLC
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
In connection with the engagement of UBS Securities LLC ("UBS Securities")
to provide the Services to the undersigned (the "Company") as set forth in the
Additional Compensation Agreement dated February [ ], 2005, between the Company
and UBS Securities (the "Agreement"), in the event that UBS Securities becomes
involved in any capacity in any claim, suit, action, proceeding, investigation
or inquiry (including, without limitation, any shareholder or derivative action
or arbitration proceeding) (collectively, a "Proceeding") (i) in connection with
or arising out of any untrue statement or alleged untrue statement of a material
fact contained in information with respect to the Fund made public by or as
authorized by the Fund (except for information regarding UBS Securities itself
that UBS Securities specifically provided to the Fund in writing for inclusion
in such information) or any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or (ii) otherwise in
connection with or arising out of the Agreement or the Services to be provided
thereunder, the Company agrees to indemnify, defend and hold UBS Securities
harmless to the fullest extent permitted by law, from and against any losses,
claims, damages, liabilities and expenses in connection with or arising out of
the Agreement or the Services to be provided thereunder (a "Covered Claim"),
except, in the case of clause (ii) above only, to the extent that it shall be
determined by a court of competent jurisdiction in a judgment that has become
final in that it is no longer subject to appeal or other review, that such
losses, claims, damages, liabilities and expenses resulted solely from the gross
negligence, bad faith or willful misconduct of UBS Securities. In addition, in
the event that UBS Securities becomes involved in any capacity in any Proceeding
which relates to a Covered Claim, the Company will reimburse UBS Securities for
its legal and other expenses (including the reasonable cost of any investigation
and preparation) as such expenses are incurred by UBS Securities in connection
therewith. If such indemnification were not to be available for any reason, the
Company agrees to contribute to the losses, claims, damages, liabilities and
expenses involved (i) in the proportion appropriate to reflect the relative
benefits received or sought to be received by the Company and its stockholders,
on the one hand, and UBS Securities, on the other hand, in the matters
contemplated by the Agreement or (ii) if (but only if and to the extent) the
allocation provided for in clause (i) is for any reason held unenforceable, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) but also the relative fault of the Company and its
stockholders, on the one hand, and the party entitled to contribution, on the
other hand, as well as any other relevant equitable considerations; provided,
that in no event shall the Company contribute less than the amount necessary to
assure that UBS Securities is not liable for losses, claims, damages,
liabilities and expenses in excess of the amount of fees actually received by
UBS Securities pursuant to the Agreement. Relative fault shall be determined by
reference to, among other things, whether any alleged untrue statement or
omission or any other alleged conduct relates to information provided by the
Company or other conduct by the Company (or its employees or other agents), on
the one hand, or by UBS Securities, on the other hand. The Company will not
settle any Proceeding in respect of which indemnity may be sought hereunder,
whether or not UBS Securities is an actual or potential party to such
Proceeding, without UBS Securities's prior written consent. For purposes of this
Indemnification Agreement, UBS Securities shall include UBS Securities LLC, any
of its affiliates, each other person, if any, controlling UBS Securities or any
of its affiliates, their respective officers, current and former directors,
employees and agents, and the successors and assigns of all of the foregoing
persons. The foregoing indemnity and contribution agreement shall be in addition
to any rights that any indemnified party may have at common law or otherwise.
If any Proceeding is brought against UBS Securities in respect of which
indemnity may be sought against the Company pursuant to the foregoing paragraph,
UBS Securities shall promptly notify the Company in writing of the institution
of such Proceeding and the Company shall assume the defense of such Proceeding,
including the employment of counsel reasonably satisfactory to UBS Securities
and payment of all fees and expenses; provided, however, that the omission to so
notify the Company shall not relieve the Company from any liability which the
Company may have to UBS Securities or otherwise, unless and only to the extent
that, such omission results in the forfeiture of substantive rights or defenses
by the Company. UBS Securities shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the expense
of UBS Securities unless the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of such
Proceeding or the Company shall not have, within a reasonable period of time in
light of the circumstances, employed counsel to have charge of the defense of
such Proceeding or UBS Securities shall have reasonably concluded that there may
be defenses available to it which are different from, additional to or in
conflict with those available to the Company (in which case the Company shall
not have the right to direct the defense of such Proceeding on behalf of UBS
Securities), in any of which events such fees and expenses shall be borne by the
Company and paid as incurred (it being understood, however, that the Company
shall not be liable for the expenses of more than one separate counsel (in
addition to any local counsel) in any one Proceeding or series of related
Proceedings in the same jurisdiction). The Company shall not be liable for any
settlement of any Proceeding effected without its written consent but if settled
with the written consent of the Company, the Company agrees to indemnify and
hold harmless UBS Securities from and against any loss or liability by reason of
such settlement. Notwithstanding the foregoing sentence, if at any time UBS
Securities shall have requested the Company to reimburse UBS Securities for fees
and expenses of counsel as contemplated by the second sentence of this
paragraph, then the Company agrees that it shall be liable for any settlement of
any Proceeding effected without its written consent if (i) such settlement is
entered into more than 60 business days after receipt by the Company of the
aforesaid request, (ii) the Company shall not have reimbursed UBS Securities in
accordance with such request prior to the date of such settlement and (iii) UBS
Securities shall have given the Company at least 30 days' prior notice of its
intention to settle.
The Company agrees that neither UBS Securities nor any of its affiliates,
directors, agents, employees or controlling persons shall have any liability to
the Company or any person asserting claims on behalf of or in right of the
Company in connection with or as a result of a Covered Claim, except to the
extent that it shall be determined by a court of competent jurisdiction in a
judgment that has become final in that it is no longer subject to appeal or
other review that any losses, claims, damages, liabilities or expenses incurred
by the Company resulted solely from the gross negligence, bad faith or willful
misconduct of UBS Securities in performing the Services.
THIS INDEMNIFICATION AGREEMENT AND ANY CLAIM, COUNTERCLAIM OR DISPUTE OF
ANY KIND OR NATURE WHATSOEVER ARISING OUT OF OR IN ANY WAY RELATING TO THIS
AGREEMENT ("CLAIM"), DIRECTLY OR INDIRECTLY, SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS SET FORTH BELOW,
NO CLAIM MAY BE COMMENCED, PROSECUTED OR CONTINUED IN ANY COURT OTHER THAN THE
COURTS OF THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK OR IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WHICH
COURTS SHALL HAVE EXCLUSIVE JURISDICTION OVER THE ADJUDICATION OF SUCH MATTERS,
AND THE COMPANY AND UBS SECURITIES CONSENT TO THE JURISDICTION OF SUCH COURTS
AND PERSONAL SERVICE WITH RESPECT THERETO. THE COMPANY HEREBY CONSENTS TO
PERSONAL JURISDICTION, SERVICE AND VENUE IN ANY COURT IN WHICH ANY CLAIM ARISING
OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT IS BROUGHT BY A THIRD PARTY
AGAINST UBS SECURITIES OR ANY INDEMNIFIED PARTY. EACH OF UBS SECURITIES AND THE
COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING OR CLAIM (WHETHER
BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR IN ANY WAY RELATING TO
THIS AGREEMENT. THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY PROCEEDING OR
CLAIM ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT BROUGHT IN ANY
SUCH COURT SHALL BE CONCLUSIVE AND BINDING UPON THE COMPANY AND MAY BE ENFORCED
IN ANY OTHER COURTS TO THE JURISDICTION OF WHICH THE COMPANY IS OR MAY BE
SUBJECT, BY SUIT UPON SUCH JUDGMENT.
The foregoing Indemnification Agreement shall remain in full force and
effect notwithstanding any termination of UBS Securities' engagement. This
Indemnification Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same agreement.
Very truly yours,
XXXXX XXXXX MANAGEMENT
By: ___________________________
Name:
Title:
Accepted and agreed to as of
the date first above written:
UBS SECURITIES LLC
By: ___________________________
By:
Title:
By: ___________________________
By:
Title:
