1
EXHIBIT 10.4
INVESTMENT ADVISORY AGREEMENT
AGREEMENT, made as of the day of , 1997, by and between
ORACLE REINSURANCE COMPANY LTD., a Bermuda composite insurer (the "Company") and
ACORN ADVISORY CAPITAL L.P., a Delaware limited partnership (the "Investment
Advisor").
WITNESSETH
WHEREAS, the Company desires to retain the Investment Advisor to render
investment management services to the Company, and the Investment Advisor is
willing to render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. APPOINTMENT OF INVESTMENT ADVISOR
The Company hereby appoints the Investment Advisor to act as investment
manager to exercise exclusively investment decision-making authority on behalf
of the Company, for the period and on the terms set forth in this Agreement. The
Investment Advisor accepts such appointment and agrees to render the services
set forth herein for the compensation provided herein.
2. DUTIES OF INVESTMENT ADVISOR
The Investment Advisor shall invest and manage the assets (including cash)
of the Company through investments made directly by the Investment Advisor
and/or through the allocation of the Company's assets by the Investment Advisor
among a number of money managers (the "Money Managers"). The Investment Advisor
and such Money Managers shall have discretion to employ various trading
strategies and techniques, through discretionary account management or in
investment vehicles managed by such Money Managers.
In connection with its obligations hereunder and without limiting the
generality of the foregoing, the Investment Advisor will have the authority for
and in the name of the Company, to:
(a) subject to Section 4 hereof, purchase, sell (including short
sales) and trade in, on margin or otherwise, listed and unlisted U.S. and
non-U.S. capital stock, warrants, bonds, notes, debentures, government
obligations, partnership interests and similar financial instruments,
repurchase and resale agreements, futures and forward contracts,
commodities, currencies, options, swap agreements and other securities of
whatever kind or nature (collectively, "Securities");
(b) purchase, hold, sell, transfer, exchange, mortgage, pledge,
hypothecate and otherwise act to acquire and dispose of and exercise all
rights, powers, privileges, and other incidents of ownership or possession
with respect to Securities held or owned by the Company;
(c) purchase Securities for investment and to make such
representations to the seller of such Securities, and to other persons,
that the Investment Advisor may deem proper in such circumstances,
including the representation that such Securities are purchased by the
Company for investment and not with a view to their sale or other
disposition;
(d) borrow or raise monies from time to time without limit as to
amount or manner and time of repayment, and to issue, accept, endorse and
execute promissory notes or other evidences of indebtedness, and to secure
the payment of any such borrowings, and of the interest thereon, by
mortgage upon or pledge, conveyance or assignment in trust of the whole or
any part of the properties of the Company whether at the time owned or
thereafter required;
(e) lend any of the properties which are from time to time owned or
held by the Company;
2
(f) issue orders and directions to any bank at which the Company
maintains a general account with respect to the disposition and application
of monies or Securities of the Company from time to time held by such bank;
(g) open, maintain, conduct and close accounts, including margin
accounts, with any broker, dealer or investment concern, to issue orders
and directions to any broker, dealer or investment concern at which the
Company maintains an account with respect to the disposition and
application of monies or Securities of the Company from time to time held
by such broker, dealer or investment concern, and to incur on behalf of the
Company, brokerage commissions which may be in excess of the lowest rates
available and which are paid to brokers who execute transactions for the
account of the Company and who provide brokerage services (e.g., research
ideas, investment strategies and clearance settlement and custodial
services), provided that in employing such brokers, the "best execution" is
obtained, taking into account the research and execution capabilities of
the brokers and their financial stability and reputation, and the
Investment Advisor does not pay a rate of commissions in excess of what is
competitively available from comparable brokerage firms;
(h) select the Money Managers who will be used to invest the assets of
the Company, and determine the amount of the Company's assets to be
allocated to each Money Manager, it being understood that the Investment
Advisor itself shall not be considered a Money Manager hereunder; and
(i) negotiate on behalf of the Company the compensation to be paid to
each Money Manager on a case by case basis, with such compensation being
based on the assets of the Company allocated to such Money Manager and/or a
percentage of profits earned, to enter into investment management
agreements or similar arrangements and to agree to indemnification
provisions in such investment management or other similar agreements (the
form of which will be subject to approval by the Board of Directors of the
Company) with such Money Managers on behalf of the Company and to delegate
to such Money Managers the authority of the Investment Advisor to invest
and manage the Company's assets as described herein.
3. INVESTMENT ADVISOR PERFORMANCE
The Investment Advisor shall use its best judgment in the performance of
its duties under this Agreement, and in doing so, it shall act in conformity
with the Memorandum of Association of the Company.
4. LIMITATIONS ON INVESTMENT ADVISOR ACTIVITIES
Notwithstanding anything in this Agreement to the contrary, the Investment
Advisor hereby agrees that:
(a) it will perform its duties hereunder in such a manner that the
Company will be treated as an investor or trader in securities for its own
account and not as a dealer in securities. For this purpose, "dealer" means
a merchant of securities who in the ordinary course of business is engaged
as a merchant in purchasing securities and selling them to customers with a
view to the gains and profits that may be derived therefrom;
(b) it will not invest any of the Company's assets in any entity that
is treated for U.S. federal income tax purposes both (i) as a partnership
or trust and (ii) as being engaged in a trade or business within the United
States within the meaning of Section 864(b) of the Internal Revenue Code of
1986, as amended; and
(c) if it delegates any of its responsibilities hereunder to any other
person (including any Money Manager), it will require any such person to
agree to comply with the provisions of this Section 4.
5. REPORTS
The Investment Advisor shall render to the Company such periodic or special
reports as may reasonably be requested by the Company.
3
6. REMUNERATION
(a) For the services provided pursuant to this Agreement, the Company shall
pay to the Investment Advisor as full compensation therefor a quarterly fee,
payable at the beginning of each calendar quarter, equal to 0.125% of the
Company's assets managed by the Investment Advisor as of the first business day
of each such quarter (it being understood that the fee payable in respect of the
period between the date hereof and the end of the current calendar quarter shall
be pro rated on the basis of the number of days during such period). The
Investment Advisor's fee shall be paid to the Investment Advisor within 10 days
of the computation of the Company's assets managed by the Investment Advisor.
(b) In the event that any Money Manager is affiliated with the Investment
Advisor, any compensation received by the Investment Advisor or its affiliates
in connection with amounts invested with such affiliated Money Manger shall be
waived or paid over by the Investment Advisor to the Company. For purposes of
this paragraph, "affiliated with" shall mean, with respect to one entity, an
entity which either controls, is controlled by or is under common control with
such entity.
(c) The Investment Advisor hereby waives its remuneration for a period of
two years from the date of this Agreement. The Investment Advisor has the right
to defer payment of its remuneration until such time as the Investment Advisor
notifies the Company to make payment. The amount of the fees which the
Investment Advisor elects to defer will be invested by the Company in the same
manner as the Company's other assets. Thus, the Investment Advisor will
effectively participate in the investment performance of the Company to the
extent it elects to defer its fee.
7. EXPENSES
(a) During the term of this Agreement, except as provided in Section 7(b),
the Investment Advisor shall bear its own expenses in connection with its
activities under this Agreement (including without limitation the compensation
of all of its partners and employees, rent and utility expenses associated with
its facilities and cost and expenses incurred by it in conjunction with the
identification, selection and monitoring of the Money Managers).
(b) The Company will pay any brokerage commissions, custodial fees and
other expenses payable in connection with the investments made on behalf of the
Company, any fees payable to the Investment Advisor and any fees, costs and
expenses payable to the Money Managers. The Company shall also bear full
responsibility for, other operations and expenses not related to functions
assumed by the Investment Advisor hereunder.
8. LIABILITY AND INDEMNIFICATION OF INVESTMENT ADVISOR
(a) Neither the Investment Advisor nor any of its employees, agents and
other representatives, nor its general partner and limited partners, nor any of
their officers, directors, shareholders, employees, agents and other
representatives (each an "Indemnified Person") shall be liable to the Company
(i) for mistakes of judgment or for action or inaction or for all costs,
expenses or losses due to such mistakes, action or inaction so long as said
person acted honestly and in good faith and reasonably believed that his conduct
was in the best interest of the Company, or (ii) for its costs, expenses or
losses due to the negligence, dishonesty or bad faith of any broker or agent of
the Company selected, engaged or retained by the Investment Advisor or an
Indemnified Person, provided that the Indemnified Person exercised reasonable
care in selecting, engaging or retaining such broker or agent. The Indemnified
Person may consult with counsel and accountants in respect of Company affairs
and be fully protected and justified in any action or inaction which is taken in
accordance with the advice or opinion of such counsel or accountants, provided
that they shall have been selected with reasonable care. Notwithstanding any of
the foregoing to the contrary, the provisions of this Section 8(a) shall not be
construed to relieve (or attempt to relieve) the Indemnified Person of any
liability, to the extent (but only to the extent) that such liability may not be
waived, modified or limited under applicable law, but shall be construed so as
to effectuate the provisions of this Section 8(a) to the fullest extent
permitted by law.
4
(b) The Company shall indemnify and hold harmless each Indemnified Person,
in the absence of bad faith, willful misconduct or gross negligence, for all
costs, losses, damages, expenses, liabilities, judgments, fines, amounts paid in
settlement and reasonable expenses (including attorney's fees incurred by the
Indemnified Person as the result of any action, suit or proceeding against the
Indemnified Person) incurred in connection with or arising out of, directly or
indirectly, the performance by the Investment Advisor of its obligations and
duties under this Agreement. The Company shall advance to any Indemnified Person
reasonable attorney's fees and other costs and expenses incurred in connection
with the defense of any action or proceeding arising out of such conduct. In the
event that such an advance is made by the Company, the Indemnified Person shall
agree to reimburse the Company for such fees, costs and expenses to the extent
that he, she or it was not entitled to indemnification under this Section 8.
9. TERM AND TERMINATION
This Agreement shall become effective on the date hereof and shall remain
in full force and effect until December 31, 1998 and shall thereafter be
automatically renewed for successive two-year terms, unless terminated with 60
days' written notice given by the Company or the Investment Advisor prior to the
end of the term then in effect. This Agreement shall not be modified except in
writing, nor assigned by either party without the consent of the other party.
10. INDEPENDENT CONTRACTOR STATUS
The Investment Advisor shall for all purposes herein be deemed to be an
independent contractor and shall have no authority except as otherwise expressly
provided herein, to act for or represent the Company in any way or otherwise be
deemed to be an agent of the Company.
11. NON-EXCLUSIVITY
Nothing in this Agreement shall limit or restrict the right of the
Investment Advisor, its employees or its general or limited partners, or any of
their shareholders, directors, officers, employees, agents or other
representatives to engage in any other business or to devote his, her or its
time and attention in part to any other business. The Investment Advisor, its
employees, its general or limited partners, or any of their shareholders,
directors, officers, employees, agents or other representatives may render
services similar to those described in this Agreement for other individuals or
entities, and shall not, by reason of engaging in other businesses or rendering
services for others, be deemed to be acting in conflict with the interests of
the Company. The Investment Advisor, its employees or its general or limited
partners (and their respective shareholders, directors, officers and employees)
may be, directly or indirectly, shareholders of the Company, but shall not be
deemed thereby to have interests which are in conflict with the interests of the
Company.
12. NOTICES
Notices of any kind to be given to the Investment Advisor by the Company
shall be in writing and shall be duly given if mailed or delivered to the
Investment Advisor at 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention:
Xxxxxx Xxxxxxxxxx, or at such other address or to such other individuals as
shall be specified by the Investment Advisor to the Company in accordance with
this paragraph 12. Notices of any kind to be given to the Company by the
Investment Advisor shall be in writing and shall be duly given if mailed or
delivered to the Company at Xxxxxxx Xxxxx, Xxxxxx Xxxxxx, Xxxxxxxx XX00 Xxxxxxx,
Attention: Secretary, or at such other address or to such other individual as
shall be specified by the Company to the Investment Advisor in accordance with
this paragraph 12.
14. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the conflict of laws provisions
thereof.
5
15. CONFIDENTIALITY
All investment advice furnished by the Investment Advisor to the Company
shall be treated as confidential and shall not be disclosed to third parties by
the Company except as required by law.
16. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the date hereinabove written.
ORACLE REINSURANCE COMPANY LTD.
By
------------------------------------
Name:
Title:
ACORN ADVISORY CAPITAL, L.P.
By
------------------------------------
Name:
Title:
