Exhibit G-1
INVESTMENT MANAGEMENT AGREEMENT
dated as of July 31, 2006
BY AND BETWEEN
SPECIAL VALUE CONTINUATION FUND, LLC,
a Delaware limited liability company
AND
XXXXXXXXXX CAPITAL PARTNERS, LLC,
a Delaware limited liability company
TABLE OF CONTENTS
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Page
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1. General Duties of the Investment Manager..............................1
2. Duties and Obligations of the Investment Manager with Respect
to the Administration of the Company................................3
3. Authority to Bind the Company; No Joint Venture.......................4
4. Limitations Relating to Investments...................................5
5. Brokerage.............................................................7
6. Compensation..........................................................7
7. Expenses..............................................................9
8. Services to Other Companies or Accounts..............................10
9. Duty of Care and Loyalty.............................................10
10. Indemnification......................................................11
11. Term of Agreement; Events Affecting the Investment Manager;
Survival of Certain Terms..........................................12
12. Power of Attorney; Further Assurances................................14
13. Amendment of this Agreement..........................................15
14. Notices..............................................................15
15. Binding Nature of Agreement; Successors and Assigns..................16
16. Entire Agreement.....................................................16
17. Costs and Expenses...................................................16
18. Books and Records....................................................16
19. Titles Not to Affect Interpretation..................................16
20. Provisions Separable.................................................16
21. Governing Law........................................................16
22. Execution in Counterparts............................................17
INVESTMENT MANAGEMENT AGREEMENT
This Investment Management Agreement (the "Agreement"), dated as of
July 31, 2006, is made by and between Special Value Continuation Fund, LLC (the
"Company"), a Delaware limited liability company which will be registered as a
nondiversified closed-end management investment company act under the
Investment Company Act of 1940 (the "1940 Act"), and Xxxxxxxxxx Capital
Partners, LLC (the "Investment Manager"), a Delaware limited liability company
registered as an investment adviser under the Investment Advisers Act of 1940
(the "Advisers Act"). Capitalized terms used but not otherwise defined in this
Agreement shall have the meanings given to them in the Operating Agreement of
the Company dated as of July 31, 2006 (as the same may be amended from time to
time, the "Operating Agreement").
1. General Duties of the Investment Manager.
Subject to the direction and control of the Company's Board of
Directors (the "Board") and subject to and in accordance with the terms of the
Credit Agreement, the Operating Agreement, the Pledge and Intercreditor
Agreement (as defined in the Credit Agreement), the Custodial Agreement (as
defined in the Credit Agreement), the Co-Management Agreement (as defined in
the Credit Agreement), the policies adopted or approved by the Board, the
conditions of any exemptive order obtained by or for the benefit of the Company
from the Securities and Exchange Commission (the "SEC") and this Agreement, the
Investment Manager agrees to supervise and direct the investment and
reinvestment of the Assets and perform the duties set forth herein or in the
Operating Agreement (subject to the approval of the Investment Committee (as
defined in Section 4(a) hereof) to the extent provided in Section 4 hereof),
and shall perform on behalf of the Company those investment and leverage
related duties and functions assigned to the Company or the Investment Manager
in the Credit Agreement, the Pledge and Intercreditor Agreement, the Statements
of Preferences for any Preferred Shares and the Custodial Agreement
(collectively, the "Transaction Documents"), and shall have such other powers
with respect to the investment and leverage related functions of the Company as
shall be delegated from time to time to the Investment Manager by the Board.
The Company has executed the Transaction Documents and the Co-Management
Agreement, and the Investment Manager is hereby granted, and shall have, full
power to take all actions and execute and deliver all necessary and appropriate
documents and instruments on behalf of the Company in accordance with the
Transaction Documents, the Operating Agreement, the policies adopted or
approved by the Board, the conditions of any exemptive order obtained by or for
the benefit of the Company or the Investment Manager from the SEC and this
Agreement. The Investment Manager shall endeavor to comply in all material
respects with the 1940 Act and all rules and regulations thereunder, all other
applicable federal and state laws and regulations and the applicable provisions
of the Transaction Documents in performing its duties under this Agreement.
Subject to the foregoing and the other provisions of this Agreement, and
subject to the decisions of the Investment Committee and the direction and
control of the Board, the Investment Manager is hereby appointed as the
Company's agent and attorney-in-fact with authority to negotiate, execute and
deliver all documents and agreements on behalf of the Company and to do or take
all related acts, with the power of substitution, to acquire, dispose of or
otherwise take action with respect to or affecting the Investments (as defined
in Section 4(b) hereof), including, without limitation:
(a) identifying and originating Investments (defined below) to be
purchased by the Company, selecting the dates for such purchases, and
purchasing or directing the purchase of such Investments on behalf of the
Company;
(b) identifying Investments owned by the Company to be sold by the
Company, selecting the dates for such sales, and selling such Investments on
behalf of the Company;
(c) negotiating and entering into, on behalf of the Company,
documentation providing for the purchase and sale of Investments, including
without limitation, confidentiality agreements and commitment letters;
(d) structuring the terms of, and negotiating, entering into and/or
consenting to, on behalf of the Company, documentation relating to Investments
to be purchased, held, exchanged or sold by the Company, including any
amendments, modifications or supplements with respect to such documentation;
(e) exercising, on behalf of the Company, rights and remedies
associated with Investments, including without limitation, rights to petition
to place an obligor or issuer in bankruptcy proceedings, to vote to accelerate
the maturity of an Investment, to waive any default, including a payment
default, with respect to an Investment and to take any other action which the
Investment Manager deems necessary or appropriate in its discretion in
connection with any restructuring, reorganization or other similar transaction
involving an obligor or issuer with respect to an Investment, including without
limitation, initiating and pursuing litigation;
(f) responding to any offer in respect of Investments by tendering the
affected Investments, declining the offer, or taking such other actions as the
Investment Manager may determine;
(g) exercising all voting, consent and similar rights of the Company
on its behalf and advising the Company with respect to matters concerning the
Investments;
(h) advising and assisting the Company with respect to the valuation
of the Assets;
(i) retaining legal counsel and other professionals (such as financial
advisers) to assist in the structuring, negotiation, documentation,
administration and modification and restructuring of Investments;
(j) providing the Company with such assistance as the Board may
request in processing subscription and/or transfer applications for the
Membership Interests, including assistance in determining whether such
applications and prospective or existing Members of the Company satisfy
applicable requirements under the Operating Agreement; and
(k) if the Portfolio Partnership exists, the Investment Manager will
invest substantially all of the Company's assets for a common limited partner
interest in the Portfolio Partnership.
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2. Duties and Obligations of the Investment Manager with Respect to
the Administration of the Company.
The Investment Manager also agrees to furnish office facilities and
equipment and clerical, bookkeeping and administrative services (other than
such services, if any, provided by the Company's custodian and other service
providers) to the Company. To the extent requested by the Company, the
Investment Manager agrees to provide the following administrative services:
(a) oversee the determination and publication of the Company's net
asset value in accordance with the Company's policy as adopted from time to
time by the Board and communicated to the Investment Manager in writing;
(b) maintain or oversee the maintenance of the books and records of
the Company as required under the 1940 Act and maintain (or oversee maintenance
by other persons) such other books and records required by law or for the
proper operation of the Company;
(c) oversee the preparation and filing of the Company's federal, state
and local income tax returns and any other required tax returns or reports;
(d) review the appropriateness of and arrange for payment of the
Company's expenses;
(e) prepare for review and approval by officers and other Authorized
Signatories of the Company (collectively, the "Authorized Signatories")
financial information for the Company's semi-annual and annual reports and
other communications with shareholders required or otherwise to be sent to
Company shareholders, and arrange for the printing and dissemination of such
reports and communications to shareholders;
(f) prepare for review by the Authorized Signatories and Board of the
Company the Company's periodic financial reports required to be filed with the
SEC on Form N-SAR, Form N-CSR, Form N-PX, Form N-Q and such other reports,
forms and filings, as may be mutually agreed upon or as may be required by law,
the Credit Agreement or any Statement of Preferences;
(g) prepare reports relating to the business and affairs of the
Company as may be mutually agreed upon and not otherwise prepared by others;
(h) make such reports and recommendations to the Board concerning the
performance and fees of any of the Company's service providers as the Board may
reasonably request or deem appropriate;
(i) oversee and review calculations of fees paid to the Company's
service providers;
(j) oversee the Company's portfolio and perform necessary calculations
as required under Section 18 of the 1940 Act;
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(k) consult with the Audit Committee of the Board, the Authorized
Signatories, and the Company's independent accountants, legal counsel,
custodian and other service providers in establishing the accounting policies
of the Company and monitor financial and shareholder accounting services;
(l) review implementation of any share purchase programs authorized by
the Board;
(m) determine the amounts available for distribution as dividends and
distributions to be paid by the Company to its shareholders;
(n) prepare and arrange for the printing of dividend notices to
shareholders;
(o) provide the Company's dividend disbursing agent and custodian with
such information as is required for such parties to effect the payment of
dividends and distributions;
(p) prepare such information and reports as may be required under the
Credit Agreement and by any other banks, if any, from which the Company borrows
funds;
(q) provide such assistance to the Company's custodian, counsel,
auditors and other service providers as generally may be required to properly
carry on the business and operations of the Company;
(r) assist in the preparation and filing of Forms 3, 4, and 5 pursuant
to Section 16 of the Securities Exchange Act of 1934, as amended, and Section
30(h) of the 1940 Act for the officers, Authorized Signatories and directors of
the Company, such filings to be based on information provided by those persons;
(s) respond to or refer to the Company's officers or Authorized
Signatories shareholder (including any potential shareholder) inquiries
relating to the Company; and
(t) supervise any other aspects of the Company's administration as may
be agreed to by the Company and the Investment Manager.
All services are to be furnished through the medium of any directors,
officers, Authorized Signatories or employees of the Investment Manager or its
affiliates as the Investment Manager deems appropriate in order to fulfill its
obligations hereunder.
The Company will reimburse the Advisor or its affiliates for all
out-of-pocket expenses incurred by them in connection with the performance of
the administrative services described in this paragraph 2.
3. Authority to Bind the Company; No Joint Venture.
(a) Except as provided in or pursuant to Sections 1 and 12 hereof, the
Investment Manager shall have no authority to bind or obligate the Company. The
Board shall retain the sole authority to act on behalf of the Company, and all
acts of the Investment Manager (other than as provided in the Transaction
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Documents, the Operating Agreement or in Section 1 or Section 12 hereof with
respect to any Approved Investment) shall require the Board's consent and
approval to bind the Company. Nothing in this Agreement shall be deemed to
create a joint venture or partnership between the parties with respect to the
arrangements set forth in this Agreement. For all purposes hereof, the
Investment Manager shall be deemed to be an independent contractor and, unless
otherwise provided herein or specifically authorized by the Board from time to
time, shall have no authority to act for or represent the Company.
(b) The Investment Manager shall act in conformity with the written
instructions and directions of the Board, except to the extent that authority
has been delegated to the Investment Manager pursuant to the terms of this
Agreement, the Operating Agreement and the Transaction Documents. The
Investment Manager will not be bound to follow any amendment to any Transaction
Document or the Operating Agreement until it has received written notice
thereof and until it has received a copy of the amendment from the Company or
the Administrative Agent (as defined in the Credit Agreement); provided that if
any such amendment materially and adversely affects the rights or duties of the
Investment Manager, the Investment Manager shall not be obligated to respect or
comply with the terms of such amendment unless it consents thereto. Subject to
the fiduciary duty of the Board, the Company agrees that it shall not permit
any amendment to any Transaction Document or the Operating Agreement that
materially and adversely affects the rights or duties of the Investment Manager
to become effective unless the Investment Manager has been given prior written
notice of such amendment and has consented thereto in writing.
(c) The Investment Manager may, with respect to the affairs of the
Company, consult with Babson Capital Management, LLC (the "Co-Manager") and its
Affiliated Persons (collectively, "Babson"), as co-investment manager, and with
such legal counsel, accountants and other advisors as may be selected by the
Investment Manager. The Investment Manager shall be fully protected, to the
extent permitted by applicable law, in acting or failing to act hereunder if
such action or inaction is taken or not taken in good faith by the Investment
Manager in accordance with the advice or opinion of Babson or such counsel,
accountants or other advisors. The Investment Manager shall be fully protected
in relying upon any writing signed in the appropriate manner with respect to
any instruction, direction or approval of any of the Board or Babson and may
also rely on opinions of the Investment Manager's counsel with respect to such
instructions, directions and approvals. The Investment Manager shall also be
fully protected when acting upon any instrument, certificate or other writing
the Investment Manager believes in good faith to be genuine and to be signed or
presented by the proper person or persons. The Investment Manager shall be
under no duty to make any investigation or inquiry as to any statement
contained in any such writing and may accept the same as conclusive evidence of
the truth and accuracy of the statements therein contained if the Investment
Manager in good faith believes the same to be genuine.
4. Limitations Relating to Investments.
(a) Investments Requiring the Investment Committee's Approval. The
Investment Manager will establish an Investment Committee (the "Investment
Committee") comprised initially of 11 persons (such number of members being
subject to increase or decrease at any time in the sole discretion of the
Investment Manager). Six of the persons on the Investment Committee will be
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voting members (such number of voting members being subject to increase or
decrease at any time in the sole discretion of the Investment Manager). Subject
to the following sentence and Section 11(b), all of the voting members of the
Investment Committee will be appointed by the Investment Manager, and initially
such voting members will be Xxxxxxx X. Xxxxxxxxxx, Xxxx X. Xxxxxxxxxx Xxxxxx X.
Xxxxxxxxx, Xxxxxx X. Xxxxx and Xxxx Xxxxxxxxx or such other persons as may be
appointed by the Investment Manager. Except as provided by Section 11(b), one
voting member of the Investment Committee will be appointed by Babson, with the
approval of the Investment Manager. Xxxxxxx X. Xxxxxxx XX shall be Babson's
representative on the Investment Committee until removed or until replaced by
Babson with the approval of the Investment Manager for such replacement.
Additionally, the Investment Manager shall have the right to appoint any number
of non-voting members to the Investment Committee. The Investment Committee
will review and discuss the purchase and sale of all Investments other than
short-term Investments in high quality debt, securities maturing in less than
367 days or investment funds whose portfolios at all times have an effective
duration of less than 367 days and other than hedging and risk management
transactions, and approval by a majority vote of the voting members of the
Investment Committee will be required prior to the purchase or sale of any
Investment required to be reviewed by the Investment Committee. The Company
shall not be bound by any Investment made by the Investment Manager on behalf
of the Company for which the necessary approval has not been obtained.
(b) Investments. Except as otherwise provided in this Section 4 and
subject to the requirements of the Transaction Documents, the Operating
Agreement and applicable law, the Investment Manager may advise the Company
from time to time to purchase:
(i) debt securities or debt obligations, including bank
loans or interests therein ("Debt Obligations");
(ii) stock, warrants or other equity securities
("Securities"); and
(iii) any other investments of any type of asset the Company
is permitted to make (together with Securities and Debt Obligations,
"Investments").
(c) Company is not a Bank. The Investment Manager may not purchase any
Debt Obligation if the related credit agreement, note, indenture or other
documentation by its terms requires any such purchase to be made only by a
bank, savings and loan, thrift, trust company or other similar deposit-taking
institution.
(d) Origination Fees. The Company shall, except to the extent the
Investment Manager determines such sharing could cause the Company to fail to
satisfy any requirement for qualification as a regulated investment company
under Subchapter M of the Code, receive its pro-rata share, measured by the
amount invested or proposed to be invested by the investors in any Investment,
of any origination, structuring, or similar fees normally payable to lenders or
structurers as compensation for services ("Origination or Similar Fees")
payable with respect to any Investment, whether or not any other investment
funds or accounts for which the Investment Manager or its Affiliated Persons
acts as investment adviser (the "Xxxxxxxxxx Accounts") share in such fees.
Notwithstanding anything herein, in the Operating Agreement or in any
Transaction Document to the contrary, to the extent that any Origination or
Similar Fees with respect to the Company's share of such Investment are paid to
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the Investment Manager, Babson or any of their respective Affiliated Persons as
additional compensation, such amount shall be reimbursed to the Company unless
the exception to the preceding sentence is in effect, in which case such amount
shall be paid to the other accounts participating in such Investment or
returned to the party paying such Origination or Similar Fees.
(e) Co-Investments. The Company may not co-invest with any account
managed by the Investment Manager or its Affiliated Persons in any Investment
subject to any exemptive order obtained by or on behalf of the Company, except
(i) to the extent permitted by such exemptive relief, including conditions to
such relief, and (ii) pursuant to any policies and procedures adopted by the
Board with respect to such co-investments and any other applicable provisions
of any Transaction Document, the Operating Agreement and this Agreement.
5. Brokerage.
The Investment Manager shall effect all purchases and sales of
securities in a manner consistent with the principles of best execution, taking
into account net price (including commissions) and execution capability and
other services which the broker or other intermediary may provide. In this
regard, the Investment Manager may effect transactions which cause the Company
to pay a commission in excess of a commission which another broker or other
intermediary would have charged; provided, however, that the Investment Manager
shall have first determined that such commission is reasonable in relation to
the value of the brokerage or research services performed by that broker or
other intermediary or that the Company is the sole beneficiary of the services
paid for by such broker or other intermediary.
6. Compensation.
(a) Subject to the last sentence of this Section 6(a), the Company
agrees to pay to the Investment Manager and the Investment Manager agrees to
accept as partial compensation for all services rendered by the Investment
Manager as such, a fee (the "Management Fee"), payable monthly in arrears at an
annual rate equal to 1.00% of the sum of (i) Net Asset Value of the Company as
of the Closing Date, (ii) the maximum amount available to be borrowed by the
Company and/or the Portfolio Partnership under the Credit Agreement, regardless
of whether the Company and/or the Portfolio Partnership has borrowed any
amounts under the Credit Agreement and (iii) the maximum aggregate liquidation
preference of preferred securities the Company and/or the Portfolio Partnership
would be authorized to issue under the 1940 Act based upon the total Net Asset
Value of the Company as of the Closing Date and assuming that the Company
and/or the Portfolio Partnership has borrowed the maximum amount available to
be borrowed under the Credit Agreement, regardless of whether the Company
and/or the Portfolio Partnership has issued such preferred securities (the sum
of (i) through (iii), as adjusted pursuant to this Section 6(a), being referred
to as the "Management Fee Capital"). At such time as all borrowings under the
Credit Agreement have been repaid and no further borrowings are permitted
thereunder, Management Fee Capital shall be equal to the sum of the Net Asset
Value of the Company as of the Closing Date, plus the aggregate liquidation
preference of preferred securities then outstanding, thereby reducing the
amounts on which the Management Fee is paid. At such time as all borrowings
under the Credit Agreement have been repaid and no further borrowings are
permitted thereunder, and no more than $1,000,000 in liquidation preference of
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preferred securities remains outstanding, Management Fee Capital shall be equal
to the Net Asset Value of the Company as of the Closing Date, thereby further
reducing the amounts on which the Management Fee is paid. The Management Fee
shall be prorated for any partial payment period. The Management Fee payable
pursuant to this Section 6(a) shall be reduced by the amount of management fees
paid to the Investment Manager by the Portfolio Partnership pursuant to Section
6(a) of the Investment Management Agreement dated as of July 1, 2006 between
the Portfolio Partnership and the Investment Manager.
(b) If the Company sells and issues to SVOF/MM, LLC, a company
wholly-owned by the Investment Manager, its affiliates and the Co-Manager, one
or more shares of Series S Preferred Stock (the "Special Share") at a price
equal to its liquidation preference of $1,000 per share, the Company shall not
be obligated to conduct its investment operations through the Portfolio
Partnership or pay the incentive fee determined in accordance with the last
sentence of this Section 6(b). As set forth in the Statement of Preferences for
such Special Share, the Special Share will pay dividends at a rate equal to the
greater of (i) 4% per year of the liquidation preference of such Special Share,
but in no event greater than $40 per year, or (ii) (A) 100% of the amount by
which the cumulative distributions and amounts distributable in respect of the
Common Shares exceed an 8% annual weighted average return on undistributed
capital attributable to the aggregate cost basis of the membership interests in
Special Value Bond Fund II, LLC and Special Value Absolute Return Fund, LLC
redeemed on the Closing Date in exchange for the Common Shares (the "Hurdle")
until the total of (1) the cumulative distributions that had been made in
respect of the Special Share for the time it was outstanding or held by the
Investment Manager or an Affiliated Person thereof and (2) any amounts paid to
the Investment Manager or an Affiliated Person pursuant to the Partnership
Agreement of the Portfolio Partnership equals 25% of the aggregate cumulative
distributions for federal income tax purposes of net income and gain in respect
of the Common Shares (such amounts, the "Catch-up Amount"), and thereafter (B)
an amount (payable at the same time as, and not in advance of, any
distributions in respect of the Common Shares) such that, after payment
thereof, the total of (y) the cumulative distributions that have been made in
respect of the Special Share or an Affiliated Person for the time it was
outstanding or held by the Investment Manager or an Affiliated Person thereof
and (z) any amounts paid to the Investment Manager or an Affiliated Person
thereof pursuant to the Partnership Agreement of the Portfolio Partnership
equals 20% of the aggregate incremental distributions of net income and gain in
respect of the Common Shares and the Special Share. For purposes of calculating
whether the Hurdle has been exceeded and whether the Catch-up Amount has been
paid, the Company's performance will include the performance of SVARF for the
period preceding the Closing Date and the distributions of the Company will
include an amount equal to (x) the portion of SVARF's distributions for the
period preceding the Closing Date attributable to SVARF's investors who are
investors in the Company multiplied by (y) the ratio of the Net Asset Value of
the Company immediately after giving effect to the Closing transactions to such
Net Asset Value attributable to the Common Shares of the Company acquired by
such investors. If the Investment Manager or the Company determines on the
advice of counsel that the sale and issuance of the Special Share or its
Statement of Preferences is inconsistent with the requirements of the 1940 Act
in any material respect and that such inconsistency is unlikely to be able to
be remedied without fundamental alteration of such Statement of Preferences,
the Company and the Investment Manager agree that the Company will repurchase
such share at liquidation preference plus accumulated and unpaid distributions.
If for any reason the Investment Manager or the Company makes the determination
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set forth in the preceding sentence and determines on the advice of counsel
that the profit allocation set forth in the Partnership Agreement of the
Portfolio Partnership would be inconsistent with the requirements of the 1940
Act in any material respect and that such inconsistency would be unlikely to be
able to be remedied without fundamental alteration of such profit allocation
and without having a material adverse effect on any shareholder of the Company,
the Company will pay to the Investment Manager as a fee the amounts computed in
accordance with the second and third sentences of this paragraph; provided,
however, that the amount paid pursuant to this sentence shall be reduced by the
amount paid by the Portfolio Partnership pursuant to the paralleled sentence in
Section 6(b) of the Investment Management Agreement dated as of July 31, 2006
between the Portfolio Partnership and the Investment Manager.
(c) If this Agreement is terminated for any reason prior to the end of
the Investment Period, the Company will engage at its own expense a firm
acceptable to the Company and the Investment Manager to determine the maximum
reasonable fair value as of the termination date of the Company's consolidated
assets (assuming each asset is readily marketable among institutional investors
without minority discount and with an appropriate control premium for any
control positions and ascribing a net present value (discounted at AA borrowing
rates) to any unamortized portion of the Company's organizational, offering and
issuance expenses and to any going concern value identified by such firm).
After review of such firm's work papers by the Investment Manager and the
Company and resolution of any comments therefrom, such firm shall render its
report as to valuation, and the Company shall pay to the Investment Manager any
Management Fees or other dividends or fees due under this Agreement (which, for
the avoidance of doubt, includes any amount pursuant to Section 6(b) hereof),
as the case may be, payable pursuant to the terms of this Agreement as if all
of the consolidated assets of the Company had been sold or realized at the
values indicated in such report and any net income and gain distributed. Such
report shall be completed within 90 days after notice of termination of the
relevant agreement.
7. Expenses.
The Company will be responsible for paying the compensation of the
Investment Manager and any placement agent of any of its securities, due
diligence and negotiation expenses, fees and expenses of custodians,
administrators, transfer and distribution agents, counsel and directors,
insurance, filings and registrations, proxy expenses, expenses of
communications to investors, interest, taxes, portfolio transaction expenses,
indemnification, litigation and other extraordinary expenses and such other
expenses as the Investment Manager is not obligated to provide (such as
services the Investment Manager is required to supervise) and as are approved
by the directors as being reasonably related to the organization, offering,
capitalization, operation, regulatory compliance or administration of the
Company and any portfolio investments. Expenses associated with the general
overhead of the Investment Manager or Co-Manager will not be covered by the
Company. Notwithstanding the foregoing, and subject to review by the Board, the
Company will bear the costs and expenses of the Investment Manager as set forth
in Section 9 of the Operating Agreement, which may not be amended without the
Investment Manager's written consent. On behalf of the Company, the Investment
Manager may advance payment of any such fees and expenses of the Company, and
the Company shall reimburse the Investment Manager therefor within 30 days
following written request from the Investment Manager. Nothing in this Section
7 shall limit the ability of the Investment Manager to be reimbursed by any
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Person (including issuers or obligors of securities, instruments or obligations
owned by the Company) for out-of-pocket expenses incurred by the Investment
Manager in connection with the performance of services hereunder. The
Investment Manager shall maintain complete and accurate records with respect to
costs and expenses and shall furnish the Board with receipts or other written
vouchers with respect thereto upon request of the Board. The Investment Manager
will be responsible for paying the Co-Manager the amounts set forth in the
Co-Management Agreement.
8. Services to Other Companies or Accounts.
(a) The Investment Manager and its Affiliated Persons, employees or
associates are in no way prohibited from, and intend to, spend substantial
business time in connection with other businesses or activities, including, but
not limited to, managing investments, advising or managing entities whose
investment objectives are the same as or overlap with those of the Company,
participating in actual or potential investments of the Company or any Member,
providing consulting, merger and acquisition, structuring or financial advisory
services, including with respect to actual, contemplated or potential
investments of the Company, or acting as a director, officer or creditors'
committee member of, adviser to, or participant in, any corporation,
partnership, trust or other business entity. The Investment Manager and its
Affiliated Persons may, and expect to, receive fees or other compensation from
third parties for any of these activities, which fees will be for the benefit
of their own account and not the Company.
(b) In addition, the Investment Manager and its Affiliated Persons may
manage Xxxxxxxxxx Accounts other than the Company that invest in assets
eligible for purchase by the Company.
(c) The Company may have the ability, under certain circumstances, to
take certain actions that would have an adverse effect on Xxxxxxxxxx Accounts
other than the Company. In these circumstances, the Investment Manager and its
Affiliated Persons will act in a manner believed to be equitable to the Company
and such other Xxxxxxxxxx Accounts, including co-investment in accordance with
the conditions of any exemptive relief obtained by the company and the
Investment Manager.
9. Duty of Care and Loyalty. Except as otherwise required by law, none
of the Investment Manager, or any its Affiliated Persons, directors, officers,
employees, shareholders, managers, members, assigns, representatives or agents
(each, an "Indemnified Person" and, collectively, the "Indemnified Persons")
shall be liable, responsible or accountable in damages or otherwise to the
Company, any Member or any other Person for any loss, liability, damage,
settlement cost, or other expense (including reasonable attorneys' fees)
incurred by reason of any act or omission or any alleged act or omission
performed or omitted by such Indemnified Person (other than solely in such
Indemnified Person's capacity as a Member, if applicable) in connection with
the establishment, management or operations of the Company or the management of
its Assets (including those in connection with serving on boards of directors
of, or creditors' committees for, any Portfolio Company) except that the
Investment Manager shall be liable to the Company or any Member, as the case
may be, if such act or failure to act arises out of the bad faith, willful
misfeasance, gross negligence or reckless disregard of an Indemnified Person's
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duty to the Company or such Member, as the case may be (such conduct,
"Disabling Conduct"). Subject to the foregoing, all such Indemnified Persons
shall look solely to the Assets for satisfaction of claims of any nature
arising in connection with the affairs of the Company. If any Indemnified
Person is made a party to any suit or proceeding to enforce any such liability,
subject to the foregoing exception, such Indemnified Person shall not, on
account thereof, be held to any personal liability.
10. Indemnification.
(a) To the fullest extent permitted by applicable law, each of the
Indemnified Persons shall be held harmless and indemnified by the Company (out
of the Assets (including, without limitation, the Unfunded Commitments) and not
out of the separate assets of any Member) against any liabilities and expenses,
including amounts paid in satisfaction of judgments, in compromise or as fines
and penalties, and reasonable counsel fees reasonably incurred by such
Indemnified Person in connection with the defense or disposition of any action,
suit or other proceeding, whether civil or criminal, before any court or
administrative or investigative body in which such Indemnified Person may be or
may have been involved as a party or otherwise (other than as authorized by the
Directors, as the plaintiff or complainant) or with which such Indemnified
Person may be or may have been threatened, while acting in such Person's
capacity as an Indemnified Person, except with respect to any matter as to
which such Indemnified Person shall not have acted in good faith in the
reasonable belief that such Person's action was in the best interest of the
Company or, in the case of any criminal proceeding, as to which such
Indemnified Person shall have had reasonable cause to believe that the conduct
was unlawful, provided, however, that an Indemnified Person shall only be
indemnified hereunder if (i) such Indemnified Person's activities do not
constitute Disabling Conduct and (ii) there has been a determination (a) by a
final decision on the merits by a court or other body of competent jurisdiction
before whom the issue of entitlement to indemnification was brought that such
Indemnified Person is entitled to indemnification or, (b) in the absence of
such a decision, by (1) a majority vote of a quorum of those Directors who are
neither "interested persons" of the Company (as defined in Section 2(a)(19) of
the 0000 Xxx) nor parties to the proceeding (the "Disinterested Non-Party
Directors") that the Indemnified Person is entitled to indemnification, or (2)
if such quorum is not obtainable or even if obtainable, if a majority so
directs, independent legal counsel in a written opinion that concludes that the
Indemnified Person should be entitled to indemnification. Notwithstanding the
foregoing, with respect to any action, suit or other proceeding voluntarily
prosecuted by any Indemnified Person as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding by
such Indemnified Person was authorized by a majority of the Directors. All
determinations to make advance payments in connection with the expense of
defending any proceeding shall be authorized and made in accordance with the
immediately succeeding paragraph (b) below.
(b) The Company shall make advance payments in connection with the
expenses of defending any action with respect to which indemnification might be
sought hereunder if the Company receives a written affirmation by the
Indemnified Person of the Indemnified Person's good faith belief that the
standards of conduct necessary for indemnification have been met and a written
undertaking to reimburse the Company unless it is subsequently determined that
he is entitled to such indemnification and if a majority of the Directors
determine that the applicable standards of conduct necessary for
indemnification appear to have been met. In addition, at least one of the
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following conditions must be met: (i) the Indemnified Person shall provide
adequate security for his undertaking, (ii) the Company shall be insured
against losses arising by reason of any lawful advances, or (iii) a majority of
a quorum of the Disinterested Non-Party Directors, or if a majority vote of
such quorum so direct, independent legal counsel in a written opinion, shall
conclude, based on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is substantial reason to believe that the
Indemnified Person ultimately will be found entitled to indemnification.
(c) The rights accruing to any Indemnified Person under these
provisions shall not exclude any other right to which he may be lawfully
entitled.
(d) Each Indemnified Person shall, in the performance of its duties,
be fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Company, upon an opinion of counsel, or upon reports
made to the Company by any of the Company's officers or employees or by any
advisor, administrator, manager, distributor, selected dealer, accountant,
appraiser or other expert or consultant selected with reasonable care by the
Directors, officers or employees of the Company, regardless of whether such
counsel or other person may also be a Director.
11. Term of Agreement; Events Affecting the Investment Manager;
Survival of Certain Terms.
(a) This Agreement shall become effective as of the time at which the
Company registers as an investment company with the SEC and, unless sooner
terminated by the Company or Investment Manager as provided herein, shall
continue in effect for a period of two years. Thereafter, if not terminated,
this Agreement shall continue in effect with respect to the Company for
successive periods of 12 months, provided such continuance is specifically
approved at least annually by both (i) the vote of a majority of the Board or
the vote of a majority of the outstanding voting securities of the Company at
the time outstanding and entitled to vote, and (ii) by the vote of a majority
of the Directors who are not parties to this Agreement or interested persons of
any party to this Agreement, cast in person at a meeting called for the purpose
of voting on such approval. Notwithstanding the foregoing, this Agreement may
be terminated by the Company at any time, without the payment of any penalty,
upon giving the Investment Manager 60 days' notice (which notice may be waived
by the Investment Manager), provided that such termination by the Company shall
be directed or approved by the vote of a majority of the Directors of the
Company in office at the time or by the vote of the holders of a majority of
the voting securities of the Company at the time outstanding and entitled to
vote, or by the Investment Manager on 60 days' written notice (which notice may
be waived by the Company). This Agreement will also immediately terminate in
the event of its assignment. As used in this Agreement, the terms "majority of
the outstanding voting securities," "interested person" and "assignment" shall
have the same meanings as such terms are given in the 0000 Xxx.
(b) If Xxxxxxx X. Xxxxxxxxxx dies, becomes incapacitated or departs
from the Investment Manager, the Investment Manager will promptly notify
Babson, the credit agent for the Company's senior credit facility, the credit
enhancer, if any, and the Members of such event, will increase the number of
voting Babson representatives on the Investment Committee to a number that is
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equivalent at all times to the number of voting Investment Manager
representatives on such committee and will promptly replace Xx. Xxxxxxxxxx with
another individual with skills reasonably comparable to those which Xx.
Xxxxxxxxxx employed on behalf of the Investment Manager for the benefit of the
Company (a person having such skills being a "Replacement Principal"), as
determined in good faith by Babson over a four-month period, beginning on the
date on which such Replacement Principal is appointed to the Investment
Committee. Babson will, within such four-month period, inform the Investment
Manager if Babson disapproves of such Replacement Principal, which disapproval
must be made in good faith and be based upon such Replacement Principal's
performance, including investment performance, investment strategy and working
relationship with the other voting members of the Investment Committee. If
Babson fails to disapprove of such Replacement Principal within such four-month
period, the number of Babson representatives on the Investment Committee shall
be reduced to one. In the event Babson disapproves of such Replacement
Principal, Babson will retain its increased representation on the Investment
Committee and will periodically reassess in good faith whether it is willing to
approve such Replacement Principal or any successor Replacement Principal
(based upon the criteria set forth above), and if it does so approve in the
future, its representation on the Investment Committee will be reduced to one
at the time of such future approval.
(c) If both (i) either Xxxxxx Xxxxxxxxx or Xxxx Xxxxxxxxxx dies,
becomes incapacitated or departs from the Investment Manager and ceases to be
actively involved in the management of the Company and (ii) the Investment
Manager fails to notify the credit agent for the Company's senior credit
facility and the credit enhancer, if any, promptly and identify a replacement
with reasonably comparable skills within 180 days, the credit agent for the
Company's senior credit facility and the credit enhancer, if any, for so long
as it is enhancing the creditworthiness of outstanding borrowings under the
senior credit facility and any outstanding amount of Preferred Shares or
Preferred Interests and is not in default on its obligations under the
arrangements governing such credit enhancement, may call a default under the
senior credit facility. If both Xxxxxx Xxxxxxxxx and Xxxx Xxxxxxxxxx die,
become incapacitated or depart from the Investment Manager and cease to be
actively involved in the management of the Company, the credit agent for the
Company's senior credit facility and/or the credit enhancer, if any, for so
long as it is enhancing the creditworthiness of outstanding borrowings under
the Credit Facility and any outstanding amount of Preferred Shares or Preferred
Interests and is not in default on its obligations under the arrangements
governing such credit enhancement, may veto a proposed replacement for one of
such individuals and may veto portfolio transactions in excess of 15% of the
total assets of the Company until a replacement has been appointed to fill one
of such positions.
(d) Notwithstanding anything herein to the contrary, Sections 6(c), 7,
9 and 10 of this Agreement shall survive any termination hereof.
(e) From and after the effective date of termination of this
Agreement, the Investment Manager and its Affiliated Persons shall not be
entitled to compensation for further services hereunder, but shall be paid all
compensation and reimbursement of expenses accrued to the date of termination.
Upon such termination, and upon receipt of payment of all compensation and
reimbursement of expenses owed, the Investment Manager shall as soon as
practicable (and in any event within 90 days after such termination) deliver to
the Company all property (to the extent, if any, that the Investment Manager
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has custody thereof) and documents of the Company or otherwise relating to the
Assets of the Company then in the custody of the Investment Manager (although
the Investment Manager may keep copies of such documents for its records). The
Investment Manager agrees to use reasonable efforts to cooperate with any
successor investment manager in the transfer of its responsibilities hereunder,
and will, among other things, provide upon receipt of a written request by such
successor investment manager any information available to it regarding any
Assets of the Company. The Investment Manager agrees that, notwithstanding any
termination, it will reasonably cooperate in any proceeding arising in
connection with this Agreement, any of the Transaction Documents or any
Investment (excluding any such proceeding in which claims are asserted against
the Investment Manager or any Affiliated Person of the Investment Manager) upon
receipt of appropriate indemnification and expense reimbursement.
12. Power of Attorney; Further Assurances.
In addition to the power of attorney granted to the Investment Manager
in Section 1 of this Agreement, the Company hereby makes, constitutes and
appoints the Investment Manager, with full power of substitution, as its true
and lawful agent and attorney-in-fact, with full power and authority in its
name, place and stead, in accordance with the terms of this Agreement (a) to
sign, execute, certify, swear to, acknowledge, deliver, file, receive and
record any and all documents which the Investment Manager reasonably deems
necessary or appropriate in connection with its investment management duties
under this Agreement and as required by the 1940 Act and (b) to (i) subject to
any policies adopted by the Board with respect thereto, exercise in its
discretion any voting or consent rights associated with any securities,
instruments or obligations included in the Company's Assets, (ii) execute
proxies, waivers, consents and other instruments with respect to such
securities, instruments or obligations, (iii) endorse, transfer or deliver such
securities, instruments and obligations and (iv) participate in or consent (or
decline to consent) to any modification, work-out, restructuring, bankruptcy
proceeding, class action, plan of reorganization, merger, combination,
consolidation, liquidation or similar plan or transaction with regard to such
securities, instruments and obligations. To the extent permitted by applicable
law, this grant of power of attorney is irrevocable and coupled with an
interest, and it shall survive and not be affected by the subsequent
dissolution or bankruptcy of the Company; provided that this grant of power of
attorney will expire, and the Investment Manager will cease to have any power
to act as the Company's attorney-in-fact, upon termination of this Agreement in
accordance with its terms. The Company shall execute and deliver to the
Investment Manager all such other powers of attorney, proxies, dividend and
other orders, and all such instruments, as the Investment Manager may
reasonably request for the purpose of enabling the Investment Manager to
exercise the rights and powers which it is entitled to exercise pursuant to
this Agreement. Each of the Investment Manager and the Company shall take such
other actions, and furnish such certificates, opinions and other documents, as
may be reasonably requested by the other party hereto in order to effectuate
the purposes of this Agreement and to facilitate compliance with applicable
laws and regulations and the terms of this Agreement.
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13. Amendment of this Agreement.
No provision of this Agreement may be amended, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which enforcement of the amendment, waiver, discharge or termination is
sought. Any amendment of this Agreement shall be subject to the 0000 Xxx. The
Company shall promptly provide a copy of any such amendment or waiver to S&P
and Xxxxx'x.
14. Notices.
Unless expressly provided otherwise herein, any notice, request,
direction, demand or other communication required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly given, made
and received if sent by hand or by overnight courier, when personally
delivered, if sent by telecopier, when receipt is confirmed by telephone, or if
sent by registered or certified mail, postage prepaid, return receipt
requested, when actually received if addressed as set forth below:
(a) If to the Company:
Special Value Continuation Fund, LLC
Attn: Xxxx X. Xxxxxxxxxx
0000 00xx Xx., Xxxxx 0000
Xxxxx Xxxxxx Xxxx., XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
(b) If to the Investment Manager:
Xxxxxxxxxx Capital Partners, LLC
Attn: Xxxxxx X. Xxxxxxxxx
0000 00xx Xx., Xxxxx 0000
Xxxxx Xxxxxx, XX 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
(c) If to any of the Members, as provided in the Operating Agreement,
and if to the Administrative Agent or any Lender under the Credit Agreement, as
provided in the applicable Transaction Document.
Either party to this Agreement may alter the address to which communications or
copies are to be sent to it by giving notice of such change of address in
conformity with the provisions of this Section 14. Other addresses set forth in
this Section 14 shall be changed only with the consent of the relevant
addressee.
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15. Binding Nature of Agreement; Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns as provided herein.
16. Entire Agreement.
This Agreement contains the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof, and supersedes
all prior and contemporaneous agreements, understandings, inducements and
conditions, express or implied, oral or written, of any nature whatsoever with
respect to the subject matter hereof. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
17. Costs and Expenses.
The costs and expenses (including the fees and disbursements of
counsel and accountants) incurred in connection with the negotiation,
preparation and execution of this Agreement, and all matters incident thereto,
shall be borne by the Company.
18. Books and Records. In compliance with the requirements of Rule
31a-3 under the Investment Company Act, the Investment Manager hereby agrees
that all records which it maintains for the Company are the property of the
Company and further agrees to surrender promptly to the Company any such
records upon the Company's request. The Investment Manager further agrees to
preserve for the periods prescribed by Rule 31a-2 under the Investment Company
Act the records required to be maintained by Rule 31a-1 under the Investment
Company Act.
19. Titles Not to Affect Interpretation.
The titles of sections contained in this Agreement are for convenience
only, and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation hereof.
20. Provisions Separable.
The provisions of this Agreement are independent of and separable from
each other, and, to the extent permitted by applicable law, no provision shall
be affected or rendered invalid or unenforceable by virtue of the fact that for
any reason any other or others of them may be invalid or unenforceable in whole
or in part.
21. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York and, to the extent inconsistent therewith,
the 1940 Act.
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22. Execution in Counterparts.
This Agreement may be executed in separate counterparts, each of which
shall be an original and all of which taken together shall constitute one and
the same instrument.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
XXXXXXXXXX CAPITAL PARTNERS, LLC
By: XXXXXXXXXX & CO., LLC, its
Managing Member
By: /s/ Xxxxxxx X. Xxxxxxxxxx
--------------------------------
Xxxxxxx X. Xxxxxxxxxx
Member
SPECIAL VALUE CONTINUATION FUND, LLC
By: /s/ Xxxxxx X. Xxxxxxxxx
---------------------------------
Xxxxxx X. Xxxxxxxxx
Chief Executive Officer
