EXHIBIT (G)(2)
DIRECT INVESTMENT MANAGEMENT AGREEMENT
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Agreement, effective as of June 15, 2001, by and between THE CHINA FUND,
INC., a Maryland corporation (the "Fund") and ASIAN DIRECT CAPITAL MANAGEMENT, a
company incorporated under the laws of the Cayman Islands ("ADCM" or the "Direct
Investment Manager").
WHEREAS, the Fund is a closed-end, non-diversified management investment
company registered under the U.S. Investment Company Act of 1940, as amended
(the "1940 Act"), shares of common stock of which are registered under the
Securities Act of 1933, as amended; and
WHEREAS, the Fund's investment objective is long-term capital appreciation
which it seeks to achieve by investing its assets primarily in equity securities
of China companies (as that term is defined in the Prospectus dated July 10,
1992, (the "Prospectus") contained in the Fund's Registration Statement on Form
N-2 (File No. 33-47965) (the "Registration Statement")). The Fund is also
permitted to invest, pursuant to an amendment to the Fund's investment policies
adopted by the Fund's Board of Directors, up to 10% of its net assets in
companies located in Taiwan; and
WHEREAS, the Fund desires to retain the Direct Investment Manager to render
investment management services with respect to the Fund's assets invested in
direct investments (as that term is defined in the Prospectus), and the Direct
Investment Manager is willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants hereafter
contained, it is hereby agreed by and among the parties hereto as follows:
1. Appointment of Direct Investment Manager. (a) The Fund hereby employs
the Direct Investment Manager for the period and on the terms and conditions set
forth herein, subject at all times to the supervision of the Board of Directors
of the Fund, to:
(i) Manage the portion of the Fund's assets invested in direct
investments, including furnishing advice and making recommendations
regarding the purchase and sale of the Fund's assets allocated to direct
investments, and making direct investments on behalf of the Fund in
accordance with the investment objective and policies of the Fund, as set
forth in the Prospectus and as such investment objective and policies are
amended from time to time by the Board of Directors, and subject always to
the restrictions of the Fund's Articles of Incorporation and By-Laws, as
amended or restated from time to time, the provisions of the 1940 Act and
the Fund's investment objective and policies and investment limitations, as
the same are set forth in the Prospectus. Should the Board of Directors of
the Fund at any time make any definite determination as to investment
policy and notify the Direct Investment Manager thereof, the Direct
Investment Manager shall be bound by such determination for the period, if
any, specified in such notice or until similarly notified that such
determination has been revoked. The Direct Investment Manager shall take,
on behalf of the Fund, all actions which it deems necessary to implement
the investment policies of the Fund applicable to the Fund's direct
investments and, with respect to the Fund's direct investments, to monitor
the execution of transactions and the settlement and clearance of the
Fund's securities transactions in direct investments. By and in connection
therewith, the Direct Investment Manager is authorized as agent of the Fund
to give instructions to the custodians from time to time of the Fund's
direct investments as to deliveries of securities and payments of cash for
the account of the Fund;
(ii) Identify regulatory and other governmental requirements
applicable to the Fund in connection with the Fund's direct investment
program; and
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(iii) Provide information regarding corporate actions, repatriation
restrictions, currency restrictions and other matters as may be requested
by the Fund.
(b) The Direct Investment Manager accepts such employment and agrees
during the term of this Agreement to render such services, to permit any of its
directors, officers or employees to serve without compensation as directors or
officers of the Fund if elected to such positions and to assume the obligations
set forth herein for the compensation herein provided. The Direct Investment
Manager shall for all purposes herein provided be deemed to be an independent
contractor, and unless otherwise expressly provided or authorized, shall have no
authority to act for or represent the Fund in any way or otherwise be deemed an
agent of the Fund.
(c) The Fund hereby acknowledges that it has allocated 25% of the net
proceeds of the Offering (as defined in the Prospectus) less 25% of the
aggregate repurchase price of any shares of the Fund's Common Stock repurchased
by the Fund to direct investments; provided, however, that such allocation shall
be subject to review and modification by the Board of Directors of the Fund and
that the Board of Directors shall advise the Direct Investment Manager in
writing prior to inception of the Direct Investment Manager's services under
this Agreement and upon any such modification of the aggregate amount of the
Fund's assets allocated to direct investments (the "Direct Investment Amount").
For purposes of determining the portion of the Fund's assets invested in direct
investments, such assets shall be valued at their cost (i.e., the amount
expended by the Fund to acquire them) rather than their then current value or on
such other basis as may be agreed by the Direct Investment Manager and the Fund.
Such assets shall be managed by such entity as may be appointed by the Fund to
manage the assets of the Fund other than the Fund's direct investments (the
"Investment Manager") in accordance with the terms of a separate investment
management and advisory services agreement entered into by and between the Fund
and the Investment Manager (the "Management Agreement") prior to their
investment in direct investments. Whenever the Direct Investment Manager shall
recommend the investment of Fund assets in a direct investment, the Direct
Investment Manager shall notify the Investment Manager as to the amount of Fund
assets sought to be invested in such direct investment, and the Investment
Manager shall, within ten business days thereafter (or such other period of time
as the Fund may direct in writing), liquidate sufficient portfolio securities to
realize such amount and make the net proceeds thereof available for investment
in such direct investment. Upon the sale of a direct investment, the Direct
Investment Manager shall make the net proceeds thereof available as soon as
reasonably practicable for investment pursuant to the Management Agreement by
the Investment Manager.
2. Compensation. For the services and facilities described in Section 1,
the Fund agrees to pay in United States dollars to the Direct Investment Manager
a fee computed weekly and payable monthly at an annual rate equal to the greater
of $300,000 or 2.2% of the average weekly value of the assets of the Fund
invested in direct investments.
3. Non-Exclusivity of Services. Nothing herein shall be construed as
prohibiting the Direct Investment Manager from providing investment advisory
services to, or entering into investment advisory agreements with, any other
clients (including other registered investment companies), including clients
which may invest in direct investments in China companies (as defined in the
Prospectus), so long as the Direct Investment Manager's services to the Fund are
not impaired thereby.
4. Standard of Care; Indemnification. The Direct Investment Manager may
rely on information reasonably believed by it to be accurate and reliable.
Neither the Direct Investment Manager nor its officers, directors, employees,
agents or controlling persons (as defined in the 0000 Xxx) shall be subject to
any liability for any act or omission, error of judgment or mistake of law, or
for any loss suffered by the Fund, in the course of, connected with or arising
out of any services to be rendered hereunder, except by reason of willful
misfeasance, bad faith or gross negligence on the part of the Direct Investment
Manager in the performance of its duties or by reason of reckless disregard on
the part of the Direct
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Investment Manager of its obligations and duties under this Agreement. Any
person, even though also employed by the Direct Investment Manager, who may be
or become an employee of the Fund shall be deemed, when acting within the scope
of his employment by the Fund, to be acting in such employment solely for the
Fund and not as an employee or agent of the Direct Investment Manager.
The Fund agrees to indemnify and hold harmless the Direct Investment
Manager, its officers, directors, employees, agents, shareholders, controlling
persons or other affiliates (each an "Indemnified Party"), for any losses, costs
and expenses incurred or suffered by any Indemnified Party arising from any
action, proceeding or claims which may be brought against such Indemnified Party
in connection with the performance or non-performance in good faith of its
functions under this Agreement, except losses, costs and expenses resulting from
willful misfeasance, bad faith or gross negligence in the performance of such
Indemnified Party's duties or from reckless disregard on the part of such
Indemnified Party of such Indemnified Party's obligations and duties under this
Agreement.
5. Allocation of Charges and Expenses. The Direct Investment Manager shall
assume and pay for maintaining its staff and personnel, and shall at its own
expense provide the equipment, office space and facilities, necessary to perform
its obligations hereunder. The Direct Investment Manager shall pay the salaries
and expenses of such of the Fund's officers and employees and any fees and
expenses of such of the Fund's Directors who are directors, officers or
employees of the Direct Investment Manager or any of its affiliates, provided,
however, that the Fund, and not the Direct Investment Manager, shall bear travel
expenses or an appropriate fraction thereof of Directors and officers of the
Fund who are directors, officers or employees of the Direct Investment Manager
to the extent that such expenses relate to attendance at meetings of the Board
of Directors of the Fund or any committees thereof.
6. Potential Conflicts of Interest. (a) Subject to applicable statutes and
regulations, it is understood that directors, officers or agents of the Fund are
or may be interested in the Direct Investment Manager as directors, officers,
employees, agents, shareholders or otherwise, and that the directors, officers,
employees, agents or shareholders of the Direct Investment Manager may be
interested in the Fund as a director, officer, agent or otherwise.
(b) If the Direct Investment Manager considers the purchase or sale of
direct investments for the Fund and other advisory clients of the Direct
Investment Manager at or about the same time, transactions in such securities
will be made, insofar as feasible, for the Fund and such other clients in
accordance with guidelines adopted by the Board of Directors of the Fund.
7. Effective Date, Duration and Termination. (a) This Agreement shall
become effective for a period of two years from the date hereof and will
continue in effect from year to year thereafter, provided that such continuance
is specifically approved at least annually by (i) a vote of a majority of the
members of the Fund's Board of Directors who are neither parties to this
Agreement nor interested persons of the Fund or of the Direct Investment Manager
or of any entity regularly furnishing investment advisory services with respect
to the Fund pursuant to an agreement with the Direct Investment Manager, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of either the Fund's Board of Directors or the Fund's
outstanding voting securities.
(b) This Agreement may nevertheless be terminated at any time without
payment of penalty by the Fund or by the Direct Investment Manager upon 60 days'
written notice or by vote of the Fund's stockholders. This Agreement shall
automatically be terminated in the event of its assignment, provided, however,
that a transaction which does not, in accordance with the 1940 Act, result in a
change
EXHIBIT (G)(2)
of actual control or management of the Direct Investment Manager's business
shall not be deemed to be an assignment for the purposes of this Agreement.
(c) Termination of this Agreement shall not (i) affect the right of
the Direct Investment Manager to receive payments of any unpaid balance of the
compensation described in Section 2 earned prior to such termination, or (ii)
extinguish the Direct Investment Manager's right of indemnification under
Section 4.
As used herein, the terms "interested person," "assignment," and "vote of a
majority of the outstanding voting securities" shall have the meanings set forth
in the 1940 Act.
8. Amendment. This Agreement may be amended by mutual agreement, but only
after authorization of such amendment by the affirmative vote of (i) the holders
of a majority of the outstanding voting securities of the Fund, and (ii) a
majority of the members of the Fund's Board of Directors who are not interested
persons of the Fund or of the Direct Investment Manager, cast in person at a
meeting called for the purpose of voting on such approval.
9. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of New York, provided, however, that nothing herein shall be
construed as being inconsistent with the 1940 Act.
10. Notices. Any communication hereunder must be in writing and must be
made by letter, telex or facsimile. Any communication or document to be made or
delivered by one person to another pursuant to this Agreement shall (unless that
other person has by fifteen (15) days' notice to the other specified another
address) be made or delivered to that other person at the following relevant
address:
EXHIBIT (G)(2)
If to the Direct Investment Manager:
Asian Direct Capital Management
48th Floor, Bank of China Tower
0 Xxxxxx Xxxx
Xxxx Xxxx
Attention: Xxxxxxx Xxxx
Facsimile No.: (000) 0000 0000
Telephone No.: (000) 0000 0000
With a copies to:
State Street Global Advisors
Two International Place- 00xx Xxxxx
Xxxxxx, XX 00000
Attention: Compliance
Facsimile No.: (000) 000-0000
If to the Fund:
The China Fund, Inc.
x/x Xxxxx Xxxxxx Xxxx and Trust Company
X.X. Xxx 0000 Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxx Xxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
With a copy to:
Xxxxxxxx Chance Xxxxxx & Xxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
X.X.X.
Attention: Xxxxxxx X. Xxxxxx, Xx.
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
If to the Investment Manager: Contact Information to be provided in writing by
the Fund to the Direct Investment Manager from
time to time.
and shall, if made by letter, be deemed to have been received when delivered by
hand or if sent by mail, within two days if both the sender and the addressee
are in Hong Kong and, within 10 days, if the sender and/or the addressee are
outside Hong Kong and the letter is sent by prepaid airmail and shall, if sent
by facsimile, be deemed to have been received upon production of a transmission
report by the machine from which the facsimile was sent which indicates that the
facsimile was sent in its entirety to the facsimile number of the recipient and
provided that a hard copy of the notice so served by telex or facsimile was
posted the same day as the notice was served by electronic means.
11. Jurisdiction. Each party hereto irrevocably agrees that any suit,
action or proceeding against either of the Direct Investment Manager or the Fund
arising out of or relating to this Agreement
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shall be subject exclusively to the jurisdiction of the United States District
Court for the Southern District of New York or the Supreme Court of the State of
New York, New York County, and each party hereto irrevocably submits to the
jurisdiction of each such court in connection with any such suit, action or
proceeding. Each party hereto waives any objection to the laying of venue of any
such suit, action or proceeding in either such court, and waives any claim that
such suit, action or proceeding has been brought in an inconvenient forum. Each
party hereto irrevocably consents to service of process in connection with any
such suit, action or proceeding by mailing a copy thereof in English by
registered or certified mail, postage prepaid, to their respective addresses as
sat forth in this Agreement.
12. Representation and Warranty of the Direct Investment Manager. ADCM
represents and warrants that (a) it is duly registered as an investment adviser
under the U.S. Investment Advisers Act of 1940, as amended; (b) that it will use
its reasonable efforts to maintain effective its registration during the term of
this Agreement; and (c) that it is eligible to manage the assets of the Fund
under the Companies Law of the Cayman Islands.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Captions. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
officers thereunto duly authorized as of the day and year first written above.
THE CHINA FUND, INC.
By: /s/ Xxx X. Xxxxx
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Name: Xxx X. Xxxxx
Title: Secretary
ASIAN DIRECT CAPITAL MANAGEMENT
By: /s/ Xxxxxxx Xxxx
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Name: Xxxxxxx Xxxx
Title: Managing Director
