Exhibit (g)(1)
FORM OF INVESTMENT MANAGEMENT AGREEMENT
GENERATION HEDGE STRATEGIES FUND LLC
AGREEMENT, made as of [], 2004 between GENERATION Hedge Strategies
Fund LLC, a Delaware limited liability company (the "Fund"), and Generation
Capital Management LLC, a New York (?) corporation (the "Adviser").
WHEREAS, the Fund is registered with the Securities and Exchange
Commission (the "SEC") as a closed-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Fund desires to retain the Adviser so that it will
render investment advisory services to the Fund in the manner and on the terms
and conditions hereinafter set forth; and
WHEREAS, the Adviser is willing to render such services and/or
engage others to render such services to the Fund;
NOW THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed by the parties as follows:
1. Appointment. The Fund hereby appoints the Adviser to act as
investment adviser and provide investment advisory services to the Fund, subject
to the supervision of the Fund's board of directors (the "Board," "Board of
Directors," or "Directors"), for the period and on the terms and conditions set
forth in this Agreement. The Adviser accepts such appointment and agrees to
render the services and to assume the obligations set forth in this Agreement
commencing on its effective date for the compensation herein provided.
2. Responsibilities of the Adviser.
(a) The Adviser hereby undertakes and agrees, upon the terms and
conditions herein set forth, subject to the supervision of the Fund's Board of
Directors, either directly or indirectly through one or more Sub advisers (as
that term is defined in paragraph 4 below):
(i) to make investment decisions and provide a
program of continuous investment management for the Fund; prepare,
obtain, evaluate, and make available to the Fund research and
statistical data in connection therewith; obtain and evaluate such
information and advice relating to the economy, securities
markets, and securities as it deems necessary or useful to
discharge its duties hereunder; engage in or supervise the
selection, acquisition, retention, and sale of investments,
securities, and/or cash; engage in or supervise the selection,
acquisition, retention, and sale of unregistered investment funds,
and/or other investment vehicles (the "Investment Funds"); select
brokers or dealers to execute transactions; and all of the
aforementioned shall be done in accordance with the Fund's
investment objective, policies, and limitations as stated in the
Fund's prospectus and statement of additional information (the
1
"SAI") included as part of the Fund's registration statement filed
with the SEC on Form N-2 under the Securities Act of 1933, as
amended, and the 1940 Act (the "Registration Statement"), as
amended from time to time, and in accordance with guidelines and
directions from the Fund's Board of Directors and any applicable
laws and regulations;
(ii) subject to the direction and control of the
Fund's Board of Directors, to assist the Fund as it may reasonably
request in the conduct of the Fund's business, including oral and
written research, analysis, advice, statistical, and economic
data, judgments regarding individual investments, general economic
conditions and trends, and long-range investment policies;
determine or recommend the securities, instruments, repurchase
agreements, options, and other investments (including the
Investment Funds), and techniques that the Fund will purchase,
sell, enter into, use, or provide in an ongoing evaluation of the
Fund's portfolio; continuously manage and supervise the investment
program of the Fund and the composition of its investment
portfolio in a manner consistent with the investment objective,
policies, and restrictions of the Fund, as set forth in its
Registration Statement and as may be adopted from time to time by
the Board, and applicable laws and regulations; determine or
recommend the extent to which the Fund's portfolio shall be
invested in securities, Investment Funds, and other assets, and
what portion if any, should be held uninvested; and undertake to
do anything incidental to the foregoing to facilitate the
performance of its obligations hereunder;
(iii) furnish to or place at the disposal of the Fund
information, evaluations, analyses, and opinions formulated or
obtained by the Adviser in the discharge of its duties as the Fund
may, from time to time reasonably request, and maintain or cause
to be maintained for the Fund all books, records, reports, and any
other information required under the 1940 Act, to the extent that
such books, records, and reports, and other information are not
maintained or furnished by the custodian, transfer agent,
administrator, sub-administrator, or other agent of the Fund;
(iv) to furnish at the Adviser's expense for the use
of the Fund such office space, telephone, utilities, and
facilities as the Fund may require for its reasonable needs and to
furnish at the Adviser's expense [clerical services related to
research, statistical, and investment work - ▇▇▇▇▇: are you going
to provide this?];
2
(v) to render to the Fund management and
administrative assistance in connection with the operation of the
Fund that shall include (i) compliance with all reasonable
requests of the Fund for information, including information
required in connection with the Fund's filings with the SEC, other
federal and state regulatory organizations, and self-regulatory
organizations, and (ii) such other services as the Adviser shall
from time to time determine to be *necessary or useful to the
administration of the Fund; and
(vi) to pay the reasonable salaries, fees, and
expenses of the Fund's officers and employees (including the
Fund's share of payroll taxes) and any fees and expenses of the
Fund's Directors who are directors, officers, or employees of or
otherwise affiliated with the Adviser; provided, however, that the
Fund, and not the Adviser, shall bear travel expenses (or an
appropriate portion thereof) of Directors and officers of the Fund
who are directors, officers, or employees of the Adviser to the
extent that such expenses relate to attendance at meetings of the
Fund's Board of Directors or any committees thereof or advisers
thereto. The Adviser shall bear all expenses arising out of its
duties hereunder but shall not be responsible for any expenses of
the Fund other than those specifically allocated to the Adviser in
this Agreement.
(b) In particular, but without limiting the generality of the
foregoing, the Adviser shall not be responsible, except to the extent of the
reasonable compensation of the Fund's employees who are directors, officers, or
employees of the Adviser whose services may be involved, for the following
expenses of the Fund: organizational and offering expenses of the Fund; fees
payable to any consultants, including an advisory board (if applicable); fees
paid directly or indirectly to investment advisers of the Investment Funds;
brokerage commissions or all other costs and expenses directly related to
portfolio transactions, acquiring or disposing of any portfolio security, and
positions for the Fund's account such as direct or indirect expenses associated
with the Fund's investments, including investments in the Investment Funds;
legal expenses; auditing and accounting expenses; telephone, telex, facsimile,
postage, and other communications expenses; interest, insurance premiums, taxes,
and governmental fees; dues and expenses incurred by the Fund or with respect to
the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's administrator, sub-administrator,
custodian, transfer agent and registrar, distribution disbursing agent, or any
other agent of the Fund; payment for portfolio pricing or valuation services to
pricing agents, accountants, bankers, and other specialists (if any); fees and
expenses related to the repurchase of units of members; other expenses in
connection with the issuance, offering, distribution, sale, or underwriting of
units issued by the Fund, including preparing stock certificates; expenses of
registering or qualifying units of the Fund for sale; expenses relating to
investor and public relations; freight, insurance, and other charges in
connection with any shipment of the Fund's portfolio securities; expenses of
preparing, printing, and distributing prospectuses, SAIs, reports, notices to
members, the SEC, and other regulatory agencies, and providing distributions to
members; costs of stationery; costs of members' and other meetings, including
proxy preparation, printing, and mailing; or litigation expenses.
3. Use of Name. As licensee of the rights to use and sublicense
the use of the names "Generation", trademarks and any derivatives thereof or
logo associated with those names [Is "Generation" trademarked? If not, maybe it
should be.], the Adviser hereby grants the Fund a non-exclusive right and
sublicense to use (i) the Generation name and marks as part of the Fund's name
(the "Fund Name"), and (ii) in connection with the Fund's investment products
and services, in each case only for so long as this Agreement, any other
investment management agreement between the Fund and the Adviser (or any
organization which shall have succeeded to the Adviser's business as investment
manager (the "Adviser's Successor")), or any extension, renewal or amendment
hereof or thereof remains in effect, and only for so long as the Adviser is a
licensee of the Generation name and marks, provided, however, that the Adviser
agrees to use its best efforts to maintain its license to use and sublicense the
Generation name and marks. The Fund agrees that it shall have no right to
3
sublicense or assign rights to use the Generation name and marks, it shall
acquire no interest in the Generation name and marks other than the rights
granted herein and that the Fund shall not challenge the validity of the
Generation name and marks or the ownership thereof. The Fund further agrees that
all services and products it offers in connection with the Generation name and
marks shall meet commercially reasonable standards of quality, as may be
determined by the Adviser from time to time. At the Adviser's reasonable
request, the Fund shall cooperate with the Adviser and shall execute and deliver
any and all documents necessary to maintain and protect (including, but not
limited to any trademark infringement action) the Adviser and/or enter the Fund
as a registered user thereof. At such time as this Agreement or any other
investment management agreement shall no longer be in effect between the Adviser
(or the Adviser's Successor) and the Fund, or the Adviser no longer is a
licensee of the Generation name and marks, the Fund shall (to the extent that,
and as soon as, it lawfully can) cease to use the Fund Name or any other name
indicating that it is advised by, managed by or otherwise connected with the
Adviser (or the Adviser's Successor). In no event shall the Fund use the
Generation name and marks or any other name or ▇▇▇▇ confusingly similar thereto
(including, but not limited to, any name or ▇▇▇▇ that includes the name
"Generation" ) if this Agreement or any other investment management agreement
between the Adviser (or the Adviser's Successor) and the Fund is terminated.
4. Sub advisers. The Adviser may, at its expense and subject to
its supervision, engage one or more persons, including, but not limited to,
subsidiaries and affiliated persons of the Adviser, to render any or all of the
investment advisory services that the Adviser is obligated to render under this
Agreement, including, subject to approval of the Fund's Board of Directors, a
person or persons to render investment advisory services including the provision
of a continuous investment program and the determination of the composition of
the securities and other assets of the Fund (each, a "Sub adviser"). Member
approval of the appointment of a Sub adviser by the Adviser pursuant to this
paragraph is required only to the extent required by applicable law, as may be
modified by any exemptive order or other interpretation received from the SEC.
5. Regulatory Compliance. In performing its duties hereunder, the
Adviser (and any Sub advisers selected by the Adviser) shall comply with the
1940 Act and all rules and regulations thereunder, all other applicable federal
and state laws and regulations, with any applicable procedures adopted by the
Fund's Board of Directors, and with the provisions of the Fund's Registration
Statement.
6. Compensation. As compensation for the services performed and
the facilities and personnel provided by the Adviser pursuant to this Agreement,
the Fund will pay the Adviser quarterly in arrears a fee, calculated on the last
business day of each month during such quarter at the annual rate of 1.50% of
the Fund's month-end net assets. If the Adviser shall serve hereunder for less
than the whole of any quarter, the fee hereunder shall be prorated according to
the proportion that such period bears to the full quarter and shall be payable
within 30 days after the end of the relevant quarter or the date of termination
of this Agreement, as applicable. The value of the net assets of the Fund shall
be determined pursuant to the applicable provisions of the limited liability
company operating agreement (the "Operating Agreement"), valuation procedures,
and Registration Statement of the Fund, each as amended from time to time. If
the determination of the net asset value of the Fund has been suspended for a
period including the end of any quarter when the Adviser's compensation is
payable pursuant to this paragraph, then the Adviser's compensation payable with
respect to such quarter shall be computed on the basis of the value of the net
assets of the Fund as last determined (whether during or prior to such quarter).
If the Fund determines the value of the net assets of its portfolio more than
once in any month, then the last such determination thereof in that month shall
be deemed to be the sole determination thereof in that month for the purposes of
this paragraph.
4
7. Portfolio Transactions.
(a) In executing transactions for the Fund and selecting brokers
or dealers, the Adviser (either directly or through Sub advisers) shall place
orders pursuant to its investment determinations for the Fund directly with the
issuer, or with any broker or dealer, in accordance with applicable policies
expressed in the Fund's Registration Statement and in accordance with any
applicable legal requirements. Without limiting the foregoing, the Adviser (or a
Sub adviser) shall use its best efforts to obtain for the Fund the most
favorable price and best execution available, considering all of the
circumstances, and shall maintain records adequate to demonstrate compliance
with this requirement. Subject to the appropriate policies and procedures
approved by the Fund's Board of Directors, the Adviser (or the Sub adviser) may,
to the extent authorized by Section 28(e) of the Securities Exchange Act of
1934, as amended (the "Securities Exchange Act"), cause the Fund to pay a broker
or dealer that provides brokerage or research services to the Adviser (or the
Sub adviser) an amount of commission for effecting a portfolio transaction in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction if the Adviser (or the Sub adviser) determines,
in good faith, that such amount of commission is reasonable in relationship to
the value of such brokerage or research services provided viewed in terms of
that particular transaction or the Adviser's (or the Sub adviser's) overall
responsibilities to the Fund or its other advisory clients. To the extent
authorized by Section 28(e) of the Securities Exchange Act and the Fund's Board
of Directors, the Adviser (or the Sub adviser) shall not be deemed to have acted
unlawfully or to have breached any duty created by this Agreement or otherwise
solely by reason of such action.
(b) To the extent applicable to the Fund and consistent with these
standards, in accordance with Section 11(a) of the Securities Exchange Act and
Rule 11a2-2(T) thereunder, and subject to any other applicable laws and
regulations, the Adviser (or the Sub adviser) is further authorized to allocate
the orders placed by it on behalf of the Fund to the Adviser (or the Sub
adviser) if it is registered as a broker or dealer with the SEC, to its
affiliate that is registered as a broker or dealer with the SEC, or to such
brokers and dealers that also provide research or statistical research and
material, or other services to the Fund or the Adviser (or the Sub adviser).
Such allocation shall be in such amounts or proportions as the Adviser (or the
Sub adviser) shall determine consistent with the above standards, and, upon
request, the Adviser (or the Sub adviser) will report on said allocation
regularly to the Fund's Board of Directors indicating the broker-dealers to
which such allocations have been made and the basis therefor.
8. Reports. The Adviser (or the Sub adviser) will regularly report
to the Fund's Board of Directors on the investment program of the Fund and the
issuers and securities generally represented in the Fund's portfolio, including
reports received from the Investment Funds, and will furnish the Fund's Board of
Directors such periodic and special reports as the Directors may reasonably
request.
9. Not Exclusive. Nothing herein shall be construed as prohibiting
the Adviser, Sub adviser, or any director, officer, partner, employee, or
affiliate thereof from providing investment management or advisory services to,
or entering into investment management or advisory agreements with, other
clients (including other registered investment companies), including clients
which may from time to time purchase and/or sell securities of issuers in which
the Fund invests, or from utilizing (in providing such services) information
furnished to the Adviser by advisers and consultants to the Fund and others
(including Sub advisers); provided however, that the Adviser will undertake no
activities that, in its judgment, will adversely affect the performance of its
obligations under this Agreement.
5
10. Conflicts of Interest. Whenever the Fund and one or more other
accounts or investment companies managed or advised by the Adviser or a Sub
adviser have available funds for investment, investments suitable and
appropriate for each shall be allocated in accordance with procedures approved
by the Fund's Board of Directors and believed by the Adviser or the Sub adviser
to be equitable to each entity. Similarly, opportunities to sell securities
shall be allocated in accordance with procedures approved by the Fund's Board of
Directors and believed by the Adviser or the Sub adviser to be equitable. The
Fund recognizes that in some cases this procedure may adversely affect the size
of the position that may be acquired or disposed of for the Fund. In addition,
the Fund acknowledges that any member, director, officer, or persons employed by
the Adviser, its affiliates, or a Sub adviser, who may also be a member,
director, officer, or person employed by the Fund, to assist in the performance
of the Adviser's or the Sub adviser's duties hereunder will not devote their
full time to such service and nothing contained herein shall be deemed to limit
or restrict the right of the Adviser or any affiliate of the Adviser or a Sub
adviser to engage in and devote time and attention to other businesses or to
render services of whatever kind or nature.
11. Independent Contractor. The Adviser shall for all purposes
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Fund's Board of Directors from
time to time, have no authority to act for or represent the Fund in any way or
otherwise be deemed its agent.
12. Liability. The Adviser may rely on information reasonably
believed by it to be accurate and reliable, including but not limited to, any
information or report from the Investment Funds, and shall give the Fund the
benefit of its best judgment and effort in rendering services hereunder. Neither
the Adviser nor its members, officers, directors, employees, or agents and its
affiliates, successors, or other legal representatives shall be subject to any
liability for any act or omission, error of judgment, 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 Adviser in the performance of
its duties or by reason of reckless disregard on the part of the Adviser of its
obligations and duties under this Agreement. Any person, even though also
employed by the Adviser, who may be or become an employee of the Fund and paid
by 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 Adviser.
13. Indemnification.
(a) The Fund will indemnify the Adviser and its affiliates, and
each of their members, directors, officers, and employees and any of their
affiliated persons, executors, heirs, assigns, successors, or other legal
representatives (each an "Indemnified Person") against any and all costs,
losses, claims, damages, or liabilities, joint or several, including, without
limitation, reasonable attorneys' fees and disbursements, resulting in any way
from the performance or non-performance of any Indemnified Person's duties in
respect of the Fund, except those resulting from the willful misfeasance, bad
faith or gross negligence of an Indemnified Person or the Indemnified Person's
reckless disregard of such duties and, in the case of criminal proceedings,
6
unless such Indemnified Person had reasonable cause to believe its actions
unlawful (collectively, "disabling conduct"). Indemnification shall be made
following: (i) a final decision on the merits by a court or other body before
whom the proceeding was brought that the Indemnified Person was not liable by
reason of disabling conduct; or (ii) a reasonable determination, based upon a
review of the facts and reached by (A) the vote of a majority of the Directors
who are not parties to the proceeding or (B) legal counsel selected by a vote of
a majority of the Board in a written advice, that the Indemnified Person is
entitled to indemnification hereunder. The Fund shall advance to an Indemnified
Person reasonable attorneys' fees and other costs and expenses incurred in
connection with defense of any action or proceeding arising out of such
performance or non-performance. The Adviser agrees, and each other Indemnified
Person will be required to agree as a condition to any such advance, that if one
of the foregoing parties receives any such advance, the party will reimburse the
Fund for such fees, costs, and expenses to the extent that it shall be
determined that the party was not entitled to indemnification under this
paragraph. The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be entitled by
contract or otherwise under law.
(b) Notwithstanding any of the foregoing, the provisions of this
paragraph shall not be construed so as to relieve the Indemnified Person of, or
provide indemnification with respect to, any liability (including liability
under federal securities laws, which, under certain circumstances, impose
liability even on persons who act in good faith) to the extent (but only to the
extent) that such liability may not be waived, limited, or modified under
applicable law or that such indemnification would be in violation of applicable
law, but shall be construed so as to effectuate the provisions of this paragraph
to the fullest extent permitted by law. The provisions of this paragraph shall
survive the termination or cancellation of this Agreement.
14. Term of Agreement; Termination. This Agreement shall remain in
effect until the date which is two years from the day and date first written
above, and shall continue in effect year to year thereafter, but only so long as
such continuance is specifically approved at least annually by the affirmative
vote of: (i) a majority of the members of the Fund's Board of Directors who are
not parties to this Agreement or interested persons (as defined in the ▇▇▇▇ ▇▇▇)
of any party to this Agreement, or of any entity regularly furnishing investment
advisory services with respect to the Fund pursuant to an agreement with any
party to this Agreement, cast in person at a meeting called for the purpose of
voting on such approval; and (ii) a majority of the Fund's Board of Directors or
the holders of a majority of the outstanding voting securities of the Fund. This
Agreement may nevertheless be terminated at any time without penalty, on 60
days' written notice, by the Fund's Board of Directors, by vote of holders of a
majority of the outstanding voting securities of the Fund, or by the Adviser.
This Agreement shall automatically be terminated in the event of its assignment,
provided that an assignment to a corporate successor to all or substantially all
of the Adviser's business or to a wholly-owned subsidiary of such corporate
successor which does not result in a change of actual control or management of
the Adviser's business shall not be deemed to be an assignment for the purposes
of this Agreement. Any notice to the Fund or the Adviser shall be deemed given
when received by the addressee.
7
15. Assignment. This Agreement may not be transferred, assigned,
sold, or in any manner hypothecated or pledged by either party hereto, except as
permitted under the 1940 Act or rules and regulations adopted thereunder.
16. Amendment. This Agreement may be amended only by the written
agreement of the parties. Any amendment shall be required to be approved by the
Board and by a majority of the independent Directors in accordance with the
provisions of Section 15(c) of the 1940 Act and the rules and regulations
adopted thereunder. If required by the 1940 Act, any material amendment shall
also be required to be approved by such vote of members of the Fund as is
required by the 1940 Act and the rules thereunder.
17. Conflicts of Laws. This Agreement shall be construed in
accordance with the laws of the State of New York, without giving effect to the
conflicts of laws principles thereof, provided, however, that nothing herein
shall be construed as being inconsistent with the 1940 Act. 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.
18. Management of Subsidiaries. If the Fund's Board of Directors
determines that it is in the best interests of the Fund and its members to carry
on all or part of the business of the Fund through one or more subsidiaries, the
Board of Directors may cause the substantive terms of this Agreement to apply to
the management of any such subsidiary or subsidiaries.
19. Fund Obligations. This Agreement is made by the Fund and
executed on behalf of the Fund by an officer of the Fund, and the obligations
created hereby are not binding on any of the Directors, officers, members,
employees, or agents, whether past, present, or future of the Fund individually,
but bind only the assets and property of the Fund.
20. Severability. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be effected thereby and, to this extent, the
provisions of this Agreement shall be deemed to be severable.
21. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
22. Supersedes Other Agreements. This Agreement supersedes all
prior investment advisory, management, and/or administration agreements in
effect between the Fund and the Adviser.
IN WITNESS WHEREOF, the parties have executed this Agreement by
their officers thereunto duly authorized as of the day and year first written
above.
GENERATION HEDGE STRATEGIES FUND LLC
By:
-------------------------------
Name:
Title:
Generation Capital Management LLC
By:
-------------------------------
Name:
Title:
8