EXHIBIT 10.6
INVESTMENT ADVISORY AGREEMENT
INVESTMENT ADVISORY AGREEMENT dated as of December 1, 1997, by and
between ESG RE LIMITED, a Bermuda company (the "Client"), and HEAD ASSET
MANAGEMENT L.L.C., a limited liability company formed under the laws of the
State of Delaware (the "Adviser").
1. Engagement. Commencing on December 1, 1997, the Client engages and
retains the Adviser to provide the investment advisory and related services
described below. The Adviser hereby accepts such engagement and shall provide
or make satisfactory arrangements for the provision of such services and assumes
the obligations herein set forth for the compensation provided herein.
2. Services and Authority of the Adviser. The Adviser will perform the
services and have the authority set forth in this Agreement with respect to all
cash, securities and other investment assets of the Client which are from time
to time deposited by the Client with the Adviser for investment pursuant to the
provisions hereof, and all proceeds thereof and additions thereto (the
"Account"). The Adviser will supervise and direct the investment of the Account
in accordance with, and subject to, the investment objectives, guidelines and
restrictions specified in written statements and notices given by the Client as
provided in Section 15 hereof.
The Adviser, as agent and attorney-in-fact with respect to the
Account, may, when it deems appropriate, without prior consultation with the
Client and at the risk of the Client (i) buy, sell, exchange, convert, tender
and otherwise trade in, retain, or reinvest in bonds, securities and any other
investments, including money market instruments, and (ii) place orders for the
execution of such investment transactions with or through such brokers, dealers,
issuers, or other persons as the Adviser may select, or tender or exchange such
securities in a tender or exchange offer or similar transaction initiated by the
issuer or any other person or entity. Subject to the last sentence of Section
15, the Adviser shall comply with all legal requirements and rules of securities
exchanges applicable to its duties in connection with the execution of
transactions. The Advisor shall not effect any borrowing of money on behalf of
the Client without Client's written consent thereto.
3. Transaction Procedures. At the commencement of the term of this
Agreement, the Client will provide the Adviser with a statement of the existing
Account portfolio which it desires the Adviser to manage as set forth in Exhibit
A hereto or as the parties hereto may agree from time to time. In connection
with each investment transaction in the Account, the Adviser shall instruct the
brokers and dealers to provide to the Client such written advice of trades,
including expenses and other incidents of the transaction, as is normally
provided.
Instructions of the Adviser to the custodian of the securities and
other investments in the Account selected by the Client (the "Custodian") shall
be made, at the option of the Adviser, either (i) in writing sent by first class
mail or by facsimile transmission, or (ii) orally and confirmed in writing by
first class mail or facsimile transmission as soon as practical thereafter. The
Adviser shall instruct all brokers and dealers executing orders on behalf of the
Account to forward to the Client copies of all confirmations promptly after
execution of transactions. The Adviser shall not be responsible for any loss
incurred by reason of any act or omission of any broker or dealer; provided,
however, that the Adviser exercises due care in the
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selection of brokers and dealers and makes reasonable efforts to see that
brokers and dealers selected by the Adviser perform their obligations with
respect to the Account.
4. Reports and Records of the Adviser. The Adviser will provide or
cause to be provided to the Client such periodic reports concerning the status
of the Account as the Client may reasonably request. The Adviser shall provide
to the Client within 10 business days of the end of each calendar month, a
report of Account transactions effected by the Adviser since the date of the
most recent such report, and within 20 business days of the end of each calendar
month, a valuation report of all investments and cash in the Account. The
Client and the Adviser will arrange for the Custodian to provide the Adviser
daily cash account statements and monthly asset position statements. The
Adviser will compare these statements with its own records and inform the
Custodian of any differences. In the event that differences between the
custodian's statements and the Adviser's records cannot be resolved between the
Adviser and the custodian, the Adviser will inform the Client in writing.
The Adviser shall preserve its records relating to the Account for no
less than six years and shall, upon the request of the Client, make such records
available for inspection, at reasonable times at its main business office during
normal business hours, by the Client, its auditors or any regulatory authority.
Prior to discarding or destroying any such records, the Adviser shall give the
Client reasonable opportunity, at the Client's expense, to review them and to
take all or such portion of them as the Client wishes to retain. The Adviser, in
the maintenance of its records, does not assume responsibility for the accuracy
of information furnished by or on behalf of the Client or any third party not an
officer or employee of the Adviser.
5. Confidential Relationship. All information and advice furnished by
either party to the other hereunder, including their respective agents and
employees, shall be treated as confidential and shall not be disclosed to third
parties except as provided in Section 4 or as required by law.
6. Service to Other Clients. The Adviser may perform investment advisory
and other services for various clients, including insurance companies,
investment companies and accounts held by the Adviser in a fiduciary capacity.
The Adviser may give advice and take action with respect to any of its other
clients which may differ from advice given or the timing or nature of action
taken with respect to the Account, so long as it is the Adviser's policy, to the
extent practical, to allocate investment opportunities to the Account over a
period of time on a fair and equitable basis relative to other clients. The
Adviser shall not have any obligation to purchase or sell, or to recommend for
purchase or sale, for the Account any security or other investment which the
Adviser, its officers, affiliates or employees may purchase or sell for its or
their own accounts or for the account of any other client, if in the opinion of
the Adviser such transaction or investment appears unsuitable, impractical or
undesirable for the Account.
7. Allocation of Brokerage. Where the Adviser places orders for the
execution of portfolio transactions for the Account, the Adviser may allocate
such transactions to such brokers and dealers for execution on such markets, at
such prices and at such commission rates (including commission rates that may
exceed those that another broker or dealer would have charged for effecting such
transactions) as the Adviser determines to be appropriate; provided, however,
that if such commission rate exceeds that which another broker or dealer might
have charged for the same transaction, the Adviser has determined in good faith
that the amount of such commission is reasonable in relation to the value of
brokerage and research services provided by such broker or
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dealer, viewed in terms of the particular transaction or the Adviser's overall
responsibilities with respect to some or all of the accounts over which the
Adviser exercises investment discretion; provided, further, that the Adviser
shall make reasonable efforts to minimize brokerage costs where similar services
of adequate standards and reliability are available from more than one broker or
dealer.
The Adviser may take into consideration in the selection of such
brokers and dealers not only the available prices and rate of brokerage
commissions, but all other relevant factors (including without limitation,
execution and processing capabilities, and general brokerage services, such as
economic, fixed income, and equity research, account evaluation, analysis and/or
performance and database and/or market information services, all of which are
provided by such brokers and dealers and which are expected to enhance the
overall investment management capabilities of the Adviser) without the Adviser's
having to demonstrate that such factors are a direct benefit to the Account.
8. Inside Information. The Adviser shall have no obligation to seek to
obtain any material non-public information about any issuer of securities, the
use of which, in any event, may be prohibited by the securities laws of certain
jurisdictions.
9. Proxies. The Adviser will not be required to take any action with
respect to the voting of proxies solicited by, or with respect to, the issuers
of securities in which assets of the Account may be invested from time to time,
but the Adviser shall, whenever the Client so requests, provide advice to the
Client with respect to the voting of such proxies.
10. Independent Contractor. The Adviser shall for all purposes herein be
deemed to be an independent contractor and shall, except as otherwise expressly
provided or authorized by or under this Agreement, have no authority to act for
or represent the Client in any way or otherwise be deemed an agent of the
Client.
11. Reimbursement of Travel and Related Expenses. The Client shall
promptly pay or reimburse the Adviser for its payment of all travel and other
expenses reasonably incurred by the Adviser with respect to any visit to the
Client where such travel is requested by the Client.
12. Investment Advisory Fees.
(a) Description of Fee. In consideration of the services provided to
the Client under this Agreement, the Client shall pay the Adviser a fee to be
calculated on the market value of all assets in the Account, and paid quarterly
as set forth in paragraph (b) of this Section 12 (the "Investment Advisory Fee")
to be determined at the following annual rates for the corresponding market
values of the Account:
(x) $2.50 per $1,000 (25 basis points) for a market value of
$200 million or less; and
(y) $1.50 per $1,000 (15 basis points) for the balance.
(b) Payment of the Investment Advisory Fee. The Investment Advisory
Fee shall be payable in quarterly installments in arrears. The Adviser shall
earn a pro rata share of the first payment under which Section 12 based on the
amount of time the Adviser has provided
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services under this agreement during the quarter. The first payment under this
Section 12 shall be made for the period commencing on December 1, 1997 and
ending on December 31, 1997, and shall be calculated based upon the market value
of the assets in the Account at December 31, 1997. Subsequent Investment
Advisory Fees shall be based upon quarter-end market valuations beginning with
March 31, 1998, and shall be based on one-quarter of the annual rates specified
above. Each Investment Advisory Fee shall be paid by the Client promptly upon
the receipt of a statement from the Adviser showing the amount of the fee and
the manner in which the fee was calculated.
(c) Effect of Termination. If the quarterly Investment Advisory Fee
has not been paid as of the effective date of termination, the Adviser shall
earn a pro rata share of the quarterly fee. Payments shall be made as soon as
possible after such date of termination.
13. Limitation of Liability and Indemnification. Neither the Adviser nor
any shareholder, director, officer or employee of the Adviser performing
services for the Client at the direction or request of the Adviser in connection
with the discharge of the Adviser's obligations hereunder shall be liable for
any error of judgment or mistake of law or for any loss which the Client or any
subsidiary of the Client may incur in connection with the investment of assets
in the Account.
To the fullest extent permitted by law, the Client shall indemnify,
hold harmless, protect and defend the Adviser, its shareholders, directors,
officers and employees (the "Indemnitees") against any losses, claims, damages
or liabilities, including without limitation, legal or other expenses incurred
in investigating or defending against any such loss, claim, damages or
liability, and any amounts expended in settlement of any claim (collectively
"Liabilities"), to which any Indemnitee may become subject by reason of any act
or omission performed or omitted to be performed by or on behalf of the Client
in connection with the investment of assets in the Account. The provisions of
this Section 13 shall continue to afford protection to each Indemnitee
regardless of whether such Indemnitee remains in the position or capacity
pursuant to which such Indemnitee became entitled to indemnification under this
Section 13.
However, nothing contained in this Section 13 shall be construed to
protect any Indemnitee against Liability to the Client or any subsidiary or
parent corporation of the Client to which such Indemnitee would otherwise be
subject, or require the Client to indemnify any Indemnitee against Liability to
the Client to which such Indemnitee would otherwise be subject, or require the
Client to indemnify any Indemnitee against any Liability, by reason of actions
or omissions constituting willful misfeasance, bad faith or gross negligence in
the performance of the Adviser's duties or reckless disregard of the Adviser's
obligations and duties under this Agreement.
14. Valuation. The market value of the investments in the Account shall
be determined from reports published by any nationally recognized pricing
service, or, if such reports are not readily available with respect to a
particular security, the Adviser shall determine the value of any such security
either by securing a quotation from a broker or dealer it selects or in some
other manner which the Adviser determines in good faith reflects the fair market
value of such security.
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15. Investment Objectives, Guidelines, Procedures and Restrictions. It
will be the Client's responsibility to provide the Adviser from time to time
with written Investment Guidelines for the Account, approved by the Board of
Directors of the Client and signed by its Chief Financial Officer (or a Vice
President if no person has the title of Chief Financial Officer), as well as any
changes or modifications therein, and any further restrictions under applicable
Bermuda laws or regulations. In addition, the client shall give the Adviser
prompt written notice if the Client deems any investments recommended or made
for the Account to be in violation of any of the Investment Guidelines. Unless
the Investment Guidelines contain specific restrictions, the investments
recommended for, or made on behalf of, the Account shall be deemed not to be
restricted under the current or future regulations stipulated by any Bermuda
regulatory body applicable to the Client, or by virtue of the terms of any other
contract or instrument purporting to bind the Client or the Adviser.
16. Termination. This Agreement may be terminated at any time (i) by the
Client by giving not less than 5 days' written notice to Adviser, and (ii) by
the Adviser by giving not less than 90 days' written notice to the Client;
provided, however, that the parties may terminate on shorter notice upon mutual
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agreement in writing. Such termination shall be without penalty to either party
but shall not prejudice any rights which have accrued before the date of
termination. The Client shall remain liable for settlement of any transactions
outstanding at the date of termination. In addition, the Client may order
immediate cessation of securities transactions at any time, provided, however,
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that the request is confirmed in writing immediately thereafter via facsimile
transmission to the Adviser. After the Client's termination of the Adviser's
authority as provided in Section 17 hereof, the Adviser shall not act further
for the Client. The Adviser shall reasonably cooperate with the Client to
ensure that there is an orderly transfer to an alternative investment adviser.
17. The Client's Termination of Authority. The Client shall compensate
the Adviser for any fees due in accordance with this Agreement and for any loss
the Adviser may suffer as a result of any action taken by the Adviser within the
terms of the Agreement, either before or after the Client's bankruptcy,
dissolution, or other termination of authority under this Agreement, but before
receipt by the Adviser of notice thereof. The Client further agrees that, to
the extent permitted by law, any such action taken by the Adviser shall be
binding upon the Client and any successor of the Client, who shall hold the
Adviser harmless from all Liability arising from any such action.
18. Notices. Unless otherwise specified herein, all notices,
instructions, directions, advice and other communication with respect to
security transactions or any other matter contemplated by this Agreement from
the Adviser to the Client and from the Client to the Adviser shall be given
either (i) in writing sent by first class mail, courier service, or facsimile
transmission or (ii) orally and confirmed in writing by first class mail,
courier service, or facsimile transmission as soon as practical thereafter. Any
such communication shall be deemed to have been made upon its receipt.
Communications by mail or courier service shall be effective if to the Adviser,
only if addressed to it at 1330 Avenue of the Xxxxxxxx, 00xx xxxxx, Xxx Xxxx,
Xxx Xxxx, 00000, or if to the Client, only if addressed to it at Skandia
International House, 16 Church Street, Xxxxxxxx, XX 11 Bermuda, with a copy of
such communication sent to European Specialty Group Holding AG, at
Xxxxxxxxxxxxxxx 0-0, 00000 Xxxxxxx, Xxxxxxx, provided that either party may
specify another address or addresses for itself for this purpose in a notice
similarly given.
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The adviser may rely upon any communication (written or oral) from any
person if the Adviser reasonably believes it to be genuine and from an
authorized person. A person shall be deemed to be an authorized person for
purposes hereof if his name, specimen signature and authority have been
certified to the Adviser by a Director of the Client and such person shall
continue to be deemed an authorized person until the Adviser receives written
notice to the contrary from a Director of the Client.
19. Representation by the Client. The Client represents and confirms that
the employment of the Adviser is authorized by the governing documents relating
to the Account and that the terms hereof do not violate any obligation by which
the Client or any subsidiary of the Client is bound, or any obligation known to
the Client by which the Adviser, as investment manager of the Account, is
intended to be bound, whether arising by contract, operation of law, or
otherwise.
The Adviser represents and confirms that it has all requisite power
and authority to act as Adviser hereunder.
20. Amendment. This Agreement may be amended only by an instrument in
writing executed by both parties.
21. Assignment. Neither party may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party to this Agreement.
22. Governing Law. This Agreement shall be construed and enforced in
accordance with, and governed by, the internal laws of the State of New York
applicable to agreements made and to be performed in that State.
IN WITNESS HEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
ESG RE LIMITED
By: s/s Xxxxxxx Xxxx
____________________________
Name: Xxxxxxx Xxxx
Title: Chief Financial Officer
HEAD ASSET MANAGEMENT L.L.C.
By /s/ Xxxxx X. Xxxxxxx
____________________________
Name: Xxxxx X. Xxxxxxx
Title: Chief Investment Officer
