<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
U.S. Homecare Corporation
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(Name of Issuer)
Common Stock, par value $.01 per share
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(Title of Class of Securities)
911819 10 0
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(CUSIP Number)
Mr. John W. Gildea
115 East Putnam Avenue, Greenwich, Connecticut 06830
(203) 661-6945
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
October 9, 1997
----------------------------------------------------
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter disclosure
provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Exhibit Index is on Page 15.
Page 1 of __ Pages
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CUSIP No. 911819 10 0
- --------------------------------------------------------------------------------
1 Name of Reporting Person(1)
S.S. or I.R.S. Identification No. of Above Person
Network Fund III, Ltd.
- --------------------------------------------------------------------------------
2 Check the Appropriate Box If a Member of a Group
a. / /
b. /x/
- --------------------------------------------------------------------------------
3 SEC Use Only
- --------------------------------------------------------------------------------
4 Source of Funds
WC
- --------------------------------------------------------------------------------
5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) / /
- --------------------------------------------------------------------------------
6 Citizenship or Place of Organization
Cayman Islands
- --------------------------------------------------------------------------------
7 Sole Voting Power
Number of 1,076,819(2)
Shares
Beneficially 8 Shared Voting Power
Owned By
Each
Reporting 9 Sole Dispositive Power
Person
With 1,076,819(2)
10 Shared Dispositive Power
- --------------------------------------------------------------------------------
11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,076,819(2)
- --------------------------------------------------------------------------------
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
- --------
(1) Filing jointly pursuant to Rule 13d-1(f)(1) under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with Network IV LLC and John W. Gildea.
(2) Represents shares of Common Stock of the issuer that may be
deemed to be beneficially owed by the Reporting Person and
calculated in accordance with Rule 13d-3(d)(1) under the
Exchange Act. See Items 2 and 5.
Page 2 of __ Pages
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13 Percent of Class Represented By Amount in Row (11)
10.75%(3)
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14 Type of Reporting Person
CO
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- --------
(3) Represents 5.68% of the approximately 18,955,000 shares of
Common Stock of the Company that would be outstanding upon
conversion of options to purchase approximately 1,721,000
shares of Common Stock and conversion of $35.00 Preferred
Stock into approximately 7,221,000 shares of Common Stock.
Page 3 of __ Pages
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CUSIP No. 911819 10 0
- --------------------------------------------------------------------------------
1 Name of Reporting Person(4)
S.S. or I.R.S. Identification No. of Above Person
John W. Gildea
- --------------------------------------------------------------------------------
2 Check the Appropriate Box If a Member of a Group
a. / /
b. /x/
- --------------------------------------------------------------------------------
3 SEC Use Only
- --------------------------------------------------------------------------------
4 Source of Funds
AF; PF
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5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) / /
- --------------------------------------------------------------------------------
6 Citizenship or Place of Organization
U.S.A.
- --------------------------------------------------------------------------------
7 Sole Voting Power
Number of 1,735,819(5)
Shares
Beneficially 8 Shared Voting Power
Owned By
Each
Reporting 9 Sole Dispositive Power
Person
With 1,735,819(5)
10 Shared Dispositive Power
- --------------------------------------------------------------------------------
11 Aggregate Amount Beneficially Owned by Each Reporting Person
1,735,819(5)
- --------------------------------------------------------------------------------
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
- --------
(4) Filing jointly pursuant to Rule 13d-1(f)(1) under the Exchange
Act with Network IV LLC and Network Fund III, Ltd.
(5) Represents shares of Common Stock of the issuer that may be
deemed to be beneficially owed by the Reporting Person and
calculated in accordance with Rule 13d-3(d)(1) under the
Exchange Act. See Items 2 and 5.
Page 4 of __ Pages
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13 Percent of Class Represented By Amount in Row (11)
17.34%(6)
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14 Type of Reporting Person
IN
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- --------
(6) Represents 9.12% of the approximately 18,955,000 shares of
Common Stock of the Company that would be outstanding upon
conversion of options to purchase approximately 1,721,000
shares of Common Stock and conversion of $35.00 Preferred
Stock into approximately 7,221,000 shares of Common Stock.
Page 5 of __ Pages
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CUSIP No. 911819 10 0
- --------------------------------------------------------------------------------
1 Name of Reporting Person(7)
S.S. or I.R.S. Identification No. of Above Person
Network IV LLC
- --------------------------------------------------------------------------------
2 Check the Appropriate Box If a Member of a Group
a. / /
b. /x/
- --------------------------------------------------------------------------------
3 SEC Use Only
- --------------------------------------------------------------------------------
4 Source of Funds
WC
- --------------------------------------------------------------------------------
5 Check If Disclosure of Legal Proceedings Is Required Pursuant to
Items 2(d) or 2(e) / /
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6 Citizenship or Place of Organization
Cayman Islands
- --------------------------------------------------------------------------------
7 Sole Voting Power
Number of 539,000(8)
Shares
Beneficially 8 Shared Voting Power
Owned By
Each
Reporting 9 Sole Dispositive Power
Person
With 539,000(8)
10 Shared Dispositive Power
- --------------------------------------------------------------------------------
11 Aggregate Amount Beneficially Owned by Each Reporting Person
539,000(8)
- --------------------------------------------------------------------------------
12 Check Box If the Aggregate Amount in Row (11) Excludes Certain Shares
/ /
- --------------------------------------------------------------------------------
- --------
7 Filing jointly pursuant to Rule 13d-1(f)(1) under the Exchange
Act with Network Fund III, Ltd. and John W. Gildea.
8 Represents shares of Common Stock of the issuer that may be
deemed to be beneficially owed by the Reporting Person and
calculated in accordance with Rule 13d-3(d)(1) under the
Exchange Act. See Items 2 and 5.
Page 6 of __ Pages
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13 Percent of Class Represented By Amount in Row (11)
5.38%(9)
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14 Type of Reporting Person
CO
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- --------
(9) Represents 2.84% of the approximately 18,955 shares of Common
Stock of the Company that would be outstanding upon conversion
of options to purchase approximately 1,721,000 shares of
Common Stock and conversion of $35.00 Preferred Stock into
approximately 7,221,000 shares of Common Stock.
Page 7 of __ Pages
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Item 1. Security and Issuer.
This Statement on Schedule 13D (the "Schedule 13D") relates to the
Common Stock, par value $.01 per share (the "Common Stock"), of U.S.
Homecare Corporation, a New York corporation (the "Company"). The
address of the principal executive offices of the Company is Two
Hartford Square West, Suite 300, Hartford, Connecticut 06106.
Item 2. Identity and Background.
This Schedule 13D is filed jointly on behalf of John W. Gildea, a
United States citizen ("Gildea"), Network Fund III, Ltd, a Cayman
Islands exempt company ("Network III") and Network IV LLC, a Cayman
Islands exempt company ("Network IV"), pursuant to Rule 13d-1(f)(1)
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
Gildea is the Chairman of the Board of Directors, Chief Executive
Officer, President, a director and the sole stockholder of Gildea
Management Company, a Delaware corporation ("GMC"), which corporation
has the power to dispose of the 1,076,819 shares of Common Stock (the
"Network III Shares") owned by Network III, by virtue of an Investment
Advisory Agreement, dated February 26, 1996, between GMC and Network
III (the "Network III Investment Advisory Agreement"), a copy of which
is attached hereto as Exhibit 2 and incorporated herein by reference.
GMC also has the power to dispose of the 539,000 shares of Common Stock
(the "Network IV Shares") owned by Network IV, by virtue of an
Investment Advisory Agreement, dated May 7, 1997 (the "Network IV
Advisory Agreement"), a copy of which is attached hereto as Exhibit 3
and is incorporated herein by reference. As a result, Gildea may be
deemed to beneficially own the Network III Shares and the Network IV
Shares. Gildea also owns 120,000 shares of Common Stock in his
individual capacity (the "Gildea Shares").
Mr. William P. O'Donnell ("O'Donnell") is an officer and a director of
GMC, a director of each of Network III and Network IV and owns 40,000
shares of Common Stock (the "O'Donnell Shares"). Gildea, Network III
and Network IV disclaim any existence of a group (within the meaning of
Section 13(d) of the Exchange Act) with, between or among each other or
Mr. O'Donnell.
Gildea's principal business is managing the investments of various
entities in issuers located principally in the United States. Each of
Network III's and Network IV's principal business is to invest in debt
and equity securities of public and private companies. The principal
business address of Gildea is 115 East Putnam Avenue, Greenwich,
Connecticut 06830. The principal address and the principal office
address of each of Network III and Network IV is P.O. Box 219
Butterfield House, Grand Cayman, Cayman Islands, B.W.I.
The respective names, business addresses, citizenship and present
principal occupations of each director and executive officer of each of
Network III and Network IV are set forth on Schedule I hereto.
None of Gildea, Network III or Network IV or, to the best knowledge of
such parties, any of the persons listed on Schedule I hereto, has,
during the last five years, (i) been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) been a
party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or
Page 8 of __ Pages
<PAGE>
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
Gildea acquired the Gildea Shares for $1.14 per share, or an aggregate
of $137,160, all of which funds were obtained from Gildea's personal
funds.
Network III acquired the Network III Shares for $1.14 per share, or an
aggregate of $1,230,804, all of which funds were obtained from the
capital contributions of the partners of Network III.
Network IV acquired the Network Shares for $1.14 per share, or an
aggregate of $616,077, all of which funds were obtained from the
capital contributions of the partners of Network IV.
O'Donnell acquired the O'Donnell Shares for $1.14 per share, or an
aggregate of $45,720, all of which funds were obtained from O'Donnell's
personal funds.
Item 4. Purpose of Transaction.
Network III acquired the Network III Shares, Network IV acquired the
Network IV Shares, Gildea acquired the Gildea Shares and O'Donnell
acquired the O'Donnell Shares in a private placement transaction on
October 9, 1997. Each of Network III, Network IV, Gildea and O'Donnell
currently intends to hold the Network III Shares, the Network IV
Shares, the Gildea Shares and the O'Donnell Shares, respectively, for
investment.
Each of Network III, Network IV, Gildea and O'Donnell intends to review
on a continuing basis their investment in the Company. As of the date
of this Schedule 13D, no determination has been made by Network III,
Network IV, Gildea or O'Donnell to acquire additional shares of capital
stock of the Company or to dispose of any shares of capital stock of
the Company now held by them, although any of them may decide to so
acquire or dispose of shares of capital stock of the Company. Any such
determination will depend on market conditions prevailing from time to
time and on other conditions which may be applicable depending on the
nature of the transaction or transactions involved. Except as
specifically set forth in this Item 4, none of Network III, Network IV,
Gildea or O'Donnell has any plans or proposals which relate to or would
result in any of the actions or effects set forth in items (a) through
(j) of Item 4 of Schedule 13D, although any of such persons may develop
such plans or proposals. Gildea, Network III and Network IV disclaim
any existence of a group (within the meaning of Section 13(d) of the
Exchange Act) with, between or among each other or Mr. O'Donnell.
Item 5. Interest in Securities of the Issuer.
(a)(i) Gildea directly owns the 120,000 Gildea Shares. The
120,000 Gildea Shares represent 1.20% of the 10,013,247 shares
of Common Stock of the Company outstanding on the date hereof
and .63% of the approximately 18,955,000 shares of Common
Stock of the Company (the "Fully Diluted Shares") that would
be outstanding upon conversion of outstanding options to
purchase approximately 1,721,000 shares of Company Common
Stock and conversion of outstanding $35.00 Preferred Stock
into approximately 7,221,000 shares of Company Common Stock,
based upon information set forth in the Company's Quarterly
Page 9 of __ Pages
<PAGE>
Report on Form 10-Q for the Second Quarter Ended June 30, 1997
(the "10-Q") and calculated in accordance with Rule
13d-3(d)(1) under the Exchange Act.
(ii) The 1,076,819 Network III Shares of which Gildea may be deemed
to be the indirect beneficial owner, the 539,000 Network IV
Shares of which Gildea may be deemed to be the indirect
beneficial owner and the 120,000 Gildea Shares owned directly
by Gildea, collectively represent 17.34% of the 10,013,247
shares of Common Stock of the Company outstanding on the date
hereof and approximately 9.12% of the Fully Diluted Shares,
based upon information set forth in the Company's 10-Q and
calculated in accordance with Rule 13d-3(d)(1) under the
Exchange Act.
(iv) The 1,076,819 Network III Shares represent the right to
acquire 10.75% of the 10,013,247 shares of Common Stock of the
Company outstanding on the date hereof and approximately 5.68%
of the Fully Diluted Shares, based upon information set forth
in the Company's 10-Q and calculated in accordance with Rule
13d-3(d)(1) under the Exchange Act.
(b)(i) Gildea, as the Chairman of the Board of Directors, Chief
Executive Officer, President and sole stockholder of GMC, may
be deemed to have the power to vote or direct the voting and
to dispose or direct the disposition of the Network III Shares
and the Network IV Shares.
(ii) Gildea has the sole power to vote or direct the voting of and
to dispose of or direct the disposition of the Gildea Shares.
(iii) O'Donnell has the sole power to vote or direct the voting of
and to dispose of or direct the disposition of the O'Donnell
Shares.
(c) Except as set forth in this Schedule 13D none of Gildea,
Network III, Network IV, O'Donnell or, to the best knowledge
of such parties, any of the persons named on Schedule I
hereto, owns any shares of the capital stock of the Company or
has purchased or sold any shares of the capital stock of the
Company during the past 60 days.
(d) Except as set forth in this Schedule 13D, no person is known
by Gildea, Network III or Network IV to have the right to
receive or the power to direct the receipt of dividends from,
or the proceeds from the sale of, the Network III Shares, the
Network IV Shares or the Gildea Shares.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Except as set forth in this Schedule 13D, there are no contracts,
arrangements, understandings or relationships (legal or otherwise)
among the persons referred to in Item 2 of this Schedule 13D or between
such persons and any other person with respect to any of the securities
of the Company, including, but not limited to, any relating to the
transfer or voting of any of such securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees of
profits, division of profits or loss or the giving or withholding of
proxies.
Page 10 of __ Pages
<PAGE>
Item 7. Materials to Be Filed as Exhibits
1. Joint Filing Agreement, dated October 17, 1997.
2. Investment Advisory Agreement, by and among GMC and Network
III, dated as of February 26, 1996.
3. Investment Advisory Agreement, by and among GMC and Network
IV, dated as of May 7, 1997.
Page 11 of __ Pages
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of their respective knowledge
and belief, the undersigned certify that the information set forth in this
statement is true, complete and correct.
Dated: October 17, 1997
/s/ John W. Gildea
- -----------------------------------
John W. Gildea
NETWORK FUND III, LTD.
By: GILDEA MANAGEMENT COMPANY,
Investment Advisor
By: /s/ John W. Gildea
-----------------------------------
Name: John W. Gildea
Title: President
NETWORK IV LLC
By: GILDEA MANAGEMENT COMPANY,
Investment Advisor
By: /s/ John W. Gildea
-----------------------------------
Name: John W. Gildea
Title: President
Page 12 of __ Pages
<PAGE>
SCHEDULE I
Reporting Person: Network Fund III, Ltd.
P.O. Box 219, Butterfield House
Grand Cayman, Cayman Islands, B.W.I.
Executive Officers, Directors and Controlling Person:
Name: John W. Gildea
Position: Director and Chairman
Principal Occupation
and Employment;
Business Address: President, director and sole stockholder of GMC; the
business address of GMC and Mr. Gildea is:
115 Putnam Avenue, Greenwich, CT 06830.
Name: William P. O'Donnell
Position: Director and Managing Director
Principal Occupation
and Employment: Executive officer and director of GMC
Business Address: 115 Putnam Avenue
Greenwich, CT 06830
Citizenship: USA
Name: Peter Arthur Neil Bailey
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus Asset Management in Jersey,
Channel Islands, a member of Coopers & Lybrand
International, a limited liability association
incorporated in Switzerland; business address: La
Motte Chambers, La Motte Street, St. Heiler, Jersey,
Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
Name: Geoffrey William Fisher
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus Asset Management in Jersey,
Channel Islands, a member of Coopers & Lybrand
International, a limited liability association
incorporated in Switzerland; business address: La
Motte Chambers, La Motte Street, St. Heiler, Jersey,
Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
Name: Michael David de Figueiredo
Position: Director
Principal Occupation
and Employment;
Page 13 of __ Pages
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Business Address: Director of Abacus (CI) Limited, a member of
Coopers & Lybrand International, a limited liability
association incorporated in Switzerland; business
address: La Motte Chambers, La Motte Street, St.
Heiler, Jersey, Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
Reporting Person: Network IV LLC
P.O. Box 219, Butterfield House
Grand Cayman, Cayman Islands, B.W.I.
Executive Officers, Directors and Controlling Person:
Name: William P. O'Donnell
Position: Director and Managing Director
Principal Occupation
and Employment: Executive officer and director of GMC
Business Address: 115 Putnam Avenue
Greenwich, CT 06830
Citizenship: USA
Name: Peter Arthur Neil Bailey
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus Asset Management in Jersey,
Channel Islands, a member of Coopers & Lybrand
International, a limited liability association
incorporated in Switzerland; business address: La
Motte Chambers, La Motte Street, St. Heiler, Jersey,
Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
Name: Geoffrey William Fisher
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus Asset Management in Jersey,
Channel Islands, a member of Coopers & Lybrand
International, a limited liability association
incorporated in Switzerland; business address: La
Motte Chambers, La Motte Street, St. Heiler, Jersey,
Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
Name: Michael David de Figueiredo
Position: Director
Principal Occupation
and Employment;
Business Address: Director of Abacus (CI) Limited, a member of
Coopers & Lybrand International, a limited liability
association incorporated in Switzerland; business
address: La Motte Chambers, La Motte Street, St.
Heiler, Jersey, Channel Islands, U.K. JE1 1BJ
Citizenship: U.K.
Page 14 of __ Pages
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EXHIBIT INDEX
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<TABLE>
<CAPTION>
Page
Exhibit Number
- ------- ------
<S> <C>
1. Joint Filing Agreement, dated October 17, 1997. 16
2. Investment Advisory Agreement, by and among GMC and Network III,
dated as of February 26, 1996. 18
3. Investment Advisory Agreement, by and among GMC and Network IV,
dated as of May 7, 1997. 25
</TABLE>
Page 15 of __ Pages
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EXHIBIT 1
<PAGE>
Exhibit 1
---------
AGREEMENT
---------
The undersigned hereby agree that this statement on Schedule
13D with respect to the beneficial ownership of shares of Common Stock of U.S.
Homecare Corporation is filed jointly, on behalf of each of them.
Dated: October __, 1997
/s/ John W. Gildea
-----------------------------------------
John W. Gildea
NETWORK FUND III, LTD.
By: GILDEA MANAGEMENT COMPANY,
Investment Advisor
By: /s/ John W. Gildea
-----------------------------
Name: John W. Gildea
Title: President
NETWORK IV LLC
By: GILDEA MANAGEMENT COMPANY,
Investment Advisor
By: /s/ John W. Gildea
-----------------------------
Name: John W. Gildea
Title: President
<PAGE>
EXHIBIT 2
<PAGE>
NETWORK FUND III, LTD.
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement") is entered into as
of February 26, 1996 by and between GILDEA MANAGEMENT COMPANY, a Delaware
corporation (the "Investment Advisor"), and NETWORK FUND III, LTD., a Cayman
Islands exempted company (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund has been formed as a closed-end investment company,
the objective of which is to achieve capital appreciation in accordance with the
investment objectives and strategies as more fully described in the Confidential
Private Placement Memorandum of the Fund dated February 1996 (the "Memorandum");
and
WHEREAS, the Fund wishes to engage the Investment Advisor to provide
investment advisory services with respect to the Fund's assets; and
WHEREAS, the Investment Advisor wishes to accept the same upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein contained, the parties agree as follows:
1. Investment Management Services. In accordance with the provisions of
the Memorandum and Articles of Association of the Fund, and under the ultimate
supervision of the Board of Directors of the Fund (the "Directors") from time to
time as provided therein, and in accordance with the investment objectives,
policies, guidelines and restrictions which are set forth in the Memorandum or
which are otherwise communicated to the Investment Advisor in writing by the
Fund, the Investment Advisor shall use its reasonable efforts to invest the
assets of the Fund according to the strategy set forth in the Memorandum.
Capitalized terms not otherwise defined herein shall be used herein as defined
in the Memorandum.
2. Authority of the Investment Advisor. The Investment Advisor shall
have full discretion and authority, without obtaining the Fund's prior approval,
to manage the investment and reinvestment of the assets of the Fund in such
manner as the Investment Advisor considers appropriate consistent with the
Memorandum. In furtherance of the foregoing, the Fund hereby designates and
appoints the Investment Advisor as its agent and attorney-in-fact, with full
power and authority and without the need for further approval of the Fund
(except as may be required by law), to carry out the following with respect to
the assets of the Fund:
(a) to effect purchases and sales (including short sales) of
(i) securities of any type whatsoever, denominated in any currency, whether or
not issued by government entities, partnerships, trusts or corporations, (ii)
any put or call options thereon (including the writing of options, whether
covered or uncovered), and (iii) other securities and instruments consistent
with
<PAGE>
the Fund's investment policies and program;
(b) to make all decisions relating to the manner, method and
timing of investment transactions, and to select brokers and dealers for the
execution, clearance and settlement of any transactions;
(c) to borrow from banks, brokers or other financial
institutions to the extent permitted by the Memorandum and to pledge assets of
the Fund in connection therewith;
(d) to direct custodians to deliver funds or securities for
the purpose of effecting transactions, and to instruct custodians to exercise or
abstain from exercising any privilege or right attaching to such assets; and
(e) to make and execute, in the name and on behalf of the
Fund, all such documents (including, without limitation, customer agreements and
other documents in connection with the establishment and maintenance of
brokerage accounts) and to take all such other actions as the Investment Advisor
considers necessary or advisable to carry out its investment management duties
hereunder.
3. Brokerage. In the course of selecting brokers, dealers, banks and
intermediaries to effect transactions for the Fund, the Investment Advisor may
agree to such commissions, fees and other charges on behalf of the Fund as the
Investment Advisor shall deem reasonable in the circumstances taking into
account all such factors as it deems relevant, including the quality of research
and other services made available to it (even if such services are not for the
exclusive benefit of the Fund). It is understood that the costs of such services
will not necessarily represent the lowest costs available and that the
Investment Advisor is under no obligation to combine or arrange orders so as to
obtain reduced charges.
4. Investments for the Accounts of Others and Allocation of
Opportunities.
(a) It is understood that the Investment Advisor and its
directors, officers, employees and principals may from time to time purchase and
sell securities or other investment assets for their own accounts, for the
accounts of their families, for the account of any entity in which they have a
beneficial interest or for the accounts of others for whom they may provide
investment advisory or other services (collectively, "Managed Accounts"),
notwithstanding the fact that the Fund may have or may take an investment
position in the same security; provided, however, that the Investment Advisor
shall not cause the Fund to purchase any asset from or sell any asset to the
Investment Advisor, or any of its directors, officers, employees or principals
or any account or entity controlled by such persons without the consent of the
Fund.
(b) It is understood that when the Investment Advisor
determines that it would be appropriate for the Fund and one or more Managed
Accounts to participate in an investment opportunity, the Investment Advisor
will seek to execute orders for the Fund and for such Managed Accounts on an
equitable basis. In such situations, the Investment Advisor may place orders for
the Fund and each Managed Account simultaneously, and if all such orders are not
filled at the same price, the Investment Advisor may cause the Fund and each
Managed Account
2
<PAGE>
to pay or receive the average of the prices at which the orders were filled for
the Fund and all Managed Accounts. If all such orders cannot be fully executed
under prevailing market conditions, the Investment Advisor may allocate the
securities traded among the Fund and the Managed Accounts in a manner which it
considers equitable, taking into account the size of the order placed for the
Fund and each such Managed Account as well as any other factors which it deems
relevant.
(c) The Investment Advisor will not organize any other
investment fund with the same objectives as the Fund (other than a parallel U.S.
limited partnership for U.S. investors) unless at least sixty percent (60%) of
the capital of the Fund has been invested in portfolio securities consistent
with the Fund's objectives.
5. Compensation.
(a) For its services hereunder, the Investment Advisor shall
be entitled to receive a quarterly management fee from the Fund at an annual
rate equal to 1.75% of the Net Value of the Fund (as defined in the Memorandum).
The management fee shall be calculated and payable in arrears after the end of
each calendar quarter based on the Net Value of the Fund as of the end of the
calendar quarter. The management fee shall be paid promptly to the Investment
Advisor after the close of each calendar quarter.
(b) In addition to the management fee, once the Fund has made
aggregate distributions to holders of its Common Shares equal to their initial
investment plus a 7% non-compounded annual return (the "Preferred Return"), then
the Investment Advisor will receive distributions in its capacity as holder of
the Fund's Founders Shares until it has received cumulative distributions equal
to a 1.75% non-compounded annual return on the Fund's capital, and thereafter
distributions will be made 80% to holders of Common Shares of the Fund and 20%
to the Investment Advisor in its capacity as holder of Founders Shares, in each
case as provided in the Memorandum and in the Articles and Memorandum of
Association of the Fund.
6. Scope of Liabilities. The Investment Advisor shall not be liable to
the Fund, its affiliates or shareholders for any losses, damages, expenses or
claims occasioned by any act or omission of the Investment Advisor in connection
with the performance of its services hereunder, other than as a result of its
own willful misconduct, gross negligence or reckless disregard of its duties
hereunder, or as otherwise required by applicable law.
7. Indemnification. The Fund shall indemnify the Investment Advisor
(which shall include solely for purposes of this Section 9 any of its directors,
officers, employees and shareholders) against and hold them harmless from any
expense, loss, liability or damage arising out of any claim asserted or
threatened to be asserted by any third party, in connection with the Investment
Advisor's serving or having served as such pursuant to this Agreement; provided,
however, that the Investment Advisor shall not be entitled to indemnification
with respect to any expense, loss, liability or damage which was caused by its
own gross negligence, willful misconduct or reckless disregard of its duties
hereunder. The Fund shall advance to the Investment Advisor the reasonable costs
and expenses of investigating and/or defending any such claim, subject to
receiving a written undertaking from the Investment Advisor to repay any such
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amounts advanced to it in the event and to the extent of any subsequent
determination that the Investment Advisor was not entitled to indemnification
hereunder. In the event that the Investment Advisor is or becomes a party to any
action or proceeding in respect of which indemnification may be sought
hereunder, the Investment Advisor shall promptly notify the Fund thereof.
Following such notice, the Fund shall be entitled to participate therein and, to
the extent that it may wish, to assume the defense thereof with counsel
reasonably satisfactory to the Investment Advisor. After notice from the Fund to
the Investment Advisor of an election so to assume the defense thereof, the Fund
will not be liable to the Investment Advisor hereunder for any legal or other
expenses subsequently incurred by the Investment Advisor in connection with the
defense thereof other than reasonable costs of investigation unless counsel for
the Investment Advisor shall reasonably determine that there is a conflict of
interest which requires separate representation of the parties. The Fund shall
not be liable hereunder for any settlement of any action or claim effected
without its written consent thereto, which consent shall not be unreasonably
withheld, nor shall the Fund enter into any settlement which shall impose any
obligation on the Investment Advisor without its written consent.
8. Independent Contractor. For all purposes of this Agreement, the
Investment Advisor shall be an independent contractor and not an employee or
agent of the Fund, nor shall anything herein be construed as making the Fund a
partner or co-venturer with the Investment Advisor or any of its affiliates.
Except as provided in this Agreement, the Investment Advisor shall not have
authority to bind, obligate or represent the Fund. Without limiting the
generality of the foregoing, the Investment Advisor shall have no authority
whatsoever (nor shall it have any duty) on behalf of the Fund to: (i)
communicate with shareholders of the Fund or with the general public; (ii)
solicit sales of the Shares of the Fund or accept subscriptions therefor; (iii)
maintain the principal corporate records or books of account of the Fund; (iv)
disburse payments of dividends, legal and accounting fees, and directors' and
officers' salaries; or (v) make redemptions of the shares of the Fund.
9. Information Concerning Activities. The Investment Advisor shall send
or arrange that there be sent to the Fund confirmations of all transactions for
its account. The Investment Advisor shall also furnish from time to time such
further information and reports concerning the activities undertaken by the
Investment Advisor on behalf of the Fund as the Fund may reasonably request.
10. Expenses. All expenses incurred directly in connection with
transactions effected or positions held on behalf of the Fund pursuant to the
Investment Advisor's exercise of its duties hereunder (including, without
limitation, custodial fees, clearing fees, brokerage commissions, interest and
commitment fees on loans and debit balances, withholding or transfer taxes and
other expenses as described in the Memorandum) shall be paid or reimbursed by
the Fund. The Investment Advisor shall bear its own overhead and other internal
operating costs, except that the Investment Advisor may cause certain of such
expenses to be paid out of brokerage commissions generated by trading on behalf
of the Fund as described in the Memorandum.
11. Term, Termination, Renewal and Survival.
(a) The initial term of this Agreement shall commence on the
date hereof and
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shall continue until the final dissolution and liquidation of the Fund, subject
to termination by either party upon not less than thirty (30) days prior written
notice to the other in the event of any material breach by the other party of
its obligations under this Agreement, which breach is not remedied within such
period.
(b) In the event of the termination of this Agreement, (i) the
Investment Advisor shall be entitled to the management fee accrued through the
date of termination, (ii) the provisions of Sections 6 and 7 shall survive any
termination, and (iii) the Investment Advisor shall have the right, at its
option, to resell the Founders Shares to the Fund at a purchase price equal to
the accrued but unpaid distributions due to the holders of Founders Shares
through the date of such termination based upon the Net Value of the Fund (as
defined in the Memorandum) as of such date.
12. Modification; Waiver. Except as otherwise expressly provided
herein, this Agreement shall not be amended nor shall any provision of this
Agreement be considered modified or waived unless evidenced by a writing signed
by the parties to be charged with such amendment, waiver or modification.
13. Entire Agreement; Binding Effect; Assignment. This Agreement
represents the entire agreement among the parties, shall be binding upon and
inure to the benefit of the parties hereto and their respective successors, and
their rights and obligations hereunder shall not be assignable, transferable or
delegable without the written consent of the other party hereto. Any attempted
assignment, transfer or delegation hereof without such consent shall be void.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Cayman Islands, without giving effect to
conflicts of law.
15. Counterparts. This Agreement may be signed in any number of
counterparts. Any single counterpart or a set of counterparts signed in either
case by the parties hereto shall constitute a full and original agreement for
all purposes.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
NETWORK FUND III, LTD.
By: /s/ Peter Bailey
---------------------------------
Name: Peter Bailey
Title: Director
GILDEA MANAGEMENT COMPANY
By: /s/ William P. O'Donnell
---------------------------------
Name: William P. O'Donnell
Title: Managing Director
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EXHIBIT 3
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INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT ("Agreement"), made as of the 7th
day of May, 1997, by and between NETWORK IV LLC, a Cayman Islands exempted
company (the "Fund"), and GILDEA MANAGEMENT COMPANY, a Delaware, U.S.A.
corporation (the "Investment Advisor"):
W I T N E S S E T H:
WHEREAS, the investment objective of the Fund is to provide investors
with superior returns substantially exceeding those generally available in the
financial markets by opportunistic investing in event-driven special situations,
all as more fully described in the Fund's Confidential Private Placement
Memorandum dated October 31, 1996 attached hereto as Exhibit A (said
Confidential Private Placement Memorandum as further amended and supplemented
from time to time by the Fund, including further amendments, supplements
(including but not limited to the Supplement dated February 26, 1997), and
additional private placement memoranda necessary to offer and sell Shares at any
time and from time to time, shall hereinafter be referred to as the
"Memorandum");
WHEREAS, the Fund has sold and intends to sell redeemable voting shares
of the Fund (the "Shares") in an offering described in the Memorandum;
WHEREAS, the Fund desires the Investment Advisor, upon the terms and
conditions set forth herein, to act as Investment Advisor for the Fund and to
make investment decisions for the Fund with respect to the fund's assets and the
Investment Advisor desires so to act;
WHEREAS, the Investment Advisor is engaged in the business of making
investment decisions on behalf of investors; and
WHEREAS, unless otherwise provided, capitalized terms used herein shall
have the same meanings given such terms in the Memorandum.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Undertakings of the Investment Advisor
(a) The Investment Advisor agrees to make to the Fund all
disclosures necessary regarding the Investment Advisor and its affiliates.
(b) If the Investment Advisor shall become aware of any
materially untrue or misleading statement of a fact or any omission of a
material fact contained in the Memorandum regarding the Investment Advisor or
its affiliates or of the occurrence of any event or change in circumstances
which shall have resulted in there being any such materially untrue or
misleading statement of a material fact or any such omission of a material fact,
the Investment
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Advisor promptly shall inform the Fund and cooperate with the Fund in the
preparation of any necessary amendments or supplements to the Memorandum.
(c) During the term of this Agreement, the Investment Advisor
and its affiliates shall be free to advise other investors as to the purchase
and sale of securities, to manage and invest other investors' accounts, and to
invest for and on behalf of their own proprietary accounts. Although the
Investment Advisor and its affiliates manage investments on behalf of a number
of other customer accounts, investment decisions and allocations need not
necessarily be made in parallel among the Fund's account and the other customer
accounts. Investments made by the Fund need not, and are not intended to,
necessarily replicate the investments, or the investment methods and strategies
of other accounts managed by the Investment Advisor and its affiliates. The
Investment Advisor and its affiliates at times and from time to time may elect
to apportion major or minor portions of the investments made by the Fund among
other accounts managed by the Investment Advisor and its affiliates; however,
that apportionment will not necessarily be made in parallel and will not
necessarily be based on the capital in each account. Rather, such investments
will be allocated among accounts based on the Investment Advisor's perception of
the appropriate risk and reward ratio for each account, the investment
methodology adopted for each account, the liquidity of the account at the time
of the investment and on a going-forward basis, and the overall portfolio
composition and performance of the account. Accordingly, the Fund acknowledges
that the other accounts managed by the Investment Advisor and its affiliates may
produce results that are materially different form those experienced by the
Fund. In addition, the Fund understands and agrees that other accounts managed
by the Investment Advisor and its affiliates may be competing for the same
positions as the Fund, to the possible disadvantage of the Fund.
2. Duties of the Investment Advisor. The Investment Advisor shall act
as Investment Advisor for the Fund. The Investment Advisor shall have sole and
exclusive authority and responsibility for directing the investment and
reinvestment of the Fund's Net Assets pursuant to and in accordance with the
Investment Advisor's best judgment and methodologies, and as refined and
modified from time to time in the future by the Investment Advisor, for the
period and on the terms and conditions set forth herein. The investment services
provided by the Investment Advisor will include, but not be limited to:
evaluating potential investments; analyzing and evaluating the capabilities of
the management and business plans of potential portfolio companies; negotiating
terms, conditions, and price levels of each investment; making sales and placing
orders with brokers and dealers to execute portfolio transactions on behalf of
the Fund. In assessing the risks and potential returns on investment
opportunities, the Investment Advisor may seek advice and assistance from other
investment groups and draw upon the expertise and experience of business
associates, brokerage firms' research departments, independent research
authorities, clients and investors.
3. Investment Advisor Independent. For all purposes of this Agreement,
the Investment Advisor shall be deemed to be an independent contractor of the
Fund, the Investment Advisor shall have no authority to act for or represent the
Fund, its affiliates, officers, directors or employees in any way and shall not
otherwise be deemed to be an agent of the Fund. Except
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as shall be specifically provided otherwise in this Agreement, nothing contained
herein shall create or constitute the Investment Advisor or the Fund as members
of any partnership, joint venture, association, syndicate, unincorporated
business, or other separate entity, nor shall be deemed to confer on either of
them any express, implied, or apparent authority to incur any obligation or
liability on behalf of any other.
4. Fees
(a) Performance Fee. The Investment Advisor will receive a
performance fee equal to 20% of Net Profit per Share, if any, calculated at each
calendar year-end (or on a Redemption Date if prior to a calendar year-end), but
only if Net Profit exceeds a non-compounded annual preferred return of 7% (the
"Preferred Return"); Net Profit between 7% and 8.75% will be paid to the
Investment Advisor (so that the Investment Advisor will receive 20% of the first
8.75% per annum of Net Profit). The Preferred Return will be pro-rated for
partial years through each December 31st, but will not be applicable to Shares
redeemed by a Shareholder prior to a December 31st -- that is, the Preferred
Return will apply only to Shares that have not been redeemed by a Shareholder
during a calendar year on a March 31st, June 30th or September 30th (or any date
other than December 31st). Net Profit includes both realized and unrealized
gains.
Net Profit (and Net Loss) is the sum of (i) the net of any profits and
losses realized on all investments closed out during the fiscal period plus (ii)
the net of any unrealized profits and losses on any open positions as of the end
of such fiscal period (after deduction for accrued brokerage commissions and
other transaction costs) plus (iii) interest and dividend income, minus (iv) the
net of any unrealized profits or losses on open positions as of the end of the
preceding fiscal period. Profits and losses are calculated by reference to
market value, determined pursuant to the conventions described below in Section
4(d).
There is Net Profit only if and to the extent there is no Loss
Carryforward. The Loss Carryforward is the sum of (i) any cumulative Net Loss
from fiscal periods ending prior to the fiscal period of calculation plus (ii)
the non-compounded Preferred Return from such prior fiscal periods minus (iii)
any cumulative Net Profit for such prior fiscal periods.
(b) Management Fee. For the services to be rendered to the Fund by the
Investment Advisor under this Agreement, in addition to the performance fee
provided in subsection (a) above, the Fund shall pay the Investment Advisor a
management fee equal to 0.4375% (approximately 1.75% annualized) of the Net
Assets of the Fund as of the end of such quarter. The management fee with
respect to any Share for any quarter in which such Share has not been
outstanding for the entire quarter shall be pro-rated on the basis of the number
of whole or partial months the Share has been outstanding during such quarter.
For purposes of calculating quarterly management fees, Net Asserts are
not reduced by any management or performance fees payable or incurred by the
Fund during such quarter, any distributions paid during the quarter, or any
redemptions payable at quarter-end.
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(c) Other Compensation to the Investment Advisor. The Investment
Advisor and its principals and affiliates will be entitled to receive and retain
from third parties or portfolio companies any investment banking fees or
transaction-related fees, arising from investments made by the Fund, as well as
fees for serving on boards of directors of portfolio companies in which the
Funds are invested.
(d) "Net Assets" and Valuation of Securities. The Net Assets of the
Fund are the total assets of the Fund, including all cash and cash equivalents
(valued at cost), accrued interest, and the market value of all securities and
all other assets of the Fund, less all other liabilities of the Fund, including,
but not limited to, accrued legal, accounting, and auditing fees, accrued
management and performance fees, and any extraordinary expenses, determined in
accordance with U.S. generally accepted accounting principles applied under the
accrual basis of accounting by the Directors of the Fund in their sole
discretion.
For purposes of determining the value of securities and other interests
owned by the Fund, the following conventions shall apply:
The market value of a security traded on an exchange shall be its
closing price or, if applicable, the mean of its closing bid and asked prices on
the date of determination. If the exchange on which a security is required to be
valued is closed, or if a security did not trade on such exchange on the date of
determination, such security shall be valued as if the date of determination
were the last previous date on which such exchange was open, or on which such
security traded on such exchange. For this purpose, an "exchange" shall mean the
exchange on which the security was traded in the greatest volume in the calendar
quarter prior to the date of determination and shall include normal securities
trading markets which do not meet the formal requirements for exchanges,
including, for example, the quotation system of the National Association of
Securities Dealers, Inc. ("NASD") customarily known as NASDAQ. Unlisted
securities and securities which the Directors believe to be not readily
marketable will be valued initially at cost and thereafter with any reduction or
increase in value (as the case may be) as the Directors in their absolute
discretion shall deem to result in an appropriate estimation of fair value. The
Directors may rely in this regard on the opinion of an independent source or
sources or on the Investment Advisor. Notwithstanding anything to the contrary
stated above, if the Directors determine that the valuation of any security or
other property does not fully represent market value (whether because of
illiquidity or otherwise), the Directors shall value such security or other
property as they reasonably determine and shall set forth the basis of such
valuation in writing in the Fund's records.
(e) Time for Payment of Fees. Any performance fees payable to the
Investment Advisor in accordance with this Agreement shall be paid by the Fund
to the Investment Advisor within 30 days after the end of each calendar year,
and any management fee payable to the Investment Advisor in accordance with this
Agreement shall be paid by the Fund to the Investment Advisor within 10 days
after the end of each calendar quarter; provided, however, that the Investment
Advisor may elect pursuant to the provisions of Section 4(f) below to defer the
payment of all or any portion of the management and/or performance fees and have
such
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management and performance fees paid to a trust (or other account agreed to by
the Fund and the Investment Advisor) to be organized by the Fund for the benefit
of the Investment Advisor pursuant to such terms and conditions as the fund and
the Investment Advisor shall agree (the "Trust"). In the latter event, the Fund
shall transfer such deferred management and/or performance fees, if any, at the
times described in the immediately preceding sentence to the Trust pursuant to
the terms of a Trust Agreement, a copy of which will be appended to this
Agreement. In the case of termination of the Investment Advisor under this
Agreement, the performance and management fees shall be computed as if the
effective date of termination were the last day of the then current year and
quarter, respectively. The terms of the Trust shall at all times conform to the
terms of the model trust contained in Revenue Procedure 92-64 or any subsequent
pronouncement by the United States Internal Revenue Service containing required
terms for an unfunded deferred compensation arrangement.
(f) Periodic Election. The Investment Advisor may elect
pursuant to the provisions of this Agreement to defer the payment of all or a
portion of the management and/or performance fees for a particular fiscal period
and pay such management and/or performance fee to the Trust. The management
and/or performance fees for such fiscal period shall be payable only as provided
herein. Separate elections may be made with respect to each fiscal period;
provided, however, that in the absence of a new election with respect to a
fiscal period, the election for the most recent prior fiscal period shall apply.
An election to defer the payment of all or a portion of the management and/or
performance fees for a particular fiscal period and to pay such management
and/or performance fees to the Trust shall be made on or before the first day of
such fiscal period by a written notice sent by the Investment Advisor to the
Fund. Each notice delivered pursuant to this subsection 4(d) shall state:
(i) the amount or percentage of the management and/or
performance fees to be paid to the Investment Advisor pursuant to subsection
4(e) hereof, and the amount or percentage of the management and/or performance
fees to be deferred and paid to the Trust;
(ii) the distribution date(s); and
(iii) the amount or percentage of such fees (inclusive or
exclusive of profit and loss thereon) to be distributed by the Trust to the
Investment Advisor on each distribution date.
(g) Computation of Performance Fees. Promptly after receipt by
the Fund of monthly statements from the Fund's broker(s), the Fund shall forward
to the Investment Advisor a reasonably itemized statement setting forth the
calculation of the amount of the performance fees due or accrued to the
Investment Advisor in respect of such month.
(h) Soft Dollar Arrangements. the Fund acknowledges that he
Investment Advisor may obtain goods or services by directing commission business
to broker-dealers which provide the Investment Advisor with such goods or
services.
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(i) Reduction of Fees Based on Selling Arrangements. The fees
payable to the Investment Advisor pursuant to this section 4 shall be reduced
pursuant to the provisions of this Section 4(i) to the extent that Net Assets
are derived from investors who purchase Shares pursuant to selling arrangements
with selling agents ("Selling Agents") contractually retained by the Fund which
provide bona fide sales efforts to the Fund and which Selling Agents and Selling
Agent arrangements are agreed to by the Investment Advisor.
5. Policies of the Fund. The activities engaged in by the Investment
Advisor on behalf of the Fund shall be subject to the policies and control of
the Directors of the Fund.
The Investment Advisor shall submit such periodic reports to the
Directors of the Fund regarding the Investment Advisor's activities hereunder as
the Director of the Fund may reasonably request.
6. Investments. All investments of the Fund shall at all times conform
to and be in accordance with the requirements imposed by:
(a) any provisions of applicable law;
(b) provisions of the Memorandum and Articles of the Fund, as
such Memorandum and Articles may be amended, supplemented or revised from time
to time;
(c) the policies set forth in the Memorandum; and
(d) such policies as may be adopted from time to time by the
Directors of the Fund.
7. Reimbursement of the Fund. The Investment Advisor may retain, in
connection with its responsibilities hereunder, the services of others to assist
in the investment advice to be given to the Fund, but payment for any such
services shall be assumed by the Investment Advisor and the Fund shall not have
any liability therefor; provided, however, that the Investment Advisor may in
its discretion retain the services of legal counsel to advise it in connection
with the performance of its activities on behalf of the Fund hereunder and the
Fund shall bear full responsibility for and the expense of any legal fees and
disbursements arising therefrom.
8. Expenses of the Fund. The Fund shall bear full responsibility for
and the expenses of:
(a) directors' and officers' fees and salaries;
(b) custodian fees;
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(c) payment of taxes other than those incurred in connection
with facilities and services rendered by the Investment Advisor at the
Investment Advisor's expense;
(d) the Fund's legal fees and disbursements;
(e) maintenance of its corporate records and books of account,
including auditing fees and disbursements;
(f) organization and conduct of its directors' and
shareholders' meetings and the preparation and distribution of all of its
shareholders' reports and other communications with shareholders;
(g) the calculation of the net asset value of its shares by
its accountants, in a manner determined by its Board of Directors and the
publication thereof;
(h) soliciting sales and acceptance of subscriptions for its
shares;
(i) issuing, transferring and redeeming its shares and of
paying dividends or making other distributions thereon;
(j) brokerage commissions on its purchases and sales of
securities;
(k) its communications with the public; and
(l) other operations and expenses related to the investment of
the Fund's assets and which are not related to functions assumed by the
Investment Advisor hereunder.
9. Expenses of the Investment Advisor. Except to the extent otherwise
provided in this Agreement, the Investment Advisor will perform its obligations
under this Agreement at its own expense, including, without limitation, the
salaries of employees necessary for such services, the rent and utilities for
the facilities provided and operating expenses, except as assumed by the Fund
under this Agreement.
10. Term and Termination
(a) Term and Renewal. This Agreement shall continue in effect
until December 31, 1999. Thereafter, this Agreement shall be renewed
automatically for additional one-year terms unless either the Fund or the
Investment Advisor, upon written notice given not less than 90 days prior to the
original termination date or any extended termination date, shall notify the
other party of its intention not to renew.
(b) Termination. Notwithstanding Section 10(a) hereof, this
Agreement shall terminate:
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(i) immediately if the Fund shall terminate and be
dissolved in accordance with its Memorandum of Association or Articles of
Association or otherwise; or
(ii) immediately if the Investment Advisor can no longer
effectively implement its investment strategy on behalf of the Fund; or
(iii) immediately, at the discretion of the Fund, if the
Investment Advisor shall become bankrupt or insolvent; or
(iv) upon not less than thirty (30) days' prior written
notice, at the discretion of the Fund, if the Investment Advisor shall fail to
perform any of its obligations under this Agreement; or
(v) upon not less than thirty (30) days' prior written
notice, at the discretion of the Investment Advisor, if the Fund shall fail to
perform any of its obligations under this Agreement.
(c) Fee Payments and Indemnities Survive Termination. The fee
payment obligations set forth in Section 4, and the indemnities set forth in
Section 11, of this Agreement shall survive any termination hereof.
11. Standard of Liability and Indemnity
(a) Standard of Liability. The Investment Advisor and its
employees, affiliates, agents, and their respective successors and assigns shall
not be liable to the Fund, the Fund's stockholders, directors, officers,
employees, principals, affiliates, and agents, and their respective successors
and assigns except for an act, omission, conduct, or activity in respect of the
Fund which shall be found by a court of competent jurisdiction upon entry of
final judgment (or, if no final judgment shall be entered, by an opinion
rendered to the fund by independent legal counsel retained by the Fund and
acceptable to the Investment Advisor for such purpose) to have constituted
fraud, willful misconduct or gross negligence and to have not been done by any
such person in good faith and in the reasonable belief that such act, omission,
conduct, or activity was in or not opposed to the best interests of the Fund.
(b) Fund's Agreement to Indemnify. The Fund shall indemnify,
hold harmless, and defend the Investment Advisor and its employees, affiliates
and agents, and their respective successors and assigns from and against any
loss, liability, claim, demand, damage, cost, and expense (including reasonable
attorneys' and accountants' fees and expenses), to which an indemnified party
may become subject in respect of the Fund (including in connection with the
defense or settlement of claims and in connection with any administrative
proceedings), arising out of or based upon this Agreement or the Investment
Advisor's activities on behalf of the Fund, provided that such loss, liability,
claim, demand, damage, cost, and expense did not constitute fraud, willful
misconduct, or gross negligence by the Investment Advisor and was
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done by the Investment Advisor and its employees, affiliates and agents in good
faith and in the reasonable belief that it was in or not opposed to the best
interests of the Fund.
(c) Indemnity Procedure. Promptly after receipt by an
indemnified party under Section 11(b) of notice of the commencement of an action
or claim to which either such Section may apply, the indemnified party shall
notify the indemnifying party in writing of the commencement of such action or
claim if a claim for indemnification in respect of such action or claim may be
made against the indemnifying party under either such Section; but the omission
so to notify the indemnifying party shall not relieve the indemnifying party
from any liability which the indemnifying party may have to the indemnified
party under either such Section (except where such omission shall have
materially prejudiced the indemnifying party) or otherwise. In case any such
action or claim shall be brought against an indemnified party and the
indemnified party shall notify the indemnifying party of the commencement of
such action or claim, the indemnifying party shall be entitled to participate in
such action or claim and, to the extent that the indemnifying party may desire,
to assume the defense of such action or claim with counsel selected by the
indemnifying party and approved by the indemnified party. After notice from the
indemnifying party to the indemnified party of the indemnifying party's election
so to assume the defense of such action or claim, the indemnifying party shall
not be liable to the indemnified party for any legal, accounting, and other fees
and expenses subsequently incurred by the indemnified party in connection with
the defense of such actions or claim other than reasonable costs of
investigation.
Notwithstanding any provision of this Section 11(d) to the contrary, if
in any action or claim in which both the indemnifying party and the indemnified
party are named as parties and the defense of both parties gives rise to a
conflict of interest, the indemnified party may retain its own counsel in
connection with such action or claim, in which case the indemnifying party shall
be responsible for any legal, accounting and other fees and expenses reasonably
incurred by or on behalf of it in connection with investigating or defending
such action or claim. In no event shall an indemnifying party be liable for the
fees and expenses of more than one counsel for all indemnified parties in
connection with any one action or claim or in connection with separate but
similar or related actions or claims in the same jurisdiction arising out of the
same general allegations. An indemnifying party shall not be liable for a
settlement of any such action or claim effected without its written consent, but
if any such action or claim shall be settled with the written consent of an
indemnifying party or if there shall be a final judgment for the plaintiff in
any such action or claim, the indemnifying party shall indemnify, hold harmless,
and defend an indemnified party from and against any loss, liability, or expense
in accordance with Section 6 by reason of such settlement or judgment.
(d) The Fund shall advance to the Investment Advisor the
reasonable costs and expenses of investigating and/or defending any loss,
liability, claim, demand, or damage to which the Investment Advisor may become
subject in respect of the Fund, subject to receiving a written undertaking from
the Investment Advisor to repay any such amounts advanced to it in the event and
to the extent of any subsequent determination that the Investment Advisor was
not entitled to indemnification under this Section 11.
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12. Representations and Warranties
(a) The Investment Advisor hereby represents and warrants to
the Fund as follows:
(i) The Investment Advisor has full power and authority
and is permitted by applicable law to enter into and carry out its obligations
under this Agreement and own its properties and conduct its business as
described in this Agreement.
(ii) The performance of the obligations under this
Agreement by the Investment Advisor will not conflict with, violate the terms of
or constitute a default under any indenture, mortgage, deed of trust, loan
agreement, management or advisory agreement, or other agreement or instrument to
which the Investment Advisor or its employees or affiliates is a party or by
which any such person is bound or to which any of the property or assets of any
such person is subject, or any order, rule, law, regulation or other legal
requirement applicable to any such person or to the property or assets of any
such person.
(iii) The Investment Advisor has complied and will
continue to comply with all laws, rules, and regulations having application to
its or his business, properties, and assets. Except to the extent otherwise
disclosed to the Fund, there are no actions, suits, proceedings, or
investigations pending or threatened against the Investment Advisor or its
principals, at law or in equity or before or by any federal, state, municipal,
or other governmental department, commission, board, bureau, agency, or
instrumentality, any self-regulatory organization, or any exchange that might be
material to an investor investing in the Fund.
(iv) The Investment Advisor is duly organized and validly
existing under the laws of the State of Delaware.
(v) The Investment Advisor represents and the Fund
acknowledges and agrees that:
(A) The performance fee and management fee may
create an incentive for the Investment Advisor to make investments that are
riskier or more speculative than would be the case in the absence of such fees.
(B) The Investment Advisor may receive increased
compensation with regard to unrealized appreciation as well as realized gains in
the Fund's account.
(C) The performance fee may result in substantially
higher payments than alternative compensatory arrangements with other managers.
(vi) The foregoing representations and warranties shall
be continuing during the term of this Agreement and if at any time any event
shall occur which could make
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any of the foregoing materially incomplete or inaccurate, the Investment Advisor
promptly shall notify the Fund of the occurrence of such event.
(b) The Fund hereby represents and warrants to the Investment
Advisor as follows:
(i) The information contained in the Memorandum, other
than information supplied by the Investment Advisor, is true, accurate, and
complete in all material respects and does not contain any misleading or untrue
statement of a material fact or any omission to state a material fact required
to be stated therein or necessary to make the statements therein not misleading.
(ii) The Fund has full power and authority and is
permitted by applicable law to enter into and carry out its obligations under
this Agreement and to own its properties and conduct its business as described
in this Agreement and the Memorandum.
(iii) The performance of the obligations under this
Agreement by the Fund will not conflict with, violate the terms of, or
constitute a default under any indenture, mortgage, deed of trust, loan
agreement, management or advisory agreement, or other agreement or instrument to
which the Fund is a party or by which the Fund is bound or to which any of the
property or assets of the fund is subject, or any other, rule, law, regulation,
or other legal requirement applicable to the fund or to the property or assets
of the Fund.
(iv) The Fund has all required governmental and
regulatory registrations and memberships necessary to carry out its obligations
under this Agreement.
(v) The Fund has complied and will continue to comply
with all laws, rules, and regulations having application to its business,
properties, and assets. Except as set forth in the Memorandum, there are no
actions, suits, proceedings, or investigations pending or threatened against the
Fund, at law or inequity or before or by any federal, state, municipal, or other
governmental department, commission, board, bureau, agency, or instrumentality,
any self-regulatory organization, or any exchange.
(vi) The Fund is duly organized and validly existing
under the laws of the jurisdiction of its incorporation.
(vii) This Agreement constitutes an arm's length
agreement between the Fund and the Investment Advisor. The Fund understands the
method of compensation provided for herein and its risks.
(viii) The foregoing representations and warranties shall
be continuing during the term of this Agreement and if at any time any event
shall occur which could make any of the foregoing incomplete or inaccurate, the
Fund shall promptly notify the Investment Advisor of the occurrence of such
event.
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13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters referred to herein, and
no other agreement, verbal or otherwise, shall be binding as between the parties
unless it shall be in writing and signed by the party against whom enforcement
is sought.
14. Assignment. This Agreement shall not be assigned by either party
hereto without the prior express written consent of the other party.
15. Amendment; Waiver. This Agreement shall not be amended except by a
writing signed by the parties hereto. No waiver of any provision of this
Agreement shall be implied from any course of dealing between the parties hereto
or form any failure by either party hereto to assert its or his rights hereunder
on any occasion or series of occasions.
16. Severability. If any provision of this Agreement, or the
application of any provision to any person or circumstance, shall be held to be
inconsistent with any present or future law, ruling, rule, or regulation of any
court or governmental or regulatory authority having jurisdiction over the
subject matter hereof, such provision shall be deemed to be rescinded or
modified in accordance with such law, ruling, rule, or regulation, and the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it shall be held inconsistent, shall
not be affected thereby.
17. Notices. Any notice required or desired to be delivered under this
Agreement shall be in writing and shall be delivered by courier service, postage
prepaid mail, telex, telegram, or other similar means and shall be effective
upon actual receipt by the party to which such notice shall be directed,
addressed as follows (or to such other address as the party entitled to notice
shall hereafter designate in accordance with the terms hereof):
if to the Fund:
Network IV LLC
P.O. Box 219
Butterfield House
Grand Cayman
Cayman Islands, B.W.I.
Fax: (809) 949-8154
with copies to:
Abacus Asset Management Limited
La Motte Chambers
St. Helier
Jersey JB1 1BJ
Channel Islands
Fax: (441) 53 460 2433
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and
William Natbody, Esq.
Rosenman & Colin, LLP
575 Madison Avenue
New York, New York 10020
Fax: (212) 940-7079
if to the Investment Advisor:
Gildea Management Company
115 Putnam Avenue, 3rd Floor
Greenwich, Connecticut 06830
Att: Bill O'Donnell
Fax: (203) 861-6727
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York, U.S.A. (excluding the law
thereof which requires the application of or reference to the law of any other
jurisdiction).
19. Consent to Jurisdiction. The parties hereto agree that any action
or proceeding arising directly, indirectly, or otherwise in connection with, out
of, related to, or from this Agreement, any breach hereof, or any transaction
covered hereby, shall be resolved, whether by arbitration or otherwise, within
the County, City, and State of New York. Accordingly, the parties consent and
submit to the jurisdiction of the federal and state courts and any applicable
arbitral body located within the County, City, and State of New York. The
parties further agree that any such action or proceeding brought by either party
to enforce any right, assert any claim, or obtain any relief whatsoever in
connection with this Agreement shall be brought by such party exclusively in the
federal or state courts, or if appropriate before any applicable arbitral body,
located within the County, City, and State of New York.
20. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
21. Headings. Headings to sections and subsections in this Agreement
are for the convenience of the parties only and are not intended to be a part of
or to affect the meaning or interpretation hereof.
22. No Third Party Beneficiaries. This Agreement is not intended to and
shall not convey any rights to persons not a party to this Agreement.
23. Sales Literature and Reports. No sales literature or reports to
investors describing the Investment Advisor, its investment strategies,
personnel, or performance (other than the
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performance of the Fund) will be distributed by the Fund or its agents without
the prior written approval of the Investment Advisor.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf
of the undersigned as of the day and year first written above.
NETWORK IV LLC
By: /s/ Peter Bailey
---------------------------------
Name: Peter Bailey
Title: Director
GILDEA MANAGEMENT COMPANY
By: /s/ William P. O'Donnell
---------------------------------
Name: William P. O'Donnell
Title: Managing Director
14
