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ADVISORY AGREEMENT

Consulting Services Agreement

ADVISORY AGREEMENT | Document Parties: Augustus Asset Managers Limited | Commodity Futures Trading Commission | Demeter Management LLC | Morgan Stanley Smith Barney Augustus I, LLC | Trading Company You are currently viewing:
This Consulting Services Agreement involves

Augustus Asset Managers Limited | Commodity Futures Trading Commission | Demeter Management LLC | Morgan Stanley Smith Barney Augustus I, LLC | Trading Company

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Title: ADVISORY AGREEMENT
Governing Law: New York     Date: 11/16/2009
Law Firm: Alston Bird    

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CONFIDENTIAL TREATMENT REQUESTED.  Confidential portions of this document have been redacted and have been separately filed with the Commission.

 

ADVISORY AGREEMENT

 

THIS AGREEMENT, made as of September 28, 2009, among Morgan Stanley Smith Barney Augustus I, LLC, a Delaware limited liability company (the “Trading Company”), Demeter Management LLC, a Delaware limited liability company (the “Trading Manager”), and Augustus Asset Managers Limited, a limited company incorporated in England and Wales (the “Trading Advisor”).

 

W I T N E S S E T H :

 

WHEREAS , the Trading Company has been organized pursuant to a Certificate of Formation filed with Secretary of State of the State of Delaware on September 25, 2009 (the “Certificate of Formation”) and an operating agreement (the “Operating Agreement”) to, among other things, directly or indirectly through a commodity trading advisor, trade, buy, sell, spread, or otherwise acquire, hold, or dispose of commodities (including, but not limited to, foreign currencies, mortgage-backed securities, money market instruments, financial instruments, and any other securities or items which are now, or may hereafter be, the subject of futures contract trading), domestic and foreign commodity futures contracts, forward contracts, foreign exchange commitments, options on physical commodities and on futures contracts, spot (cash) commodities and currencies, exchange of futures contracts for physicals transactions, exchange of physicals for futures contracts transactions, and any rights pertaining thereto, whether traded on an organized exchange or otherwise (hereinafter referred to collectively as “futures interests;” provided , however , such definition shall exclude securities futures products as defined by the Commodity Futures Trading Commission (“CFTC”), options in securities futures and options in equities) and securities (such as United States Treasury securities) approved by the CFTC for investment of customer funds and other securities on a limited basis, and to engage in all activities incident thereto;

 

WHEREAS , the Trading Company is a commodity pool operated by the Trading Manager in which other commodity pool investment vehicles sponsored and/or managed by the Trading Manager and/or its affiliates will invest (each such investment vehicle, a “Member,” and collectively, the “Members”);

 

WHEREAS , the Trading Advisor has extensive experience trading in futures interests and the Trading Advisor is willing to provide the services and undertake the obligations as set forth herein;

 

WHEREAS , the Trading Company and the Trading Manager each desires the Trading Advisor to act as a trading advisor for the Trading Company and to make investment decisions with respect to futures interests for the Trading Company and the Trading Advisor desires so to act; and

 

WHEREAS , the Trading Company, the Trading Manager and the Trading Advisor wish to enter into this Agreement which, among other things, sets forth certain terms and conditions upon which the Trading Advisor will conduct the Trading Company’s futures interest trading.

 

NOW, THEREFORE , the parties hereto hereby agree as follows:

 

1.  

Undertakings in Connection with the Continuing Offering of Units .

 

(a)   The Trading Advisor agrees with respect to the continuing offering of interests (“Units”) in the Members: (i) to make all disclosures regarding itself, its principals and affiliates, its trading performance, its trading systems, methods and strategies (subject to the need, in the reasonable discretion of the Trading Advisor, to preserve the secrecy of Proprietary Information (as defined in Section 1(c) hereof) concerning such systems, methods and strategies), any client accounts over which it has discretionary trading authority (other than the names of or identifying information with respect to any such clients), and otherwise, as the Members may reasonably require (x) in connection with any Member’s offering materials (collectively, the “Offering Memoranda”) as required by Rule 4.21 of the regulations under the Commodity Exchange Act (the “CEAct”), including in connection with any amendments or supplements thereto, or (y) to comply with any other applicable law or rule or regulation, including those of the CFTC, the Securities and Exchange Commission, the National Futures Association (the “NFA”) or any other regulatory or self-regulatory body, exchange, or board with jurisdiction over its members (or to comply with the reasonable request of the aforementioned organizations); and (ii) to otherwise cooperate with the Trading Company, the Trading Manager and the Members by providing information regarding the Trading Advisor in connection with the preparation of the Offering Memoranda, including any amendments or supplements thereto, as part of making application for registration of the Units under the securities or blue sky laws of any jurisdictions, including foreign jurisdictions, as the Members may deem appropriate; provided that all such disclosures are subject to the need, in the reasonable discretion of the Trading Advisor, to preserve the secrecy of Proprietary Information concerning its clients, systems methods and strategies. As used herein, unless otherwise provided, the term “principal” shall have the meaning as defined in Rule 4.10(e) of the CFTC’s regulations and the term “affiliate” shall mean an individual or entity that directly or indirectly controls, is controlled by, or is under common control with, such party.

 

(b)   If the Trading Advisor becomes aware of any materially untrue or misleading statement or omission regarding itself or any of its principals or affiliates in the Disclosure Information (as defined in Section 19 hereof), or of the occurrence of any event or change in circumstances which would result in there being any materially untrue or misleading statement or omission in the Disclosure Information regarding itself or any of its principals or affiliates, the Trading Advisor shall promptly notify the Trading Manager and shall cooperate with the Trading Manager in the preparation of any necessary amendments or supplements to the Offering Memoranda. Neither the Trading Advisor nor any of its principals, or affiliates, or any stockholders, officers, directors, or employees shall distribute the Offering Memoranda or selling literature or shall engage in any selling activities whatsoever in connection with the continuing offering of Units except as may be specifically approved by the Trading Manager and agreed to by the Trading Advisor.

 

(c)   For purposes of this Agreement, and notwithstanding any of the provisions hereof, all non-public information relating to the Trading Advisor including, but not limited to, records, whether original, duplicated, computerized, handwritten, or in any other form, and information contained therein, business and/or marketing and/or sales plans and proposals, names of past and current clients, names of past, current and prospective contacts, trading methodologies, systems, strategies and programs, trading advice, trading instructions, results of proprietary accounts, training materials, research data bases, portfolios, and computer software, and all written and oral information, furnished by the Trading Advisor to the Trading Company, the Trading Manager, the Members and/or their officers, directors, employees, agents (including, but not limited to, attorneys, accountants, consultants, and financial advisors) or controlling persons (each a “Recipient”), regardless of the manner in which it is furnished, together with any analysis, compilations, studies or other documents or records which are prepared by a Recipient of such information and which contain or are generated from such information, regardless of whether explicitly identified as confidential, with the exception of information which (i) is or becomes generally available to the public other than as a result of acts by the Recipient in violation of this Agreement, (ii) is in the possession of the Recipient prior to its disclosure pursuant to the terms hereof, (iii) is or becomes available to the Recipient from a source that is not bound by a confidentiality agreement with regard to such information or by any other legal obligation of confidentiality prohibiting such disclosure, or (iv) that is independently developed by the Recipient without use of the confidential information described in this Section 1(c), are and shall be confidential information and/or trade secrets and the exclusive property of the Trading Advisor (“Confidential Information” and/or “Proprietary Information”).

 

(d)   The Trading Company and the Trading Manager each warrants and agrees that they and their respective officers, directors, members, equity holders, employees and agents (including for purposes of this Agreement, but not limited to, attorneys, accountants, consultants, and financial advisors) will protect and preserve the Confidential Information and will disclose Confidential Information or otherwise make Confidential Information available only to the Trading Company’s or the Trading Manager’s officers, directors, members, equity holders, employees and agents (including for purposes of this Agreement, but not limited to, attorneys, accountants, consultants, and financial advisors), who need to know the Confidential Information (or any part of it) for the purpose of satisfying their fiduciary, legal, reporting, filing or other obligations hereunder or to monitor performance in the account during the term of this Agreement or thereafter, or to the Trading Company, Trading Manager or a Recipient, as the case may be, who is required to disclose such Confidential Information due to a fiduciary obligation or legal or regulatory request. Additionally, the Trading Company and the Trading Manager each warrants and agrees that it and any Recipient will use the Confidential Information solely for the purpose of satisfying the Trading Company’s or the Trading Manager’s obligations under this Agreement and not in a manner which violates the terms of this Agreement.

 

2.  

Duties of the Trading Advisor.

 

(a)   Upon the commencement of trading operations on or about October 1, 2009 , by the Trading Advisor on behalf of  the Trading Company, the Trading Advisor hereby agrees to act as a Trading Advisor for the Trading Company and, as such, shall have authority and responsibility for directing the investment and reinvestment of the Trading Company’s assets, which shall consist of the Trading Company’s Net Assets (as defined in Section 6(c) hereof) plus “notional” funds, if any, as specified in writing by the Trading Manager and consented to by the Trading Advisor (the “Assets”), on the terms and conditions and in accordance with the prohibitions and Trading Operations Procedures set forth in Exhibit A to this Agreement as amended from time to time and provided in writing to the Trading Advisor by the Trading Manager (the “Trading Operations Procedures”); provided , however , that the Trading Manager may override the instructions of the Trading Advisor without notice to the Trading Advisor to the extent necessary (i) to comply with the Trading Operations Procedures and with applicable speculative position limits (as set forth by the respective regulatory authorities or exchanges), (ii) to fund any distributions or redemptions, (iii) to pay the Trading Company’s expenses, (iv) to the extent the Trading Manager believes doing so is necessary for the protection of the Trading Company, (v) to terminate the futures interest trading of the Trading Company with the Trading Advisor, or (vi) to comply with any applicable law or regulation. The Trading Manager agrees not to override any such instructions for the reasons specified in clauses (ii) or (iii) of the preceding sentence unless the Trading Advisor fails (or is not able) to comply with a request of the Trading Manager to make the necessary amount of funds available to the Trading Company within two trading days of such request.  The Trading Advisor shall not be liable for the consequences of any decision by the Trading Manager to override instructions of the Trading Advisor, except to the extent that such consequences result from a material breach of this Agreement by the Trading Advisor or the Trading Advisor fails (where it would otherwise be possible) to comply with the Trading Manager’s decision to override an instruction.

 

(b)   The Trading Advisor shall:

 

(i)   Exercise good faith and due care in trading futures interests for the account of the Trading Company in accordance with the prohibitions and Trading Operations Procedures, and the trading systems, methods, and strategies of the Trading Advisor described in the Disclosure Information, with such changes and additions to such trading systems, methods or strategies as the Trading Advisor, from time to time, incorporates into its trading approach for accounts the size of the Trading Company.

 

(ii)   Provide the Trading Manager, within 45 days of the end of a calendar quarter, and within 45 days of a separate reasonable request which the Trading Manager may make from time to time, with information in a format agreed to by the Trading Manager and Trading Advisor comparing the performance of the Trading Company’s account and the performance of JB Global Rates Fund (the “Benchmark Fund”), as well as all other discretionary accounts directed by the Trading Advisor that utilizes the strategy as the Trading Program (as defined herein) over a specified period of time for the purpose of confirming that the Trading Company has been treated equitably compared to such Other Accounts.  In providing such information, the Trading Advisor may take whatever steps it deems necessary to assure the confidentiality of the Trading Advisor’s clients’ identities.  The Trading Advisor shall, upon the Trading Manager’s request, consult with the Trading Manager concerning any discrepancies between the performance of such Other Accounts and the Trading Company’s account. The Trading Advisor shall promptly inform the Trading Manager in writing, or any acceptable manner agreed to by the Trading Manager and Trading Advisor, of any material discrepancies of which the Trading Advisor is aware. The Trading Manager acknowledges, among other things, that the following differences in accounts may cause divergent trading results:  different trading strategies, different markets traded, methods or degrees of leverage, different trading policies, accounts experiencing differing inflows or outflows of equity, different risk profiles, accounts which commence trading at different times and accounts which have different portfolios or different fiscal years.

 

(iii)   Inform the Trading Manager when the Trading Advisor’s open positions maintained by the Trading Advisor exceed the Trading Advisor’s applicable speculative position limits.

 

(iv)   Upon request of the Trading Manager, promptly provide the Trading Manager with all information concerning the Trading Advisor and its activities reasonably requested by the Trading Manager (including, without limitation, information relating to changes in control, key personnel, trading approach, or financial condition).

 

(c)   All purchases and sales of futures interests pursuant to this Agreement shall be for the account, and at the risk, of the Trading Company and not for the account, or at the risk of the Trading Advisor or any of its affiliates or each of their principals, stockholders, directors, officers, or employees, or any other person, if any, who controls the Trading Advisor. All brokerage commissions and related transaction fees arising from such trading by the Trading Advisor shall be for the account of the Trading Company.

 

(d)   * 1

 

(e)   Prior to the commencement of trading by the Trading Company, the Trading Manager, on behalf of the Trading Company, shall deliver to the Trading Advisor a trading authorization appointing the Trading Advisor the Trading Company’s attorney-in-fact for such purpose (a form of which is attached hereto as Exhibit B).

 

(f)   In performing services to the Trading Company, the Trading Advisor shall utilize its Global Rate Program (the “Trading Program”), as described in the Disclosure Information, and as modified from time to time. The Trading Advisor shall give the Trading Manager prior written notice of any change in the Trading Program that the Trading Advisor considers to be material (and shall not effect such change on behalf of the Trading Company without the Trading Manager’s consent), including any additional futures interests to be traded by the Trading Advisor not already listed on Exhibit C.  Changes in the futures interests traded, provided that such futures interests are listed on Exhibit C, shall not be deemed a modification of the Trading Program.

 

3.  

Designation of Additional or Replacement Trading Advisors and Reallocation of Assets.

 

(a)   If the Trading Manager at any time deems it to be in the best interests of the Trading Company, the Trading Manager may designate an additional or replacement trading advisor or advisors for the Trading Company and may apportion to such additional or replacement trading advisor(s) the management of such amounts of Assets as the Trading Manager shall determine in its absolute discretion.  The designation of an additional trading advisor or advisors or replacement of any trading advisor for the Trading Company by the Trading Manager shall not require any approval of any existing trading advisor (including the Trading Advisor).  Subject to Section 7(c) hereof, the designation and retention of an additional or replacement trading advisor(s) and the apportionment of Assets to any such trading advisor(s) pursuant to this Section 3 shall neither terminate this Agreement nor modify in any regard the respective rights and obligations of the Trading Company, the Trading Manager and the Trading Advisor hereunder with respect to the Net Assets that remain under the management of the Trading Advisor.  In the event that an additional or replacement trading advisor(s) is so designated, the Trading Advisor shall thereafter receive Management Fees and Incentive Fees based, respectively, on that portion of the Net Assets managed by the Trading Advisor and that portion of the New Trading Profit (as defined in Section 6(d) hereof) attributable to the trading done by the Trading Advisor.

 

 

(b)   The Trading Manager may at any time and from time to time upon three Business Days’ (as defined in Section 6(a)(i) below) prior notice reduce Assets allocated to the Trading Advisor (whether or not such Assets are allocated to any other trading advisor or advisors of the Trading Company ) or allocate additional Assets upon three Business Days’ prior notice to the Trading Advisor (whether or not such additional Assets are allocated away from such other trading advisor or advisors); provided that any such addition to or withdrawal from Assets allocated to the Trading Advisor will only become effective on the last day of a month unless the Trading Manager determines that the best interests of the Trading Company require otherwise.

 

4.  

Trading Advisor as an Independent Contractor.

 

For all purposes of this Agreement, the Trading Advisor shall be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized, have no authority to act for or represent the Trading Company or its Members in any way or otherwise be deemed an agent of the Trading Company or its Members.  Nothing contained herein shall be deemed to require the Trading Company to take any action contrary to the Operating Agreement or the Certificate of Formation of the Trading Company as from time to time in effect, or any applicable law or rule or regulation of any regulatory or self-regulatory body, exchange, or board. Nothing herein contained shall constitute the Trading Advisor, the Trading Manager, or the Members, as members of any partnership, joint venture, association, syndicate or other entity, or be deemed to confer on any of them any express, implied, or apparent authority to incur any obligation or liability on behalf of any other. It is expressly agreed that the Trading Advisor is neither a promoter, sponsor, or issuer with respect to the Trading Company or its Members, nor does the Trading Advisor have any authority or responsibility with respect to the offer, sale or issuance of Units.

 

5.  

Commodity Broker.

 

The Trading Advisor shall effect all transactions in futures interests for the Trading Company through the Trading Company’s separate account maintained with such commodity broker or brokers as the Trading Manager shall direct and appoint from time to time. Both Morgan Stanley & Co., Incorporated (“MS & Co.”), Morgan Stanley & Co. International plc, and Morgan Stanley Capital Group Inc. (“MSCG” and collectively, the “Commodity Brokers”) may act as the clearing commodity brokers for the Trading Company, and MS & Co. and its affiliates may act as foreign exchange forward contract counterparty for the Trading Company.  MSCG and its affiliates may act as an options on foreign exchange forward contract counterparty for the Trading Company.  Morgan Stanley Smith Barney LLC, its affiliates and the Commodity Brokers, may act as the Trading Company’s non-clearing commodity broker.  The Trading Manager shall provide the Trading Advisor with copies of brokerage statements.

 

Notwithstanding the foregoing, the Trading Advisor may execute trades through floor brokers other than those employed by MS & Co. and its affiliates so long as arrangements (including executed give-up agreements) are made for such floor brokers to “give-up” or transfer the positions to MS & Co. in conformity with the Trading Operations Procedures set forth in Exhibit A attached hereto.

 

6.  

Fees.

 

(a)   For the services to be rendered to the Trading Company by the Trading Advisor under this Agreement:

 

(i)   The Trading Company shall pay the Trading Advisor a monthly management fee equal to 1/12 of the applicable annual rate on Annex I (as may be amended from time to time) to this Agreement as of the first day of each month (the “Management Fee”).  The Management Fee is payable in arrears within 30   Business Days of the end of the month for which it was calculated.  For purposes of this Agreement, “Business Day” shall mean any day which the securities markets are open in the United States.

 

(ii)   The Trading Company shall pay the Trading Advisor an incentive fee equal to 20% of the “New Trading Profit” (as defined in Section 6(d) hereof) that shall accrue monthly but is not otherwise payable until the end of each calendar quarter (the “Incentive Fee”). The initial incentive period will commence on the date of the Trading Company’s initial closing and shall end on the last day of the calendar quarter after such initial closing occurs.  The Incentive Fee is payable within 30   Business Days of the end of the calendar quarter for which it was calculated.

 

(b)   If this Agreement is terminated on a date other than the last day of a calendar quarter, the Incentive Fee shall be determined as if such date were the end of a calendar quarter. If this Agreement is terminated on a date other than the end of a month, the Management Fee described above shall be determined as if such date were the end of a month, but such fee shall be prorated based on the ratio of the number of days in the month through the date of termination to the total number of calendar days in the month. The Management Fee payable to the Trading Advisor for the month in which the Trading Company begins to receive trading advice from the Trading Advisor pursuant to this Agreement shall be prorated based on the ratio of the number of calendar days in the month from the day the Trading Company begins to receive such trading advice to the total number of calendar days in the month.  In the event that there is an increase or decrease in the Net Assets, as initiated by the Trading Manager, as of any day other than the first day of a month, the Trading Advisor shall be paid a pro rata Management Fee on such increase or decrease in the Net Assets for such month.

 

(c)   The term “Net Assets” shall mean the total assets of the Trading Company allocated to the Trading Advisor (including, but not limited to, all cash and cash equivalents, accrued interest and amortization of original issue discount, and the market value of all open futures interest positions and other assets of the Trading Company) less all liabilities of the Trading Company determined in accordance with generally accepted accounting principles consistently applied under the accrual basis of accounting. Unless generally accepted accounting principles require otherwise, the market value of a futures or option contract traded on a United States exchange shall mean the settlement price on the exchange on which the particular futures or option contract shall be traded by the Trading Company on the day with respect to which the Net Assets are being determined; provided , however , that if a contract could not be liquidated on such day due to the operation of daily limits or other rules of the exchange on which that contract shall be traded or otherwise, the settlement price on the first subsequent day on which the contract could be  liquidated shall be the market value of such contract for such day, or if a contract could not be liquidated on such day due to the exchange being closed for an exchange holiday, the settlement price on the most recent preceding day on which the contract could have been liquidated shall be the market value of such contract for such day.  The market value of a forward contract or a futures or option contract traded on a foreign exchange or market shall mean its market value as determined by the Trading Manager on a basis consistently applied for each different variety of contract.

 

(d)   As used herein, the term “New Trading Profit” shall mean net futures interest trading profits (realized and unrealized) on the Assets traded by the Trading Advisor, decreased by the Trading Advisor’s monthly management fees, brokerage commissions allocable to the Assets traded by the Trading Advisor, transaction costs and administrative fees, with such trading profits and items of decrease determined from the end of the last calendar quarter in which an Incentive Fee was earned by the Trading Advisor or, if no Incentive Fee has been earned previously by the Trading Advisor, from the date that the Trading Advisor commenced managing the Assets on behalf of the Trading Company to the end of the calendar quarter as of which such Incentive Fee calculation is being made. Extraordinary expenses do not reduce New Trading Profit. Interest income is not included in New Trading Profit. New Trading Profit shall be calculated before reduction for Incentive Fees paid or accrued. Incentive Fees shall be paid to the Trading Advisor upon any withdrawal of assets from the Trading Company at the end of any month when such withdrawal of assets is made as if such month-end is the end of the calendar quarter.

 

(e)   If any payment of Incentive Fees is made to the Trading Advisor on account of New Trading Profit earned by the Trading Advisor for the Trading Company and the Trading Advisor thereafter fails to earn New Trading Profit for the Trading Company or experiences losses for any subsequent incentive period for the Trading Company, the Trading Advisor shall be entitled to retain such amounts of Incentive Fees previously paid to the Trading Advisor in respect of such New Trading Profit. No subsequent Incentive Fees shall be payable to the Trading Advisor until the Trading Advisor has again earned New Trading Profit for the Trading Company; provided , however , that if the Assets are reduced because of redemptions that occur at the end of, and/or subsequent to, a calendar quarter in which the Trading Advisor experiences a futures interest trading loss for the Trading Company, the trading loss that must be recovered before the Trading Advisor will be deemed to experience New Trading Profit for the Trading Company in a subsequent calendar quarter will be equal to the amount determined by (x) dividing the Assets after such decrease by the Assets immediately before such decrease and (y) multiplying that fraction by the amount of the unrecovered futures interest trading loss prior to such decrease. In the event that the Trading Advisor experiences a trading loss for the Trading Company in more than one calendar quarter without the Trading Company paying an intervening Incentive Fee and Assets are reduced in more than one such calendar quarter because of redemptions, then the trading loss for each such calendar quarter shall be adjusted in accordance with the formula described above and such reduced amount of futures interest trading loss shall be carried forward and used to offset subsequent futures interest trading profits.

 

7.  

Term

 

(a)   This Agreement shall continue in effect for a period of one year from the date the Agreement was entered into unless otherwise terminated as set forth in this Section 7. If the Agreement is not terminated upon the expiration of such one-year period, this Agreement shall automatically renew for an additional one-year period and shall continue to renew for additional one-year periods until this Agreement is otherwise terminated, as provided for herein.  The Trading Advisor may terminate this Agreement at the end of the first one year period by providing prior written notice of termination to the Trading Company at least ninety days prior to the expiration of such one-year period.  Following the first year of this Agreement, the Trading Advisor may terminate this Agreement at any month end by providing prior written notice of termination to the Trading Company at least ninety days prior to such month end. This Agreement shall automatically terminate if the Trading Company is dissolved.

 

(b)   The Trading Company and Trading Manager each shall have the right to terminate this Agreement in its discretion (i) upon five days’ prior written notice to the Trading Advisor, or (ii) at any time upon prior written notice to the Trading Advisor upon the occurrence of any of the following events: (A) if any person described as a “principal” of the Trading Advisor in the Offering Memoranda ceases for any reason to be an active “principal” of the Trading Advisor; (B) if the Trading Advisor becomes bankrupt or insolvent; (C) if the Trading Advisor is unable to use its trading systems or methods as in effect on the date hereof and as modified in the future for the benefit of the Trading Company; (D) if the registration, as a commodity trading advisor (if applicable), of the Trading Advisor with the CFTC, its membership in the NFA or its registration with the FSA, is revoked, suspended, terminated, or not renewed, or limited or qualified in any respect; (E) if the Trading Advisor determines that it was required to be registered as a commodity trading advisor with the CFTC and was not properly registered; (F) if the Trading Advisor merges or consolidates with, or sells or otherwise transfers its advisory business, or all or a substantial portion of its assets, any portion of its futures interest trading systems or methods, or its goodwill to, any individual or entity; (G) if, at any time, the Trading Advisor violates any Trading Policy or administrative policy, except with the prior express written consent of the Trading Manager; or (H) if the Trading Advisor fails in a material manner to perform any of its obligations under this Agreement.

 

(c)   The Trading Advisor may terminate this Agreement at any time, upon thirty days’ prior written notice to the Trading Company and Trading Manager, in the event: (A) that the Trading Manager imposes additional trading limitation(s) in the form of one or more Trading Operations Procedures or administrative policies that the Trading Advisor does not agree to follow in its management of the Assets; (B) the Trading Manager objects to the Trading Advisor implementing a proposed material change to the Trading Program and the Trading Advisor certifies to the Trading Manager in writing that it believes such change is in the best interests of the Trading Company; (C) the Trading Manager or the Trading Company materially breaches this Agreement and does not correct the breach within ten days of receipt of a written notice of such breach from the Trading Advisor; (D) the Assets fall below $ * 2 (after adding back trading losses) at any time; (E) the Trading Company becomes bankrupt or insolvent, or (F) the registration of the Trading Manager with the CFTC as a commodity pool operator or its membership in the NFA is revoked, suspended, terminated or not renewed, or limited or qualified in any respect.  If the Trading Manager or Trading Company merges, consolidates or sells a substantial portion of its assets pursuant to Section 12 of this Agreement, the Trading Advisor may terminate this Agreement upon prior written notice to the Trading Manager and Trading Company.

 

(d)   Except as otherwise provided in this Agreement, any termination of this Agreement in accordance with this Section 7 shall be without penalty or liability to any party, on account of such termination.

 

(e)   The indemnities set forth in Section 8 hereof shall survive any termination of this Agreement.

 

8.  

Standard of Liability: Indemnifications.

 

(a)   Limitation of Trading Advisor Liability . In respect of the Trading Advisor’s role in the futures interests trading of the Trading Company, the Trading Advisor shall not be liable to the Trading Company or the Trading Manager or their partners, directors, officers, principals, managers, members, shareholders, employees, controlling persons or successors and assigns except that the Trading Advisor shall be liable for acts or omissions that constitute a breach of this Agreement or a representation, warranty or covenant herein, misconduct or negligence, or are the result of the Trading Advisor not having acted in good faith and in the reasonable belief that such actions or omissions were in, or not opposed to, the best interests of the Trading Company.

 

(b)   Trading Advisor Indemnity in Respect of Management Activities . The Trading Advisor shall indemnify, defend and hold harmless the Trading Company and the Trading Manager, their controlling persons, their affiliates and their respective directors, officers, principals, managers, members, shareholders, employees and controlling persons from and against any and all losses, claims, damages, liabilities (joint and several), costs, and expenses (including any reasonable investigatory, legal, accounting and other expenses incurred in connection with, and any amounts paid in, any litigation or other proceeding or any settlement; provided that, solely in the case of a settlement, the Trading Advisor shall have approved such settlement) resulting from a demand, claim, lawsuit, action or proceeding (other than those incurred as a result of claims brought by or in the right of an indemnified party) relating to this Agreement (except as covered by paragraph (d) below); provided that a court of competent jurisdiction upon entry of a final judgment (or, if no final judgment is entered, by an opinion rendered by counsel who is approved by the Trading Company and the Trading Advisor, such approval not to be unreasonably withheld) to the effect that the action or inaction of such indemnified party that was the subject of the demand, claim, lawsuit, action, or proceeding did not constitute negligence, misconduct, or a breach of this Agreement or a representation, warranty or covenant of the Trading Company or the Trading Manager, their controlling persons, their affiliates and their respective directors, officers, shareholders, employees, and controlling persons and was done in good faith.

 

(c)   Trading Company Indemnity in Respect of Management Activities .  The Trading Company shall indemnify, defend and hold harmless the Trading Advisor, its controlling persons, their affiliates and their respective directors, officers, principals, managers, members, shareholders, employees and controlling persons, from and against any and all losses, claims, damages, liabilities (joint and several), costs and expenses (including any reasonable investigatory, legal, accounting and other expenses incurred in connection with, and any amounts paid in, any litigation or other proceeding or any settlement; provided that, solely in the case of a settlement, the Trading Company shall have approved such settlement) resulting from a demand, claim, lawsuit, action or proceeding (other than those incurred as a result of claims brought by or in the right of an indemnified party) relating to this Agreement (except as covered by paragraph (e) below); provided that a court of competent jurisdiction upon entry of a final judgment finds (or, if no final judgment is entered, by an opinion rendered by counsel who is approved by the Trading Company and the Trading Advisor, such approval not to be unreasonably withheld) to the effect that the action or inaction of such indemnified party that was the subject of the demand, claim, lawsuit, action, or proceeding did not constitute negligence, misconduct, or a breach of this Agreement or a representation, warranty or covenant of the Trading Advisor, its controlling persons, its affiliates and directors, officers, shareholders, employees, and controlling persons and was done in good faith.

 

(d)   Trading Advisor Indemnity in Respect of Sale of Units . The Trading Advisor shall indemnify, defend and hold harmless the Trading Company, the Trading Manager, any selling agent, their controlling persons and their affiliates and their respective directors, officers, principals, managers, members, shareholders, employees and controlling persons from and against any and all losses, claims, damages, liabilities, costs, and expenses, (joint and several), to which any indemnified person may become subject (including any reasonable investigatory, legal, accounting and other expenses incurred in connection with, and any amounts paid in, any litigation or other proceeding or any settlement; provided that, solely in the case of a settlement, the Trading Advisor shall have approved such settlement, and in connection with any administrative proceedings), in respect of


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