INVESTMENT ADVISORY AND MANAGEMENT SERVICES AGREEMENT BETWEEN BUSINESS DEVELOPMENT CORPORATION OF AMERICA AND BDCA ADVISER, LLC
INVESTMENT
ADVISORY AND
MANAGEMENT
SERVICES AGREEMENT
BETWEEN
BUSINESS
DEVELOPMENT CORPORATION OF AMERICA
AND
BDCA
ADVISER, LLC
This
Agreement (the “Agreement”)
made as of the 28th day of October,
2010, by and between BUSINESS DEVELOPMENT CORPORATION OF AMERICA, a
Maryland corporation (the “Company”),
and BDCA ADVISER, LLC, a Delaware limited liability company (the “Adviser”).
WHEREAS,
the Company is a newly organized non-diversified, closed-end management
investment company that intends to elect to be treated as a business development
company (“BDC”)
under the Investment Company Act of 1940, as amended (the “Investment
Company Act”); and
WHEREAS,
the Adviser is a newly organized investment adviser that intends to register as
an investment adviser under the Investment Advisers Act of 1940, as amended (the
“Advisers
Act”); and
WHEREAS,
the Company desires to retain the Adviser to furnish investment advisory
services to the Company and to provide for the administrative services necessary
for the operation of the Company on the terms and conditions hereinafter set
forth, and the Adviser wishes to be retained to provide such
services;
NOW,
THEREFORE, in consideration of the premises and for other good and valuable
consideration, the parties hereby agree as follows:
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1.
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Duties of the
Adviser.
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(a)
Retention of
Adviser. The Company hereby employs the Adviser to act as the
investment adviser to the Company and to manage the investment and reinvestment
of the assets of the Company, subject to the supervision of the Board of
Directors of the Company (the “Board”),
for the period and upon the terms herein set forth:
(i) in
accordance with the investment objectives, policies and restrictions that are
set forth in the Company’s Registration Statement on Form N-2 (File No.
333-166636) filed with the Securities and Exchange Commission (the “SEC”), as
amended from time to time (the “Registration Statement”); and
(ii) during
the term of this Agreement in accordance with all other applicable federal and
state laws, rules and regulations, and the Company’s charter and bylaws, in each
case as amended from time to time.
(b) Responsibilities of
Adviser. Without limiting the generality of the foregoing, the
Adviser shall, during the term and subject to the provisions of this
Agreement:
(i) determine
the composition and allocation of the portfolio of the Company, the nature and
timing of the changes therein and the manner of implementing such
changes;
(ii) identify,
evaluate and negotiate the structure of the investments made by the
Company;
(iii) execute,
monitor and service the Company’s investments;
(iv) determine
the securities and other assets that the Company shall purchase, retain, or
sell;
(v) perform
due diligence on prospective portfolio companies; and
(vi) provide
the Company with such other investment advisory, research and related services
as the Company may, from time to time, reasonably require for the investment of
its funds.
(c) Power and
Authority. To facilitate the Adviser’s performance of these
undertakings, but subject to the restrictions contained herein, the Company
hereby delegates to the Adviser, and the Adviser hereby accepts, the power and
authority on behalf of the Company to effectuate its investment decisions for
the Company, including the execution and delivery of all documents relating to
the Company’s investments and the placing of orders for other purchase or sale
transactions on behalf of the Company. In the event that the Company determines
to acquire debt financing, the Adviser shall arrange for such financing on the
Company’s behalf, subject to the oversight and approval of the
Board.
(d) Acceptance of
Employment. The Adviser hereby accepts such employment and agrees
during the term hereof to render the services described herein for the
compensation provided herein, subject to the limitations contained
herein.
(e) Sub-Advisers. The
Adviser is hereby authorized to enter into one or more sub-advisory agreements
with other investment advisers (each, a “Sub-Adviser”)
pursuant to which the Adviser may obtain the services of the Sub-Adviser(s) to
assist the Adviser in fulfilling its responsibilities hereunder. Specifically,
the Adviser may retain a Sub-Adviser to recommend specific securities or other
investments based upon the Company’s investment objectives, policies and
restrictions, and work, along with the Adviser, in sourcing, structuring,
negotiating, arranging or effecting the acquisition or disposition of such
investments and monitoring investments on behalf of the Company, subject to the
oversight of the Adviser and the Company.
(i) The
Adviser and not the Company shall be responsible for any compensation payable to
any Sub-Adviser.
(ii) Any
sub-advisory agreement entered into by the Adviser shall be in accordance with
the requirements of the Investment Company Act, including without limitation the
requirements relating to Board and Company stockholder approval thereunder, and
other applicable federal and state law.
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(iii) Any
Sub-Adviser shall be subject to the same fiduciary duties imposed on the Adviser
pursuant to this Agreement, the Investment Company Act and the Advisers Act, as
well as other applicable federal and state law.
(f)
Independent Contractor
Status. The Adviser shall, for all purposes herein provided, be deemed to
be an independent contractor and, except as expressly provided or authorized
herein, shall have no authority to act for or represent the Company in any way
or otherwise be deemed an agent of the Company.
(g) Record Retention.
Subject to review by and the overall control of the Board, the Adviser shall
keep and preserve for the period required by the Investment Company Act any
books and records relevant to the provision of its investment advisory services
to the Company and shall specifically maintain all books and records with
respect to the Company’s portfolio transactions and shall render to the Board
such periodic and special reports as the Board may reasonably request or as may
be required under applicable federal and state law, and shall make such records
available for inspection by the Board and its authorized agents, at any time and
from time to time during normal business hours. The Adviser agrees that all
records that it maintains for the Company are the property of the Company and
shall surrender promptly to the Company any such records upon the Company’s
request and upon termination of this Agreement pursuant to Section 9,
provided that the Adviser may retain a copy of such records.
The
following provisions in this Section 1 shall apply for only so long as the
shares of the Company are not listed on a national securities
exchange.
(h) Administrator. The
Adviser shall, upon request by an official or agency administering the
securities laws of a state, province, or commonwealth (an “State
Administrator”), submit to such State Administrator the reports and
statements required to be distributed to Company stockholders pursuant to this
Agreement, the Registration Statement and applicable federal and state
law.
(i)
Fiduciary Duty:
It is acknowledged that the Adviser shall have a fiduciary responsibility for
the safekeeping and use of all funds and assets of the Company, whether or not
in the Adviser’s immediate possession or control. The Adviser shall not employ,
or permit another to employ, such funds or assets in any manner except for the
exclusive benefit of the Company. The Adviser shall not, by entry into an
agreement with any stockholder of the Company or otherwise, contract away the
fiduciary obligation owed to the Company and the Company stockholders under
common law.
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2.
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Company’s
Responsibilities and Expenses Payable by the
Company.
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(a) Costs. Subject to the
limitations on reimbursement of the Adviser as set forth in Section 2(b)
below, the Company, either directly or through reimbursement to the Adviser,
shall bear all other costs and expenses of its operations and transactions,
including (without limitation) fees and expenses relating to: expenses deemed to
be “organization and offering expenses” of the Company for purposes of Conduct
Rule 2310(a)(12) of the Financial Industry Regulatory Authority (for purposes of
this Agreement, such expenses, exclusive of commissions, the dealer manager fee
and any discounts, are hereinafter referred to as “Organization and
Offering Expenses”); amounts paid to third parties for administrative
services; the investigation and monitoring of the Company’s investments; the
cost of calculating the Company’s net asset value; the cost of effecting sales
and repurchases of shares of the Company’s common stock and other securities;
management and incentive fees payable pursuant to the investment advisory
agreement; fees payable to third parties relating to, or associated with, making
investments and valuing investments (including third-party valuation firms),
transfer agent and custodial fees, fees and expenses associated with marketing
efforts (including attendance at investment conferences and similar events);
federal and state registration fees; any exchange listing fees; federal, state
and local taxes; independent directors’ fees and expenses; brokerage
commissions; costs of proxy statements; stockholders’ reports and notices; costs
of preparing government filings, including periodic and current reports with the
SEC; fidelity bond, liability insurance and other insurance premiums; and
printing, mailing, independent accountants and outside legal costs.
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Notwithstanding
the foregoing, the Company shall not be liable for Organization and Offering
Expenses to the extent that Organization and Offering Expenses, together with
all prior Organization Offering Expenses, exceeds the greater of $125,000 and
1.5% of the aggregate gross proceeds from the offering of the Company’s
securities (the “Offering
Proceeds”). More specifically, the Company shall be obligated to
reimburse the Adviser for all current and past Organization and Offering
Expenses paid by the Adviser and not already reimbursed by the Company (the
“Reimbursable
O&O Expenses”) as follows:
(i) if
the Offering Proceeds are $8,333,333.33 or less, the Company shall reimburse the
Adviser for such Reimbursable O&O Expenses to the extent that the
Reimbursable O&O Expenses, together with all past Organization and Offering
Expenses for which the Adviser has received reimbursement, does not exceed
$125,000; or
(ii) if
the Offering Proceeds exceed $8,333,333.33, the Company shall reimburse the
Adviser for such Reimbursable O&O Expenses to the extent that the
Reimbursable O&O Expenses, together with all past Organization and Offering
Expenses for which the Adviser has received reimbursement, does not exceed an
amount equal to 1.5% of the Offering Proceeds or a maximum reimbursement of
$22,500,000, assuming the maximum offering size is
$1,500,000,000.
The
following provisions in this Section 2(b) shall apply for only so long as
the shares of the Company are not listed on a national securities
exchange.
(b) Limitations on Reimbursement
of Expenses. In
addition to the compensation paid to the Adviser pursuant to Section 3, the
Company shall reimburse the Adviser for all expenses of the Company incurred by
the Adviser as well as the actual cost of goods and services used for or by the
Company and obtained from entities not affiliated with the Adviser. The Adviser
may be reimbursed for the administrative services performed by it on behalf of
the Company; provided, however, the reimbursement shall be an amount equal to
the lower of the Adviser’s actual cost or the amount the Company would be
required to pay third parties for the provision of comparable administrative
services in the same geographic location; and provided, further, that such costs
are reasonably allocated to the Company on the basis of assets, revenues, time
records or other method conforming with generally accepted accounting
principles. No reimbursement shall be permitted for services for which the
Adviser is entitled to compensation by way of a separate fee. Excluded from the
allowable reimbursement shall be:
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(i) rent
or depreciation, utilities, capital equipment, and other administrative items of
the Adviser; and
(ii) salaries,
fringe benefits, travel expenses and other administrative items incurred or
allocated to any executive officer or board member of the Adviser (or any
individual performing such services) or a holder of 10% or greater equity
interest in the Adviser (or any person having the power to direct or cause the
direction of the Adviser, whether by ownership of voting securities, by contract
or otherwise).
(c) Periodic
Reimbursement. Expenses incurred by the Adviser on behalf of the Company
and payable pursuant to this Section 2 shall be reimbursed no less than
monthly to the Adviser. The Adviser shall prepare a statement documenting the
expenses of the Company and the calculation of the reimbursement and shall
deliver such statement to the Company prior to full reimbursement.
3. Compensation
of the Adviser.
The Company agrees to pay, and the Adviser agrees to accept, as compensation for
the services provided by the Adviser hereunder, a base management fee (“Base Management
Fee”) and an incentive fee (“Incentive
Fee”) as hereinafter set forth. The Adviser may agree to temporarily or
permanently waive, in whole or in part, the Base Management Fee and/or the
Incentive Fee. See Appendix A for examples of how these fees are
calculated.
(a) Base Management Fee.
The Base Management Fee shall be calculated at an annual rate of 2.0% of the
Company’s average gross assets. The Base Management Fee shall be payable
quarterly in arrears, and shall be calculated based on the average value of the
Company’s gross assets at the end of the two most recently completed calendar
quarters. All or any part of the Base Management Fee not taken as to any quarter
shall be deferred without interest and may be taken in such other quarter as the
Adviser shall determine. The Base Management Fee for any partial month or
quarter shall be appropriately pro rated.
(b) Incentive Fee. The
Incentive Fee shall consist of three parts, as follows:
(i) The
first part, referred to as the “Subordinated Incentive Fee on Income,” shall be
calculated and payable quarterly in arrears based on the Company’s
“Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter.
The payment of the Subordinated Incentive Fee on Income shall be subject to
payment of a preferred return to investors each quarter, expressed as a
quarterly rate of return on Adjusted Capital (as defined below) at the beginning
of the most recently completed calendar quarter, of 1.75% (7.00% annualized),
subject to a “catch up” feature (as described below).
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For
this purpose, “Pre-Incentive Fee Net Investment Income” means interest income,
dividend income and any other income (including any other fees, other than fees
for providing managerial assistance, such as commitment, origination,
structuring, diligence and consulting fees or other fees that the Company
receives from portfolio companies) accrued during the calendar quarter, minus
the Company’s operating expenses for the quarter (including the base management
fee, expenses payable under the administration agreement and any interest
expense and dividends paid on any issued and outstanding preferred stock, but
excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes,
in the case of investments with a deferred interest feature (such as original
issue discount debt instruments with payment-in-kind interest and zero coupon
securities), accrued income that the Company has not yet received in cash.
Pre-Incentive Fee Net Investment Income does not include any realized capital
gains, realized capital losses or unrealized capital appreciation or
depreciation.
For
purposes of this fee, “Adjusted Capital” shall mean cumulative gross proceeds
generated from sales of the Company’s common stock (including proceeds from the
Company’s distribution reinvestment plan) reduced for distributions from
non-liquidating dispositions of the Company’s investments paid to shareholders
and amounts paid for share repurchases pursuant to the Company’s share
repurchase program.
The
calculation of the Subordinated Incentive Fee on Income for each quarter is as
follows:
(A) No
Subordinated Incentive Fee on Income shall be payable to the Adviser in any
calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income
does not exceed the preferred return rate of 1.75% or 7.00% annualized (the
“Preferred Return”) on Adjusted Capital;
(B) 100%
of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds
the preferred return but is less than or equal to 2.1875% in any calendar
quarter (8.75% annualized) shall be payable to the Adviser. This portion of the
company’s Subordinated Incentive Fee on Income is referred to as the “catch up”
and is intended to provide the Adviser with an incentive fee of 20% on all of
the Company’s Pre-Incentive Fee Net Investment Income when the Company’s
Pre-Incentive Fee Net Investment Income reaches 2.1875% (8.75% annualized) in
any calendar quarter; and
(C) For
any quarter in which the Company’s Pre-Incentive Fee Net Investment Income
exceeds 2.1875% (8.75% annualized), the Subordinated Incentive Fee on Income
shall equal 20% of the amount of the Company’s Pre-Incentive Fee Net Investment
Income, as the Preferred Return and catch-up will have been
achieved.
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(ii)
The second part of the incentive fee, referred to as the “Incentive Fee on
Capital Gains During Operations,” shall be an incentive fee on capital gains
earned on liquidated investments from the portfolio during operations prior to
the liquidation of the Company and shall be determined and payable in arrears as
of the end of each calendar year (or upon termination of the investment advisory
agreement). This fee shall equal 20.0% of the Company’s incentive fee capital
gains, which shall equal the Company’s realized capital gains on a cumulative
basis from inception, calculated as of the end of each calendar year, computed
net of all realized capital losses and unrealized capital depreciation on a
cumulative basis, less the aggregate amount of any previously paid capital gain
incentive fees.
(iii)
The third part of the incentive fee, referred to as the “Subordinated
Liquidation Incentive Fee,” shall equal 20.0% of the net proceeds from the
liquidation of the Company remaining after investors have received distributions
of net proceeds from liquidation of the Company equal to Adjusted Capital as
calculated immediately prior to liquidation.
Notwithstanding the foregoing, in no
event will the Adviser’s compensation on the basis of a share of capital gains
exceed 20% of the realized capital gains upon the funds of the Company over the
life of the Company, computed net of all realized capital losses and unrealized
capital depreciation.
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4.
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Covenants of the
Adviser.
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(a) Adviser Status. The
Adviser covenants that it will register as an investment adviser under the
Advisers Act and will maintain such registration. The Adviser agrees that its
activities will at all times be in compliance in all material respects with all
applicable federal and state laws governing its operations and
investments.
The
following provisions in this Section 4 shall apply for only so long as the
shares of the Company are not listed on a national securities
exchange.
(b) Reports to
Stockholders. The Adviser shall prepare or shall cause to be prepared and
distributed to stockholders during each year the following reports of the
Company (either included in a periodic report filed with the SEC or distributed
in a separate report):
(i)
Quarterly Reports. Within 60 days of the end of each quarter, a
report containing the same financial information contained in the Company’s
Quarterly Report on Form 10-Q filed by the Company under the Securities Exchange
Act of 1934, as amended.
(ii)
Annual Report. Within 120 days after the end of the Company’s fiscal year, an
annual report containing:
(A) A
balance sheet as of the end of each fiscal year and statements of income,
equity, and cash flow, for the year then ended, all of which shall be prepared
in accordance with generally accepted accounting principals and accompanied by
an auditor’s report containing an opinion of an independent certified public
accountant;
(B) A
report of the activities of the Company during the period covered by the
report;
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(C) Where
forecasts have been provided to the Company’s shareholders, a table comparing
the forecasts previously provided with the actual results during the period
covered by the report; and
(D) A
report setting forth distributions by the Company for the period covered thereby
and separately identifying distributions from (i) cash flow from operations
during the period; (ii) cash flow from operations during a prior period which
have been held as reserves; and (iii) proceeds from disposition of Company
assets.
(iii) Previous
Reimbursement Reports. The Adviser shall prepare or shall cause to be prepared a
report, prepared in accordance with the American Institute of Certified Public
Accountants United States Auditing Standards relating to special reports, and
distributed to stockholders not less than annually, containing an itemized list
of the costs reimbursed to the Adviser pursuant to Section 2(b) for the previous
fiscal year. The special report shall at a minimum provide:
(A) A
review of the time records of individual employees, the costs of whose services
were reimbursed; and
(B) A
review of the specific nature of the work performed by each such
employee.
(iv) Proposed
Reimbursement Reports. The Adviser shall prepare or shall cause to be prepared a
report containing an itemized estimate of all proposed expenses for which it
shall receive reimbursements pursuant to Section 2(b) of this Agreement for the
next fiscal year, together with a breakdown by year of such expenses reimbursed
in each of the last five public programs formed by the Adviser.
(v) Proposed
Federal Income Tax Returns. Within 75 days after the end of the Company’s fiscal
year, all information necessary for Stockholders’ to prepare their federal
income tax returns.
(c) Reports to State
Administrators. The Adviser shall, upon written request of any State
Administrator, submit any of the reports and statements to be prepared and
distributed by it pursuant to this Section 4 to such State
Administrator.
(d) Reserves. In
performing its duties hereunder, the Adviser shall cause the Company to provide
for adequate reserves for normal replacements and contingencies (but not for
payment of fees payable to the Adviser hereunder) by causing the Company to
retain a reasonable percentage of proceeds from offerings and
revenues.
(e) Recommendations Regarding
Reviews. From time to time and not less than quarterly, the Adviser must
review the Company’s accounts to determine whether cash distributions are
appropriate. The Company may, subject to authorization by the Board of
Directors, distribute pro rata to the stockholders funds received by the Company
which the Adviser deems unnecessary to retain in the Company.
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(f) Temporary
Investments. The Adviser shall, in its sole discretion, temporarily place
proceeds from offerings by the Company into short term, highly liquid
investments which, in its reasonable judgment, afford appropriate safety of
principal during such time as it is determining the composition and allocation
of the portfolio of the Company and the nature, timing and implementation of any
changes thereto pursuant to Section 1(b); provided however, that
the Adviser shall be under no fiduciary obligation to select any such
short-term, highly liquid investment based solely on any yield or return of such
investment. The Adviser shall cause any proceeds of the offering of Company
securities not committed for investment within the later of two years from the
date of effectiveness of the Registration Statement or one year from termination
of the offering, unless a longer period is permitted by the applicable
Administrator, to be paid as a distribution to the stockholders of the Company
as a return of capital without deduction of Front End Fees (as defined
below).
5.
Brokerage Commissions,
Limitations on Front End Fees; Period of Offering;
Assessments
(a) Brokerage
Commissions. The Adviser is hereby authorized, to the fullest extent now
or hereafter permitted by law, to cause the Company to pay a member of a
national securities exchange, broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of such exchange, broker or dealer would have charged for effecting that
transaction, if the Adviser determines in good faith, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution, and operational facilities of
the firm and the firm’s risk and skill in positioning blocks of securities, that
such amount of commission is reasonable in relation to the value of the
brokerage and/or research services provided by such member, broker or dealer,
viewed in terms of either that particular transaction or its overall
responsibilities with respect to the Company’s portfolio, and constitutes the
best net results for the Company.
The
following provisions in this Section 5 shall apply for only so long as the
shares of the Company are not listed on a national securities
exchange.
(b) Limitations.
Notwithstanding anything herein to the contrary:
(i) All
fees and expenses paid by any party for any services rendered to organize the
Company and to acquire assets for the Company (“Front End Fees”) shall be
reasonable and shall not exceed 18% of the gross offering proceeds, regardless
of the source of payment. Any reimbursement to the Adviser or any other person
for deferred organizational and offering expenses, including any interest
thereon, if any, will be included within this 18% limitation.
(ii) The
Adviser shall commit at least eighty-two percent (82%) of the gross offering
proceeds towards the investment or reinvestment of assets and reserves as set
forth in Section 4(d) above on behalf of the Company. The remaining proceeds may
be used to pay Front End Fees.
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6.
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Other Activities of
the Adviser.
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The
services of the Adviser to the Company are not exclusive, and the Adviser may
engage in any other business or render similar or different services to others
including, without limitation, the direct or indirect sponsorship or management
of other investment based accounts or commingled pools of capital, however
structured, having investment objectives similar to those of the Company, so
long as its services to the Company hereunder are not impaired thereby, and
nothing in this Agreement shall limit or restrict the right of any manager,
partner, member (including its members and the owners of its members), officer
or employee of the Adviser to engage in any other business or to devote his or
her time and attention in part to any other business, whether of a similar or
dissimilar nature, or to receive any fees or compensation in connection
therewith (including fees for serving as a director of, or providing consulting
services to, one or more of the Company’s portfolio companies, subject to
applicable law). The Adviser assumes no responsibility under this Agreement
other than to render the services called for hereunder. It is understood that
directors, officers, employees and stockholders of the Company are or may become
interested in the Adviser and its affiliates, as directors, officers, employees,
partners, stockholders, members, managers or otherwise, and that the Adviser and
directors, officers, employees, partners, stockholders, members and managers of
the Adviser and its affiliates are or may become similarly interested in the
Company as stockholders or otherwise.
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7.
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Responsibility of Dual
Directors, Officers and/or
Employees.
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If any
person who is a manager, partner, member, officer or employee of the Adviser is
or becomes a director, officer and/or employee of the Company and acts as such
in any business of the Company, then such manager, partner, member, officer
and/or employee of the Adviser shall be deemed to be acting in such capacity
solely for the Company, and not as a manager, partner, member, officer or
employee of the Adviser or under the control or direction of the Adviser, even
if paid by the Adviser.
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8.
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Indemnification.
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(a) Indemnification. The
Adviser (and its officers, managers, partners, members (and their members,
including the owners of their members), agents, employees, controlling persons
and any other person or entity affiliated with the Adviser) shall not be liable
to the Company for any action taken or omitted to be taken by the Adviser in
connection with the performance of any of its duties or obligations under this
Agreement or otherwise as an investment advisor of the Company (except to the
extent specified in Section 36(b) of the Investment Company Act concerning
loss resulting from a breach of fiduciary duty (as the same is finally
determined by judicial proceedings) with respect to the receipt of compensation
for services, and the Company shall indemnify, defend and protect the Adviser
(and its officers, managers, partners, members (and their members, including the
owners of their members), agents, employees, controlling persons and any other
person or entity affiliated with the Adviser, each of whom shall be deemed a
third party beneficiary hereof) (collectively, the “Indemnified
Parties”) and hold them harmless from and against all damages,
liabilities, costs and expenses (including reasonable attorneys’ fees and
amounts reasonably paid in settlement) incurred by the Indemnified Parties in or
by reason of any pending, threatened or completed action, suit, investigation or
other proceeding (including an action or suit by or in the right of the Company
or its security holders) arising out of or otherwise based upon the performance
of any of the Adviser’s duties or obligations under this Agreement or otherwise
as an investment adviser of the Company, to the extent such damages,
liabilities, costs and expenses are not fully reimbursed by insurance, and to
the extent that such indemnification would not be inconsistent with the laws of
the State of Maryland, the charter of the Company or the provisions of Section
II.G of the Omnibus Guidelines published by the North American Securities
Administrators Association on March 29, 1992, as it may be amended from
time to time.
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The
following provisions in this Section 8 shall apply for only so long as the
shares of the Company are not listed on a national securities
exchange.
(b) Limitations on
Indemnification. Notwithstanding Section 8(a) to the contrary, the
Company shall not provide for indemnification of the Indemnified Parties for any
liability or loss suffered by the Indemnified Parties, nor shall the Company
provide that any of the Indemnified Parties be held harmless for any loss or
liability suffered by the Company, unless all of the following conditions are
met:
(i) the
Indemnified Party has determined, in good faith, that the course of conduct
which caused the loss or liability was in the best interests of the
Company;
(ii) the
Indemnified Party was acting on behalf of or performing services for the
Company;
(iii) such
liability or loss was not the result of negligence or misconduct by the
Indemnified Party; and
(iv) such
indemnification or agreement to hold harmless is recoverable only out of the
Company’s net assets and not from stockholders.
Furthermore,
the Indemnified Party shall not be indemnified for any losses, liabilities or
expenses arising from or out of an alleged violation of federal or state
securities laws unless one or more of the following conditions are
met:
(i) there
has been a successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee;
(ii) such
claims have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee; or
(iii) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement and
related costs should be made, and the court of law considering the request for
indemnification has been advised of the position of the SEC and the published
position of any state securities regulatory authority in which securities of the
Company were offered or sold as to indemnification for violations of securities
laws.
11
(c) Advancement of Funds.
The Company shall be permitted to advance funds to the Indemnified Party for
legal expenses and other costs incurred as a result of any legal action for
which indemnification is being sought only if all of the following conditions
are met:
(i) The legal
action relates to acts or omissions with respect to the performance of duties or
services on behalf of the Company;
(ii)
The
legal action is initiated by a third party who is not a Company stockholder, or
the legal action is initiated by a Company stockholder and a court of competent
jurisdiction specifically approves such advancement; and
(iii)
The
Indemnified Party undertakes to repay the advanced funds to the Company,
together with the applicable legal rate of interest thereon, in cases in which
the Indemnified Party is not found to be entitled to
indemnification.
|
9.
|
Effectiveness,
Duration and Termination of
Agreement.
|
(a) Term and
Effectiveness. This Agreement shall become effective as of the date that
the Company meets the minimum offering requirement, as such term is defined in
the prospectus contained in the Company’s registration statement on Form N-2 as
declared effective by the SEC. This Agreement shall remain in effect for two
years, and thereafter shall continue automatically for successive annual
periods, provided that such continuance is specifically approved at least
annually by (i) the vote of the Board, or by the vote of a majority of the
outstanding voting securities of the Company and (ii) the vote of a
majority of the Company’s directors who are not parties to this Agreement or
“interested persons” (as such term is defined in Section 2(a)(19) of the
Investment Company Act) of any such party, in accordance with the requirements
of the Investment Company Act.
(b) Termination. This
Agreement may be terminated at any time, without the payment of any penalty,
(a) by the Company upon 60 days’ written notice to the Adviser,
(i) upon the vote of a majority of the outstanding voting securities of the
Company, or (ii) by the vote of the Company’s independent directors, or
(b) by the Adviser upon 120 days’ written notice to the Company. This
Agreement shall automatically terminate in the event of its “assignment” (as
such term is defined for purposes of Section 15(a)(4) of the Investment
Company Act). The provisions of Section 8 of this Agreement shall remain in
full force and effect, and the Adviser shall remain entitled to the benefits
thereof, notwithstanding any termination of this Agreement. Moreover,
if that certain Investment Sub-Advisory Agreement dated as of October 28, 2010
(as amended, restated or supplemented from time to time, the “Main Street
Agreement”) by and between the Adviser and Main Street Capital
Corporation, a Maryland corporation (“Main
Street” or “Sub-Adviser”),
shall (i) expire by its terms without renewal pursuant to the last sentence of
Section 8(a) of
the Main Street Agreement or (ii) be terminated by the Adviser or the Company
pursuant to Section
8(b) of the Main Street Agreement, this Agreement shall terminate
simultaneously with the termination of the Main Street Agreement, and the
Company shall not, for a period of three (3) years following such termination,
engage the Adviser or its affiliates or any of their successors or any officers,
directors or employees of the Adviser or its affiliates or their
successors as an adviser or sub-adviser to the Company without the
prior written consent of Main Street. Notwithstanding the foregoing,
or anything in this Agreement or the Main Street Agreement to the contrary, if
the Main Street Agreement is terminated by the Adviser or the Company for cause
(as defined below), then the Company may enter into a new advisory agreement
with the Adviser or an affiliate thereof containing the same or similar terms as
those contained herein, without the prior consent of Main Street. For
purposes of this Agreement, for cause shall mean the occurrence of one or more
of the following events:
(i) the
Sub-Adviser shall have materially breached the Main Street Agreement, as
determined by the independent directors of the Company; provided, however, that
the breaching party shall have 30 calendar days after the receipt of notice of
such breach from the other party to cure such breach;
(ii)
the
Sub-Adviser is subject to an allegation that it has committed any fraud,
criminal conduct, gross negligence or willful misconduct in any action or
failure to act undertaken by the Sub-Adviser pertaining to or having a material
detrimental effect upon the ability of the Sub-Adviser to perform its respective
duties under the Main Street Agreement and the independent directors of the
Board shall have determined, after providing the Sub-Adviser with an opportunity
for a hearing and to cure any damage, that such allegation shall have had a
material adverse effect on the Company that can only be remedied by termination
of the Main Street Agreement, or, in any event, if and when a court or
regulatory authority of competent jurisdiction shall have returned a final
non-appealable order or ruling that the Sub-Adviser is guilty of or liable with
respect to such conduct;
(iii)
the
Sub-Adviser (1) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (2) consents to the
entry of an order for relief in an involuntary case under any such law, (3)
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar official) for any
substantial part of its property, or (4) makes any general assignment for the
benefit of creditors under applicable state law;
(iv)
if:
(1) an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect has been commenced against the
Sub-Adviser, and such case has not been dismissed within 60 days after the
commencement thereof; or (2) a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) has been appointed for the
Sub-Adviser or has taken possession of the Sub-Adviser’s or any substantial part
of its property, and such appointment has not been rescinded or such possession
has not been relinquished within 60 days after the occurrence thereof;
or
(v) if at any
time within five years after the Effective Date both ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇
▇. ▇▇▇▇▇▇▇ cease to be actively involved in the management of the Sub-Adviser
unless the parties agree that acceptable replacements are in place or can timely
be put in place.
(c) Payments to and Duties of
Adviser Upon Termination.
(i) After
the termination of this Agreement, the Adviser shall not be entitled to
compensation for further services provided hereunder except that it shall be
entitled to receive from the Company within 30 days after the effective date of
such termination all unpaid reimbursements and all earned but unpaid fees
payable to the Adviser prior to termination of this Agreement. If the
Company and the Adviser cannot agree on the amount of such reimbursements and
fees, the parties will submit to binding arbitration.
12
(ii)
The Adviser shall promptly upon termination:
(A) Deliver
to the Board a full accounting, including a statement showing all payments
collected by it and a statement of all money held by it, covering the period
following the date of the last accounting furnished to the Board;
(B) Deliver
to the Board all assets and documents of the Company then in custody of the
Adviser; and
(C) Cooperate
with the Company to provide an orderly management transition.
The
following provisions in this Section 9 shall apply for only so long as the
shares of the Company are not listed on a national securities
exchange.
(d)
Other Matters.
Without the approval of holders of a majority of the shares entitled to vote on
the matter, the Adviser shall not: (i) amend the investment advisory agreement
except for amendments that do not adversely affect the interests of the
stockholders; (ii) voluntarily withdraw as the Adviser unless such withdrawal
would not affect the tax status of the Company and would not materially
adversely affect the stockholders; (iii) appoint a new Adviser; (iv) sell all or
substantially all of the Company’s assets other than in the ordinary course of
the Company’s business; or (v) cause the merger or other reorganization of the
Company. In the event that the Adviser should withdraw pursuant to (ii) above,
the withdrawing Adviser shall pay all expenses incurred as a result of its
withdrawal. The Company may terminate the Adviser’s interest in the Company’s
revenues, expenses, income, losses, distributions and capital by payment of an
amount equal to the then present fair market value of the terminated Adviser’s
interest, determined by agreement of the terminated Adviser and the Company. If
the Company and the Adviser cannot agree upon such amount, then such amount will
be determined in accordance with the then current rules of the American
Arbitration Association. The expenses of such arbitration shall be borne equally
by the terminated Adviser and the Company. The method of payment to the
terminated Adviser must be fair and must protect the solvency and liquidity of
the Company.
(e) With
respect to any shares owned by the Adviser, the Adviser may not vote or consent
on matters submitted to the Shareholders regarding the removal of the Adviser or
regarding any transaction between the Company and the Adviser. In
determining the existence of the requisite percentage of shares necessary to
approve a matter on which the Adviser may not vote or consent, any shares owned
by the Adviser shall not be included.
13
|
10.
|
Conflicts of Interests
and Prohibited Activities.
|
The
following provisions in this Section 10 shall apply for only so long as the
shares of the Company are not listed on a national securities
exchange.
(a)
No Exclusive
Agreement. The Adviser is not hereby granted or entitled to an exclusive
right to sell or exclusive employment to sell assets for the
Company.
(b) Rebates, Kickbacks and
Reciprocal Arrangements.
(i) The
Adviser agrees that it shall not (A) receive or accept any rebate, give-up or
similar arrangement that is prohibited under applicable federal or state
securities laws, (B) participate in any reciprocal business arrangement that
would circumvent provisions of applicable federal or state securities laws
governing conflicts of interest or investment restrictions, or (C) enter into
any agreement, arrangement or understanding that would circumvent the
restrictions against dealing with affiliates or promoters under applicable
federal or state securities laws.
(ii) The
Adviser agrees that it shall not directly or indirectly pay or award any fees or
commissions or other compensation to any person or entity engaged to sell the
Company’s stock or give investment advice to a potential stockholder; provided,
however, that this subsection shall not prohibit the payment of a registered
broker-dealer or other properly licensed agent from sales commissions for
selling or distributing the Company’s common stock.
(c) Commingling. The
Adviser covenants that it shall not permit or cause to be permitted the
Company’s funds from being commingled with the funds of any other entity.
Nothing in this Subsection 10(c) shall prohibit the Adviser from establishing a
master fiduciary account pursuant to which separate sub-trust accounts are
established for the benefit of affiliated programs, provided that the Company’s
funds are protected from the claims of other programs and creditors of such
programs.
|
11.
|
Notices.
|
Any
notice under this Agreement shall be given in writing, addressed and delivered
or mailed, postage prepaid, to the other party at its principal
office.
|
12.
|
Amendments.
|
This
Agreement may be amended by mutual consent.
14
|
13.
|
Entire Agreement;
Governing Law.
|
This
Agreement contains the entire agreement of the parties and supersedes all prior
agreements, understandings and arrangements with respect to the subject matter
hereof. Notwithstanding the place where this Agreement may be executed by any of
the parties hereto, this Agreement shall be construed in accordance with the
laws of the State of New York. For so long as the Company is regulated as a BDC
under the Investment Company Act, this Agreement shall also be construed in
accordance with the applicable provisions of the Investment Company Act. In such
case, to the extent the applicable laws of the State of New York, or any of the
provisions herein, conflict with the provisions of the Investment Company Act,
the latter shall control.
15
IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed on the date above
written.
BUSINESS
DEVELOPMENT CORPORATION OF AMERICA
By: /s/ ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇
Name:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:
Chairman and Chief Executive Officer
BDCA
ADVISER, LLC
By: /s/ ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇
Name:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:
President
16
Appendix
A
Examples
of Quarterly Incentive Fee Calculation
Example
1: Income Related Portion of Incentive Fee (*):
Alternative
1
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 1.25%
Hurdle
rate (1) = 1.75%
Management
fee (2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.) (3) =
0.20%
Pre-incentive
fee net investment income
(investment
income – (management fee + other expenses)) = 0.55%
Pre-incentive
net investment income does not exceed hurdle rate, therefore there is no
incentive fee.
Alternative
2
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 2.70%
Hurdle
rate (1) = 1.75%
Management
fee (2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.) (3) =
0.20%
Pre-incentive
fee net investment income
(investment
income – (management fee + other expenses)) = 2.00%
Pre-incentive
net investment income exceeds hurdle rate, therefore there is an income
incentive fee payable by us to our Adviser.
Incentive
fee = 100% × pre-incentive fee net investment income, subject
to the “catch-up” (4)
=
100% × (2.00% – 1.75%)
=
0.25%
Alternative
3
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 3.00%
Hurdle
rate (1) = 1.75%
Management
fee (2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.) (3) =
0.20%
Pre-incentive
fee net investment income
(investment
income – (management fee + other expenses)) = 2.30%
Pre-incentive
net investment income exceeds hurdle rate, therefore there is an income
incentive fee payable by us to our Adviser.
17
Incentive
fee = 20% × pre-incentive fee net investment income, subject to “catch-up”
(4)
Incentive
fee = 100% × “catch-up” + (20% × (pre-incentive fee net investment income –
2.1875%))
Catch-up
= 2.1875% – 1.75%
=
0.4375%
Incentive
fee = (100% × 0.4375%) + (20% × (2.3% – 2.1875%))
= 0.4375%
+ (20% × 0.1125%)
= 0.4375%
+ 0.0225%
=
0.46%
|
(1)
|
Represents 7.0% annualized
hurdle rate.
|
|
(2)
|
Represents 2.0% annualized
management fee.
|
|
(3)
|
Excludes organizational and
offering expenses.
|
|
(4)
|
The “catch-up” provision is
intended to provide our Adviser with an incentive fee of 20% on all of our
pre-incentive fee net investment income as if a hurdle rate did not apply
when our net investment income exceeds 2.1875% in any calendar
quarter.
|
|
(*)
|
The hypothetical amount of
pre-incentive fee net investment income shown is based on a percentage of
total net assets.
|
Example
2: Capital Gains Portion of Incentive Fee:
Alternative
1:
Assumptions
|
|
·
|
Year
1: $20 million investment made in company A (“Investment A”), and $30
million investment made in company B (“Investment
B”)
|
|
|
·
|
Year
2: Investment A sold for $50 million and fair market value (“FMV”) of
Investment B determined to be $32
million
|
|
|
·
|
Year
3: FMV of Investment B determined to be $25
million
|
|
|
·
|
Year
4: Investment B sold for $31
million
|
The capital gains portion of the
incentive fee would be:
|
|
·
|
Year
1: None
|
|
|
·
|
Year
2: Capital gains incentive fee of $6 million ($30 million realized capital
gains on sale of Investment A multiplied by
20%)
|
|
|
·
|
Year
3: None
|
|
|
·
|
Year
4: Capital gains incentive fee of $200,000 ($6.2 million ($31 million
cumulative realized capital gains multiplied by 20%) less $6 million
(capital gains fee taken in Year
2)).
|
18
Alternative
2
Assumptions
|
|
·
|
Year
1: $20 million investment made in company A (“Investment A”), $30 million
investment made in company B (“Investment B”) and $25 million investment
made in company C (“Investment C”)
|
|
|
·
|
Year
2: Investment A sold for $50 million, FMV of Investment B determined to be
$25 million and FMV of Investment C determined to be $25
million
|
|
|
·
|
Year
3: FMV of Investment B determined to be $27 million and Investment C sold
for $30 million
|
|
|
·
|
Year
4: FMV of Investment B determined to be $35
million
|
|
|
·
|
Year
5: Investment B sold for $20 million. ($5 million (20% multiplied by $25
million (cumulative realized capital gains of $35 million less realized
capital losses of $10 million)) less $6.4 million cumulative capital gains
fee paid in Year 2 and Year 3)
|
The capital gains incentive fee,
if any, would be:
|
|
·
|
Year
1: None
|
|
|
·
|
Year
2: $5 million capital gains incentive fee (20% multiplied by $25 million
($30 million realized capital gains on Investment A less unrealized
capital depreciation on Investment
B)
|
|
|
·
|
Year
3: $1.4 million capital gains incentive fee.(1)$6.4
million (20% multiplied by $32 million ($35 million cumulative realized
capital gains less $3 million unrealized capital depreciation)) less $5
million capital gains fee received in Year
2)
|
|
|
·
|
Year
4: None.
|
|
|
·
|
Year
5: None. $5 million (20% multiplied by $25 million (cumulative realized
capital gains of $35 million less realized capital losses of $10 million))
less $6.4 million cumulative capital gains fee paid in Year 2 and Year
3
|
(1)
As illustrated in Year 3 of
Alternative 1 above, if Business Development Corporation of America were to be
wound up on a date other than December 31st of any year,
Business Development
Corporation of America may have paid
aggregate capital gains incentive fees that are more than the amount of such
fees that would be payable if Business Development Corporation of
America had been wound up on
December 31 of such year.
Example
3: Liquidation Incentive Fee
Alternative
1
Assumptions
|
·
|
Year
1: Gross offering proceeds total $85 million. $20 million investment made
in company A (“Investment A”), $30 million investment made in company B
(“Investment B”) and $25 million investment made in company C (“Investment
C”)
|
|
·
|
Year
2: Investment A sold for $25 million and all proceeds, net of any capital
gains incentive fees payable, are returned to stockholders. FMV of
Investment B determined to be $30 million and FMV of Investment C
determined to be $27 million.
|
|
·
|
Year
3: FMV of Investment B determined to be $31 million. FMV of Investment C
Determined to be $20 million.
|
19
|
·
|
Year
4: FMV of Investment B determined to be $35 million. FMV of Investment C
determined to be $25 million.
|
|
·
|
Year
5: Investments B and C sold in an orderly liquidation for total proceeds
of $55 million. All proceeds, net of any capital gains incentive fees
payable, are returned to
stockholders.
|
|
|
The
capital gains incentive fee, if any, would
be:
|
|
·
|
Year
1: None
|
|
·
|
Year
2: Incentive fee on capital gains during operations of $1 million ($5
million realized capital gains on sale of Investment A multiplied by
20.0%). Adjusted capital now equals $61 million ($85 million gross
proceeds less $24 million returned to stockholders from the sale of
portfolio investments).
|
|
·
|
Year
3: None
|
|
·
|
Year
4: None
|
|
·
|
Year
5: No liquidation incentive fee due -- Liquidation proceeds of $55 million
are less than adjusted capital immediately prior to liquidation ($61
million).
|
Alternative
2
Assumptions
|
|
·
|
Year
1: Gross offering proceeds total $85 million. $20 million investment made
in company A (“Investment A”), $30 million investment made in company B
(“Investment B”) and $25 million investment made in company C (“Investment
C”).
|
|
|
·
|
Year
2: Investment A sold for $25 million and all proceeds, net of any capital
gains incentive fees payable, are returned to stockholders. FMV of
Investment B determined to be $30 million and FMV of Investment C
determined to be $27 million.
|
|
|
·
|
Year
3: FMV of Investment B determined to be $31 million. FMV of Investment C
Determined to be $20 million.
|
|
|
·
|
Year
4: FMV of Investment B determined to be $35 million. FMV of Investment C
determined to be $25 million.
|
|
|
·
|
Year
5: Investments B and C sold in an orderly liquidation for total proceeds
of $80 million. All proceeds, net of any capital gains incentive fees
payable, are returned to
stockholders.
|
The capital gains incentive fee,
if any, would be:
20
|
|
·
|
Year
1: None
|
|
|
·
|
Year
2: Incentive fee on capital gains during operations of $1 million ($5
million realized capital gains on sale of Investment A multiplied by
20.0%). Adjusted capital now equals $61 million ($85 million gross
proceeds less $24 million returned to stockholders from the sale of
portfolio investments).
|
|
|
·
|
Year
3: None
|
|
|
·
|
Year
4: None
|
|
|
·
|
Year
5: $3.8 million liquidation incentive fee -- 20.0% multiplied by
liquidation proceeds ($80 million) in excess of adjusted capital
immediately prior to liquidation ($61 million), or $19
million.
|
The
returns shown are for illustrative purposes only. There is no guarantee that
positive returns will be realized and actual returns may vary from those shown
in the examples above.
21