INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICES AGREEMENT BETWEEN KEATING CAPITAL, INC. AND KEATING INVESTMENTS, LLC
Exhibit
10.3
INVESTMENT
ADVISORY AND
ADMINISTRATIVE
SERVICES AGREEMENT
BETWEEN
▇▇▇▇▇▇▇
CAPITAL, INC.
AND
▇▇▇▇▇▇▇
INVESTMENTS, LLC
This
Agreement (the “Agreement”)
made this 28th day of July, 2008, by and between ▇▇▇▇▇▇▇ CAPITAL, INC, a
Maryland company (the “Company”),
and ▇▇▇▇▇▇▇ INVESTMENTS, 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 regulated as a business
development company (“BDC”)
under the Investment Company Act of 1940, as amended (the “Investment
Company Act”); and
WHEREAS,
the Adviser is an investment adviser registered 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:
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(i)
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in
accordance with the investment objective, policies and restrictions that
are set forth in the Company’s private placement memorandum dated June 16,
2008, as amended from time to time (the “PPM”);
and
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(ii)
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during
the term of this Agreement in accordance with all applicable federal and
state laws, rules and regulations, and the Company’s articles of
incorporation and bylaws, in each case as amended from time to time (the
“Charter
Documents”)
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(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:
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(i)
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determine
the composition of the portfolio of the Company, the nature and timing of
the changes therein and the manner of implementing such
changes;
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(ii)
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identify,
evaluate and negotiate the structure of the investments made by the
Company;
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(iii)
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close,
monitor and service the Company’s
investments;
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(iv)
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determine
the securities and other assets that the Company purchases, retains, or
sells; and
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(v)
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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.
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(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) Administrative
Services. Subject to the supervision, direction and control of
the Board, the provisions of the Charter Documents, and applicable federal and
state law, the Adviser shall perform, or cause to be performed by other persons,
all administrative services in connection with the operation of the
Company. Without limiting the generality of the foregoing, the
Adviser shall provide the Company with office facilities, equipment, clerical,
bookkeeping and record keeping services at such facilities and such other
services as the Adviser, subject to review by the Board of the Company, shall
from time to time determine to be necessary or useful to perform its obligations
under this Agreement. The Adviser shall also, on behalf of the
Company, conduct relations with custodians, depositories, transfer agents,
dividend disbursing agents, other stockholder servicing agents, accountants,
attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers,
banks and such other persons in any such other capacity deemed to be necessary
or desirable. The Adviser shall make reports to the Board of its
performance of obligations hereunder and furnish advice and recommendations with
respect to such other aspects of the business and affairs of the Company as it
shall determine to be desirable. The Adviser shall be responsible for
the financial and other records that the Company is required to maintain and
shall prepare reports to stockholders, and reports and other materials filed
with the Securities and Exchange Commission (“SEC”). In
addition, the Adviser will assist the Company in determining and publishing the
Company’s net asset value, overseeing the preparation and filing of the
Company’s tax returns, and the printing and dissemination of reports to
stockholders of the Company, and generally overseeing the payment of the
Company’s expenses and the performance of administrative and professional
services rendered to the Company by others.
(e) 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.
(f) 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 objective, 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.
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(i)
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The
Adviser and not the Company shall be responsible for any compensation
payable to any Sub-Adviser.
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(ii)
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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 shareholder
approval thereunder, and other applicable federal and state
law.
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(iii)
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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.
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(g) 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.
(h) 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
8, provided that the Adviser may retain a copy of such records.
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2.
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Company’s
Responsibilities and Expenses Payable by the
Company.
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All
personnel of the Adviser, when and to the extent engaged in providing investment
advisory services hereunder, and the compensation and expenses of such personnel
allocable to such services, will be provided and paid for by the Adviser, and
not by the Company. The Company shall be responsible for all other
costs and expenses of its operations and transactions, including (without
limitation) those relating to: organization and offering; calculating the
Company’s net asset value; effecting sales and repurchases of shares of the
Company’s common stock and other securities; investment advisory fees; fees
payable to third parties relating to, or associated with, making investments (in
each case subject to approval of the Company’s Board ) including fees and
expenses associated with performing due diligence reviews of prospective
investments; transfer agent and custodial fees; costs and expenses relating to
marketing and advertising the Company, including without limitation sponsorship
of industry events, attendance at industry conferences and travel and
entertainment costs associated with meeting relevant investors and prospective
portfolio companies (to the extent not reimbursed by such companies); the
salary, bonus and benefits payable to the Company’s Chief Financial Officer,
Chief Compliance Officer, Controller and administrative support staff; federal
and state registration fees; all costs of registration and listing the Company’s
shares on any securities exchange; federal, state and local taxes; independent
Directors’ fees and expenses; costs of proxy statements, stockholders’ reports
and notices; fidelity bond, directors and officers/errors and omissions
liability insurance, and any other insurance premiums; direct costs such as
printing, mailing, long distance telephone, staff, independent auditors and
outside legal costs; and all other expenses incurred by the Company in
connection with administering the Company’s business, including
rent.
3. Compensation of the
Adviser.
The
Company agrees to pay, and the Adviser agrees to accept, as compensation for the
investment advisory 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 the
Incentive 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 gross assets. The Base Management Fee
shall be payable monthly in arrears, and shall be calculated based on the value
of the Company’s gross assets at the end of the most recently completed calendar
quarter and appropriately adjusted for any equity capital raises or repurchases
during the current calendar quarter. The Base Management Fee for any
partial month or quarter shall be appropriately pro rated. The Base
Management Fee shall begin accruing on the day immediately
following the final closing of the sale of the Company’s securities
under the PPM.
(b) Incentive
Fee. The Incentive Fee shall be determined and payable in
arrears as of the end of each calendar year (and upon termination of this
Agreement, as set forth below), commencing with the calendar year ending
December 31, 2008.
The
Incentive Fee for a calendar year shall be an amount equal to 20% of the
Company’s realized capital gains, if any, on a cumulative basis from inception
through 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 Incentive Fees, with respect to each of
the investments in our portfolio; provided that the Incentive Fee determined as
of December 31, 2008 will be calculated for a period of shorter than twelve
calendar months to take into account any realized capital gains computed net of
all realized capital losses and unrealized capital depreciation from inception.
In the event that this Agreement shall terminate as of a date that is not a
calendar year end, the termination date shall be treated as though it were a
calendar year end for purposes of calculating and paying the Incentive
Fee.
An example
setting forth the operation of the Incentive Fee is attached as Attachment
A.
In
consideration of the administrative services provided by the Adviser hereunder,
the Company shall reimburse the Adviser for the costs and expenses incurred by
the Adviser in performing its administrative obligations and providing personnel
and facilities hereunder, including the Company’s allocable portion of the
direct costs and expenses of administration, including printing, mailing, long
distance telephone, copying, secretarial and other staff, independent auditors
and outside legal costs; and all other expenses incurred by the Adviser in
connection with administering the Company’s business, and the allocable portion
of the Adviser’s overhead in performing its obligations hereunder, including
rent and the allocable portion of the cost of the Company’s chief compliance
officer and chief financial officer and their respective staffs.
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4.
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Excess Brokerage
Commissions.
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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.
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5.
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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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6.
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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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7.
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Indemnification.
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The
Adviser (and its officers, managers, agents, employees, controlling persons,
members and any other person or entity affiliated with the Adviser)
(collectively, the “Indemnified
Parties”) 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
adviser 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
with respect to the receipt of compensation for services, and the Company shall
indemnify 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. Notwithstanding the preceding sentence of this Paragraph 7
to the contrary, nothing contained herein shall protect or be deemed to protect
the Indemnified Parties against or entitle or be deemed to entitle the
Indemnified Parties to indemnification in respect of, any liability to the
Company or its security holders to which the Indemnified Parties would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of the Adviser’s duties or by reason of the reckless disregard
of the Adviser’s duties and obligations under this Agreement.
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8.
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Effectiveness,
Duration and Termination of
Agreement.
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(a) Term and
Effectiveness. This Agreement shall become effective as of the
date above written. 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, by
either party upon 60 days’ written notice to the other party. 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 7 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.
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9.
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Notices.
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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.
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10.
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Amendments.
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This
Agreement may be amended by mutual consent, but the consent of the Company must
be obtained in conformity with the requirements of the Investment Company
Act.
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11.
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Entire Agreement;
Governing Law.
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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.
IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be duly executed on
the date above written.
| ▇▇▇▇▇▇▇ CAPITAL, INC. | |||
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By:
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/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||
| President and Chief Executive Officer | |||
| ▇▇▇▇▇▇▇ INVESTMENTS, LLC | |||
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By:
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/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |
| ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ | |||
| Managing Member | |||
APPENDIX
A
The
following table sets forth various examples of the calculation of the Incentive
Fee based on different levels of realized and unrealized gains and losses over a
period of years. These calculations are based on the different
assumptions set forth in the table:
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Examples
of Annual Incentive Fee for Capital Gains (all dollar amounts in
millions)
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Example
1
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Year
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Investment
Description
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Incentive
Fee
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Explanatory
comments
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1
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Invested
$5 in Company A stock and $10 in Company B stock.
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$0
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No
incentive fee since as there are realized gains.
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2
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Sold
Company A stock for $15 ($10 realized gain). Fair value of
Company B stock at $20 ($10 unrealized gain)
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$2.0
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Incentive
fee equals 20% of $10 realized gains. Unrealized gains do not
affect calculation.
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3
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Fair
value of Company B stock at $8 ($2 unrealized loss).
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$0
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No
incentive fee as there are only unrealized loss in the
year.
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4
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Sold
Company B stock for $12 ($2 realized gain).
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$0.4
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Incentive
fee equals 20% of cumulative realized gains of $12, or $2.4, less
previously paid incentive fee of $2.
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Example
2
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Year
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Investment
Description
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Incentive
Fee
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Explanatory
comments
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1
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Invested
$20 in Company A stock, $30 in Company B stock and $25 in Company C
stock
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$0
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No
incentive fee as there are no realized gains.
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2
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Sold
Company A stock for $50 (realized gain $30). Fair value of
Company B stock at $25 ($5 unrealized loss). Fair value of
Company C stock at $25 (no unrealized gain or loss).
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$5.0
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Incentive
fee equals 20% of $25 (which is the $30 realized gains less the $5
unrealized loss).
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3
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Sold
Company C stock for $30 ($5 realized gain). Fair value of
Company B stock at $27 ($3 unrealized loss)
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$1.4
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Incentive
fee equals 20% of $32 (which is the $35 of realized gains less the $3 of
unrealized losses), reduced by the $5 previously paid incentive
fee.
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4
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Fair
value of Company B stock at $35 ($5 unrealized gain).
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$0
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No
incentive fee as there are no realized gains in year.
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5
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Sold
Company B stock for $20 ($10 realized loss).
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$0
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No
incentive fee as the 20% incentive fee on $25 (which is the $35 cumulative
realized gains less the $10 realized losses) exceeds the $6.4
previously paid incentive fee.
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