INVESTMENT ADVISER AGREEMENT BETWEEN TRITON PACIFIC INVESTMENT CORPORATION, INC. AND TRITON PACIFIC ADVISER, LLC
BETWEEN
TRITON PACIFIC INVESTMENT CORPORATION, INC.
AND
TRITON PACIFIC ADVISER, LLC
This Agreementas originally made te 27th day of July 2012, and as hereby amended as of October 12, 2012, by and between TRITON PACIFIC INVESTMENT CORPORATION, INC., a Maryland corporation (the “Company”), and TRITON PACIFIC ADVISER, LLC, a Delaware limited liability company (the “Adviser”).
WHEREAS, the Company is a newly organized closed-end, non-diversified management investment fund that intends to elect to be treated as a business development company (“BDC”) under the Company Act of 1940, as amended (the “Company Act”); and
WHEREAS, the Adviser is a newly organized investment adviser that intends to register 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 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:
1. Duties of the Adviser.
(a) The Company hereby employs the Adviser to act as the investment adviser to the Company and to manage the investment 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 objective, policies and restrictions that are set forth in the Company’s Registration Statement on Form N-2, as filed with the Securities and Exchange Commission on June __, 2011, and as amended from time to time (as amended, the “Registration Statement”); (ii) in accordance with all other applicable federal and state laws, rules and regulations, and the Company’s charter and by-laws; and (iii) in accordance with the Company Act, subsequent to the time the Company becomes a BDC. Without limiting the generality of the foregoing, the Adviser shall, during the term and subject to the provisions of this Agreement (A) determine the composition of the portfolio of the Company, the nature and timing of the changes therein and the manner of implementing such changes; (B) identify, evaluate and negotiate the structure of the investments made by the Company; (C) close, monitor and service the Company’s investments, including having its representatives sit on portfolio company boards and participating in the management of the Company’s investments as needed; (D) determine the securities and other assets that the Company shall purchase, retain, or sell; (E) perform due diligence on prospective portfolio companies; and (F) 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 capital. The Adviser shall have 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 use debt financing, the Adviser shall arrange for such financing on the Company’s behalf, subject to the oversight and approval of the Company’s Board.
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(b) The Adviser hereby accepts such employment and agrees during the term hereof to render the services described herein for the compensation provided herein.
(c) 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 and policies, and work, along with the Adviser, in 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. The Adviser and not the Company shall be responsible for any compensation payable to any Sub-Adviser. Any sub-advisory agreement entered into by the Adviser shall be in accordance with the requirements of the Company Act and other applicable federal and state law.
(d) 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.
(e) Subject to review by and the overall control of the Board of the Company, the Adviser shall keep and preserve for the period required by the 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 Company’s Board such periodic and special reports as the Board may reasonably request. 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, provided that the Adviser may retain a copy of such records.
2. Company’s Responsibilities and Expenses Payable by the Company.
All personnel of the Adviser, when and to the extent engaged in providing investment advisory services hereunder, and the compensation and routine overhead expenses of such personnel allocable to such services, shall be provided and paid for by the Adviser and not by the Company. The Company shall bear all other costs and expenses of its operations and transactions, including (without limitation) fees and expenses relating to: organizational and offering expenses; 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 and all other direct expenses incurred by either the Adviser or the Company in connection with administering the Company’s business, including payments under the administration agreement that will be based upon the Company’s allocable portion of overhead and other expenses incurred by the Company’s administrator, TFA Associates, LLC in performing its obligations under the administration agreement and the compensation of the Company’s chief executive officer, chief financial officer and chief compliance officer, and their respective staffs.
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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, in its sole and absolute discretion, 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) The Base Management Fee will be calculated at a quarterly rate of 0.5% of the Company’s average gross assets (including amounts borrowed) and payable quarterly in arrears. For the first quarter of the Company’s operations, the Base Management Fee will be calculated based on the initial value of the Company’s gross assets. Subsequently, the Base Management Fee for any calendar quarter will be calculated based on the average value of the Company’s gross assets at the end of such quarter and the immediately preceding calendar quarters, appropriately adjusted for any share issuances or repurchases during such quarter. The Base Management Fee may or may not be taken in whole or in part at the discretion of the Adviser. All or any part of the Base Management Fee not taken as to any quarter shall be accrued without interest and may be taken in such other quarter as the Adviser shall determine. The Base Management Fee for any partial quarter will be appropriately pro-rated.
(b) The Incentive Fee shall be determined and payable in arrears as of the end of each quarter, upon liquidation of the Company or upon termination of this Agreement, as of the termination date, and shall equal 20.0% of the Company’s realized capital gains, if any, on a cumulative basis from inception through the end of each quarter, 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. For purposes of calculating the foregoing: (1) the calculation of the Incentive Fee shall include any capital gains that result from cash distributions that are treated as a return of capital, (2) any such return of capital shall be treated as a decrease in the Company’s cost basis of an investment, and (3) all fiscal year-end valuations shall be determined by the Company in accordance with generally accepted accounting principles, applicable provisions of the Company Act (even if such valuation is made prior to the date on which the Company has elected to be regulated as a BDC) and the Company’s pricing procedures. In determining the Incentive Fee payable to the Adviser, the Company will calculate the aggregate realized capital gains, aggregate realized capital losses and aggregate unrealized capital depreciation, as applicable, with respect to each of the investments in its portfolio. For this purpose, aggregate realized capital gains, if any, will equal the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since inception. Aggregate realized capital losses will equal the sum of the amounts by which the net sales price of each investment, when sold, is less than the cost of such investment since inception. Aggregate unrealized capital depreciation will equal the sum of the difference, if negative, between the valuation of each investment as of the applicable date and the original cost of such investment. At the end of the applicable period, the amount of capital gains that serves as the basis for the Company’s calculation of the Incentive Fee will equal the aggregate realized capital gains less aggregate realized capital losses and less aggregate unrealized capital depreciation with respect to its portfolio of investments. If this number is positive at the end of such period, then the Incentive Fee for such period will be equal to 20% of such amount, less the aggregate amount of any incentive fees paid in respect of its portfolio in all prior periods.
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4. Covenants of the Adviser.
The Adviser covenants that it will register as an investment adviser under the Advisers Act and 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.
5. 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.
6. Other Activities of the Adviser.
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). So long as this Agreement or any extension, renewal or amendment remains in effect, the Adviser shall be the only investment adviser for the Company, subject to the Adviser’s right to enter into sub-advisory agreements. 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. Responsibility of Dual Directors, Officers and/or Employees.
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.
8. Limitation of Liability of the Adviser; Indemnification.
(a) 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 adviser of the Company (except to the extent specified in Section 36(b) of the 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. Notwithstanding the preceding sentence of this Section 8 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.
(b) Notwithstanding anything in section 8(a), until such time as the Company is listed on a national securities exchange the indemnification of the Indemnified Parties shall be limited as required by the North American Securities Administrations Association (“NASAA”) Omnibus Guidelines as follows:
i. The Company shall not provide for indemnification of an Indemnified Party for any liability or loss suffered, unless all of the following conditions are met:
1. The Corporation has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interests of the Corporation;
2. The Corporation has determined, in good faith, that the Indemnified Party was acting on behalf of or performing services for the Corporation;
3. The Corporation has determined, in good faith, that such liability or loss was not the result of negligence or misconduct; and
4. Such indemnification or agreement to hold harmless is recoverable only out of assets and not from the stockholders.
ii. The Corporation shall not provide indemnification for any loss, liability or expense arising from or out of an alleged violation of federal or state securities laws by any Indemnified Party, unless one or more of the following conditions are met: (a) there has been a successful adjudication on the merits of each count involving alleged material securities law violations as to the Indemnified Party, (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the Indemnified Party, or (c) a court of competent jurisdiction approves a settlement of the claims against the Indemnified Party, and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and Exchange Commission and of the published position of any state securities regulatory authority in which securities were offered or sold as to indemnification for violations of securities laws.
9. Effectiveness, Duration and Termination of Agreement.
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 (a) the vote of the Company’s Board, or by the vote of a majority of the outstanding voting securities of the Company
and (b) the vote of a majority of the Company’s
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directors who are not parties to this Agreement or “interested persons” (as such term is defined in Section
2(a)(19) of the Company Act) of any such party, in accordance with the requirements of the Company Act and each of whom is an
“independent director” under applicable New York Stock Exchange listing standards. This Agreement may be
terminated upon 60 days’ written notice, without the payment of any penalty, by the vote of a majority of the
outstanding voting securities of the Company, or by the vote of the Company’s Board of Directors or by the Adviser.
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 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.
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.
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 California. For so long as the Company is regulated as a BDC under the Company Act, this Agreement shall also be construed in accordance with the applicable provisions of the Company Act. In such case, to the extent the applicable laws of the State of California, or any of the provisions herein, conflict with the provisions of the Company Act, the latter shall control. To the fullest extent permitted by law, in the event of any dispute arising out of the terms and conditions of this Agreement, the parties hereto consent and submit to the jurisdiction of the courts of the State of California in the county of Los Angeles and of the U.S. District Court for the Western Division of the Central District of California.
[Signatures Appear on Following Pages]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date above written.
Triton Pacific Investment Corporation, Inc.
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and CEO
Triton Pacific Adviser, LLC
/s/▇▇▇▇▇ ▇. ▇▇▇▇▇▇
By: Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
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Appendix A
Examples of Quarterly Incentive Fee Calculation
Scenario 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 incentive fee on capital gains would be:
Year 1: None
Year 2: Incentive fee on capital gains of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20.0%)
Year 3: None — $5 million (20.0% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains fee paid in Year 2)
Year 4: Incentive fee on capital gains of $200,000 — $6.2 million ($31 million cumulative realized capital gains multiplied by 20.0%) less $6 million (incentive fee on capital gains paid in Year 2)
Scenario 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
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The capital gains incentive fee, if any, would be:
Year 1: None
Year 2: $5 million incentive fee on capital gains— 20.0% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B)
Year 3: $1.4 million incentive fee on capital gains— $6.4 million (20.0% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million incentive fee on capital gains received in Year 2
Year 4: None
Year 5: None — $5 million (20.0% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative incentive fee on capital gains paid in Year 2 and Year 3.
Scenario 3
Assumptions
Year 1: Net offering proceeds total $75 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 shareholders. 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 shareholders.
The capital gains incentive fee, if any, would be:
Year 1: None
Year 2: $1 million incentive fee on capital gains– 20.0% multiplied by a realized gain $5 million (no unrealized depreciation or realized losses occurred).
Year 3: None
Year 4: None
Year 5: $5 million incentive fee on capital gains – $6 million cumulative realized capital gains of Investments A, B and C (20.0% multiplied by $30 million) less $1 million cumulative incentive fee on capital gains paid in Year 2.
‡The returns shown above 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.