Exhibit (g)
FORM OF
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
Agreement (this "Agreement") made this ___ day of June 2004, by and
between Porticoes Capital Corporation, a Maryland corporation (the
"Corporation"), and Porticoes Investment Management, LLC, a Delaware limited
liability company (the "Adviser").
WHEREAS, the Corporation is a newly organized closed-end management
investment company that has elected to be treated as a business development
company under the Investment Company Act of 1940 (the "Investment Company Act");
WHEREAS, the Adviser is a newly organized investment adviser that has
registered under the Investment Advisers Act of 1940 (the "Advisers Act"); and
WHEREAS, the Corporation desires to retain the Adviser to furnish
investment advisory services to the Corporation 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 Corporation hereby engages the Adviser to act as the investment
adviser to the Corporation and to manage the investment and reinvestment of the
assets of the Corporation, subject to the supervision of the Board of Directors
of the Corporation, 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 Corporation's Registration Statement on Form N-2, filed April 14,
2004, as amended and as the same may be further amended from time to time (as
amended, the "Registration Statement"), (ii) in accordance with the Investment
Company Act and (iii) in accordance with all other applicable federal and state
laws, rules and regulations, and the Corporation's charter and by-laws. 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 of
the portfolio of the Corporation, 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 Corporation; (iii) close
and monitor the Corporation's investments; (iv) determine the securities and
other assets that the Corporation will purchase, retain, or sell; (v) perform
due diligence on prospective portfolio companies; (vi) arrange for, structure
and negotiate financing for the Corporation (including collateralized debt
obligation transactions and securitizations); and (vii) provide the Corporation
with such other investment advisory, research and related services as the
Corporation may, from time to time, reasonably require for the investment of its
funds. The Adviser shall have the power and authority on behalf of the
Corporation to effectuate its investment decisions for the Corporation,
including the execution and delivery of all documents relating to the
Corporation's investments and the placing of orders for other purchase or sale
transactions on behalf of the Corporation. In the event that the Corporation
determines to acquire debt financing, the Adviser will arrange for such
financing on the Corporation's behalf, subject to the oversight and approval of
the Corporation's Board of Directors. If it is necessary for the Adviser to make
investments or arrange financing on behalf of the Corporation through a special
purpose vehicle, the Adviser shall have authority to create or arrange for the
creation of such special purpose vehicle and to make such investments or arrange
such financing through such special purpose vehicle in accordance with the
Investment Company Act.
(b) The Adviser hereby accepts such engagement and agrees during the
term hereof to render the services described herein for the compensation
provided herein.
(c) Subject to the requirements of the Investment Company Act, 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 Corporation'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
Corporation, subject to the oversight of the Adviser and the Corporation. The
Adviser, and not the Corporation, 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 Investment 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 Corporation in any
way or otherwise be deemed an agent of the Corporation.
(e) 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 Corporation and shall specifically maintain
all books and records with respect to the Corporation's portfolio transactions
and shall render to the Corporation's Board of Directors such periodic and
special reports as the Board may reasonably request. The Adviser agrees that all
records that it maintains for the Corporation are the property of the
Corporation and will surrender promptly to the Corporation any such records upon
the Corporation's request, provided that the Adviser may retain a copy of such
records.
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2. Corporation's Responsibilities and Expenses Payable by the Corporation.
All investment professionals of the Adviser and their respective
staffs, when and to the extent engaged in providing investment advisory and
management services hereunder, and the compensation and routine overhead
expenses of such personnel allocable to such services, will be provided and paid
for by the Adviser. The Corporation will bear all other costs and expenses of
its operations and transactions, including (without limitation) those relating
to: organization and offering; calculating the Corporation's net asset value
(including the cost and expenses of any independent valuation firm); expenses
incurred by the Adviser (such expenses, to the extent not otherwise reimbursed
by a third party, not to exceed $250,000 in any year, or a pro-rated portion
thereof for the period from the date hereof through December 31, 2004 and, in
the event that this Agreement shall terminate as of a date that is not a
calendar year end, for the period from January 1 of such year through such
termination date, without the consent of the Audit Committee of the
Corporation's Board of Directors) and fees and expenses payable to third
parties, including agents, consultants or other advisors, in each case relating
to, or associated with, monitoring financial and legal affairs for the
Corporation, monitoring the Corporation's investments, performing due diligence
on the Corporation's prospective portfolio companies and evaluating and making
investments; interest payable on debt, if any, incurred to finance the
Corporation's investments; offerings of the Corporation's common stock and other
securities; investment advisory and management fees; administration fees, if
any, payable under the Administration Agreement (as amended from time to time,
the "Administration Agreement") between the Corporation and PIM Holdings, LLC
(the "Administrator"); transfer agent and custodial fees; federal and state
registration fees; all costs of registration and listing the Corporation's
shares on any securities exchange; federal, state and local taxes; independent
directors' fees and expenses; brokerage commissions; costs of preparing and
filing reports or other documents required by the Securities and Exchange
Commission; costs of any reports, proxy statements or other notices to
stockholders, including printing costs; the Corporation's allocable portion of
the fidelity bond, directors and officers/errors and omissions liability
insurance, and any other insurance premiums; direct costs of administration,
including printing, mailing, long distance telephone, copying, secretarial and
other staff, independent audits and outside legal costs; and all other expenses
incurred by the Corporation or the Administrator in connection with
administering the Corporation's business, including payments under the
Administration Agreement based upon the Corporation's allocable portion of
overhead and other expenses incurred by the Administrator in performing its
obligations under the Administration Agreement, including rent and the
Corporation's chief compliance officer and chief financial officer and their
respective staffs.
3. Compensation of the Adviser.
The Corporation 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 Corporation shall make any payments due hereunder to
the Adviser or to the Adviser's designee as the Adviser may otherwise direct. To
the extent permitted by applicable law, the Adviser may elect, or the
Corporation may adopt a deferred compensation plan pursuant to which the Adviser
may elect, to defer all or a portion of its fees hereunder for a specified
period of time.
(a) The Base Management Fee shall be calculated at an annual rate based
on the Corporation's gross assets. For purposes hereof, "gross assets" means all
of the Corporation's debt and equity investments, including cash and cash
equivalents and taking into account borrowing. The management fee will be 2.00%
of the Corporation's gross assets; provided, however, that the Adviser hereby
agrees to waive a portion of the Base Management Fee such that the Base
Management Fee will be equal to (x) 1.50% of the Corporation's gross assets from
the date of the offering of common stock pursuant to the Registration Statement
until the date on which the Corporation has invested at least 50% of the net
proceeds of such offering and (y) 1.75% of the Corporation's gross assets from
such later date until the date on which it has invested at least 75% of the net
proceeds of such offering. The Base Management Fee will remain 2.00% of the
Corporation's gross assets thereafter. For services rendered during the period
commencing from the closing of the Corporation's offering of its common stock,
pursuant to the Registration Statement, through and including December 31, 2004,
the Base Management Fee will be payable monthly in arrears by the 10th day after
the end of such month. For services rendered after December 31, 2004, the Base
Management Fee will be payable quarterly in arrears by the 10th day after the
end of such quarter. For the first quarter of the Corporation's operations, the
Base Management Fee will be calculated based on the initial value of the
Corporation's gross assets. Subsequently, the Base Management Fee will be
calculated based on the average value of the Corporation's gross assets at the
end of the two most recently completed calendar quarters, and appropriately
adjusted for any share issuances or repurchases during the current calendar
quarter. Base Management Fees for any partial month or quarter will be
appropriately pro rated.
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(b) The Incentive Fee shall consist of two parts, as follows:
(i) One part will be calculated and payable quarterly in
arrears by the tenth day after the end of such
quarter based on the pre-Incentive Fee net investment
income for the immediately preceding calendar
quarter. For this purpose, pre-Incentive Fee net
investment income means interest income, dividend
income and any other income (including any other
fees, such as commitment, origination, structuring,
diligence and consulting fees and fees for providing
significant managerial assistance or other fees that
the Corporation receives from portfolio companies)
earned by the Corporation during the calendar
quarter, minus the Corporation's operating expenses
for the quarter (including the Base Management Fee,
any fees and expenses payable under this 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 any consulting or other fees that we
receive from portfolio companies but does not include
any realized capital gains, realized capital losses
or unrealized capital gains and losses. Pre-Incentive
Fee net investment income, expressed as a rate of
return on the value of the Corporation's net assets
at the end of the immediately preceding calendar
quarter, will be compared to a "quarterly hurdle
rate" that, on an annualized basis, is equal to the
lesser of (a) 5.5% over LIBOR and (b) 10%. The
Corporation will pay the Adviser an Incentive Fee
with respect to the Corporation's pre-Incentive Fee
net investment income in each calendar quarter as
follows: (1) no Incentive Fee in any calendar quarter
in which the Corporation's pre-Incentive Fee net
investment income does not exceed the quarterly
hurdle rate; (2) commencing with the Corporation's
ninth full fiscal quarter after its offering of
common stock pursuant to the Registration Statement,
100% of the Corporation's pre-Incentive Fee net
investment income with respect to that portion of
such pre-Incentive Fee net investment income, if any,
that exceeds the quarterly hurdle rate by not more
than one-fourth (1/4) of such quarterly hurdle rate;
and (3) 20% of the amount of the Corporation's
pre-Incentive Fee net investment income, if any, that
exceeds,(a) in any calendar quarter prior to
commencement of the Corporation's ninth full fiscal
quarter, the quarterly hurdle rate, and (b) in each
calendar quarter commencing with the Corporation's
ninth full fiscal quarter, the quarterly hurdle rate
by more than one-fourth (1/4) of such quarterly
hurdle rate. These calculations will be appropriately
pro rated for any period of less than three months
and adjusted for any share issuances or repurchases
during the current quarter. For purposes hereof,
"LIBOR" shall be the average per annum rate (rounded
to the next highest one-hundredth of one percent) for
three-month deposits published during a calendar
quarter by Bloomberg L.P. or, if no longer published
by Bloomberg L.P., such other major financial
publication selected by the Adviser in its sole
discretion.
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(ii) The second part of the Incentive Fee (the "Capital
Gains Fee") will be determined and payable in arrears
as of the end of each calendar year by the tenth day
after the end of such calendar year (or upon
termination of this Agreement as set forth below),
commencing on December 31, 2004, and will equal 20%
of (x) the Corporation's realized capital gains for
the calendar year, net of (y) the sum of the
Corporation's (i) realized capital losses for such
calendar year and (ii) unrealized capital losses
incurred during such year; provided that the
Incentive Fee determined as of December 31, 2004 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 losses for the period
ending December 31, 2004. For these purposes,
"realized capital losses" will not include amounts
previously taken into account under the formula while
they were unrealized. Additionally, "unrealized
capital losses" to the extent that such unrealized
capital losses do not represent a write-down of such
investment below its purchase price will not be taken
into account under the formula. 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 a Capital Gains
Fee.
The terms used in calculating the second part of the
Incentive Fee have the following definitions:
"Realized Capital Gains" - the amount
realized from the sale or other disposition
of an investment minus the lesser of (i) the
original purchase price or (ii) the lowest
fair market value ("FMV") of the investment
at the end of any prior calendar year plus
any unrealized capital losses in prior years
on such investment that did not reduce the
Capital Gains Fees that would otherwise have
been payable to the Adviser in such years;
if such amount is greater than zero.
"Realized Capital Losses" - the lesser of
(i) original purchase price of an investment
or (ii) the lowest FMV of the investment at
the end of any prior calendar year, plus any
unrealized capital losses in prior years on
such investment that did not reduce the
Capital Gains Fees that would otherwise have
been payable to the Adviser in such years,
minus the amount received from the sale or
other disposition of such investment; if
such amount is greater than zero.
"Unrealized Capital Losses" - the lesser of
(i) the original purchase price of an
investment or (ii) the lowest FMV of the
investment at the end of any prior calendar
year, minus the current FMV of the
investment; if such amount is greater than
zero.
4. Covenants of the Adviser.
The Adviser covenants that it is registered as an investment adviser
under the Advisers Act. 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. Excess Brokerage Commissions.
The Adviser is hereby authorized, to the fullest extent now or
hereafter permitted by law, to cause the Corporation 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 Corporation's portfolio, and constitutes
the best net results for the Corporation.
6. Limitations on the Engagement of the Adviser.
The services of the Adviser to the Corporation 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 Corporation, so long as its services to the Corporation hereunder are not
impaired thereby, and nothing in this Agreement shall limit or restrict the
right of any manager, partner, 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
Corporation'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 Corporation, 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 Corporation 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 Corporation 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, officer or employee of the
Adviser or the Administrator is or becomes a director, officer and/or employee
of the Corporation and acts as such in any business of the Corporation, then
such manager, partner, officer and/or employee of the Adviser or the
Administrator shall be deemed to be acting in such capacity solely for the
Corporation, and not as a manager, partner, officer or employee of the Adviser
or the Administrator or under the control or direction of the Adviser or the
Administrator, even if paid by the Adviser or the Administrator.
8. Limitation of Liability of the Adviser; Indemnification.
The Adviser (and its officers, managers, agents, employees, controlling
persons, members and any other person or entity affiliated with the Adviser,
including without limitation the Administrator) shall not be liable to the
Corporation 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 Corporation, 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 Corporation shall indemnify, defend and protect the
Adviser (and its officers, managers, agents, employees, controlling persons,
members and any other person or entity affiliated with the Adviser, including
without limitation the Administrator, 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 Corporation 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 Corporation. Notwithstanding the preceding sentence of this Paragraph 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
Corporation 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
(as the same shall be determined in accordance with the Investment Company Act
and any interpretations or guidance by the Securities and Exchange Commission or
its staff thereunder).
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9. Effectiveness, Duration and Termination of Agreement.
This Agreement shall become effective as of the first 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
Corporation's Board of Directors, or by the vote of a majority of the
outstanding voting securities of the Corporation and (b) the vote of a majority
of the Corporation'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. This Agreement may be terminated at any time,
without the payment of any penalty, upon 60 days' written notice, by the vote of
a majority of the outstanding voting securities of the Corporation, or by the
vote of the Corporation's Directors or by the Adviser. This Agreement will
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 Paragraph 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. Further, notwithstanding the
termination or expiration of this Agreement as aforesaid, the Adviser shall be
entitled to any amounts owed under Paragraph 3 through the date of termination
or expiration and Paragraph 8 shall continue in force and effect and apply to
the Adviser and its representatives as and to the extent applicable.
10. 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.
11. Amendments.
This Agreement may be amended by mutual consent, but the consent of the
Corporation must be obtained in conformity with the requirements of the
Investment Company Act.
12. 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. This Agreement shall be construed in accordance with
the laws of the State of New York and the applicable provisions of the
Investment Company Act. 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date above written.
PORTICOES CAPITAL CORPORATION
By:
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Name:
Title:
PORTICOES INVESTMENT MANAGEMENT, LLC
By: PIM Holdings, LLC, its sole member
By:
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Name:
Title:
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