INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT BETWEEN AND THE TOKARZ GROUP ADVISERS LLC
Exhibit 99.g
BETWEEN
AND
THE XXXXXX GROUP ADVISERS LLC
Agreement made this 31st day of October 2006, by and between MVC Capital, Inc., a
Delaware Fund (the “Fund”), and The Xxxxxx Group Advisers LLC, a Delaware limited liability company
(the “Adviser”).
Whereas, the Fund is a closed-end management investment company that has elected to be
regulated as a business development company under the Investment Company Act of 1940 (the
“Investment Company Act”); and
Whereas, the Board of Directors of the Fund (the “Board”) has determined to externalize the
Fund’s management and retain the Adviser to furnish investment advisory services to the Fund 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 Fund hereby employs the Adviser to act as the investment adviser to the Fund
and to manage the investment and reinvestment of the assets of the Fund, subject to the supervision
of the Board of Directors of the Fund (the “Board”), for the period and upon the terms herein set
forth: (i) in accordance with the investment objectives, policies and restrictions that are
determined by the Board from time to time and disclosed to the Adviser, which objectives, policies
and restrictions shall initially be those set forth in the Fund’s Registration Statement on Form
N-2, filed with the Securities and Exchange Commission (the “SEC”) on February 21, 2006 (the
“Registration Statement”); (ii) in accordance with the Investment Company Act; and (iii) during the
term of this Agreement in accordance with all other applicable federal and state laws, rules and
regulations, and the Fund’s charter and by-laws. References in this Agreement to the “Fund” shall
also include any wholly-owned subsidiary of the Fund, where appropriate and as applicable.
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
Fund, 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 Fund; (iii)
close and monitor the Fund’s investments; (iv) determine the securities and other assets that the
Fund will purchase, retain, or sell; (v) perform due diligence on prospective portfolio companies;
(vi) provide the Fund with such other investment advisory, research and related services as the
Fund may, from time to time, reasonably require for the investment of its funds; (vii) oversee the
performance of the Fund’s outside service providers, including the Fund’s administrator, transfer
agent and custodian; (viii) oversee compliance by the Fund with U.S. federal, state and other
applicable laws and regulations; (ix) provide the Fund with office space; and (x) pay the salaries,
fees and expenses of such of the Fund’s directors, officers or employees who are directors,
officers, principals or employees of the Adviser or any of its affiliates, except that the Fund
will reimburse the Adviser for (a) its allocable portion of the compensation payable to its chief
financial officer (“CFO”), chief compliance officer (“CCO”) and secretary in an amount not to
exceed $100,000 per year, in the aggregate, (b) travel expenses, or an appropriate portion of such
expenses (in the event such
expenses are not otherwise reimbursed by a portfolio company or third party), that relate to
attendance at meetings of the Board or any committees thereof and the Fund’s portfolio companies or
performing other managerial assistance for portfolio companies and (c) unreimbursed travel and
other related out-of-pocket expenses in connection with the sourcing of investments for the Fund as
set forth in Section 2(xviii). The Adviser may delegate any of the foregoing duties to a third
party with the consent of the Board. The Adviser shall have the power and authority on behalf of
the Fund to effectuate its investment decisions for the Fund, including the execution and delivery
of all documents relating to the Fund’s investments and the placing of orders for other purchase or
sale transactions on behalf of the Fund. In the event that the Fund, in consultation with the
Adviser, determines to incur debt financing, the Adviser will arrange for such financing on the
Fund’s behalf, subject to the approval of the Board. Furthermore, the Fund shall consult with the
Adviser prior to issuing any preferred stock. The Adviser will offer, and provide where requested,
on the Fund’s behalf and/or on behalf of a subsidiary of the Fund, significant managerial
assistance to the issuers of securities in which the Fund is invested. The Adviser shall make
available to the Fund individuals to serve as directors and/or officers of the Fund, as deemed
necessary by the Board.
(b) The Adviser shall manage the Fund’s day-to-day operations and oversee the
administration, recordkeeping and compliance functions of the Fund and/or third parties performing
such functions for the Fund. Without limiting the generality of the foregoing, the Adviser
specifically shall be responsible for overseeing: (i) the preparation of periodic financial
statements; (ii) the preparation of financial and accounting reports for presentation to the Fund’s
Board and for stockholders and governmental agencies; (iii) the preparation and filing of the
Fund’s tax returns (and those of any wholly-owned subsidiary involved with the Fund’s operations);
(iv) the preparation and providing of such reports and analyses to the Fund’s Board and
stockholders as may from time to time be considered necessary or appropriate by the Fund’s Board;
(v) the arrangement of the payment of the Fund’s expenses and the performance of administrative
and professional services rendered to the Fund by others; (vi) the preparation of any proxy
statements and arranging and conducting meetings of stockholders of the Fund; (vii) the procurement
of insurance for the Fund, its subsidiaries and/or its officers and directors, as directed by the
Board; and (viii) such other operational, administrative and regulatory compliance duties as shall
from time to time arise as a result of the Fund’s operations and investing activities.
(c) The Adviser hereby accepts such employment and agrees during the term hereof to
render the services described herein for the compensation provided herein.
(d) 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 providing the investment advisory services (i.e., the making of investment
recommendations or decisions for the Fund) required to be provided by the Adviser under Section
1(a) of this Agreement. Specifically, the Adviser may retain a Sub-Adviser to recommend specific
securities or other investments based upon the Fund’s investment objectives and policies. The
Adviser, and not the Fund, 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. Nothing in this
subsection (d) will obligate the Adviser to pay any expenses that are the expenses of the Fund
under Section 2.
(e) The Adviser, and any Sub-Adviser, shall for all purposes herein provided each 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 Fund in any way or otherwise be deemed an agent
of the Fund.
(f) 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 Fund and
shall specifically maintain all books and records with respect to the Fund’s portfolio
transactions and shall render to the Board such periodic and special reports as the Board may
reasonably request. The Adviser agrees that all records that it maintains for the Fund are the
property of the Fund and will surrender promptly to the Fund any such records upon the Fund’s
request, provided that the Adviser may retain a copy of such records. Upon termination of this
Agreement, the Adviser shall have no further obligations under this Section 1(f).
(g) Prior to the Effective Date (as defined in Section 10 below), the Adviser shall
adopt and implement written policies and procedures reasonably designed to prevent its violation of
the Federal Securities laws. Also prior to the Effective Date, the Adviser shall have provided to
the Fund, and shall provide the Fund at such times in the future as the Fund shall reasonably
request, a copy of such policies and procedures (and any amendments thereto) and a report of such
policies and procedures. Such report shall be of sufficient scope and in sufficient detail, as may
reasonably be required to comply with Rule 38a-1 under the Investment Company Act (“Rule 38a-1”)
and to provide reasonable assurance that any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the report shall so state.
2. Fund’s Responsibilities and Expenses Payable by the Fund.
All investment professionals of the Adviser and its staff, when and to the extent engaged in
providing services required to be provided by the Adviser under Section 1(a) and (b), and the
compensation and routine overhead expenses of such personnel allocable to such services, will be
provided and paid for by the Adviser and not by the Fund, except that costs or expenses relating
specifically to items identified in the next sentence shall be borne by the Fund, as appropriate.
The Fund will bear all costs and expenses of its operations and transactions, including, without
limitation, those relating to: (i) the cost and expenses of any independent valuation firm; (ii)
expenses incurred by the Adviser payable to third parties, including agents, consultants or other
advisors, in monitoring financial and legal affairs for the Fund and in monitoring the Fund’s
investments and performing due diligence on its prospective portfolio companies, provided, however,
the retention by the Adviser of any third party to perform such services shall require the advance
approval of the Board (which approval shall not be unreasonably withheld) if the fees for such
services are expected to exceed $30,000; once the third party is approved any expenditure to such
third party will not require additional approval from the Board; (iii) interest payable on debt and
other direct borrowing costs, if any, incurred to finance the Fund’s investments or to maintain its
tax status; (iv) offerings of the Fund’s common stock and other securities; (v) investment advisory
and management fees; (vi) fees and payments due under any administration agreement between the Fund
and its administrator; (vii) transfer agent and custodial fees; (viii) federal and state
registration fees; (ix) all costs of registration and listing the Fund’s shares on any securities
exchange; (x) federal, state and local taxes; (xi) independent directors’ fees and expenses; (xii)
costs of preparing and filing reports or other documents required by governmental bodies (including
the SEC); (xiii) costs of any reports, proxy statements or other notices to stockholders, including
printing and mailing costs; (xiv) the cost of the Fund’s fidelity bond, directors and
officers/errors and omissions liability insurance, and any other insurance premiums; (xv) direct
costs and expenses of administration, including printing, mailing, long distance telephone,
copying, independent auditors and outside legal costs; (xvi) the costs and expenses associated with
the establishment of an SPV (as defined in Section 3(c) below); (xvii) the allocable portion of the
cost (excluding office space) of the Fund’s CFO, CCO and secretary (subject to the limit set forth
in Section 1(a)); (xviii) subject to a cap of $150,000 in any fiscal year of the Fund, fifty
percent of the unreimbursed travel and other related (e.g., meals) out-of-pocket expenses (subject
to item (ii) above) incurred by the Adviser in sourcing investments for the Fund; provided that, if
the investment is sourced for multiple clients of the Adviser, then the Fund shall only reimburse
fifty percent of its allocable pro rata portion of such expenses; and (xix) all other expenses
incurred by the Fund in connection with administering the Fund’s business (including travel
and other out-of-pocket expenses (subject to item (ii) above) incurred in providing significant
managerial assistance to a portfolio company). Notwithstanding the foregoing, absent the consent
of the Board, any fees or income earned, on the Fund’s behalf, by any officer, director, employee
or agent of the Adviser in connection with the monitoring or closing of an investment or
disposition by the Fund or for providing managerial assistance to a portfolio company (e.g.,
serving on the board of directors of a portfolio company), shall inure to the Fund.
3. Compensation of the Adviser.
The Fund 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 Fund 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 Fund 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 2.00% per annum of the Fund’s total assets
(excluding cash and the value of any investment by the Fund not made in a portfolio company
(“Non-Eligible Assets”), but including assets purchased with borrowed funds that are not
Non-Eligible Assets). The Base Management Fee will be payable quarterly in arrears. The Base
Management Fee will be calculated based on the value of the Fund’s total assets (excluding
Non-Eligible Assets, but including assets purchased with borrowed funds that are not Non-Eligible
Assets) at the end of the most recently completed fiscal quarter. Base Management Fees for any
partial fiscal quarter will be appropriately pro rated.
(b) The Incentive Fee shall consist of two parts, as follows:
(i) One part will be calculated and payable quarterly in arrears based on the Pre-Incentive
Fee net operating income for the fiscal quarter (the “Income Incentive Fee”). “Pre-Incentive Fee
net operating income” means interest income, dividend income and any other income (including any
other fees to the Fund such as directors’, commitment, origination, structuring, diligence and
consulting fees or other fees that the Fund receives from portfolio companies) accrued by the Fund
during the fiscal quarter, minus the Fund’s operating expenses for the fiscal quarter (including
the Base Management Fee and any interest expense and dividends paid on any issued and outstanding
preferred stock, but excluding the Incentive Fee (whether paid or accrued)).
Pre-Incentive Fee net operating income includes, in the case of investments with a deferred
interest feature (such as market discount, debt instruments with payment-in-kind interest,
preferred stock with payment-in-kind dividends and zero coupon securities), accrued income that has
not yet been received in cash. Pre-Incentive Fee net operating income does not include any realized
capital gains, realized and unrealized capital losses or unrealized capital appreciation or
depreciation.
Pre-Incentive Fee net operating income, expressed as a rate of return on the value of the
Fund’s net assets (defined as total assets less liabilities) at the end of the immediately
preceding fiscal quarter, will be compared to a “hurdle rate” of 1.75% per fiscal quarter. The
Fund will pay the Adviser the Income Incentive Fee with respect to the Fund’s pre-Incentive Fee net
operating income in each fiscal quarter as follows:
(A) no Income Incentive Fee in any fiscal quarter in which the Fund’s
pre-Incentive Fee net operating income does not exceed the hurdle rate;
(B) 100% of the Fund’s pre-Incentive Fee net operating income with respect to
that portion of such pre-Incentive Fee net operating income, if any, that exceeds
the hurdle rate but is less than 2.1875% in any fiscal quarter; and
(C) 20% of the amount of the Fund’s pre-Incentive Fee net operating income, if
any, that exceeds 2.1875% in any fiscal quarter.
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 fiscal quarter.
(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 fiscal year (or upon termination of this Agreement as set
forth below), commencing with the fiscal year ending on October 31, 2007, and will equal 20% of:
(a) the Fund’s aggregate net realized capital gains, during such fiscal year, on the Fund’s
investments made after November 1, 2003 (the “Fund’s New Portfolio”) (exclusive of any realized
gains subject to an SPV Incentive Allocation, as defined below); minus (b) the aggregate unrealized
capital depreciation of the Fund’s New Portfolio calculated from November 1, 2003. If the Capital
Gains Fee is negative, then there will be no Capital Gains Fee payable for such year. If this
Agreement shall terminate as of a date that is not a fiscal year end, the termination date shall be
treated as though it were a fiscal year end for purposes of calculating and paying a Capital Gains
Fee. Furthermore, upon the tender of a notice of termination of this Agreement, all unrealized
capital gains on the Fund’s New Portfolio shall be deemed realized at their net asset value last
determined by the Valuation Committee of the Board and the Capital Gains Fee shall be determined
and deemed payable as of the date of a tender of a notice of termination of this Agreement. Any
Capital Gains Fee due upon the tender of a notice of termination of this Agreement shall be paid as
soon as practicable after the Capital Gains Fee is permitted to be paid under applicable law. Any
Capital Gains Fee to be made under this Section 3 shall be paid as soon as practicable following
the completion of the audit of the financial statements of the Fund for the applicable fiscal year
performed in accordance with generally accepted accounting principles.
For purposes of this Section 3(b)(ii):
“Realized capital gains” are calculated as the sum of the differences, if positive, between
(a) the net sales price of each investment in the Fund’s New Portfolio when sold during such fiscal
year and (b) the accreted or amortized cost basis of such investment.
“Realized capital losses” are calculated as the sum of the amounts by which (a) the net sales
price of each investment in the Fund’s New Portfolio when sold during such fiscal year is less than
(b) the accreted or amortized cost basis of such investment.
“Net realized capital gains” means realized capital gains minus realized capital losses.
“Aggregate unrealized capital depreciation” means the sum of the differences, if negative,
between (a) the valuation of each investment in the Fund’s New Portfolio, as of the applicable
Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such investment.
Notwithstanding the foregoing, in no event shall either the Fund’s contribution of an
investment to a Subsidiary (as defined in Section 4) or the Fund’s distribution of an investment to
the Fund’s stockholders be deemed to be a realization event.
(iii) Notwithstanding the foregoing, in no event shall the sum of the Capital Gains Fee and
the SPV Incentive Allocation (as defined below), if any, for any fiscal year exceed: (a) 20% of (i)
the Fund’s cumulative realized capital gains on the Fund’s investments (the “Fund’s Total
Portfolio”) (including any realized gains attributable to an SPV Incentive Allocation (as defined
below)), minus (ii) the sum of the cumulative realized capital losses on, and aggregate unrealized
capital depreciation of, the Fund’s Total Portfolio; minus (b) the aggregate amount of Capital
Gains Fees paid and the value of SPV Incentive Allocations made in all prior years (the “Cap”).
Furthermore, in the event that the Capital Gains Fee for any fiscal year exceeds the Cap
(“Uncollected Capital Gains Fees”), all or a portion of such amount shall be accrued and payable to
the Adviser following any subsequent fiscal year in which the Agreement is in effect, but only to
the extent the Capital Gains Fee, plus the amount of Uncollected Capital Gains Fees, each
calculated as of the end of such subsequent fiscal year, do not exceed the Cap. Any remaining
Uncollected Capital Gains Fees shall be paid in following subsequent fiscal years in accordance
with the same process, provided the Agreement is in effect during such fiscal year.
For purposes of this Section 3(b)(iii):
“Cumulative realized capital gains” are calculated as the sum of the differences, if positive,
between (a) the net sales price of each investment in the Fund’s portfolio when sold and (b) with
respect to investments held by the Fund on November 1, 2003, the fair value of such investment on
November 1, 2003, and with respect to all other investments, the accreted or amortized cost basis
of such investment.
“Cumulative realized capital losses” are calculated as the sum of the amounts by which (a) the
net sales price of each investment in the Fund’s portfolio when sold is less than (b) with respect
to investments held by the Fund on November 1, 2003, the fair value of such investment on November
1, 2003, and with respect to all other investments, the accreted or amortized cost basis of such
investment.
“Aggregate unrealized capital depreciation” is calculated as the sum of the differences, if
negative, between (a) the valuation of each investment in the Fund’s portfolio as of the applicable
Capital Gains Fee calculation date and (b) with respect to investments held by the Fund on November
1, 2003, the fair value of such investment on November 1, 2003, and with respect to all other
investments, the accreted or amortized cost basis of such investment.
(c) The Fund hereby authorizes the Adviser to create or arrange for the creation of
one or more special purpose vehicles for which it may serve as the general partner or managing
member, as applicable, for purposes of making investments on behalf of the Fund (each, an “SPV”).
Furthermore, the Fund authorizes the Adviser, in its role as the general partner or managing
member, as applicable, of an SPV, to receive an incentive allocation equal to 20% of the net
profits of the SPV (the “SPV Incentive Allocation”). The Adviser acknowledges and agrees that: (i)
prior to the SPV conducting any investment activities, the Board must approve the SPV’s
organizational documents; and (ii) subject to the approval of the Board, the Adviser will establish
procedures for every SPV to ensure that any SPV Incentive Allocation received by the Adviser will
not cause the total compensation received by the Adviser under this Agreement to exceed the limits
imposed by Section 205(b)(3) of the Investment Advisers Act of 1940, as amended.
In addition, for each of the next two full fiscal years (i.e., fiscal 2007 and 2008), the
Adviser hereby agrees to absorb or reimburse operating expenses of the Fund (promptly following the
completion of such year), to the extent necessary to limit the Fund’s Expense Ratio for any such
year to 3.25% (the “Expense Cap”); provided, however, if, on October 31, 2007, the Fund’s net
assets have not increased by at least 5% from October 31, 2006, the dollar value of the Expense Cap
shall increase by 5% for fiscal 2008. For purposes of this paragraph, the Fund’s “Expense Ratio”
shall be calculated as of October 31 of any such year and mean: (i) the consolidated expenses of
the Fund (which expenses shall include any amounts payable to the Adviser under the Base Management
Fee, but shall exclude the amount of any interest and other direct borrowing costs, taxes,
incentive compensation, and extraordinary expenses (including, but not limited to, any legal claims
and liabilities and litigation costs and any indemnification related thereto, and the costs of any
spin-off or other similar type transaction contemplated by this Agreement)), as a percentage of
(ii) the average net assets of the Fund (i.e., average consolidated assets less average
consolidated liabilities) during such fiscal year as set forth in the Fund’s financial statements’
contained in the Fund’s annual report on Form 10-K.
4. The Adviser’s Management of Private Equity Funds. As consideration for the Fund
entering into this Agreement, the Adviser acknowledges the parties’ objective of having the Fund’s
stockholders participate in a portion of the revenues generated by private investment funds managed
by the Adviser. During the term of this Agreement, the Adviser agrees that, absent the consent of
the Board, the Adviser shall not establish a private investment fund managed by the personnel of
the Adviser with the investment objective of: (a) investing in mezzanine and debt securities; or
(b) making equity or other “non-debt” investments that are: (i) at the time of the formation of
the private fund, expected to be equal to or less than the lesser of 10% of the Fund’s net assets
or $25 million; and (ii) issued by U.S. companies with less than $150 million in revenues
(“Targeted Investments”). If the Board approves the formation of a new private investment fund for
investment in Targeted Investments, this private investment fund shall have a general partner or
managing member (a “Private Fund General Partner”) that is owned (directly or indirectly) by the
Adviser and a Subsidiary (as defined below). Private Fund General Partners shall be entitled to
the entire portion of incentive allocations paid by the private investment funds managed by the
Adviser, unless a portion thereof is allocated to a third party that is not affiliated with, and
independent of, the Adviser. The Fund represents that the independent directors, constituting a
majority of the Board (the “Independent Board”), have resolved to: (i) establish a wholly-owned
subsidiary of the Fund (a “Subsidiary”) that would, among other things, have the authority to
invest (directly or indirectly) in Private Fund General Partners; and (ii) authorize the Fund to
pursue a spin-off of the Subsidiary to all stockholders, on a pro-rata basis, the specific terms of
which would be subject to the due diligence of, and the consideration and approval by, the
Independent Board. In addition, the Adviser will use its reasonable efforts to include the
Subsidiary in opportunities to participate in the revenues of other new private investment funds
formed to pursue investments other than Targeted Investments.
5. Registration of the Adviser. The Adviser covenants that immediately upon the approval
of this Agreement by the Board, it will undertake the process of registering as an investment
adviser with the SEC. Upon the Effective Date (as defined in Section 10), 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.
6. Brokerage Commissions. The Adviser is hereby authorized, to the fullest extent now or
hereafter permitted by law, to cause the Fund 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 Fund’s portfolio, and
constitutes the best net results for the Fund.
7. Limitations on the Business of the Adviser. The services of the Adviser to the Fund
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 Fund, and subject to compliance with applicable law
and adherence to Section 4. Nothing in this Agreement shall limit or restrict the right of any
member, 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. Notwithstanding
the foregoing, the Adviser will not undertake any conflicting duties of loyalty which would affect
its prior fiduciary duty to the Fund. In furtherance of this requirement, for a period of five
years from the Effective Date (as defined in Section 10) (unless this Agreement ceases to be in
effect), the Adviser shall give the Fund 30 days’ advance notice in writing of any proposed
undertaking by it of material significance (including the taking on of any new clients) and will
provide the Fund and the Fund’s independent directors with all information relevant to a
determination of the effect of such undertaking on the Adviser’s ability to carry out its
obligations to the Fund under this Agreement. Furthermore, during the term of this Agreement, the
Adviser shall not manage another business development company, a private equity fund or other
similar vehicle with the investment objective of investing in Targeted Investments, without the
consent of the Board. So long as this Agreement or any extension, renewal or amendment remains in
effect, the Adviser shall be the only investment adviser for the Fund, subject to the Adviser’s
right to enter into sub-advisory agreements (in accordance with the requirements under the
Investment Company Act). 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 Fund 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 Fund as stockholders or
otherwise.
8. Responsibility of Dual Directors, Officers and/or Employees. If any person who is a
manager, partner, officer, principal or employee of the Adviser is or becomes a director, officer
and/or employee of the Fund and acts as such in any business of the Fund, then, when acting on
behalf of the Fund, such manager, partner, officer and/or employee of the Adviser shall be deemed
to be acting in such capacity solely for the Fund, and not as a manager, partner, officer or
employee of the Adviser or under the control or direction of the Adviser or the Administrator, even
if paid by the Adviser.
9. Limitation of Liability of the Adviser; Indemnification. The Adviser, its members and
their respective officers, managers, partners, agents, employees, controlling persons, members and
any other person affiliated with any of them (collectively, the “Indemnified Parties”), shall not
be liable to the Fund 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 Fund, except: (a) 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; or (b) with respect to any loss by the Fund caused by the willful misfeasance, bad faith
or gross negligence in the performance of any Indemnified Party’s duties under this
Agreement, or 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 SEC or its staff thereunder). The Fund shall indemnify, defend
and protect the Indemnified Parties (each of whom shall be deemed a third party beneficiary hereof)
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 Fund 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 Fund.
Notwithstanding the foregoing provisions of this Section 9 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
Fund 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 any Indemnified Party’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 SEC or its staff thereunder). Furthermore, the Adviser shall
indemnify, defend and protect the Fund and hold it harmless in connection with losses or damages
arising out of conduct identified in clauses (a) and (b) of this Section 9.
10. Effectiveness, Duration and Termination of Agreement. This Agreement shall become
effective upon the later of: (i) November 1, 2006; or (ii) the effective date of the registration
of the Adviser as an investment adviser with the SEC (the “Effective Date”). This Agreement shall
remain in effect for two years after such date, 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 Board, or by the vote of a “majority of the outstanding voting
securities” of the Fund (as such term is defined in Section 2(a)(42) of the Investment Company
Act); and (b) the vote of a majority of the Fund’s directors who are not parties to this Agreement
and are not “interested persons” (as such term is defined in Section 2(a)(19) of the Investment
Company Act) of any party to this Agreement, 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: (a) the Adviser, at any time, in the event (i) a majority of the
current members of the Independent Board ceases to serve as directors of the Fund; or (ii) the Fund
undergoes a change in “control” (as such term is defined by Section 2(a)(9) of the Investment
Company Act) not caused by the Adviser; or (b) the Adviser, at any time, following the initial two
year term of this Agreement; or (c) by the vote of the stockholders holding a “majority of the
outstanding voting securities” of the Fund (as such term is defined by Section 2(a)(42) of the
Investment Company Act); or (d) by the action of the Fund’s directors.
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). Under no circumstances
shall this agreement be assigned or transferred without the consent of the Fund’s Board. Following
the termination of this Agreement, the Fund shall not have any obligation or liability to the
Adviser or to the principals, officers and/or employees of the Adviser other than the obligation to
pay the Adviser any outstanding amounts owed under Section 3 calculated until and through the date
of termination of the Agreement. Notwithstanding anything to the contrary, the provisions of
Section 10 (Limitation of Liability of the Adviser; Indemnification) shall continue in full force
and effect and apply to the Adviser and its representatives as and to the extent applicable.
11. The Fund’s Portfolio Manager. The Adviser represents that it will enter into an
agreement with Xx. Xxxxxx pursuant to which Xx. Xxxxxx will agree to serve as the portfolio manager
primarily responsible for the day-to-day management of the Fund’s portfolio for the full
twenty-four calendar months following the Effective Date (subject to the termination of the
Agreement in accordance with the provisions of Section 10). In addition, the parties hereby
acknowledge that Xx. Xxxxxx is the current Portfolio Manager of the Fund and the Adviser covenants
that throughout the term of this Agreement it will not undertake any action that would cause Xx.
Xxxxxx to cease to serve as the Fund’s primary Portfolio Manager, including, without limitation,
transferring any controlling interest in the Adviser to another entity or person. Notwithstanding
the foregoing, it is understood by the Fund that Xx. Xxxxxx is not required to devote his full
business time and attention to his duties as the Fund’s Portfolio Manager or to the Adviser. In
addition, the Fund and the Adviser hereby acknowledge that Xx. Xxxxxx has entered into an
employment agreement with the Fund dated November 1, 2003, as extended on October 31, 2005 (the
“Original Agreement”). Xx. Xxxxxx and the Fund have agreed that, upon the Effective Date, the
Original Agreement shall immediately terminate and any outstanding obligations under that agreement
shall be superseded by those under this Agreement.
12. Use of the Fund’s Name. The Adviser acknowledges that the name of the Fund is the
Fund’s property and, as such, the Adviser shall not, without the prior written consent of the
Board, use, or cause to be used, the Fund’s name or any derivative thereof, including, but not
limited to, the term “MVC.”
13. Amendments of this Agreement. This Agreement may not be amended or modified except
by an instrument in writing signed by all parties hereto, but the consent of the Fund must be
obtained in conformity with the requirements of the Investment Company Act.
14. Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, including without limitation Sections 5-1401 and 5-1402 of
the New York General Obligations Law and New York Civil Practice Laws and Rules 327(b), and the
applicable provisions of the Investment Company Act, if any. To the extent that the applicable
laws of the State of New York, or any of the provisions herein, conflict with the applicable
provisions of the Investment Company Act, if any, the latter shall control. The parties
unconditionally and irrevocably consent to the exclusive jurisdiction of the courts located in the
State of New York and waive any objection with respect thereto, for the purpose of any action, suit
or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
15. No Waiver. The failure of either party to enforce at any time for any period the
provisions of or any rights deriving from this Agreement shall not be construed to be a waiver of
such provisions or rights or the right of such party thereafter to enforce such provisions, and no
waiver shall be binding unless executed in writing by all parties hereto.
16. Severability. If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any law or public policy, all other terms and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner materially adverse
to any party.
17. Headings. The descriptive headings contained in this Agreement are for convenience
of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in one or more counterparts, each of
which when executed shall be deemed to be an original instrument and all of which taken together
shall constitute one and the same agreement.
19. Notices. All notices, requests, claims, demands and other communications hereunder shall
be in writing and shall be given or made (and shall be deemed to have been duly given or made upon
receipt) by delivery in person, by overnight courier service (with signature required), by
facsimile, or by registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at their respective principal executive office addresses.
20. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements and undertakings (including the
Original Agreement), both written and oral, between the parties with respect to such subject
matter.
21. Certain Matters of Construction.
(a) The words “hereof,” “herein,” “hereunder” and words of similar import shall refer to this
Agreement as a whole and not to any particular Section or provision of this Agreement, and
reference to a particular Section of this Agreement shall include all subsections thereof.
(b) Definitions shall be equally applicable to both the singular and plural forms of the terms
defined, and references to the masculine, feminine or neuter gender shall include each other
gender.
(c) The word “including” shall mean including without limitation.
In witness whereof, the parties hereto have caused this Agreement to be duly executed on the
date above written.
| MVC Capital, Inc. | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
| The Xxxxxx Group Advisers LLC | ||||||||
| By: | ||||||||
| Name: | ||||||||
| Title: | ||||||||
