Exhibit 10.4
INVESTMENT ADVISORY AGREEMENT
MACC PRIVATE EQUITIES INC.
A Delaware Corporation
This INVESTMENT ADVISORY AGREEMENT dated as of March 1, 2004 (the
"Agreement") by MACC Private Equities Inc., a company organized under the laws
of the State of Delaware ("the Company"), and Atlas Management Partners, LLC, a
limited liability company organized under the laws of the State of Utah
("Atlas").
WHEREAS, the Company is a closed-end investment company that may be
operated and regulated as a business development company ("Business Development
Company") as defined in the Investment Company Act of 1940, as amended (the
"ICA");
WHEREAS, the Company is presently receiving investment advisory services
from InvestAmerica Investment Advisors, Inc., a Delaware corporation;
WHEREAS, the Company desires to change its principal investment advisor in
order to better carry on its business;
WHEREAS, Atlas, is qualified to provide investment advisory services to the
Company and is registered as an investment advisor under the Investment Advisors
Act of 1940, as amended.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the parties hereto agree as follows:
Section 1. Definitions.
1.1 "Affiliate" shall have the meaning given under Rule 144 of the
Securities Act of 1933, as amended.
1.2 "Assets Under Management" shall mean the total value of the Company's
assets managed by Atlas under this Agreement averaged over the prior one year
period, or such shorter period in which such assets were managed by Atlas.
1.3 "Atlas" shall mean Atlas Management Partners, LLC, a Utah limited
liability company.
1.4 "Capital Losses" are those which are placed, consistent with generally
accepted accounting principles, on the books of the Company and which occur
when:
(a) An actual or realized loss is sustained owing to Portfolio Company
or investment events including, but not limited to, liquidation, sale or
bankruptcy;
(b) The Board of Directors of the Company determines that a loss or
depreciation in value from the value on the date of this Agreement should be
taken by the Company in accordance with generally accepted accounting principles
and SBA accounting regulations and is shown on its books as a part of the
periodic valuation of the Portfolio Companies by the Board of Directors
("Unrealized Depreciation"); or
(c) Capital Losses are adjusted for reverses of depreciation when the
Board of Directors determines that a value should be adjusted upward and the
investment value remains at or below original cost.
For purposes of this definition, in any case where the Board of Directors of the
Company writes down the value of any investment in the Company's portfolio (in
accordance with the standards set forth in subsection 1.3(b) above), (i) such
reduction in value shall result in a new cost basis for such investment and (ii)
the most recent cost basis for such investment shall thereafter be used in the
determination of any Realized Capital Gains or Capital Losses in the Company's
portfolio (i.e., there shall be no double-counting of losses when a security
(whose value has declined in a prior period) is ultimately sold at a price below
its historical cost.)
1.5 "The Company" shall mean MACC Private Equities Inc., a Delaware
corporation.
1.6 "ICA" has the meaning set forth in the first recital hereof.
1.7 "MACC" shall mean MorAmerica Capital Corporation, an Iowa corporation
that is a wholly owned subsidiary of the Company.
1.8 "Net Capital Gains" shall mean Realized Capital Gains net of Capital
Losses determined in accordance with generally accepted accounting principles.
1.9 "Other Venture Capital Funds" has the meaning set forth in subsection
3.2.
1.10 "Portfolio Company" or "Portfolio Companies" shall mean any entity in
which the Company may make an investment and with respect to which Atlas will be
providing services pursuant hereto, which investments may include ownership of
capital stock, loans, receivables due from a Portfolio Company or other debtor
on sale of assets acquired in liquidation and assets acquired in liquidation of
any Portfolio Company.
1.11 "Private Capital" shall have the meaning ascribed to that term in the
SBA regulations in effect as of the date hereof (which regulations define
Private Capital to exclude unrealized gains and losses).
1.12 "Realized Capital Gains" shall mean capital gains after deducting the
cost and expenses necessary to achieve the gain (e.g., broker's fees). For
purposes of this Agreement, capital gains are Realized Capital Gains upon the
cash sale of the capital stock or assets of a Portfolio Company or any other
asset or item of property managed by Atlas pursuant to the terms hereof or any
Realized Capital Gain has occurred in accordance with GAAP which is not cash as
described in the following sentence. Realized Capital Gains other than cash
gains, shall be
2
recorded and calculated in the period the gain is realized; however in
determining payment of any incentive fee, the payment shall be made when the
cash is received. The amount of the fee earned on gains other than cash shall be
recorded as incentive fees payable on the financial statements of the Company.
1.13 "SBA" shall mean the United States Small Business Administration.
1.14 "SEC" shall mean the United States Securities and Exchange Commission.
Section 2. Investment Advisory Engagement. The Company hereby engages Atlas
as its investment advisor.
2.1 As such, Atlas will:
(a) Manage, render advice with respect to, and make decisions
regarding the acquisition and disposition of securities in accordance with
applicable law and the Company's investment policies as set forth in writing by
the Board of Directors, to include (without limitation) the search and marketing
for investment leads, screening and research of investment opportunities,
maintenance and expansion of a co-investor network, review of appropriate
investment legal documentation, presentations of investments to the Company's
Board of Directors (when and as required), closing of investments, monitoring
and management of investments and exits, preparation of valuations, management
of relationships with the SEC, shareholders, outside auditors, and the provision
of other services appropriate to the management of a Business and Development
Company;
(b) Make available and, if requested by Portfolio Companies or
entities in which the Company is proposing to invest, render managerial
assistance to, and exercise management rights in, such Portfolio Companies and
entities as appropriate to maximize return for the Company and to comply with
regulations;
(c) Maintain office space and facilities to the extent required by
Atlas to provide adequate management services to the Company;
(d) Maintain the books of account and other records and files for the
Company, but not to include auditing services; and
(e) Report to the Company's Board of Directors, or to any committee or
officers acting pursuant to the authority of the Board, at such reasonable times
and in such reasonable detail as the Board deems appropriate in order to enable
the Company to determine that investment policies are being observed and
implemented and that the obligations of Atlas hereunder are being fulfilled. Any
investment program undertaken by Atlas pursuant hereto and any other activities
undertaken by Atlas on behalf of the Company shall at all times be subject to
applicable law and any directives of the Company's Board of Directors or any
duly constituted committee or officer acting pursuant to the authority of the
Company's Board of Directors.
3
2.2 Atlas will be responsible for the following expenses: its staff
salaries and fringes, office space, office equipment and furniture,
communications, travel, meals and entertainment, conventions, seminars, office
supplies, dues and subscriptions, hiring fees, moving expenses, repair and
maintenance, employment taxes, in-house accounting expenses and minor
miscellaneous expenses.
Atlas will pay for its own account all expenses incurred in rendering the
services to be rendered hereunder. Without limiting the generality of the
foregoing, Atlas will pay the salaries and other employee benefits of the
persons in its organization whom it may engage to render such services,
including without limitation, persons in its organization who may from time to
time act as officers of the Company.
Notwithstanding the foregoing, Atlas will earn incentive compensation on a
quarterly basis, which shall not be deemed part of compensation or other
employee benefits for the purpose of this paragraph.
2.3 In connection with the services provided, Atlas will not be responsible
for the following expenses which shall be the sole responsibility of the Company
and will be paid promptly by the Company: auditing fees; all legal expenses;
legal fees normally paid by Portfolio Companies; National Association of Small
Business Investment Companies and other appropriate trade association fees;
brochures, advertising, marketing and publicity costs; interest on SBA or other
debt; fees to the Company and its directors and Board fees; any fees owed or
paid to the Company, its Affiliates or fund managers; any and all expenses
associated with property of a Portfolio Company taken or received by the Company
or on its behalf as a result of its investment in any Portfolio Company; all
reorganization and registration expenses of the Company; the fees and
disbursements of the Company's counsel, accountants, custodian, transfer agent
and registrar; fees and expenses incurred in producing and effecting filings
with federal and state securities administrators; costs of periodic reports to,
and other communications with the Company's shareholders; fees and expenses of
members of the Company's Boards of Directors who are not directors, officers,
employees or Affiliates of Atlas or of any entity which is an Affiliate of
Atlas; premiums for the fidelity bond, if any, maintained by Atlas pursuant to
ICA Section 17; premiums for directors and officers insurance maintained by the
Company; all transaction costs incident to the acquisition, management and
protection of and disposition of securities by the Company; and any other
expenses incurred by or on behalf of the Company that are not expressly payable
by Atlas under Section 2.2. above.
2.4 Subject to approval by the Board of Directors of the Company and in
accordance with the ICA, Atlas may retain one or more subadvisors to assist it
in performance of its duties hereunder.
Section 3. Nonexclusive Obligations; Co-investments.
3.1 The obligations of Atlas to the Company are not exclusive. Atlas and
its Affiliates, may in their discretion, manage other venture capital funds and
render the same or similar services to any other person or persons who may be
making the same or similar investments. The parties acknowledge that Atlas may
offer the same investment opportunities as
4
may be offered to the Company to other persons for whom Atlas is providing
services. Neither Atlas nor any of its Affiliates shall in any manner be liable
to the Company or its Affiliates by reason of the activities of Atlas or its
Affiliates on behalf of other persons and funds as described in this paragraph
and any conflict of interest arising therefrom is hereby expressly waived.
3.2 For the benefit of the Company's investment activities, Atlas and its
Affiliates intend to maintain various future co-investment relationships
involving the Company which may result in the Company being accorded the
opportunity in the future to review and to invest in certain investments found
by other venture capital funds managed by Atlas and its Affiliates, including
Wasatch Venture Corporation, Wasatch Venture Fund II, LLC, Wasatch Venture Fund
III, LLC, and Zions SBIC, LLC (collectively, the "Other Venture Capital Funds").
For purposes of this Section 3.2, where the Company has an opportunity to
co-invest with the Other Venture Capital Funds, investment opportunities shall
be offered to the Company and the Other Venture Capital Funds, as the case may
be, (a) in the same proportion as its Private Capital bears to the total Private
Capital of the Company and the Other Venture Capital Funds with which the
Company proposes to co-invest, in the aggregate, or (b) in such other manner as
is otherwise agreed upon by the Company and the Other Venture Capital Funds.
Notwithstanding anything to the contrary contained in this Section 3.2, the
terms of any exemptive order applicable to co-investments between the Other
Venture Capital Funds and the Company will control as to the terms of
co-investments among the Company and Other Capital Venture Funds.
3.3 Atlas will cause to be offered to the Company opportunities to acquire
or dispose of securities as provided in the co-investment guidelines summarized
in the section of the Company's SEC Registration Statement entitled "Investment
Objectives and Policies -- Co-Investment Guidelines." Except to the extent of
acquisitions and dispositions that, in accordance with such co-investment
guidelines, require the specific approval of the Company's Board of Directors,
Atlas is authorized to effect acquisitions and dispositions of securities for
the Company's account in Atlas's discretion. Where such approval is required,
Atlas is authorized to effect acquisitions and dispositions for the Company's
account upon and to the extent of such approval. The Company will put Atlas in
funds whenever Atlas requires funds for an acquisition of securities in
accordance with the foregoing, and the Company will cause to be delivered in
accordance with Atlas's instructions any securities disposed of in accordance
with the foregoing.
3.4 Should Atlas or any of its Affiliates agree to perform or undertake any
investment management services described in Section 3.1 for any funds or persons
in addition to the Company, Atlas will notify the Company, in writing, not later
than the commencement of such agreement or the initial provision of such
services.
3.5 Any such investment management services and all co-investments shall at
all times be provided in strict accordance with rules and regulations under the
ICA, any exemptive order thereunder applicable to the Company and the rules and
regulations of the SBA.
5
Section 4. Services to Portfolio Companies.
4.1 It is acknowledged that as a part of the services to be provided by
Atlas hereunder, certain of its employees, representatives and agents will act
as members of the board of directors of individual Portfolio Companies, will
vote the shares of the capital stock of Portfolio Companies, and make other
decisions which may effect the near-and the long-term direction of a Portfolio
Company. Unless otherwise restricted hereafter by the Company in writing, in
regard to such actions and decisions the Company hereby appoints Atlas (and such
officers, Directors, employees, representatives and agents is it shall
designate) as its proxy, as a result of which Atlas shall have the authority, in
its performance of this Agreement, to make decisions and to take such actions,
without specific authority from the Board of Directors of the Company, as to all
matters which are not hereby restricted.
4.2 All fees, including Director's fees that may be paid by or for the
account of an entity in which the Company has invested or in which the Company
is proposing to invest in connection with an investment transaction in which the
Company participates or provides managerial assistance, will be treated as
commitment fees or management fees and will be received by the Company, pro rata
to its participation in such transaction. Atlas will be allowed to be reimbursed
by Portfolio Companies for all direct expenses associated with due diligence and
management of portfolio investments or investment opportunities (travel, meals,
lodging, etc.).
4.3 The sole and exclusive compensation to Atlas for its services to be
rendered hereunder will be in the form of a management fee and a separate
incentive fee as provided in Section 5. Should any officer, director, employee
or Affiliate of Atlas serve as a member of the Board of Directors of the
Company, such officer, director, employee or Affiliate of Atlas shall not
receive compensation as a member of the Board of Directors of the Company.
Section 5. Management and Incentive Fees.
5.1 During the term of this Agreement, the Company will pay Atlas monthly
in arrears a management fee equal to 2.5% per annum of the Assets Under
Management. The Management fee shall be calculated on a non-consolidated basis,
excluding MACC.
5.2 During the term of this Agreement the Company shall pay to Atlas an
incentive fee determined as specified in this Section 5.2. The incentive fee
shall be calculated on a nonconsolidated basis, excluding MACC.
(a) The incentive fee shall be calculated as follows:
(i) The amount of the fee shall be 20.0% of the Net Capital
Gains, before taxes, resulting from the disposition of investments in the
Company's Portfolio Companies or resulting from the disposition of other assets
or property of the Company managed by Atlas pursuant to the terms hereof.
6
(ii) Net Capital Gains, before taxes, shall be calculated
annually at the end of each fiscal year for the purpose of determining the
earned incentive fee, unless this Agreement is terminated prior to the
completion of any fiscal year, then such calculation shall be made at the end of
such shorter period. A preliminary calculation shall be made on the last
business day of each of the three fiscal quarters preceding the end of each
fiscal year for the purpose of determining the incentive fee payable under
Section 5.2(c)(i) below. Capital Losses and Realized Capital Gains shall not be
cumulative (i.e., no Capital Losses nor Realized Capital Gains are carried
forward into any subsequent fiscal year).
(iii) Notwithstanding anything herein to the contrary, the
incentive fee shall not be computed on any assets received by the Company from
the Company's predecessors by merger, MorAmerica Financial Corporation and
Xxxxxx Plan Liquidation Company, and such assets shall not be included in any
calculation of Net Capital Gains.
(b) Upon termination of this Agreement, all earned but unpaid
incentive fees shall be immediately due and payable.
(c) Payment of incentive fees shall be made as follows:
(i) To the extent payable, incentive fees shall be paid, in cash,
in arrears on the last business day of each fiscal quarter in the fiscal year.
(ii) The incentive fee shall be retroactively adjusted as soon as
practicable following completion of the valuations at the end of each fiscal
year in which this Agreement is in effect to reflect the actual incentive fee
due and owing to Atlas, and if such adjustment reveals that Atlas has received
more incentive fee income than it is entitled to hereunder, Atlas shall promptly
reimburse the Company for the amount of the excess.
Section 6. Liability and Indemnification of Atlas.
6.1 Neither Atlas, nor any of its officers, directors, shareholders,
employees, agents or Affiliates, whether past, present or future (collectively,
the "Indemnified Parties"), shall be liable to the Company, or any of its
Affiliates for any error in judgment or mistake of law made by the Indemnified
Parties in connection with any investment made by or for the Company, provided
such error or mistake was made in good faith and was not made in bad faith or as
a result of gross negligence or willful misconduct of the Indemnified Parties.
The Company confirms that in performing services hereunder Atlas will be an
agent of the Company for the purpose of the indemnification provisions of the
Bylaws of the Company subject, however, to the same limitations as though Atlas
were a director or officer of the Company. Atlas shall not be liable to the
Company, its shareholders or its creditors, except for violations of law or for
conduct which would preclude Atlas from being indemnified under such provisions.
The provisions of this Section 6.1 shall survive termination of this Agreement.
6.2 Individuals who are Affiliates of Atlas and are also officers or
directors of the Company as well as other Atlas officers performing duties
within the scope of this Agreement on
7
behalf of the Company will be covered by any directors and officers insurance
policy maintained by the Company.
Section 7. Shareholder Approval; Term.
The Company represents that this Agreement has been approved by the
Company's Board of Directors. This Agreement shall continue in effect for two
(2) years from the date hereof, unless sooner terminated as provided for herein;
provided, however, that this Agreement shall not take effect if as of the date
hereof, the shareholders of the Company shall not have approved this Agreement
in the manner set forth in Section 15(a) of the ICA. Thereafter, this Agreement
shall continue in effect so long as such continuance is specifically approved at
least annually by the Company's Board of Directors, including a majority of its
members who are not interested persons of Atlas, or by vote of the holders of a
majority, as defined in the ICA, of the Company's outstanding voting securities.
The foregoing notwithstanding, this Agreement may be terminated by the Company
at any time, without payment of any penalty, on sixty (60) days' written notice
to Atlas if the decision to terminate has been made by the Board of Directors or
by vote of the holders of a majority, as defined in the ICA, of the Company's
outstanding voting securities.
Atlas may also terminate this Agreement on sixty (60) days' written notice
to the Company; provided, however, that Atlas may not so terminate this
Agreement unless another investment advisory agreement has been approved by the
vote of a majority, as defined in the ICA, of the Company's outstanding shares
and by the Board of Directors, including a majority of members who are not
parties to such agreement or interested persons of any such party. Upon receipt
of any such notice from Atlas, the Company will in good faith use its best
efforts to cause an advisory agreement to be entered into by the Company with a
suitable investment adviser.
Section 8. Assignment.
This Agreement may not be assigned by any party without the written consent
of the other and any assignment, as defined in the ICA, by Atlas shall
automatically terminate this Agreement.
Section 9. Amendments.
This Agreement may be amended only by an instrument in writing executed by
all parties.
Section 10. Governing Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware.
Section 11. Termination of Prior Agreement.
Upon the approval of this Agreement by the shareholders of the Company
pursuant to Section 7, the Investment Advisory Agreement between the Company and
InvestAmerica
8
Investment Advisors, Inc., dated March 1, 1998, as amended, supplemented or
otherwise modified and in effect, shall expire and shall thereupon be of no
further force and effect, effective at the close of business on February 29,
2004.
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
THE COMPANY:
MACC PRIVATE EQUITIES, INC.
A Delaware corporation
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxx
President
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Xxxxxx X. Xxxxx
Executive Vice President
ATLAS MANAGEMENT PARTNERS, LLC
A Utah limited liability company
By: /s/ Xxxx X. Xxxxxx
--------------------------------------
Xxxx X. Xxxxxx
Manager
ACKNOWLEDGED AND AGREED:
By signing below, InvestAmerica Investment Advisors, Inc. hereby acknowledges
and agrees to the provisions of Section 11 of this Agreement.
INVESTAMERICA INVESTMENT ADVISORS, INC.
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: President and Secretary
10
