Exhibit 10.5
INVESTMENT ADVISORY AGREEMENT
MORAMERICA CAPITAL CORPORATION,
An Iowa Corporation
This INVESTMENT ADVISORY AGREEMENT dated as of March 1, 2004 (the
"Agreement") by MorAmerica Capital Corporation, a corporation organized under
the laws of the State of Iowa ("MACC") and Atlas Management Partners, LLC, a
limited liability company organized under the laws of the State of Utah
("Atlas").
WHEREAS, MACC is licensed as a small business investment company
("SBIC") under the Small Business Investment Act of 1958, as amended, and
operates as a business development company under the Investment Company Act of
1940, as amended (the "ICA");
WHEREAS, MACC is presently receiving investment advisory services from
InvestAmerica Investment Advisors, Inc., a Delaware corporation;
WHEREAS, MACC 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
MACC, and is registered as an investment advisor under the Investment Advisers
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 MACC
assets Managed by Atlas under this Agreement.
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 MACC 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 MACC determines that a loss or
depreciation in value from the value on the date of this Agreement should be
taken by MACC 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; 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 MACC writes down the value of any investment in MACC'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 of such investment shall thereafter be used in
the determination of any Realized Capital Gains or Capital Losses in MACC'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 "Capital Under Management" shall mean MACC's (i) fiscal year end
Private Capital as defined in the SBA regulations as of the date hereof (which
regulations define Private Capital to exclude unrealized capital gains and
losses) ("Private Capital"); plus (ii) fiscal year end SBA leverage as defined
by SBA regulations as of the date hereof, including participating securities as
defined in Section 303(g) of the Small Business Investment Act of 1958, as
amended; plus (iii) fiscal year end Undistributed Realized Earnings.
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 minus the
sum of (i) Capital Losses determined in accordance with generally accepted
accounting principles; and (ii) net investment losses, if any, as reported on
Line 32 of SBA Form 468.
1.9 "Other Venture Capital Funds" has the meaning set forth in
subsection 3.2(b).
1.10 "Portfolio Company" or "Portfolio Companies" shall mean any
entity in which MACC 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 the sale of assets acquired in liquidation and assets acquired in
liquidation of any Portfolio Company.
1.11 "Private Capital" has the meaning set forth in the definition of
Capital Under Management in Section 1.5 above.
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:
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(a) 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
Subsection 1.12(b) below; and
(b) Realized Capital Gains other than cash gains shall be 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 MACC.
1.13 "SBA" shall mean the United States Small Business Administration,
or any successor thereto, which has regulatory authority over SBICs.
1.14 "SBIC" has the meaning set forth in the first recital hereof.
1.15 "SEC" shall mean the United States Securities and Exchange
Commission.
1.16 "The Company" shall mean MACC Private Equities Inc. and "the
Companies" shall mean MACC Private Equities Inc. and MACC.
Section 2. Investment Advisory Engagement. MACC 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 MACC'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 MACC'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, the SBA and its auditors and outside
auditors, and the provision of other services appropriate to the management of
an SBIC operating as a business development company;
(b) Make available and, if requested by Portfolio Companies or
entities in which MACC is proposing to invest, render managerial assistance to,
and exercise management rights in, such Portfolio Companies and entities as
appropriate to maximize return for MACC and to comply with regulations;
(c) Maintain office space and facilities to the extent required by
Atlas to provide adequate management services to MACC;
(d) Maintain the books of account and other records and files for
MACC, but not to include auditing services; and
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(e) Report to MACC'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
MACC 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 MACC shall at all times be subject to applicable law and
any directives of MACC's Board of Directors or any duly constituted committee or
officer acting pursuant to the authority of MACC's Board of Directors.
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 MACC.
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
MACC and will be paid promptly by MACC: 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 MACC directors and board fees; any fees owed or paid to MACC, its
Affiliates or fund managers; any and all expenses associated with property of a
Portfolio Company taken or received by MACC or on its behalf as a result of its
investment in any Portfolio company; all reorganization and registration
expenses of MACC; the fees and disbursements of MACC'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 MACC'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 MACC; and all transaction costs incident to the acquisition,
management, protection and disposition of securities by MACC; and any other
expenses incurred by or on behalf of MACC that are not expressly payable by
Atlas under Section 2.2 above.
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2.4 Subject to approval by the Board of Directors of MACC 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 MACC 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 may be offered to MACC to other
persons for whom Atlas is providing services. Neither Atlas nor any of its
Affiliates shall in any manner be liable to MACC 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 MACC's investment activities, Atlas and its
Affiliates intend to maintain various future co-investment relationships
involving the Company which may result in MACC 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 Companies have an
opportunity to co-invest with the Other Venture Capital Funds, investment
opportunities shall be offered to the Companies 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 Companies and the Other Venture
Capital Funds with which MACC proposes to co-invest, in the aggregate, or (b) in
such other manner as is otherwise agreed upon by the Companies 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 Companies will control as to the
terms of co-investments among MACC and the Other Capital Venture Funds.
3.3 Atlas will cause to be offered to MACC 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 MACC's Board of Directors, Atlas is
authorized to effect acquisitions and dispositions of securities for MACC's
account in Atlas's discretion. Where such approval is required, Atlas is
authorized to effect acquisitions and dispositions for MACC's account upon and
to the extent of such approval. MACC will put Atlas in funds whenever Atlas
requires funds for an acquisition of securities in accordance with the
foregoing, and MACC will cause to be delivered in accordance with Atlas's
instructions any securities disposed of in accordance with the foregoing.
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3.4 Should Atlas or any of its Affiliates agree to perform or
undertake any investment management services described in paragraph 3.1 for any
funds or persons in addition to Other Venture Capital Funds, Atlas will notify
MACC, 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.
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-term and the long-term direction of a
Portfolio Company. Unless otherwise restricted hereafter by MACC in writing, in
regard to such actions and decisions MACC 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, without
specific authority from the Board of Directors of MACC, 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 MACC has invested or in which MACC is proposing to
invest in connection with an investment transaction in which MACC participates
or provides managerial assistance, will be treated as commitment fees or
management fees and will be received by MACC, 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 MACC, such
officer, director, employee or Affiliate of Atlas shall not receive compensation
as a member of the Board of Directors of MACC.
Section 5. Management and Incentive Fees.
5.1 During the term of this Agreement, MACC will pay Atlas monthly in
arrears a management fee equal to 2.5% per annum of the Capital Under
Management, but in no event shall the management fee be more than either: (i)
2.5% per annum of the Assets Under Management, or (ii) 7.5% of Regulatory
Capital.
5.2 During the term of this Agreement MACC shall pay to Atlas an
incentive fee determined as specified in this Section 5.2.
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(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 MACC's
Portfolio Companies or resulting from the disposition of other assets or
property of MACC managed by Atlas pursuant to the terms hereof.
(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 assets
on which the incentive fee shall be calculated shall include all assets owned by
MACC prior to the time of the mergers of MorAmerica Financial Corporation and
Xxxxxx Plan Liquidation Company into the Company.
(b) Upon termination of this Agreement, all earned but unpaid
incentive fees shall be immediately due and payable; provided, however, that
incentive fees earned with respect to non-cash Realized Capital Gains shall not
be due and owing to InvestAmerica until the cash is received by MACC.
(c) Payment of incentive fees shall be made as follows:
(i) To the extent payable, the incentive fee shall be paid, in
cash, in arrears by the last business day of each fiscal quarter in the fiscal
year. The incentive fee shall be retroactively adjusted as soon as practicable
following completion of 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 MACC for
the amount of such excess.
(ii) In the event MACC earns any incentive fees, the payment of
which would cause MACC's Private Capital to be 25% or more impaired, the portion
of such fees which causes the impairment shall be paid by MACC into a trust or
escrow account established by MACC for the benefit of Atlas. Fees from such
account shall be released to Atlas at such time as, and to the extent that,
MACC's Private Capital is no longer so impaired.
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"),
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shall be liable to MACC, or any of MACC's Affiliates for any error in judgment
or mistake of law made by the Indemnified Parties in connection with any
investment made by or for MACC, 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. MACC confirms that in performing
services hereunder Atlas will be an agent of MACC for the purpose of the
indemnification provisions of the Bylaws of MACC subject, however, to the same
limitations as though Atlas were a director or officer of MACC. Atlas shall not
be liable to MACC, 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 MACC as well as other Atlas officers performing duties within the
scope of this Agreement on behalf of MACC will be covered by any directors and
officers insurance policy maintained by MACC.
Section 7. Shareholder Approval; Term.
MACC represents that this Agreement has been approved by MACC's Board
of Directors. This Agreement shall continue in effect for two (2) years from the
date hereof, provided, however, that this Agreement shall not take effect if as
of the date hereof the shareholders of MACC Private Equities Inc. and the sole
shareholder of MACC 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
MACC'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 MACC's outstanding voting securities. The foregoing
notwithstanding, this Agreement may be terminated by MACC 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 MACC's outstanding voting
securities or 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 MACC and 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 MACC'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.
Atlas may also terminate this Agreement on 30 days' written notice to
MACC and 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 MACC'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, MACC will in good faith use its best efforts to cause an
advisory agreement to be entered into by MACC with a suitable investment
adviser.
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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 MACC
pursuant to Section 7, the Investment Advisory Agreement between MACC and
InvestAmerica Investment Advisors, Inc., dated March 1, 1999, 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first above written.
MACC:
MORAMERICA CAPITAL CORPORATION
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------------
Xxxxx X. Xxxxxxxx
President
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Xxxxxx X. Xxxxx
Executive Vice President
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ATLAS:
ATLAS MANAGEMENT PARTNERS, LLC
A Utah limited liability company
By: /s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
Managing Partner
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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
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