INVESTMENT ADVISORY AGREEMENT BETWEEN FULL CIRCLE CAPITAL CORPORATION AND FULL CIRCLE ADVISORS, LLC
Exhibit
g
BETWEEN
FULL
CIRCLE CAPITAL CORPORATION
AND
FULL
CIRCLE ADVISORS, LLC
Agreement
(this “Agreement”) made
this 13th day of
July 2010, by and between FULL CIRCLE CAPITAL CORPORATION, a Maryland
corporation (“Company”),
and FULL CIRCLE ADVISORS, LLC, a Delaware limited liability company (the “Adviser”).
WHEREAS,
the Company is a closed-end management investment fund that has elected to be
treated as a business development company (“BDC”) under the Investment
Company Act of 1940,as amended (the “Investment Company
Act”);
WHEREAS,
the Adviser is an investment adviser that is registered under the Investment
Advisers Act of 1940, as amended (the “Advisers Act”);
and
WHEREAS,
the Company desires to retain the Adviser to furnish investment advisory
services to the Company on the terms and conditions hereinafter set forth, and
the Adviser wishes to be retained to provide such services.
NOW,
THEREFORE, in consideration of the premises and for other good and valuable
consideration, the parties hereby agree as follows:
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1.
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Duties of the
Adviser.
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(a) The
Company hereby retains the Adviser to act as the investment adviser to the
Company and to manage the investment and reinvestment of the assets of the
Company, subject to the supervision of the Board of Directors of the Company
(the “Board”), for the
period and upon the terms herein set forth, (i) in accordance with the
investment objective, policies and restrictions that are set forth in the
Company’s registration statement on Form N-2 (File No. 333-166302) initially
filed on April 26, 2010 (as the same shall be amended from time to time); (ii)
in accordance with all other applicable federal and state laws, rules and
regulations, and the Company’s charter and by-laws as the same shall be amended
from time to time; and (iii) in accordance with the Investment Company
Act. Without limiting the generality of the foregoing, the Adviser
shall, during the term and subject to the provisions of this Agreement, (u)
determine the composition of the portfolio of the Company, the nature and timing
of the changes therein and the manner of implementing such changes; (v)
identify, evaluate and negotiate the structure of the investments made by the
Company; (w); perform due diligence on prospective portfolio companies; (x)
determine the securities and other assets that the Company will purchase,
retain, or sell; (y) close and monitor the Company’s investments and (z) provide
the Company with such other investment advisory, research and related services
as the Company may, from time to time, reasonably require for the investment of
its funds. Subject to the supervision of the Board, the Adviser shall
have the power and authority on behalf of the Company to effectuate its
investment decisions for the Company, including the execution and delivery of
all documents relating to the Company’s investments and the placing of orders
for other purchase or sale transactions on behalf of the Company. In the event
that the Company determines to acquire debt financing, the Adviser will arrange
for such financing on the Company’s behalf, subject to the oversight and
approval of the Board. If it is necessary for the Adviser to make investments on
behalf of the Company through a special purpose vehicle, the Adviser shall have
authority to create or arrange for the creation of such special purpose vehicle
and to make such investments through such special purpose vehicle (in accordance
with the Investment Company Act).
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(b) The
Adviser hereby accepts such employment and agrees during the term hereof to
render the services described herein for the compensation provided
herein.
(c) The
Adviser shall for all purposes herein provided be deemed to be an independent
contractor and, except as expressly provided or authorized herein, shall have no
authority to act for or represent the Company in any way or otherwise be deemed
an agent of the Company.
(d) 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 Company and shall specifically maintain all books and
records in accordance with Section 31(a) of the Investment Company Act with
respect to the Company’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 Company are the
property of the Company and will surrender promptly to the Company any such
records upon the Company’s request, provided that the Adviser may retain a copy
of such records.
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2.
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Company’s
Responsibilities and Expenses Payable by the
Company.
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(a) All
investment professionals of the Adviser and their respective staffs, when and to
the extent engaged in providing investment advisory and management services
hereunder, and the compensation and routine overhead expenses of such personnel
allocable to such services, will be provided and paid for by the Adviser and not
by the Company. The Company will bear all other costs and expenses of its
operations, administration and transactions, including (without limitation)
those relating to: the cost of calculating its net asset value, including the
cost of any third-party valuation services; the cost of effecting sales and
repurchases of its shares and other securities; fees payable to third parties
relating to, or associated with, making investments, including fees and expenses
associated with performing due diligence reviews of prospective investments and
advisory fees; transfer agent and custodial fees; fees and expenses associated
with marketing efforts; federal and state registration fees, any stock exchange
listing fees; federal, state and local taxes; independent directors’ fees and
expenses; brokerage commissions; fidelity bond, directors and officers/errors
and omissions liability insurance and other insurance premiums; direct costs
such as printing, mailing, long distance telephone and staff; fees and expenses
associated with independent audits and outside legal costs; costs associated
with our reporting and compliance obligations under the Investment Company Act
and applicable federal and state securities laws; and all other expenses
incurred by either Full Circle Service Company (the “Administrator”) or the Company
in connection with administering the Company’s business, including payments
under the Administration Agreement (the “Administration Agreement”)
that will be based upon our allocable portion of overhead and other expenses
incurred by the Administrator in performing its obligations under the
Administration Agreement, including rent, the fees and expenses associated with
performing compliance functions, and the Company’s allocable portion of the
costs of compensation and related expenses of its chief financial officer and
chief compliance officer and any administrative support staff.
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3.
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Compensation of the
Adviser.
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The
Company agrees to pay, and the Adviser agrees to accept, as compensation for the
services provided by the Adviser hereunder, a base management fee (“Base Management Fee”) and an
incentive fee (“Incentive
Fee”) as hereinafter set forth. The Company 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 Company may adopt a deferred compensation
plan pursuant to which the Adviser may elect, to defer all or a portion of its
fees hereunder for a specified period of time.
(a) The
Base Management Fee shall be calculated at an annual rate of 1.75% of the
Company’s gross assets. For services rendered under this agreement, the Base
Management Fee will be payable quarterly in arrears. The Base Management Fee
will be calculated based on the average value of the Company’s gross assets at
the end of the two most recently completed calendar quarters, and appropriately
adjusted for any share issuances or repurchases during the current calendar
quarter. Base Management Fees for any partial month or quarter will be
appropriately pro rated. In addition, the Adviser hereby agrees to
waive any portion of the Base Management Fee that exceeds 1.50% of the Company’s
gross assets until the first anniversary of the date of execution of this
Agreement.
(b) The
Incentive Fee shall consist of two parts, as follows:
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(i)
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One
part will be calculated and payable quarterly in arrears based on the
pre-Incentive Fee net investment income for the immediately preceding
calendar quarter. For this purpose, pre-Incentive Fee net investment
income means interest income, dividend income and any other income
(including any other fees (other than fees for providing managerial
assistance), such as commitment, origination, structuring, diligence and
consulting fees and other fees that the Company receives from portfolio
companies) accrued by the Company during the calendar quarter, minus the
Company’s operating expenses for the quarter (including the Base
Management Fee, expenses payable under the Administration Agreement to the
Administrator, and any interest expense and dividends paid on any issued
and outstanding preferred stock, but excluding the Incentive
Fee). Pre-Incentive Fee net investment income includes, in the
case of investments with a deferred interest feature (such as original
issue discount, debt instruments with pay in kind interest and zero coupon
securities), accrued income that we have not yet received in
cash. Pre-Incentive Fee net investment income does not include
any realized capital gains, computed net of all realized capital losses or
unrealized capital appreciation or depreciation. Pre-Incentive
Fee net investment income, expressed as a rate of return on the value of
the Company’s net assets at the end of the immediately preceding calendar
quarter, will be compared to a “hurdle rate” of 1.75% per quarter (7.00%
annualized). The Company’s net investment income used to
calculate this part of the Incentive Fee is also included in the amount of
its gross assets used to calculate the 1.75% Base Management
Fee. The Company will pay the Adviser an Incentive Fee with
respect to the Company’s pre-Incentive Fee net investment income in each
calendar quarter as follows: (1) no Incentive Fee in any calendar quarter
in which the Company’s pre-Incentive Fee net investment income does not
exceed the hurdle rate of 1.75%; (2) 100% of the Company’s pre-Incentive
Fee net investment income with respect to that portion of such
pre-Incentive Fee net investment income, if any, that exceeds the hurdle
rate but is less than 2.1875% in any calendar quarter (8.75% annualized);
this portion of the pre-Incentive Fee net investment income (which exceeds
the hurdle but is less than 2.1875%) is referred to herein as the
“catch-up.” The “catch-up” is meant to provide the Adviser with 20% of the
Company’s pre-Incentive Fee net investment income as if a hurdle did not
apply if this net investment income exceeds 2.1875% in any calendar
quarter; and (3) 20% of the amount of the Company’s pre-Incentive Fee net
investment income, if any, that exceeds 2.1875% in any calendar quarter
(8.75% annualized) payable to the Adviser (once the hurdle is reached and
the catch-up is achieved, 20% of all pre-Incentive Fee investment income
thereafter is allocated to the Adviser). 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 relevant
quarter.
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3
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(ii)
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The
second part of the Incentive Fee (the “Capital Gains Fee”) will
be determined and payable in arrears as of the end of each calendar year
(or upon termination of this Agreement as set forth below), commencing
with December 31, 2010, and will equal 20.0% of the Company’s realized
capital gains, if any, on a cumulative basis from inception through the
end of each calendar year, computed net of all realized capital losses and
unrealized capital depreciation on a cumulative basis, less the amount of
any previously paid capital gain Incentive Fees, with respect to each of
the investments in the Company’s portfolio; provided that the Incentive
Fee determined as of December 31, 2010 will be calculated for a period of
shorter than twelve calendar months to take into account any realized
capital gains computed net of all realized capital losses and unrealized
capital depreciation from inception. In the event that this
Agreement shall terminate as of a date that is not a calendar year end,
the termination date shall be treated as though it were a calendar year
end for purposes of calculating and paying a Capital Gains
Fee.
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4
Examples
of Quarterly Incentive Fee Calculation
Example
1: Income Related Portion of Incentive Fee*:
Alternative
1:
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 1.25%
Hurdle
rate1 =
1.75%
Management
fee2
= 0.4375%
Other
expenses (legal, accounting, custodian, transfer agent, etc.)3 =
0.20%
Pre-incentive
fee net investment income
(investment
income – (management fee + other expenses)) = 0.6125%
Pre-incentive
net investment income does not exceed hurdle rate, therefore there is no
incentive fee.
Alternative
2:
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 2.70%
Hurdle
rate1 =
1.75%
Management
fee2 =0.4375%
Other
expenses (legal, accounting, custodian, transfer agent, etc.) 3 =
0.20%
Pre-incentive
fee net investment income
(investment
income – (management fee + other expenses)) = 2.0625%
Incentive
fee = 100% × pre-incentive fee net investment income, subject to the
“catch-up”4
= 100% ×
(2.0625% – 1.75%)
= 0.
3125%
Alternative
3:
Assumptions
Investment income (including interest,
dividends, fees, etc.) = 3.00%
Hurdle rate1
= 1.75%
Management fee2
= 0.4375%
Other expenses (legal, accounting,
custodian, transfer agent, etc.)3
= 0.20%
Pre-incentive fee net investment
income
(investment income – (management fee +
other expenses)) = 2.3625%
Incentive fee = 20% × pre-incentive fee
net investment income, subject to “catch-up”4
Incentive fee = 100% × “catch-up” + (20%
× (pre-incentive fee net investment income – 2.1875%))
4 The
“catch-up” provision is intended to provide the Adviser with an incentive fee of
20% on all of Full Circle Capital’s pre-incentive fee net investment income as
if a hurdle rate did not apply when its net investment income exceeds 2.1875% in
any calendar quarter.
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Catch-up
= 2.1875% – 1.75%
=
0.4375%
Incentive
fee = (100% × 0.4375%) + (20% × (2.3625 % – 2.1875%))
= 0.4375%
+ (20% × 0. 175%)
= 0.4375%
+ 0.035%
=
0.4725%
Example
2: Capital Gains Portion of Incentive Fee:
Alternative
1:
Assumptions
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•
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Year
1: $20 million investment made in Company A (“Investment A”), and $30
million investment made in Company B (“Investment
B”)
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•
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Year
2: Investment A sold for $50 million and fair market value (“FMV”) of
Investment B determined to be $32
million
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•
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Year
3: FMV of Investment B determined to be $25
million
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•
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Year
4: Investment B sold for $31
million
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The
capital gains portion of the incentive fee would be:
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•
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Year
1: None
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•
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Year
2: Capital gains incentive fee of $6 million ($30 million realized capital
gains on sale of Investment A multiplied by
20%)
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•
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Year
3: None
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$5
million (20% multiplied by ($30 million cumulative capital gains less $5 million
cumulative capital depreciation)) less $6 million (previous capital gains fee
paid in Year 2)
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•
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Year
4: Capital gains incentive fee of
$200,000
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$6.2
million ($31 million cumulative realized capital gains multiplied by 20%) less
$6 million (capital gains fee taken in Year 2)
Alternative
2:
Assumptions
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•
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Year
1: $20 million investment made in Company A (“Investment A”), $30 million
investment made in Company B (“Investment B”) and $25 million investment
made in Company C (“Investment C”)
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6
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•
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Year
2: Investment A sold for $50 million, FMV of Investment B determined to be
$25 million and FMV of Investment C determined to be $25
million
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•
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Year
3: FMV of Investment B determined to be $27 million and Investment C sold
for $30 million
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•
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Year
4: FMV of Investment B determined to be $35
million
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•
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Year
5: Investment B sold for $20
million
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The
capital gains incentive fee, if any, would be:
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•
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Year
1: None
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•
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Year
2: $5 million capital gains incentive
fee
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20%
multiplied by $25 million ($30 million realized capital gains on Investment A
less unrealized capital depreciation on Investment B)
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•
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Year
3: $1.4 million capital gains incentive fee(1)
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$6.4
million (20% multiplied by $32 million ($35 million cumulative realized capital
gains less $3 million unrealized capital depreciation)) less $5 million
capital gains fee received in Year 2
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(1)
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As
illustrated in Year 3 of Alternative 1 above, if the Company were to be
wound up on a date other than December 31 of any year, the Company
may have paid aggregate capital gain incentive fees that are more than the
amount of such fees that would be payable if the Company had been wound up
on December 31 of such year.
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•
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Year
4: None
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•
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Year
5: None
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$5
million (20% multiplied by $25 million (cumulative realized capital gains of $35
million less realized capital losses of $10 million)) less $6.4 million
cumulative capital gains fee paid in Year 2 and Year 3
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4.
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Covenants of the
Adviser.
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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.
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5.
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Excess Brokerage
Commissions.
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The
Adviser is hereby authorized, to the fullest extent now or hereafter permitted
by law, to cause the Company to pay a member of a national securities exchange,
broker or dealer an amount of commission for effecting a securities transaction
in excess of the amount of commission another member of such exchange, broker or
dealer would have charged for effecting that transaction, if the Adviser
determines in good faith, taking into account such factors as price (including
the applicable brokerage commission or dealer spread), size of order, difficulty
of execution, and operational facilities of the firm and the firm’s risk and
skill in positioning blocks of securities, that such amount of commission is
reasonable in relation to the value of the brokerage and/or research services
provided by such member, broker or dealer, viewed in terms of either that
particular transaction or its overall responsibilities with respect to the
Company’s portfolio, and constitutes the best net results for the
Company.
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6.
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Limitations on the
Employment of the Adviser.
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The
services of the Adviser to the Company are not exclusive, and the Adviser may
engage in any other business or render similar or different services to others
including, without limitation, the direct or indirect sponsorship or management
of other investment based accounts or commingled pools of capital, however
structured, having investment objectives similar to those of the Company, so
long as its services to the Company hereunder are not impaired thereby, and
nothing in this Agreement shall limit or restrict the right of any manager,
partner, officer or employee of the Adviser to engage in any other business or
to devote his or her time and attention in part to any other business, whether
of a similar or dissimilar nature, or to receive any fees or compensation in
connection therewith (including fees for serving as a director of, or providing
consulting services to, one or more of the Company’s portfolio companies,
subject to applicable law). So long as this Agreement or any extension, renewal
or amendment remains in effect, the Adviser shall be the only investment adviser
for the Company, subject to the Adviser’s right to enter into sub-advisory
agreements. The Adviser assumes no responsibility under this Agreement other
than to render the services called for hereunder. It is understood that
directors, officers, employees and stockholders of the Company are or may become
interested in the Adviser and its affiliates, as directors, officers, employees,
partners, stockholders, members, managers or otherwise, and that the Adviser and
directors, officers, employees, partners, stockholders, members and managers of
the Adviser and its affiliates are or may become similarly interested in the
Company as stockholders or otherwise.
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7.
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Responsibility of Dual
Directors, Officers and/or
Employees.
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If any
person who is a manager, partner, officer or employee of the Adviser or the
Administrator is or becomes a director, officer and/or employee of the Company
and acts as such in any business of the Company, then such manager, partner,
officer and/or employee of the Adviser or the Administrator shall be deemed to
be acting in such capacity solely for the Company, and not as a manager,
partner, officer or employee of the Adviser or the Administrator or under the
control or direction of the Adviser or the Administrator, even if paid by the
Adviser or the Administrator.
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8.
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Limitation of
Liability of the Adviser;
Indemnification.
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The
Adviser (and its officers, managers, partners, agents, employees, controlling
persons, members and any other person or entity affiliated with the Adviser)
shall not be liable to the Company for any action taken or omitted to be taken
by the Adviser in connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment adviser of the
Company (except to the extent specified in Section 36(b) of the Investment
Company Act concerning loss resulting from a breach of fiduciary duty (as the
same is finally determined by judicial proceedings) with respect to the receipt
of compensation for services), and the Company shall indemnify, defend and
protect the Adviser (and its officers, managers, partners, agents, employees,
controlling persons, members and any other person or entity affiliated with the
Adviser) (collectively, the “Indemnified Parties”) and hold
them harmless from and against all damages, liabilities, costs and expenses
(including reasonable attorneys’ fees and amounts reasonably paid in settlement)
incurred by the Indemnified Parties in or by reason of any pending, threatened
or completed action, suit, investigation or other proceeding (including an
action or suit by or in the right of the Company or its security holders)
arising out of or otherwise based upon the performance of any of the Adviser’s
duties or obligations under this Agreement or otherwise as an investment adviser
of the Company. Notwithstanding the preceding sentence of this
Section 8 to the contrary, nothing contained herein shall protect or be deemed
to protect the Indemnified Parties against or entitle or be deemed to entitle
the Indemnified Parties to indemnification in respect of, any liability to the
Company or its security holders to which the Indemnified Parties would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of the Adviser’s duties or by reason of the reckless disregard
of the Adviser’s duties and obligations under this Agreement (as the same shall
be determined in accordance with the Investment Company Act and any
interpretations or guidance by the Securities and Exchange Commission or its
staff thereunder).
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9.
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Effectiveness,
Duration and Termination of
Agreement.
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(a) This
Agreement shall become effective as of the first date above written. This
Agreement may be terminated at any time, without the payment of any penalty,
upon not more than 60 days’ written notice, by the vote of a majority of the
outstanding voting securities of the Company or by the vote of the Company’s
Directors or by the Adviser. The provisions of Section 8 of this
Agreement shall remain in full force and effect, and the Adviser shall remain
entitled to the benefits thereof, notwithstanding any termination of this
Agreement. Further, notwithstanding the termination or expiration of
this Agreement as aforesaid, the Adviser shall be entitled to any amounts owed
under Section 3 through the date of termination or expiration and Section 8
shall continue in force and effect and apply to the Adviser and its
representatives as and to the extent applicable.
(b) This
Agreement shall continue in effect for two years from the date hereof 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 Company and (B) the vote of a majority of the Company’s Directors who are
not parties to this Agreement or “interested persons” (as such term is defined
in Section 2(a)(19) of the Investment Company Act) of any such party, in
accordance with the requirements of the Investment Company Act.
(c) 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).
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10.
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Notices.
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Any
notice under this Agreement shall be given in writing, addressed and delivered
or mailed, postage prepaid, to the other party at its principal
office.
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11.
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Amendments.
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This
Agreement may be amended by mutual consent, but the consent of the Company must
be obtained in conformity with the requirements of the Investment Company
Act.
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12.
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Entire Agreement;
Governing Law.
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This
Agreement contains the entire agreement of the parties and supersedes all prior
agreements, understandings and arrangements with respect to the subject matter
hereof. This Agreement shall be construed in accordance with the laws
of the State of New York and in accordance with the applicable provisions of the
Investment Company Act. In such case, to the extent the applicable laws of the
State of New York, or any of the provisions herein, conflict with the provisions
of the Investment Company Act, the latter shall control.
[Remainder
of page intentionally blank]
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date above written.
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FULL
CIRCLE CAPITAL CORPORATION
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By:
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/s/ Xxxx X. Xxxxxx | ||
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Name:
Xxxx X. Xxxxxx
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Title:
President and Chief Executive
Officer
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FULL
CIRCLE ADVISORS, LLC
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By:
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/s/ Xxxx X. Xxxxxx | ||
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Name:
Xxxx X. Xxxxxx
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Title:
Managing Member
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