Form of Investment Advisory Agreement] INVESTMENT ADVISORY AGREEMENT BETWEEN MEDIATECH INVESTMENT CORP. AND MEDIATECH INVESTMENT MANAGEMENT, LLC
Exhibit
g
[Form
of Investment Advisory Agreement]
BETWEEN
AND
MEDIATECH
INVESTMENT MANAGEMENT, LLC
Agreement
made this __th day of July 2007, by and between MEDIATECH INVESTMENT CORP.,
a
Maryland corporation (the “Corporation”),
and
MEDIATECH INVESTMENT MANAGEMENT, LLC, a Delaware limited liability company
(the
“Adviser”).
WHEREAS,
the Corporation is a newly organized closed-end management investment fund
that
intends to elect to be treated as a business development company (“BDC”)
under
the Investment Company Act of 1940, as amended (the “Investment
Company Act”);
and
WHEREAS,
the Adviser is a newly organized investment adviser that intends to register
under the Investment Advisers Act of 1940, as amended (the “Advisers
Act”);
and
WHEREAS,
the Corporation desires to retain the Adviser to furnish investment advisory
services to the Corporation on the terms and conditions hereinafter set forth,
and the Adviser wishes to be retained to provide such services;
NOW,
THEREFORE, in consideration of the premises and for other good and valuable
consideration, the parties hereby agree as follows:
1.
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Duties
of the Adviser.
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(a) The
Corporation hereby employs the Adviser to act as the investment adviser to
the
Corporation and to manage the investment and reinvestment of the assets of
the
Corporation, subject to the supervision of the Board of Directors of the
Corporation, for the period and upon the terms herein set forth, (i) in
accordance with the investment objective, policies and restrictions that are
set
forth in the Corporation’s Registration Statement on Form N-2, as filed with the
Securities and Exchange Commission on ____________, 2007, and as amended on
____________, (such Registration Statement at the time it was declared effective
on ___________, the “Registration Statement”); (ii) during the term of this
Agreement in accordance with all other applicable federal and state laws, rules
and regulations, and the Corporation’s charter and by-laws; and (iii) in
accordance with the Investment Company Act, subsequent to the time the
Corporation becomes a BDC. Without limiting the generality of the foregoing,
the
Adviser shall, during the term and subject to the provisions of this Agreement,
(A) determine the composition of the portfolio of the Corporation, the nature
and timing of the changes therein and the manner of implementing such changes;
(B) identify, evaluate and negotiate the structure of the investments made
by
the Corporation; (C) close, monitor and service the Corporation’s investments;
(D) determine the securities and other assets that the Corporation will
purchase, retain, or sell; (E) perform due diligence on prospective portfolio
companies; and (F) provide the Corporation with such other investment advisory,
research and related services as the Corporation may, from time to time,
reasonably require for the investment of its funds. The Adviser shall have
the
power and authority on behalf of the Corporation to effectuate its investment
decisions for the Corporation, including the execution and delivery of all
documents relating to the Corporation’s investments and the placing of orders
for other purchase or sale transactions on behalf of the Corporation. In the
event that the Corporation determines to acquire debt financing, the Adviser
will arrange for such financing on the Corporation’s behalf, subject to the
oversight and approval of the Corporation’s Board of Directors.
1
(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 is hereby authorized to enter into one or more sub-advisory agreements
with other investment advisers (each, a “Sub-Adviser”)
pursuant to which the Adviser may obtain the services of the Sub-Adviser(s)
to
assist the Adviser in fulfilling its responsibilities hereunder. Specifically,
the Adviser may retain a Sub-Adviser to recommend specific securities or other
investments based upon the Corporation’s investment objective and policies, and
work, along with the Adviser, in structuring, negotiating, arranging or
effecting the acquisition or disposition of such investments and monitoring
investments on behalf of the Corporation, subject to the oversight of the
Adviser and the Corporation. The Adviser and not the Corporation shall be
responsible for any compensation payable to any Sub-Adviser. Any sub-advisory
agreement entered into by the Adviser shall be in accordance with the
requirements of the Investment Company Act and other applicable federal and
state law.
(d) The
Adviser shall, for all purposes herein provided, be deemed to be an independent
contractor and, except as expressly provided or authorized herein, shall have
no
authority to act for or represent the Corporation in any way or otherwise be
deemed an agent of the Corporation.
(e) Subject
to review by and the overall control of the Board of Directors of the
Corporation, the Adviser shall keep and preserve for the period required by
the
Investment Company Act any books and records relevant to the provision of its
investment advisory services to the Corporation and shall specifically maintain
all books and records with respect to the Corporation’s portfolio transactions
and shall render to the Corporation’s Board of Directors such periodic and
special reports as the Board may reasonably request. The Adviser agrees that
all
records that it maintains for the Corporation are the property of the
Corporation and will surrender promptly to the Corporation any such records
upon
the Corporation’s request, provided that the Adviser may retain a copy of such
records.
2.
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Corporation’s
Responsibilities and Expenses Payable by the Corporation.
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(a) All
personnel of the Adviser, when and to the extent engaged in providing investment
advisory 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 Corporation. The Corporation will bear all other
costs and expenses of its operations, administration and transactions, including
(without limitation) those relating to: organizational and offering; the cost
of
calculating the Corporation’s net asset value; the cost of effecting sales and
repurchases of shares of its common stock and other securities; management
and
incentive fees payable pursuant to the investment advisory agreement; fees
payable to third parties relating to, or associated with, making investments
(including third-party valuation firms); transfer agent and custodial fees;
federal and state registration fees; any exchange listing fees; federal, state
and local taxes; independent directors’ fees and expenses; brokerage
commissions; costs of proxy statements, stockholders’ reports and notices;
fidelity bond, liability insurance and other insurance premiums; and printing,
mailing, independent accountants and outside legal costs and all other direct
expenses incurred by either the Adviser or the Corporation in connection with
administering the Corporation’s business, including third-party costs directly
related to the investigation and monitoring of the Corporation’s investments and
payments under the separate administration agreement between the Corporation
and
the Adviser (the “Administration
Agreement”)
that
will be based upon the Corporation’s allocable portion of overhead and other
expenses incurred by the Adviser in performing its obligations under the
Administration Agreement, including rent and the allocable portion of the cost
of the Corporation’s Chief Financial Officer/Chief Compliance Officer and his
staff.
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3.
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Compensation
of the Adviser.
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The
Corporation agrees to pay, and the Adviser agrees to accept, as compensation
for
the services provided by the Adviser hereunder, a base management fee
(“Base
Management Fee”)
and an
incentive fee (“Incentive
Fee”)
as
hereinafter set forth. The Adviser may agree to temporarily or permanently
waive, in whole or in part, the Base Management Fee and/or the Incentive Fee.
(a) The
Base
Management Fee shall be calculated at an annual rate of 2.00% of the
Corporation’s gross assets. For the period commencing from the closing of the
Corporation’s initial public offering of common stock (the “IPO”),
through and including December 31, 2007, the Base Management Fee will be payable
monthly in arrears, and will be calculated based on the initial value of the
Corporation’s assets upon the closing of the IPO. For services rendered after
December 31, 2007, the Base Management Fee will be payable quarterly in arrears,
and will be calculated based on the average value of the Corporation’s gross
assets at the end of the two most recently completed calendar quarters, and
appropriately adjusted for any equity capital raises or repurchases during
the
current calendar quarter. The Base Management Fee for any partial month or
quarter will be appropriately pro rated.
(b) The
Incentive Fee shall consist of two parts, as follows:
(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 Corporation receives from
portfolio companies) accrued by the Corporation during the calendar
quarter, minus the Corporation’s operating expenses for the 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). 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, 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 Corporation’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), subject to a “catch-up”
provision measured as of the end of each calendar quarter. The
Corporation’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 2.00% Base Management Fee. The Corporation will pay
the
Adviser an Incentive Fee with respect to the Corporation’s pre-Incentive
Fee net investment income in each calendar quarter as follows:
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3
·
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no
Incentive Fee in any calendar quarter in which the Corporation’s
pre-Incentive Fee net investment income does not exceed the hurdle
rate of
1.75%;
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·
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100%
of the Corporation’s pre-Incentive Fee net investment income with respect
to that portion of such pre-Incentive Fee net investment income,
if any,
that exceeds the hurdle rate but is less than 2.1875% in any calendar
quarter (8.75% annualized); we refer to this portion of our pre-Incentive
Fee net investment income (which exceeds the hurdle but is less than
or
equal to 2.1875%) as the “catch-up.” For the absence of doubt, this
“catch-up” is meant to provide the Adviser with 20% of the 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
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·
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20%
of the amount of the Corporation’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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(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 on December 31, 2007, and will equal 20.0% of the Corporation’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
with respect to each of the investments in the Corporation’s portfolio,
less the aggregate amount of any previously paid capital gain Incentive
Fees; provided that the Incentive Fee determined as of December 31,
2007
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
rate (1) = 1.75%
Management
fee (2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.) (3) =
0.20%
Pre-Incentive
Fee Net Investment Income
(investment
income - (management fee + other expenses)) = 0.55%
Pre-Incentive
Fee 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
rate (1) = 1.75%
Management
fee (2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%
Pre-Incentive
Fee Net Investment Income
(investment
income - (management fee + other expenses)) = 2.00%
Incentive
Fee = 20% ×Pre-Incentive Fee Net Investment Income, subject to the “catch-up”
(4)
=
(2.00%
- 1.75%)
=
0.25%
=
100% x
0.25%
=
0.25%
Pre-Incentive
Fee Net Investment Income exceeds the hurdle rate, but does not fully satisfy
the “catch-up” provision, therefore the income related portion of the incentive
fee is 0.25%.
Alternative
3
Assumptions
Investment
income (including interest, dividends, fees, etc.) = 3.00%
Hurdle
rate (1) = 1.75%
Management
fee (2) = 0.50%
Other
expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.20%
Pre-Incentive
Fee Net Investment Income
(investment
income - (management fee + other expenses)) = 2.30%
Incentive
Fee = 20% × Pre-Incentive Fee Net Investment Income, subject to “catch-up” (4)
5
Incentive
Fee = 100% × “catch-up” + (20% × (Pre-Incentive Fee Net Investment Income -
2.1875%))
Catch-up
= 2.1875% - 1.75%
=
0.4375%
Incentive
Fee = (100% × 0.4375%) + (20% × (2.3% - 2.1875%))
=
0.4375%
+ (20% × 0.1125%)
=
0.4375%
+ 0.0225%
=
0.46%
Pre-Incentive
Fee Net Investment Income exceeds the hurdle rate, and fully satisfies the
“catch-up” provision, therefore the income related portion of the incentive fee
is 0.46%.
(1)
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Represents
7.0% annualized hurdle rate.
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(2)
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Represents
2.0% annualized base management fee.
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(3)
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Excludes
organizational and offering expenses.
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(4)
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The
“catch-up” provision is intended to provide the Adviser with an Incentive
Fee of 20% on all of our pre-Incentive Fee net investment income
as if a
hurdle rate did not apply when our net investment income exceeds
2.1875%
in any calendar quarter.
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(*)
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The
hypothetical amount of pre-Incentive Fee net investment income shown
is
based on a percentage of total net assets.
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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 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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|
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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 Fee of $200,000
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|
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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)
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6
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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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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Year
3: FMV of Investment B determined to be $27 million and Investment
C sold
for $30 million
|
|
•
|
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Year
4: FMV of Investment B determined to be $35 million
|
|
•
|
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Year
5: Investment B sold for $20 million
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The
Capital Gains Fee, if any, would be:
|
•
|
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Year
1: None
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|
•
|
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Year
2: $5 million Capital Gains Fee
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|
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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 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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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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(1)
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As
illustrated in Year 3 of Alternative 2 above, if this Agreement were
to be
terminated on a date other than December 31st
of any year, the Corporation may have paid aggregate Capital Gains
Fees
that are more than the amount of such fees that would be payable
if this
Agreement had been terminated on December 31 of such
year.
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4.
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Covenants
of the Adviser.
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The
Adviser covenants that it will register as an investment adviser under the
Advisers Act. The Adviser agrees that its activities will at all times be in
compliance in all material respects with all applicable federal and state laws
governing its operations and investments.
5.
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Brokerage
Commissions.
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The
Adviser is hereby authorized, to the fullest extent now or hereafter permitted
by law, to cause the Corporation to pay a member of a national securities
exchange, broker or dealer an amount of commission for effecting a securities
transaction in excess of the amount of commission another member of such
exchange, broker or dealer would have charged for effecting that transaction,
if
the Adviser determines in good faith, taking into account such factors as price
(including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, and operational facilities of the firm and the firm’s
risk and skill in positioning blocks of securities, that such amount of
commission is reasonable in relation to the value of the brokerage and/or
research services provided by such member, broker or dealer, viewed in terms
of
either that particular transaction or its overall responsibilities with respect
to the Corporation’s portfolio, and constitutes the best net results for the
Corporation.
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6.
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Other
Activities of the
Adviser.
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The
services of the Adviser to the Corporation are not exclusive, and the Adviser
may engage in any other business or render similar or different services to
others including, without limitation, the direct or indirect sponsorship or
management of other investment based accounts or commingled pools of capital,
however structured, having investment objectives similar to those of the
Corporation, so long as its services to the Corporation hereunder are not
impaired thereby, and nothing in this Agreement shall limit or restrict the
right of any manager, partner, member (including its members and the owners
of
its members), officer or employee of the Adviser to engage in any other business
or to devote his or her time and attention in part to any other business,
whether of a similar or dissimilar nature, or to receive any fees or
compensation in connection therewith (including fees for serving as a director
of, or providing consulting services to, one or more of the Corporation’s
portfolio companies, subject to applicable law). So long as this Agreement
or
any extension, renewal or amendment remains in effect, the Adviser shall be
the
only investment adviser for the Corporation, subject to the Adviser’s right to
enter into sub-advisory agreements. The Adviser assumes no responsibility under
this Agreement other than to render the services called for hereunder. It is
understood that directors, officers, employees and stockholders of the
Corporation are or may become interested in the Adviser and its affiliates,
as
directors, officers, employees, partners, stockholders, members, managers or
otherwise, and that the Adviser and directors, officers, employees, partners,
stockholders, members and managers of the Adviser and its affiliates are or
may
become similarly interested in the Corporation as stockholders or
otherwise.
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, member, officer or employee of the Adviser
is
or becomes a director, officer and/or employee of the Corporation and acts
as
such in any business of the Corporation, then such manager, partner, member,
officer and/or employee of the Adviser shall be deemed to be acting in such
capacity solely for the Corporation, and not as a manager, partner, member,
officer or employee of the Adviser or under the control or direction of the
Adviser, even if paid by the Adviser.
8.
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Limitation
of Liability of the Adviser;
Indemnification.
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The
Adviser (and its officers, managers, partners, members (and their members,
including the owners of their members), agents, employees, controlling persons
and any other person or entity affiliated with the Adviser) shall not be liable
to the Corporation for any action taken or omitted to be taken by the Adviser
in
connection with the performance of any of its duties or obligations under this
Agreement or otherwise as an investment adviser of the Corporation (except
to
the extent specified in Section 36(b) of the Investment Company Act concerning
loss resulting from a breach of fiduciary duty (as the same is finally
determined by judicial proceedings) with respect to the receipt of compensation
for services, and the Corporation shall indemnify, defend and protect the
Adviser (and its officers, managers, partners, members (and their members,
including the owners of their members), agents, employees, controlling persons
and any other person or entity affiliated with the Adviser, each of whom shall
be deemed a third party beneficiary hereof) (collectively, the “Indemnified
Parties”)
and
hold them harmless from and against all damages, liabilities, costs and expenses
(including reasonable attorneys’ fees and amounts reasonably paid in settlement)
incurred by the Indemnified Parties in or by reason of any pending, threatened
or completed action, suit, investigation or other proceeding (including an
action or suit by or in the right of the Corporation or its security holders)
arising out of or otherwise based upon the performance of any of the Adviser’s
duties or obligations under this Agreement or otherwise as an investment adviser
of the Corporation. Notwithstanding the preceding sentence of this 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 Corporation
or
its security holders to which the Indemnified Parties would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of the Adviser’s duties or by reason of the reckless disregard of
the Adviser’s duties and obligations under this Agreement.
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9.
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Effectiveness,
Duration and Termination of
Agreement.
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This
Agreement shall become effective as of the date above written. This Agreement
shall remain in effect for two years, and thereafter shall continue
automatically for successive annual periods, provided that such continuance
is
specifically approved at least annually by (a) the vote of the Corporation’s
Board of Directors, or by the vote of a majority of the outstanding voting
securities of the Corporation and (b) the vote of a majority of the
Corporation’s directors who are not parties to this Agreement or “interested
persons” (as such term is defined in Section 2(a)(19) of the Investment Company
Act) of any such party, in accordance with the requirements of the Investment
Company Act and each of whom is an “independent
director” as
defined by Nasdaq Marketplace Rule 4200(a)(15). This Agreement may be terminated
at any time, without the payment of any penalty, upon 60 days’ written notice,
by the vote of a majority of the outstanding voting securities of the
Corporation, or by the vote of the Corporation’s directors or by the Adviser.
This Agreement will automatically terminate in the event of its “assignment” (as
such term is defined for purposes of Section 15(a)(4) of the Investment Company
Act). The provisions of Paragraph 8 of this Agreement shall remain in full
force
and effect, and the Adviser shall remain entitled to the benefits thereof,
notwithstanding any termination of this Agreement.
10.
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Notices.
|
Any
notice under this Agreement shall be given in writing, addressed and delivered
or mailed, postage prepaid, to the other party at its principal office.
11.
|
Amendments.
|
This
Agreement may be amended by mutual consent.
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12.
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Entire
Agreement;
Governing
Law.
|
This
Agreement contains the entire agreement of the parties and supersedes all prior
agreements, understandings and arrangements with respect to the subject matter
hereof. Notwithstanding the place where this Agreement may be executed by any
of
the parties hereto, this Agreement shall be construed in accordance with the
laws of the State of New York. For so long as the Corporation is regulated
as a
BDC under the Investment Company Act, this Agreement shall also be construed
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. To the
fullest extent permitted by law, in the event of any dispute arising out of
the
terms and conditions of this Agreement, the parties hereto consent and submit
to
the jurisdiction of the courts of the State of New York in the county of New
York and of the U.S. District Court for the Southern District of New
York.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date above written.
By:
Name:
Title:
MEDIATECH
INVESTMENT MANAGEMENT, LLC
By:
Name:
Title:
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