Exhibit 10.2
INTERIM INVESTMENT ADVISORY AGREEMENT
MORAMERICA CAPITAL CORPORATION,
An Iowa Corporation
This INTERIM INVESTMENT ADVISORY AGREEMENT dated as of April 30, 2005
(the "Agreement") by MorAmerica Capital Corporation, a corporation organized
under the laws of the State of Iowa ("MACC"), and InvestAmerica Investment
Advisors, Inc., a corporation organized under the laws of the State of Delaware
("InvestAmerica").
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, InvestAmerica 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 InvestAmerica under this Agreement.
1.3 "InvestAmerica" shall mean InvestAmerica Investment
Advisors, Inc., a Delaware corporation.
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
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(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 "Combined Capital" shall mean MACC's Combined Capital as
defined in SBA regulations as of the date hereof.
1.7 "ICA" has the meaning set forth in the first recital hereof.
1.8 "MACC" shall mean MorAmerica Capital Corporation, an Iowa
corporation that is a wholly owned subsidiary of the Company.
1.9 "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.
1.10 "Other Venture Capital Funds" has the meaning set forth in
subsection 3.2(b).
1.11 "Portfolio Company" or "Portfolio Companies" shall mean any
entity in which MACC may make an investment and with respect to which
InvestAmerica 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.
1.12 "Private Capital" has the meaning set forth in the
definition of Capital Under Management in Section 1.5 above.
1.13 "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 InvestAmerica 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.
1.14 "SBA" shall mean the United States Small Business
Administration or any successor thereto, which has regulatory authority over
SBICs.
1.15 "SBIC" has the meaning set forth in the first recital
hereof.
1.16 "SEC" shall mean the United States Securities and Exchange
Commission.
1.17 "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
InvestAmerica as its investment
advisor.
2.1 As such, InvestAmerica 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 InvestAmerica 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 InvestAmerica hereunder are being fulfilled. Any
investment program undertaken by InvestAmerica pursuant hereto and any other
activities undertaken by InvestAmerica 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 InvestAmerica will be responsible for the following
expenses: its staff salaries and fringe benefits, 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, expenses
related to developing, investigating and monitoring investments, business
development, insurance premiums and fees (including premiums for the fidelity
bond, if any, maintained by InvestAmerica pursuant to ICA Section 17 but
excluding premiums for directors and officers insurance) and minor miscellaneous
expenses.
InvestAmerica will pay for its own account all expenses incurred in
rendering the services to be rendered hereunder. Without limiting the generality
of the foregoing, InvestAmerica 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.
2.3 In connection with the services provided, InvestAmerica 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 Board of
Directors who are not directors, officers, employees or Affiliates of
InvestAmerica or of any entity which is an Affiliate of InvestAmerica; 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 InvestAmerica under Section 2.2 above.
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2.4 Neither InvestAmerica nor MACC will enter into any
subadvisory agreements without SBA approval, which agreements shall also be
subject to approval requirements of the ICA.
Section 3. Nonexclusive Obligations; Co-investments.
3.1 The obligations of InvestAmerica to MACC are not exclusive.
InvestAmerica 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 InvestAmerica may offer the same investment opportunities as
may be offered to MACC to other persons for whom InvestAmerica is providing
services. Neither InvestAmerica nor any of its Affiliates shall in any manner be
liable to MACC or its Affiliates by reason of the activities of InvestAmerica or
its Affiliates on behalf of other persons and funds as described in this
paragraph.
3.2 For the benefit of MACC's investment activities,
InvestAmerica 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 InvestAmerica and its Affiliates,
including NDSBIC, L.P., Xxxxx and Xxxxx Private Equities, LP, and Invest
Northwest, LP (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 InvestAmerica 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, InvestAmerica is authorized to effect acquisitions and dispositions
of securities for MACC's account in InvestAmerica's discretion. Where such
approval is required, InvestAmerica is authorized to effect acquisitions and
dispositions for MACC's account upon and to the extent of such approval. MACC
will put InvestAmerica in funds whenever InvestAmerica requires funds for an
acquisition of securities in accordance with the foregoing, and MACC will cause
to be delivered in accordance with InvestAmerica's instructions any securities
disposed of in accordance with the foregoing.
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3.4 Should InvestAmerica 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,
InvestAmerica 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 InvestAmerica 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
InvestAmerica (and such officers, Directors, employees, representatives and
agents is it shall designate) as its proxy, as a result of which InvestAmerica
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. InvestAmerica 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 InvestAmerica 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 InvestAmerica serve as a member of the Board of
Directors of MACC, such officer, director, employee or Affiliate of
InvestAmerica 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
InvestAmerica monthly in arrears a management fee equal to the lesser of 1.5%
per annum of the (i) Combined Capital, or (ii) Assets Under Management.
5.2 During the term of this Agreement, MACC shall pay to
InvestAmerica an incentive fee determined as specified in this Section 5.2.
(a) The incentive fee shall be calculated as follows:
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(i) The amount of the fee shall be 13.4% 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 InvestAmerica 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 for purposes of calculating the incentive fee for any subsequent fiscal
year).
(iii) The incentive fee for the fiscal year ended September
30, 2005 shall be computed based on the full fiscal year, even though this
Agreement commenced on April 30, 2005.
(b) Upon termination of this Agreement, but subject to the other
limitations of this Section 5.2, 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. Notwithstanding the foregoing,
in the event this Agreement is replaced by an agreement having substantially
similar terms, no payment pursuant to Section 5.2 shall be payable to
InvestAmerica, but any payments accruing pursuant to Section 5.2 shall be
payable pursuant to the terms of any such replacement agreement.
(c) Subject to other limitations of this Section 5.2, 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 InvestAmerica, and if such adjustment reveals that InvestAmerica has
received more incentive fee income than it is entitled to hereunder,
InvestAmerica shall promptly reimburse MACC for the amount of such excess.
(ii) In the event InvestAmerica 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
InvestAmerica. Fees from such account shall be released to InvestAmerica at such
time as, and to the extent that, MACC's Private Capital is no longer so
impaired.
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(d) The SBA, MACC and certain others SBICs are parties to an SBA
Agreement dated as of December 23, 2004 (the "SBA Agreement"). From the
effective date of this Agreement, no incentive fee can be paid until (i) all SBA
leverage is paid in full (including interest, fees and principal), and (ii) the
escrow fund contemplated by the SBA Agreement is fully funded, the SBA Agreement
is terminated or the SBA approves such payment in writing. In addition, MACC and
InvestAmerica shall enter into a subordination agreement with SBA to give
further effect to the subordination of the incentive fees to SBA under this
Section 5.2(d).
(e) Earned incentive fees the payment of which is deferred
pursuant to this Section 5.2 shall be accrued and shall be paid when permitted
by this Section 5.2.
(f) The provisions of this Section 5.2 shall survive termination
of this Agreement.
5.3 Notwithstanding the foregoing, (i) the management fee
contemplated by this Section will not exceed the maximum permitted management
fee allowed by SBA rules and regulations and (ii) MACC shall not make any
incentive fee payment contemplated by Section 5.2 that is in violation of the
rules and regulations of the SBA regarding Retained Earnings Available for
Distribution; provided that such payment will be made by MACC to InvestAmerica
at such time as MACC has sufficient Retained Earnings Available for Distribution
to make such payment.
Section 6. Liability and Indemnification of InvestAmerica.
6.1 Article X of the Amended and Restated Bylaws of MACC as in
effect on the date hereof (the "Bylaws") is hereby incorporated by reference in
and made a part of this Agreement and is hereby referred to for a description of
MACC's indemnification obligations in favor of InvestAmerica and its officers,
directors, shareholders, employees, agents and Affiliates (collectively, the
"Indemnified Parties"). MACC confirms that in performing services hereunder
InvestAmerica 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 InvestAmerica were a director or officer of MACC. MACC grants the rights
to indemnification contained in Article X of the Bylaws to the other Indemnified
Parties and such Indemnified Parties shall be entitled to the same benefits of
Article X as if they were a director or officer of MACC. The provisions of this
Section 6.1 shall survive termination of this Agreement.
6.2 Individuals who are Affiliates of InvestAmerica and are also
officers or directors of MACC as well as other InvestAmerica 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. Term.
MACC represents that this Agreement has been approved by MACC's Board
of Directors in accord with Rule 15a-4 adopted pursuant to the ICA. This
Agreement shall continue in effect for no more than one hundred fifty (150) days
from the date hereof and shall
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automatically terminate upon the effectiveness of a replacement advisory
agreement for MACC. 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 InvestAmerica 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.
InvestAmerica may also terminate this Agreement on sixty (60) days'
written notice to MACC and the Company; provided, however, that InvestAmerica
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 InvestAmerica, 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.
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 InvestAmerica
shall automatically terminate this Agreement.
Section 9. Amendments.
This Agreement may be amended only by an instrument in writing
executed by all parties and with the prior approval of the SBA.
Section 10. Governing Law.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware.
[Signature page follows]
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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
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Xxxxx X. Xxxxxxxx
President and Secretary
INVESTAMERICA:
INVESTAMERICA INVESTMENT
ADVISORS, INC.
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx
Executive Vice President
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