EXHIBIT 10.1

SECOND AMENDED AND RESTATED

INVESTMENT ADVISORY MANAGEMENT AGREEMENT

BETWEEN

PENNANTPARK INVESTMENT CORPORATION

AND

PENNANTPARK INVESTMENT ADVISERS, LLC

 

Agreement made this 6th day of February 2018, by and between PENNANTPARK
INVESTMENT CORPORATION, a Maryland corporation (the “Corporation”), and
PENNANTPARK INVESTMENT ADVISERS, LLC, a Delaware limited liability company (the
“Adviser”).

WHEREAS, the Corporation operates as a closed-end management investment company
that has elected to be treated as a business development company under the
Investment Company Act of 1940, as amended (the “Investment Company Act”);

WHEREAS, the Adviser is registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the “Advisers Act”);

 

WHEREAS, the Corporation and the Adviser are parties to that certain amended and
restated investment advisory management agreement dated February 2, 2016, by and
between the Corporation and the Adviser (the “Prior Agreement”);

 

WHEREAS, the Corporation and the Adviser desire to amend and restate the Prior
Agreement to set forth the terms and conditions for the continued provision by
the Adviser of investment advisory services to the Corporation; and

 

WHEREAS, the Corporation’s board of directors has determined that such amendment
and restatement clarifies the intent of the Prior Agreement in a manner that is
consistent with the Corporation’s public disclosures and is not detrimental to
the Corporation.

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the parties hereby agree as follows:

1. Duties of the Adviser.

(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, as the same may be amended
from time to time, (ii) in accordance with the Investment Company Act and
(iii) 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. Without limiting the generality of the foregoing, the Adviser shall,
during the term and subject to the provisions of this Agreement, (i) determine
the composition of the portfolio of the Corporation, the nature and timing of
the changes therein and the manner of implementing such changes; (ii) identify,
evaluate and negotiate the structure of the investments made by the Corporation;
(iii) close and monitor the Corporation’s investments; determine the securities
and other assets that the Corporation will purchase, retain, or sell; perform
due diligence on prospective portfolio companies; and (vi) 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. If it is necessary for the Adviser to make
investments on behalf of the Corporation 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.

(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) Subject to the requirements of the Investment Company Act, 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.

 

 

 

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(e) The Adviser shall keep and preserve, in the manner and for the period that
would be applicable to investment companies registered under 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. Corporation’s Responsibilities and Expenses Payable by the Corporation. 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 Corporation. The Corporation will bear all other costs and expenses of
its operations and transactions, including (without limitation) those relating
to: organization and offering; calculating the Corporation’s net asset value
(including the cost and expenses of any independent valuation firm); expenses
incurred by the Adviser payable to third parties, including agents, consultants
or other advisors, in monitoring financial and legal affairs for the Corporation
and in monitoring the Corporation’s investments and performing due diligence
(including related legal expenses) on its prospective portfolio companies;
interest payable on debt, if any, incurred to finance the Corporation’s
investments and expenses related to unsuccessful portfolio acquisition efforts;
offerings of the Corporation’s common stock and other securities; investment
advisory and management fees; administration fees payable under the
Administration Agreement between the Corporation and PennantPark Investment
Administration, LLC (the “Administrator”), the Corporation’s administrator; fees
payable to third parties, including agents, consultants or other advisors,
relating to, or associated with, evaluating and making investments, including
costs associated with meeting potential financial sponsors; transfer agent and
custodial fees; federal and state registration fees; all costs of registration
and listing the Corporation’s shares on any securities exchange; federal, state
and local taxes; independent Directors’ fees and expenses; costs of preparing
and filing reports or other documents required by the Securities and Exchange
Commission; costs of any reports, proxy statements or other notices to
stockholders, including printing costs; costs associated with individual or
group stockholders; the Corporation’s allocable portion of the fidelity bond,
directors and officers/errors and omissions liability insurance, and any other
insurance premiums; direct costs and expenses of administration, including
printing, mailing, long distance telephone, copying, secretarial and other
staff, independent auditors and outside legal costs; and all other expenses
incurred by the Corporation or the Administrator in connection with
administering the Corporation’s business, including payments under the
Administration Agreement between the Corporation and the Administrator based
upon the Corporation’s allocable portion of the Administrator’s overhead in
performing its obligations under the Administration Agreement, including rent
and the allocable portion of the cost of the Corporation’s chief compliance
officer and chief financial officer and their respective staffs.

 

3. Compensation of the Adviser. 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 Corporation 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 adopt a deferred compensation plan pursuant to which it
may elect, to defer all or a portion of its fees hereunder for a specified
period of time.

(a) Effective as of January 1, 2018, the Base Management Fee shall be calculated
at an annual rate of 1.5% of the Corporation’s “average adjusted gross assets,”
which equals the Corporation’s gross assets (net of U.S. Treasury Bills,
temporary draws under any credit facility, cash and cash equivalents, repurchase
agreements or other balance sheet transactions undertaken at the end of a fiscal
quarter for purposes of preserving investment flexibility for the next quarter
and adjusted to exclude cash, cash equivalents and unfunded commitments, if
any). The Base Management Fee will be payable quarterly in arrears and will be
calculated based on the average adjusted 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 prorated.  

(b) Effective as of January 1, 2018, the Incentive Fee shall consist of two
parts, as follows:

 

(i)

One part will be calculated and payable quarterly in arrears based on the
Corporation’s 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
amendment, commitment, origination, prepayment penalties, structuring, diligence
and consulting fees or other fees received from portfolio companies, accrued
during the calendar quarter, minus the Corporation’s operating expenses for the
quarter (including the Base Management Fee, any expenses payable under the
Administration Agreement, and any interest expense and distribution 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 payment-in-kind interest and zero coupon securities), accrued
income that the Corporation has 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 percentage of 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). 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; (1) 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%; (2) 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 2.1212% in any
calendar quarter (8.4848% annualized); and (3) 17.5% of the amount of the
Corporation’s pre-Incentive Fee net investment income, if any, that exceeds
2.1212% in any calendar quarter. These calculations will be appropriately
prorated for any period of less than three months and adjusted for any share
issuances or repurchases during the relevant quarter.

 

(ii)

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,
2018, and will equal 17.5% of the Corporation’s realized capital gains, if any,
on a cumulative basis from inception through the end of each calendar

 

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year, computed net of all realized capital losses and unrealized capital
depreciation on a cumulative basis, less the aggregate amount of any previously
paid Capital Gains Fees. 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.

4. Covenants of the Adviser. The Adviser covenants that it is registered 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. Excess Brokerage Commissions. 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.

6. Limitations on the Employment of the Adviser. 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,
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. Responsibility of Dual Directors, Officers and/or Employees. 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
Corporation and acts as such in any business of the Corporation, 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 Corporation, 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.

8. Limitation of Liability of the Adviser; Indemnification. The Adviser (and its
officers, managers, partners, agents, employees, controlling persons, members
and any other person or entity affiliated with the Adviser, including without
limitation its general partner and the Administrator) 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, agents, employees, controlling
persons, members and any other person or entity affiliated with the Adviser,
including without limitation its general partner and the Administrator, 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 Paragraph 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 (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).

9. Effectiveness, Duration and Termination of Agreement. This Agreement shall
become effective as of the first date above written. This Agreement 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. 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. 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.

 

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10. 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, but the consent
of the Corporation must be obtained in conformity with the requirements of the
Investment Company Act.

12. 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. This Agreement shall be
construed in accordance with the laws of the State of New York and the
applicable provisions of the Investment Company Act. 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.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date above written.

 

 

 

 

PENNANTPARK INVESTMENT CORPORATION

 

 

By:

 

/s/ Arthur Penn

 

 

Name: Arthur Penn

 

 

Title: Chief Executive Officer and Chairman of the Board of Directors

 

PENNANTPARK INVESTMENT ADVISERS, LLC

 

 

By:

 

/s/ Arthur Penn

 

 

Name: Arthur Penn

 

 

Title: Managing Member