PIFNII, expressed as a rate of return on the average value of the Fund’s net assets (defined as total assets, less indebtedness and before taking into account any incentive fees payable during the period) atas of the endfirst day of each month during the course of the immediately preceding fiscalcalendar quarter, will be compared to various “hurdle rates,” with the income-based incentive fee rate of return increasing at each hurdle rate.
Description of Quarterly Incentive Fee Calculations
We pay
The Fund pays the Adviser an income-based incentive fee with respect toPre-incentive Fee Net Investment Income PIFNII in each calendar quarter as follows:
No income-based incentive fee in any calendar quarter in whichPre-incentive Fee Net Investment Income PIFNII does not exceed 1.5% per quarter (approximately 6%(6% per annum), the “6% Hurdle Rate”;
100% ofPre-incentive Fee Net Investment Income PIFNII with respect to that portion of suchPre-incentive Fee Net Investment Income, PIFNII, if any, that exceeds the 6% Hurdle Rate but is less than 1.67% in any calendar quarter (the “6%Pre-incentive Fee Net Investment Income PIFNII (which exceeds the 6% Hurdle Rate but is less than the 6%Pre-incentive Fee Net Investment Income PIFNII as if hurdle rate did not apply if this net investment income exceeded 1.67% but was less than 1.94% in any calendar quarter; and
Catch-up
Cap”), approximately 6.67% per annum. This portion ofCatch-up
Cap) is referred to as the “6%Catch-up.”
The 6%Catch-up
is meant to provide the Adviser with 10.0% of the10.0% of the amount ofPre-incentive Fee Net Investment Income, PIFNII, if any, that exceeds the 6%Pre-incentive Fee Net Investment Income PIFNII until the amount ofPre-incentive Fee Net Investment Income PIFNII exceeds 1.94%, approximately 7.78% per annum; and
Catch-up
Cap, but is less than 1.94% (the “7% Hurdle Rate”), approximately 7.78% per annum. The 7% Hurdle Rate is meant to limit the Adviser to 10% of the100% ofPre-incentive Fee Net Investment Income PIFNII with respect to that portion of suchPre-incentive Fee Net Investment Income, PIFNII, if any, that exceeds the 7% Hurdle Rate but is less than 2.06% in any calendar quarter (the “7%Pre-incentive Fee Net Investment Income PIFNII (which exceeds the 7% Hurdle Rate but is less than the 7%Pre-incentive Fee Net Investment Income PIFNII as if a hurdle rate did not apply if this net investment income exceeded 2.06% but was less than 2.35% in any calendar quarter; and
Catch-up
Cap”), approximately 8.24% per annum. This portion ofCatch-up
Cap) is referred to as the “7%Catch-up.”
The 7%Catch-up
is meant to provide the Adviser with 15.0% of the15.0% of the amount ofPre-incentive Fee Net Investment Income, PIFNII, if any, that exceeds the 7%Pre-incentive Fee Net Investment Income PIFNII until the amount ofPre-incentive Fee Net Investment Income PIFNII exceeds 2.06%2.35%, approximately 9.41% per annum; and
Catch-up
Cap, but is less than 2.35% (the “8% Hurdle Rate”, approximately 9.41% per annum). The 8% Hurdle Rate is meant to limit the Adviser to 15% of the100% ofPre-incentive Fee Net Investment Income PIFNII with respect to that portion of suchPre-incentive Fee Net Investment Income, PIFNII, if any, that exceeds the 8% Hurdle Rate but is less than 2.50% in any calendar quarter (the “8%Pre-incentive Fee Net Investment Income PIFNII (which exceeds the 8% Hurdle Rate but is less than the 8%Pre-incentive Fee Net Investment Income PIFNII as if a hurdle rate did not apply if this net investment income exceeded 2.50% in any calendar quarter; and
Catch-up
Cap”), approximately 10% per annum. This portion ofCatch-up
cap) is referred to as the “8%Catch-up”.
The 8%Catch-up
is meant to provide the Adviser with 20.0% of the20.0% of the amount ofPre-incentive Fee Net Investment Income, PIFNII, if any, that exceeds 2.50% in any calendar quarter.
Capital Gains Incentive Fee:
For the three and six months ended June 30, 2023, the Fund incurred income-based incentive fees of $2,600,473 and $5,355,077, respectively. For the three and six months ended June 30, 2022, the Fund incurred income-based incentive fees of $951,206 and $2,883,145, respectively. As of June 30, 2023 and December 31, 2022, $2,600,473 and $2,534,935, respectively, of accrued income-based incentive fees remained payable.
The capital gains incentive fee isshall be determined and payable atin arrears as of the end of each fiscalcalendar year (or upon termination of this Agreement as 17.5%set forth below), and will equal 20.0% of the Fund’s aggregate cumulative realized capital gains, if any, from the date of the Fund’s election to be regulated as a BDC through the end of thateach calendar year, computed net of all aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation, through the end of such year, less the aggregate amount of any previously paid capital gain incentive fees. Forfees, with respect to each of the foregoing purpose,investments in the Fund’s portfolio. The Fund’s “aggregate cumulative realized capital gains” will not include any unrealized appreciation. It should be noted, however, that the Fund will accrue an incentive fee for accounting purposes taking into account any unrealized appreciation in accordance with U.S. GAAP. For accounting purposes only, in order to reflect the theoretical capital gains incentive fee that would be payable for a given period as if all unrealized gains were realized, the Fund will accrue a capital gains incentive fee based upon net realized gains and unrealized depreciation for that calendar year (in accordance with the terms of the Advisory Agreement), plus unrealized appreciation on investments held at the end of the period. The capital gains incentive fee is not subject to any minimum return to stockholders. If such amount is negative, then no capital gains incentive fee will be payable for such year. Additionally, ifIn the Advisoryevent that this Agreement is terminatedshall terminate as of a date that is not a calendar year end, the termination date willshall be treated as though it were a calendar year end for purposes of calculating and paying a capital gains fee.
While the capital gains fee to be paid is determined above, GAAP requires such fee to be accrued as if the Fund were to be terminated and liquidated at period end hypothetical liquidation. There was no capital gains incentive fee.
fee under GAAP recognized for the three and six months ended June 30, 2023. For the three and six months ended June 30, 2022, the Fund reduced the previously recognized capital gains incentive fee under GAAP by $
(237,304
) and $(784,037), which was not realized. As of June 30, 2023 and December 31, 2022, $0 and $0, respectively, of capital gains incentive fee remained payable.37
The amount of capital gains incentive fee expense related to a hypothetical liquidation of the portfolio (and assuming no other changes in realized or unrealized gains and losses) would only become payable to the Adviser in the event of a complete liquidation of the Fund’s portfolio as of period end and the termination of the Amended and Restated Advisory Agreement on such date. Also, it should be noted that the capital gains incentive fee expense fluctuates with the Fund’s overall investment results.
The Fund will defer cash payment of any income-based incentive fee and/or any capital gains incentive fee otherwise earned by the Adviser if during the most recent four full fiscal quarter periodperiods ending on or prior to the date such payment is to be made, the sum of (a) thepre-incentive fee net investment income, PIFNII, and (b) the realized capital gain / loss and (c) unrealized capital appreciation/ depreciation expressed as a rate of return on the value of our net assets, is less than 6.0%. Any such deferred fees are carried over for payment in subsequent calculation periods to the extent such payment is payable under the Amended and Restated Advisory Agreement.
Administration Agreement and Expense Reimbursement Agreement
We have
The Fund has entered into the Administration Agreement with the Administrator and a separate expense reimbursement agreement with the Adviser (the “Expense Reimbursement Agreement”) under which any allocable portion of the cost of ourits Chief Compliance Officer and Chief Financial Officer and their respective staffs will be reimbursed by the Fund. Under the Administration Agreement, the Administrator will be responsible for providing usthe Fund with clerical, bookkeeping, recordkeeping and other administrative services. WeThe Fund will reimburse the Adviser an amount equal to ourthe Fund’s allocable portion (subject to the review of ourits Board) of its overhead resulting from its obligations under the Expense Reimbursement Agreement, including the allocable portion of the cost of ourits Chief Compliance Officer and Chief Financial Officer and their respective staffs.
Expense Support and Conditional Reimbursement Agreement
On September 29, 2017, the Fund and the Adviser entered into an agreement (the “Expense Support and Conditional Reimbursement Agreement”) to limit certain of the Fund’s Operating Expenses, as defined in the Expense Support and Conditional Reimbursement Agreement,below, to no more than 1.5% of the Fund’s average quarterly gross assets. To achieve this percentage limitation, the Adviser has agreed to reimburse the Fund for certain Operating Expenses on a quarterly basis (any such payment by the Adviser, an “Expense Payment”) and the Fund has agreed to later repay such amounts (any such payment by the Fund, a “Reimbursement Payment”), pursuant to the terms of the Expense Support and Conditional Reimbursement Agreement. The actual percentage of Operating Expenses paid by the Fund in any quarter after deducting any Expense Payment, as a percentage of the Fund’s average quarterly gross assets, is referred to as the “Percentage Limit.”
Any Expense Payment by the Adviser pursuant to the Expense Support and Conditional Reimbursement Agreement will be subject to repayment by the Fund on a quarterly basis within the three years following the fiscal quarter of the Fund in which the Operating Expenses were paid or absorbed, if the total Operating Expenses for the current quarter, including Reimbursement Payments, expressed as a percentage of the Fund’s average gross assets during such quarter is less than the then-current Percentage Limit, if any, and the Percentage Limit that was in effect at the time when the AdvisorAdviser reimbursed the Operating Expenses that are the subject of the repayment, subject to certain provisions of the Expense Support and Conditional Reimbursement Agreement, as described below. For purposes of the Expense Support and Conditional Reimbursement Agreement, “Operating Expenses” means the Fund’s Total Operating Expenses (as defined below), excluding base management fees, incentive fees, distribution and shareholderstockholder servicing fees, financing fees and costs, interest expense, brokerage commissions and extraordinary expenses and “Total Operating Expenses” means all of the Fund’s operating costs and expenses incurred, as determined in accordance with generally accepted accounting principles for investment companies. The calculation of average net assets will be consistent with such periodic calculations of average net assets in the Fund’s financial statements.
However, no Reimbursement Payment for any quarter will be made if: (1) the Effective Rate of Distributions Per Share (as defined below) declared by the Fund at the time of such Reimbursement Payment is less than or equal to the Effective Rate of Distributions Per Share at the time the Expense Payment was made to which such Reimbursement Payment relates, or (2) the Fund’s Operating Expense Ratio at the time of such Reimbursement Payment is greater than or equal to the Operating Expense Ratio (as defined below) at the time the Expense Payment was made to which such Reimbursement Payment relates. For purposes of the Expense Support and Conditional Reimbursement Agreement, “Effective Rate of Distributions Per Share” means the annualized rate (based on ashareShare exclusive of returns of capital, distribution rate reductions due to distribution and shareholderstockholder fees, and declared special dividends or special distributions, if any. The “Operating Expense Ratio” is calculated by dividing Operating Expenses in any quarter by the Fund’s average net assets in such quarter.
365-
day year) of regular cash distributions per The specific amount of expenses paid by the Adviser, if any, will be determined at the end of each quarter. The Fund or the Adviser may terminate the Expense Support and Conditional Reimbursement Agreement at any time,
with or without notice. The Expense Support and Conditional Reimbursement Agreement will automatically terminate in the event of (a) the termination of the Amended and Restated Advisory Agreement, or (b) the board of directorsBoard of the Fund makesmaking a determination to dissolve or liquidate the Fund. Upon termination of the Expense Support and Conditional Reimbursement Agreement, the Fund will be required to fund any Expense Payments, subject to the aforementioned requirements per the Expense Support and Conditional Reimbursement Agreement, that have not been reimbursed by the Fund to the Adviser.
As
38
Table of September 30, 2017, the amount of Expense Payments provided by the Adviser since inception is $1,002,147. Management believes that a Reimbursement Payment by the Fund to the Adviser were not probable under the terms of the Expense Support Agreement as of September 30, 2017. The following table reflects the Expense Payments that may be subject to reimbursement pursuant to the Expense Agreement:
For the Quarter Ended | Amount of Expense Support | Effective Rate of Distribution per Share(1) | Reimbursement Eligibility Expiration | Percentage limit(2) | ||||||||||||
September 30, 2017 | $ | 1,002,147 | n/a | September 30, 2020 | 0.00 | % | ||||||||||
|
| |||||||||||||||
Total | $ | 1,002,147 | ||||||||||||||
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