Form 8-K Terra Income Fund 6, For: Sep 22

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 23, 2021 (September 22, 2021)

 

 

TERRA INCOME FUND 6, INC. (Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland (State or other jurisdiction of incorporation)

814-01136 (Commission File Number)

46-2865244 (I.R.S. Employer Identification No.)

 

550 Fifth Avenue, 6th Floor New York, New York 10036 (Address of principal executive offices, including zip code)

 

(212) 753-5100 (Registrant’s telephone number, including area code)

 

N/A
(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨	Written communications pursuant to Rule 425 under the Securities Act
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
7.00% Notes due 2026		TFSA		New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

 

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

Item 1.01.

Entry into a Material Definitive Agreement.

 

On February 18, 2021, the board of directors (the “Board”) of Terra Income Fund 6, Inc. (the “Company”), including a majority of the members of the Board who are not “interested persons,” as defined by Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Non-Interested Directors”), voted unanimously to approve a new investment advisory and administrative services agreement between the Company and Terra Income Advisors, LLC (the “Adviser”), the terms and conditions of which are identical in all material respects to those of the existing investment advisory and administrative services agreement between the Company and the Adviser, dated April 30, 2019 and as renewed by the Board from time to time.

 

On September 22, 2021, the Company and the Adviser entered into the New Advisory Agreement, which was approved by the affirmative vote of a majority of the outstanding shares of common stock entitled to vote at the Company’s Annual Meeting of Stockholders (the “Annual Meeting”), as discussed below.

 

The foregoing summary of the terms of the New Advisory Agreement does not purport to be complete and is qualified in its entirety by reference to the New Advisory Agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.

 

Item 5.07.

Submission of Matters to a Vote of Security Holders.

 

On August 23, 2021, the Annual Meeting was convened and adjourned to permit additional time to solicit stockholder votes. The Annual Meeting was reconvened on September 22, 2021. Stockholders of record at the close of business on June 15, 2021 (the “Record Date”), were entitled to vote at the reconvened Annual Meeting. As of the Record Date, there were 8,438,889 shares of common stock outstanding and entitled to vote. Holders of 6,265,440 shares of common stock were present at the reconvened Annual Meeting, either in person or by proxy, representing 74.24% of the Company’s outstanding common stock.

 

The purpose of the reconvened Annual Meeting was to consider and vote upon the following proposals:

 

1.

The approval of the New Advisory Agreement between the Company and the Advisor, to take effect as soon as practicable following the Annual Meeting.

 

2.

The election of four members of the Board:

 

•

Adrienne M. Everett, a nominee for Class I director, who has been nominated for election for a term expiring at the 2022 annual meeting of stockholders and upon the election and qualification of her successor. Ms. Everett is being elected to replace Jeffrey M. Altman, who is not standing for re-election;

 

•

Gaurav Misra, a nominee for Class II director, who has been nominated for election for a term expiring at the 2023 annual meeting of stockholders and upon the election and qualification of his successor. Mr. Misra is being elected to replace Robert E. Marks, who is not standing for re-election;

 

•

Vikram S. Uppal, a nominee for Class II director, who has been nominated for election for a term expiring at the 2023 annual meeting of stockholders and upon the election and qualification of his successor; and

 

•

Spencer E. Goldenberg, a nominee for Class III director, who has been nominated for election for a term expiring at the 2024 annual meeting of stockholders and upon the election and qualification of his successor.

 

3.

The ratification of the appointment of KPMG LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2021.

 

 

At the reconvened Annual Meeting, the stockholders approved the New Advisory Agreement, elected each of the nominated directors, and ratified the appointment of KPMG. The votes cast with respect to each proposal were as follows:

 

		VOTES FOR				VOTES AGAINST				ABSTAIN				BROKER NON-VOTE
Proposal No. 1: Approval of Advisory Agreement			4,426,768				245,128				293,944				1,299,600

 

			VOTES FOR				VOTES AGAINST				ABSTAIN				BROKER NON-VOTE
Proposal No. 2: Election of Four Board Members
Election of Adrienne M. Everett			5,890,433				0				375,007				0
Election of Gaurav Misra			5,860,087				0				405,353				0
Election of Vikram S. Uppal			5,823,676				0				441,764				0
Election of Spencer E. Goldenberg			5,852,654				0				412,786				0

 

			VOTES FOR				VOTES AGAINST				ABSTAIN				BROKER NON-VOTE
Proposal No. 3: Ratification of KPMG Appointment			5,964,741				118,932				181,767				0

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)

Exhibits.

 

Exhibit No.		Exhibit Description
10.1		Investment Advisory and Administrative Services Agreement, dated as of September 22, 2021, by and between Terra Income Fund 6, Inc. and Terra Income Advisors, LLC

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		TERRA INCOME FUND 6, INC.
Date:	September 23, 2021	By:	/s/ Gregory M. Pinkus
			Gregory M. Pinkus
			Chief Operating Officer, Chief Financial Officer, Treasurer and Secretary

 

 

Exhibit 10.1

 

INVESTMENT ADVISORY AND

ADMINISTRATIVE SERVICES AGREEMENT

BETWEEN

TERRA INCOME FUND 6, INC.

AND

TERRA INCOME ADVISORS, LLC

 

This Investment Advisory and Administrative Services Agreement (this “Agreement”) is made this 22^nd day of September, 2021, by and between TERRA INCOME FUND 6, INC., a Maryland corporation (the “Company”), and TERRA INCOME ADVISORS, LLC, a Delaware limited liability company (the “Advisor”).

 

RECITALS

 

WHEREAS, the Company is a non-diversified, closed-end management investment company 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”);

 

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

 

WHEREAS, the Company desires to retain the Advisor to furnish investment advisory services to the Company and to provide for the administrative services necessary for the operation of the Company on the terms and conditions set forth herein, and the Advisor wishes to be retained to provide such services.

 

AGREEMENT

 

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

 

1.             Duties of the Advisor.

 

(a)           Retention of Advisor. The Company hereby employs the Advisor to act as the investment adviser to the Company and to manage the investment and reinvestment of the assets of the Company, subject to the supervision of the board of directors of the Company (the “Board”), for the period and upon the terms set forth herein:

 

(i)       in accordance with the investment objectives, policies and restrictions that are set forth in the Company’s Registration Statement on Form N-2 filed with the Securities and Exchange Commission (the “SEC”) (File No. 333-202399), as amended from time to time (the “Registration Statement”);

 

(ii)       in accordance with all other applicable federal and state laws, rules and regulations, and the Company’s Articles of Amendment and Restatement (the “Articles”) and bylaws (the “Bylaws”), in each case as amended from time to time;

 

(iii)       in accordance with such investment policies, directives and regulatory restrictions as the Company may from time to time establish or issue and communicate to the Advisor in writing; and

 

(iv)       in accordance with the Company’s compliance policies and procedures as applicable to the Advisor and as administered by the Company’s chief compliance officer.

 

(b)           Responsibilities of Advisor. Without limiting the generality of the foregoing, the Advisor shall, during the term and subject to the provisions of this Agreement:

 

(i)       determine the composition and allocation of the portfolio of the Company, 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 Company;

 

 

(iii)       execute, close, service and monitor the Company’s investments;

 

(iv)       determine the securities and other assets that the Company shall purchase, retain or sell;

 

(v)       perform due diligence on prospective portfolio companies; and

 

(vi)       provide the Company with such other investment advisory, research and related services as the Company may, from time to time, reasonably request or require for the investment of its funds and the disposition of such investments.

 

(c)           Power and Authority. To facilitate the Advisor’s performance of these undertakings, but subject to the restrictions contained herein, the Company hereby delegates to the Advisor, and the Advisor hereby accepts, the power and authority on behalf of the Company to effectuate its investment decisions for the Company, including the execution and delivery of all documents relating to the Company’s investments and the placing of orders for other purchase or sale transactions on behalf of the Company. In the event that the Company determines to acquire debt financing, the Advisor shall arrange for such financing on the Company’s behalf, subject to the oversight and approval of the Board.

 

(d)           Administrative Services. Subject to the supervision, direction and control of the Board, the provisions of the Articles and Bylaws and applicable federal and state law, the Advisor shall perform, or cause to be performed by other persons, all administrative services in connection with the operation of the Company.

 

(e)          Acceptance of Employment. The Advisor hereby accepts such employment and agrees during the term hereof to render the services described herein for the compensation provided herein, subject to the limitations contained herein.

 

(f)           Sub-Advisors. The Advisor is hereby authorized to enter into one or more sub-advisory agreements with other investment advisers (each, a “Sub-Advisor”) pursuant to which the Advisor may obtain the services of the Sub-Advisor(s) to assist the Advisor in fulfilling its responsibilities hereunder. Specifically, the Advisor may retain a Sub-Advisor to recommend specific securities or other investments based upon the Company’s investment objectives, policies and restrictions, and work, along with the Advisor, in sourcing, structuring, negotiating, arranging or effecting the acquisition or disposition of such investments and monitoring investments on behalf of the Company, subject to the oversight of the Advisor and the Company.

 

(i)       The Advisor and not the Company shall be responsible for any compensation payable to any Sub-Advisor.

 

(ii)       Any sub-advisory agreement entered into by the Advisor shall be in accordance with the requirements of the Investment Company Act, including without limitation the requirements relating to Board approval and the Company’s stockholder approval thereunder, and other applicable federal and state law.

 

(iii)       Any Sub-Advisor shall be subject to the same fiduciary duties imposed on the Advisor pursuant to this Agreement, the Investment Company Act and the Advisers Act, as well as other applicable federal and state law.

 

(g)           Independent Contractor Status. The Advisor shall, for all purposes herein provided, be deemed to be an independent contractor and, except as expressly provided or authorized herein, shall have no authority to act for or represent the Company in any way or otherwise be deemed an agent of the Company.

 

(h)           Record Retention. Subject to review by, and the overall control of, the Board, the Advisor shall keep and preserve for the period required by the Investment Company Act any books and records relevant to the provision of its investment advisory services to the Company and shall specifically maintain all books and records with respect to the Company’s portfolio transactions and shall render to the Board such periodic and special reports as the Board may reasonably request or as may be required under applicable federal and state law, and shall make such records available for inspection by the Board and its authorized agents, at any time and from time to time during normal business hours. The Advisor agrees that all records that it maintains for the Company are the property of the Company and shall surrender promptly to the Company any such records upon the Company’s request and upon termination of this Agreement pursuant to Section 9, provided that the Advisor may retain a copy of such records.

 

 

The following provisions in this Section 1 shall apply for only so long as the shares of common stock of the Company (“Shares”) are not listed on a national securities exchange.

 

(i)           Administrator. The Advisor shall, upon request by an official or agency administering the securities laws of a state, province or commonwealth (an “Administrator”), submit to such Administrator the reports and statements required to be distributed to the Company’s stockholders pursuant to this Agreement, the Registration Statement and applicable federal and state law.

 

(j)           Fiduciary Duty. It is acknowledged that the Advisor shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, whether or not in the Advisor’s immediate possession or control. The Advisor shall not employ, or permit another to employ, such funds or assets in any manner except for the exclusive benefit of the Company. The Advisor shall not, by entry into an agreement with any stockholder of the Company or otherwise, contract away the fiduciary obligation owed to the Company and the Company’s stockholders under common law.

 

2.            The Company’s Responsibilities and Expenses Payable by the Company.

 

(a)           Advisor Personnel. All personnel of the Advisor, 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, shall be provided and paid for by the Advisor and not by the Company.

 

(b)          Costs. Subject to the limitations on reimbursement of the Advisor as set forth in Section 2(c) below, the Company, either directly or through reimbursement to the Advisor, shall bear all other costs and expenses of its operations and transactions, including (without limitation): expenses deemed to be “organization and offering expenses” of the Company for purposes of Conduct Rule 2310(a)(12) of Financial Industry Regulatory Authority, Inc. (for purposes of this Agreement, such expenses, exclusive of commissions, the dealer manager fee and any discounts, are hereinafter referred to as “Organization and Offering Expenses”); corporate and organizational expenses relating to offerings of Shares, subject to limitations included in the Agreement; the cost of calculating the Company’s net asset value, including the cost of any third-party valuation firms; the cost of effecting sales and repurchases of Shares and other securities; fees payable to third parties relating to, or associated with, making investments and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments; transfer agent and custodial fees, fees and expenses associated with marketing efforts (including attendance at investment conferences and similar events); federal and state registration fees; federal, state and local taxes; independent directors’ fees and expenses; brokerage commissions for the Company’s investments; costs of proxy statements, stockholders’ reports, notices and other filings; fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums; direct costs such as printing, mailing, long-distance telephone and staff costs associated with the Company’s reporting and compliance obligations under the Investment Company Act and applicable federal and state securities laws, including compliance with the Sarbanes-Oxley Act; fees and expenses associated with accounting, corporate governance, independent audits and outside legal costs; and all other expenses incurred by the Advisor, any Sub-Advisor or the Company in connection with administering the Company’s business, including expenses incurred by the Advisor or any Sub-Advisor in performing administrative services for the Company, and the reimbursement of the compensation of the Company’s chief financial officer and chief compliance officer paid by the Advisor, to the extent they are not controlling persons of the Advisor or any of its affiliates.

 

Notwithstanding the foregoing, the Company shall not be liable for Organization and Offering Expenses to the extent that Organization and Offering Expenses, together with all prior Organization and Offering Expenses, exceed 1.5% of the aggregate gross proceeds from the Company’s offering of Shares (the “Reimbursable O&O Expenses”).

 

 

The following provisions in this Section 2(c) shall apply for only so long as the Shares are not listed on a national securities exchange.

 

(c)           Limitations on Reimbursement of Expenses.

 

(i) In addition to the compensation paid to the Advisor pursuant to Section 3, the Company shall reimburse the Advisor for all expenses of the Company incurred by the Advisor as well as the actual cost of goods and services used for or by the Company and obtained from entities not affiliated with the Advisor. The Advisor may be reimbursed for the administrative services performed by it on behalf of the Company; provided, however, the reimbursement shall be an amount equal to the lesser of the Advisor’s actual cost or the amount the Company would be required to pay third parties for the provision of comparable administrative services in the same geographic location; and provided, further, that such costs are reasonably allocated to the Company on the basis of assets, revenues, time records or other method conforming with generally accepted accounting principles. No reimbursement shall be permitted for services for which the Advisor is entitled to compensation by way of a separate fee. Excluded from the allowable reimbursement shall be:

 

(A) rent or depreciation, utilities, capital equipment and other costs of administrative items of the Advisor; and

 

(B) salaries, fringe benefits, travel expenses and other administrative items incurred or allocated to any executive officer or board member of the Advisor (or any individual performing such services) or a holder of 10% or greater equity interest in the Advisor (or any person having the power to direct or cause the direction of the Advisor, whether by ownership of voting securities, by contract or otherwise).

 

(d)           Periodic Reimbursement. Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Section 2 shall be reimbursed no less than monthly to the Advisor. The Advisor shall prepare a statement documenting the expenses of the Company and the calculation of the reimbursement and shall deliver such statement to the Company prior to full reimbursement.

 

3.             Compensation of the Advisor. The Company agrees to pay, and the Advisor agrees to accept, as compensation for the services provided by the Advisor hereunder, a base management fee (the “Base Management Fee”) and an incentive fee (the “Incentive Fee”) as set forth herein. See Appendix A attached hereto for examples of how these fees are calculated.

 

(a)           Base Management Fee. The Base Management Fee shall be calculated at an annual rate of 2.0% of the Company’s average gross assets. The Base Management Fee shall be payable quarterly in arrears, and shall be calculated based on the average value of the Company’s gross assets at the end of the two most recent completed calendar quarters. All or any part of the Base Management Fee not taken as to any quarter shall be deferred without interest and may be taken in such other quarter as the Advisor shall determine.

 

(b)          Incentive Fee. The Incentive Fee shall consist of two parts, as follows:

 

(i) The first part, referred to as the “Subordinated Incentive Fee on Income,” shall be calculated and payable quarterly in arrears based on the Company’s “Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter. The payment of the Subordinated Incentive Fee on Income shall be subject to payment of a preferred return to investors each quarter, expressed as a quarterly rate of return on Adjusted Capital (as defined below) at the beginning of the most recently completed calendar quarter, of 2.0% (8.0% annualized), subject to a “catch up” feature (as described below).

 

For purposes of this fee, “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 or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Base Management Fee, expenses payable under this Agreement and any interest expense and dividends paid on any issued and outstanding preferred shares, 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 Company has 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.

 

 

For purposes of this fee, “Adjusted Capital” shall mean cumulative gross proceeds generated from sales of the Shares (including proceeds from the Company’s distribution reinvestment plan) reduced for distributions from non-liquidating dispositions of the Company’s investments paid to stockholders and amounts paid for share repurchases pursuant to the Company’s share repurchase program.

 

The calculation of the Subordinated Incentive Fee on Income for each quarter is as follows:

 

(A) No Subordinated Incentive Fee on Income shall be payable to the Advisor in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the preferred return rate of 2.0% or 8.0% annualized (the “Preferred Return”) on Adjusted Capital;

 

(B) 100% of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds the preferred return but is less than or equal to 2.5% in any calendar quarter (10% annualized) shall be payable to the Advisor, all or any portion of which may be waived or deferred in the Advisor’s discretion. This portion of the Company’s Subordinated Incentive Fee on Income is referred to as the “catch up” and is intended to provide the Advisor with an incentive fee of 20% on all of the Company’s Pre-Incentive Fee Net Investment Income when the Company’s Pre-Incentive Fee Net Investment Income reaches 2.5% (10% annualized) in any calendar quarter; and

 

(C) For any quarter in which the Company’s Pre-Incentive Fee Net Investment Income exceeds 2.5% (10% annualized), the Subordinated Incentive Fee on Income shall equal 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, as the Preferred Return and catch up will have been achieved.

 

(ii) The second part of the Incentive Fee, referred to as the “Incentive Fee on Capital Gains,” shall be an incentive fee on capital gains earned on liquidated investments from the portfolio and payable in arrears as of the end of each calendar year (or upon termination of the investment advisory Agreement). This fee shall equal 20.0% of the Company’s incentive fee capital gains, which shall equal the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees.

 

(c)           Waiver or Deferral of Fees.

 

The Advisor shall have the right to elect to temporarily or permanently waive or defer all or a portion of the Base Management Fee or Incentive Fee that would otherwise be paid to it. Prior to the payment of any fee to the Advisor, the Company shall obtain written instructions from the Advisor with respect to any waiver or deferral of any portion of such fees. Any portion of a deferred fee payable to the Advisor and not paid over to the Advisor with respect to any month, calendar quarter or year shall be deferred without interest and may be paid over in any such other month prior to the occurrence of termination of this Agreement, as the Advisor may determine upon written notice to the Company. Any of the fees payable to the Advisor under this Agreement for any partial month or calendar quarter shall be appropriately prorated.

 

 

4.             Covenants of the Advisor.

 

(a)            Advisor Status. The Advisor covenants that it will be registered as an investment Advisor under the Advisers Act as of the date the Company commences investment operations and will maintain such registration. The Advisor 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.

 

The following provisions in this Section 4 shall apply for only so long as the Shares are not listed on a national securities exchange.

 

(b)           Reports to Stockholders. The Advisor shall prepare or shall cause to be prepared and distributed to the Company’s stockholders during each year the following reports of the Company (either included in a periodic report filed with the SEC or distributed in a separate report):

 

(i) Quarterly Reports. Within 60 days of the end of each calendar quarter, a report containing the same financial information contained in the Company’s Quarterly Report on Form 10-Q filed by the Corporation under the Securities Exchange Act of 1934, as amended.

 

(ii) Annual Report. Within 120 days after the end of the Company’s fiscal year, an annual report containing:

 

(A) A balance sheet as of the end of each fiscal year and statements of income, equity and cash flow, for the year then ended, all of which shall be prepared in accordance with generally accepted accounting principles and accompanied by an auditor’s report containing an opinion of an independent certified public accountant;

 

(B) A report of the activities of the Company during the period covered by the report;

 

(C) Where forecasts have been provided to the Company’s stockholders, a table comparing the forecasts previously provided with the actual results during the period covered by the report; and

 

(D) A report setting forth distributions by the Company for the period covered thereby and separately identifying distributions from (a) cash flow from operations during the period, (b) cash flow from operations during a prior period which have been held as reserves and (c) proceeds from disposition of the Company’s assets.

 

(iii) Previous Reimbursement Reports. The Advisor shall prepare or shall cause to be prepared a report, prepared in accordance with the American Institute of Certified Public Accountants United States Auditing Standards relating to special reports, and distributed to stockholders not less than annually, containing an itemized list of the costs reimbursed to the Advisor pursuant to Section 2(c) for the previous fiscal year. The special report shall at a minimum provide:

 

(A) A review of the time records of individual employees, the costs of whose services were reimbursed; and

 

(B) A review of the specific nature of the work performed by each such employee.

 

(iv) Proposed Reimbursement Reports. The Advisor shall prepare or shall cause to be prepared a report containing an itemized estimate of all proposed expenses for which it shall receive reimbursements pursuant to Section 2(c) for the next fiscal year, together with a breakdown by year of such expenses reimbursed in each of the last five public programs formed by the Advisor.

 

(c)           Reports to Administrators. The Advisor shall, upon written request of any Administrator, submit any of the reports and statements to be prepared and distributed by it pursuant to this Section 4 to such Administrator.

 

 

(d)           Reserves. In performing its duties hereunder, the Advisor shall cause the Company to provide for adequate reserves for normal replacements and contingencies (but not for payment of fees payable to the Advisor hereunder) by causing the Company to retain a reasonable percentage of proceeds from offerings and revenues.

 

(e)           Recommendations Regarding Reviews. From time to time and not less than quarterly, the Advisor must review the Company’s accounts to determine whether cash distributions are appropriate. The Company may, subject to authorization by the Board, distribute pro rata to its stockholders funds received by the Company which the Advisor deems unnecessary to retain in the Company.

 

(f)           Temporary Investments. The Advisor shall, in its sole discretion, temporarily place proceeds from offerings by the Company into short-term, highly liquid investments which, in its reasonable judgment, afford appropriate safety of principal during such time as it is determining the composition and allocation of the portfolio of the Company and the nature, timing and implementation of any changes thereto pursuant to Section 1(b); provided however, that the Advisor shall be under no fiduciary obligation to select any such short-term, highly-liquid investment based solely on any yield or return of such investment. The Advisor shall cause any proceeds of the offering of the Company’s securities not committed for investment within the later of two years from the date of effectiveness of the Registration Statement or one year from termination of the Company’s offering, unless a longer period is permitted by the applicable Administrator, to be paid as a distribution to the stockholders of the Company as a return of capital without deduction of Front End Fees (as defined below).

 

5.             Brokerage Commissions; Limitations on Front End Fees; Period of Offering; Assessments.

 

(a)          Brokerage Commissions. The Advisor is hereby authorized, to the fullest extent now or hereafter permitted by law, to cause the Company to pay a member of a national securities exchange, broker or dealer an amount of commission for effecting a securities transaction in excess of the amount of commission another member of such exchange, broker or dealer would have charged for effecting that transaction, if the Advisor determines in good faith, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities, that such amount of commission is reasonable in relation to the value of the brokerage and/or research services provided by such member, broker or dealer, viewed in terms of either that particular transaction or its overall responsibilities with respect to the Company’s portfolio, and constitutes the best net results for the Company.

 

The following provisions in this Section 5 shall apply for only so long as the Shares are not listed on a national securities exchange.

 

(b)          Limitations. Notwithstanding anything herein to the contrary:

 

(i) All fees and expenses paid by any party for any services rendered to organize the Company and to acquire assets for the Company (“Front End Fees”) shall be reasonable and shall not exceed 15% of the gross offering proceeds, regardless of the source of payment. Any reimbursement to the Advisor or any other person for deferred organizational and offering expenses, including any interest thereon, if any, will be included within this 15% limitation.

 

(ii) The Advisor shall commit at least 82% of the gross offering proceeds toward the investment or reinvestment of assets and reserves as set forth in Section 4(d) on behalf of the Company. The remaining proceeds may be used to pay Front End Fees.

 

 

6.             Other Activities of the Advisor.

 

The services of the Advisor to the Company are not exclusive, and the Advisor may engage in any other business or render similar or different services to others including, without limitation, the direct or indirect sponsorship or management of other investment based accounts or commingled pools of capital, however structured, having investment objectives similar to those of the Company, so long as its services to the Company hereunder are not impaired thereby, and nothing in this Agreement shall limit or restrict the right of any manager, partner, member (including its members and the owners of its members), officer or employee of the Advisor to engage in any other business or to devote his or her time and attention in part to any other business, whether of a similar or dissimilar nature, or to receive any fees or compensation in connection therewith (including fees for serving as a director of, or providing consulting services to, one or more of the Company’s portfolio companies, subject to applicable law). The Advisor assumes no responsibility under this Agreement other than to render the services called for hereunder. It is understood that directors, officers, employees and stockholders of the Company are or may become interested in the Advisor and its affiliates, as directors, officers, employees, partners, stockholders, members, managers or otherwise, and that the Advisor and directors, officers, employees, partners, stockholders, members and managers of the Advisor and its affiliates are or may become similarly interested in the Company as stockholders or otherwise.

 

7.             Responsibility of Dual Directors, Officers and/or Employees. If any person who is a manager, partner, member, officer or employee of the Advisor is or becomes a director, officer or employee of the Company and acts as such in any business of the Company, then such manager, partner, member, officer or employee of the Advisor shall be deemed to be acting in such capacity solely for the Company, and not as a manager, partner, member, officer or employee of the Advisor or under the control or direction of the Advisor, even if paid by the Advisor.

 

8.              Indemnification; Limitation of Liability.

 

(a)           Indemnification. The Advisor (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 Advisor) shall not be liable to the Company for any action taken or omitted to be taken by the Advisor or such other person in connection with the performance of any of its duties or obligations under this Agreement or otherwise as an investment Advisor of the Company (except to the extent specified in Section 36(b) of the Investment Company Act concerning loss resulting from a breach of fiduciary duty (as the same is finally determined by judicial proceedings)) with respect to the receipt of compensation for services, and the Company shall indemnify, defend and protect the Advisor (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 Advisor, 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 Company or its stockholders) arising out of or otherwise based upon the performance of any of the Advisor’s duties or obligations under this Agreement or otherwise as an investment Advisor of the Company, to the extent such damages, liabilities, costs and expenses are not fully reimbursed by insurance, and to the extent that such indemnification would not be inconsistent with the laws of the State of Maryland, the Articles or the provisions of Section II.G of the Omnibus Guidelines published by the North American Securities Administrators Association on March 29, 1992, as amended from time to time.

 

The following provisions in this Section 8 shall apply for only so long as the Shares are not listed on a national securities exchange.

 

(b)           Limitations on Indemnification. Notwithstanding Section 8(a) to the contrary, the Company shall not provide for indemnification of the Indemnified Parties for any liability or loss suffered by the Indemnified Parties, nor shall the Company provide that any of the Indemnified Parties be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met:

 

(i) the Indemnified Party has determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of the Company;

 

(ii) the Indemnified Party was acting on behalf of or performing services for the Company;

 

(iii) such liability or loss was not the result of negligence or misconduct by the Indemnified Party; and

 

(iv) such indemnification or agreement to hold harmless is recoverable only out of the Company’s net assets and not from stockholders.

 

 

Furthermore, the Indemnified Party shall not be indemnified for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws unless one or more of the following conditions are met:

 

(i) there has been a successful adjudication on the merits of each count involving alleged securities law violations;

 

(ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or

 

(iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and related costs should be made, and the court of law considering the request for indemnification has been advised of the position of the SEC and the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

 

(c)           Advancement of Funds. The Company shall be permitted to advance funds to the Indemnified Party for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought and will do so if:

 

(i) the proceeding relates to acts or omissions with respect to the performance of duties or services on behalf of the Company;

 

(ii) the Indemnified Party provides the Company with written affirmation of his or her good faith belief that the standard of conduct necessary for indemnification by the Company has been met;

 

(iii) the legal proceeding was initiated by a third party who is not a stockholder or, if by a stockholder of the Company acting in his or her capacity as such, a court of competent jurisdiction approves such advancement; and

 

(iv) the Indemnified Party provides the Company with a written agreement to repay the amount paid or reimbursed by the Company, together with the applicable legal rate of interest thereon, in cases in which such Indemnified Party is found not to be entitled to indemnification.

 

9.             Effectiveness, Duration and Termination of Agreement.

 

(a)          Term and Effectiveness. This Agreement shall become effective as of the date that the Company meets the minimum offering requirement, as such term is defined in the prospectus contained in the Registration Statement as declared effective by the SEC. This Agreement shall remain in effect for two years from the date the Company meets such minimum offering requirement, and thereafter shall continue automatically for successive one-year periods, provided that such continuance is specifically approved at least annually by (i) the vote of the Board, or by the vote of a majority of the outstanding voting securities of the Company and (ii) the vote of a majority of the Company’s directors who are not parties to this Agreement or “interested persons” (as such term is defined in Section 2(a)(19) of the Investment Company Act) of any such party (“Independent Directors”), in accordance with the requirements of the Investment Company Act.

 

(b)         Termination. This Agreement may be terminated at any time, without the payment of any penalty, (i) by the Company upon 60 days’ prior written notice to the Advisor, (A) upon the vote of a majority of the outstanding voting securities of the Company or (B) by the vote of the Company’s Independent Directors, or (ii) by the Advisor upon 120 days’ prior written notice to the Company. This Agreement shall 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 Section 8 shall remain in full force and effect, and the Advisor shall remain entitled to the benefits thereof, notwithstanding any termination of this Agreement.

 

(c)           Payments to and Duties of Advisor Upon Termination.

 

 

(i) After the termination of this Agreement, the Advisor shall not be entitled to compensation for further services provided hereunder, except that it shall be entitled to receive from the Company within 30 days after the effective date of such termination all unpaid reimbursements and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement.

 

(ii) The Advisor shall promptly upon termination:

 

(A) Deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;

 

(B) Deliver to the Board all assets and documents of the Company then in custody of the Advisor; and

 

(C) Cooperate with the Company to provide an orderly management transition.

 

The following provisions in this Section 9 shall apply for only so long as the Shares are not listed on a national securities exchange.

 

(d)           Other Matters. Without the approval of holders of a majority of the Shares entitled to vote on the matter, the Advisor shall not: (i) amend this Agreement except for amendments that do not adversely affect the interests of the stockholders; (ii) voluntarily withdraw as the Advisor unless such withdrawal would not affect the tax status of the Company and would not materially adversely affect the stockholders; (iii) appoint a new Advisor; (iv) sell all or substantially all of the Company’s assets other than in the ordinary course of the Company’s business; or (v) cause the merger or other reorganization of the Company. In the event that the Advisor should withdraw pursuant to (ii) above, the withdrawing Advisor shall pay all expenses incurred as a result of its withdrawal. The Company may terminate the Advisor’s interest in the Company’s revenues, expenses, income, losses, distributions and capital by payment of an amount equal to the then present fair market value of the terminated Advisor’s interest, determined by agreement of the terminated Advisor and the Company. If the Company and the Advisor cannot agree upon such amount, then such amount will be determined in accordance with the then current rules of the American Arbitration Association. The expenses of such arbitration shall be borne equally by the terminated Advisor and the Company. The method of payment to the terminated Advisor must be fair and must protect the solvency and liquidity of the Company.

 

10.           Conflicts of Interests and Prohibited Activities.

 

This Section 10 shall apply for only so long as the Shares are not listed on a national securities exchange.

 

(a)           No Exclusive Agreement. The Advisor is not hereby granted or entitled to an exclusive right to sell or exclusive employment to sell assets for the Company.

 

(b)           Rebates, Kickbacks and Reciprocal Arrangements.

 

(i) The Advisor agrees that it shall not (A) receive or accept any rebate, give-up or similar arrangement that is prohibited under applicable federal or state securities laws, (B) participate in any reciprocal business arrangement that would circumvent provisions of applicable federal or state securities laws governing conflicts of interest or investment restrictions or (C) enter into any agreement, arrangement or understanding that would circumvent the restrictions against dealing with affiliates or promoters under applicable federal or state securities laws.

 

(ii) The Advisor agrees that it shall not directly or indirectly pay or award any fees or commissions or other compensation to any person or entity engaged to sell the Shares or give investment advice to a potential stockholder; provided, however, that this subsection shall not prohibit the payment to a registered broker-dealer of sales commissions for selling or distributing Shares.

 

 

(c)          Commingling. The Advisor covenants that it shall not permit or cause to be permitted the Company’s funds to be commingled with the corporations of any other entity. Nothing in this Section 10(c) shall prohibit the Advisor from establishing a master fiduciary account pursuant to which separate sub-trust accounts are established for the benefit of affiliated programs, provided that the Company’s funds are protected from the claims of other programs and creditors of such programs.

 

11.          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.

 

12.         Amendments. This Agreement may be amended in writing by mutual consent of the parties hereto, subject to the provisions of the Investment Company Act and the Articles.

 

13.          Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart.

 

14.          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 Company 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.

 

 

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

 

	Company:   Terra Income Fund 6, Inc.
	By:	/s/ Vikram S. Uppal
	Name:	Vikram S. Uppal
	Title:	Chief Executive Officer

 

	ADVISOR:   Terra Income Advisors, LLC
	By:	/s/ Vikram S. Uppal
	Name:	Vikram S. Uppal
	Title:	Chief Executive Officer

 

[Signature page to Investment Advisory and Administrative Services Agreement]

 

 

Appendix A

 

Example 1: Subordinated Incentive Fee on Income for Each Calendar Quarter

 

Scenario 1

 

Assumptions

 

Investment income (including interest, dividends, fees, etc.) = 1.25%

Hurdle rate⁽¹⁾ = 2.0%

Base management fee⁽²⁾ = 0.5%

Other expenses (legal, accounting, custodian, transfer agent, etc.)⁽³⁾ = 0.2%

Pre-incentive fee net investment income

(investment income – (base management fee + other expenses)) = 0.55%

 

Pre-incentive fee net investment income does not exceed the hurdle rate; therefore, there is no subordinated incentive fee on income payable.

 

Scenario 2

 

Assumptions

 

Investment income (including interest, dividends, fees, etc.) = 2.9%

Hurdle rate⁽¹⁾ = 2.0%

Base management fee⁽²⁾ = 0.5%

Other expenses (legal, accounting, custodian, transfer agent, etc.)⁽³⁾ = 0.2%

Pre-incentive fee net investment income

(investment income – (base management fee + other expenses)) = 2.2%

 

Subordinated incentive fee on income = 100% × pre-incentive fee net investment income (subject to “catch-up”)⁽⁴⁾

 

Catch up	= 100% x (2.2% – 2.0%)
	= 0.2%

Pre-incentive fee net investment income exceeds the hurdle rate, but does not fully satisfy the “catch-up” provision; therefore, the subordinated incentive fee on income is 0.2%.

 

Scenario 3

 

Assumptions

 

Investment income (including interest, dividends, fees, etc.) = 3.5%

Hurdle rate⁽¹⁾ = 2.0%

Base management fee⁽²⁾ = 0.5%

Other expenses (legal, accounting, custodian, transfer agent, etc.)⁽³⁾ = 0.2%

Pre-incentive fee net investment income

(investment income – (base management fee + other expenses)) = 2.8%

Catch up = 100% × pre-incentive fee net investment income (subject to “catch-up”)⁽⁴⁾

 

Subordinated incentive fee on income = 100% × “catch-up” + (20.0% × (pre-incentive fee net investment income – 2.5%))

 

Catch up		= 2.5% – 2.0%
		= 0.50%

 

Subordinated incentive fee on income = (100% × 0.5%) + (20.0% × (2.8% – 2.5%))

 

= 0.5% + (20% × 0.3%)

= 0.5% + 0.06%

= 0.56%

 

Pre-incentive fee net investment income exceeds the hurdle rate and fully satisfies the “catch-up” provision, therefore the subordinated incentive fee on income is 0.56%.

 

 

(1)	Represents 8.0% annualized hurdle rate.

 

(2)	Represents 2.0% annualized base management fee on average gross assets. Examples assume assets are equal to adjusted capital.

 

(3)	Excludes organizational and offering expenses.

 

(4)	The “catch-up” provision is intended to provide our advisor with an incentive fee of 20.0% on all pre-incentive fee net investment income when our net investment income exceeds 2.5% in any calendar quarter.

 

Example 2: Incentive Fee on Capital Gains

Scenario 1

 

Assumptions

 

Year 1: $20 million investment made in Company A (“Investment A”), and $30 million investment made in Company B (“Investment B”)

 

Year 2: Investment A sold for $50 million and fair market value (“FMV”) of Investment B determined to be $32 million

 

Year 3: FMV of Investment B determined to be $25 million

 

Year 4: Investment B sold for $31 million

 

The incentive fee on capital gains would be:

 

Year 1: None

 

Year 2: Incentive fee on capital gains of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20.0%)

 

Year 3: None à $5 million (20.0% multiplied by ($30 million cumulative realized capital gains less $5 million cumulative unrealized capital depreciation)) less $6 million (previous capital gains fee paid in Year 2)

 

Year 4: Incentive fee on capital gains of $200,000 à $6.2 million ($31 million cumulative realized capital gains multiplied by 20.0%) less $6 million (incentive fee on capital gains taken in Year 2)

 

Scenario 2

 

Assumptions

 

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”)

 

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

 

Year 3: FMV of Investment B determined to be $27 million and Investment C sold for $30 million

 

Year 4: FMV of Investment B determined to be $35 million

 

Year 5: Investment B sold for $20 million

 

The incentive fee on capital gains would be:

 

Year 1: None

 

Year 2: Incentive fee on capital gains of $5 million à 20.0% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B)

 

 

Year 3: Incentive fee on capital gains of $1.4 million à $6.4 million (20.0% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million incentive fee on capital gains received in Year 2

 

Year 4: None

 

Year 5: None à $5 million (20.0% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative incentive fee on capital gains paid in Year 2 and Year 3

 

*

The returns shown are for illustrative purposes only. No incentive fee is payable to Terra Income Advisors in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate. Positive returns are shown to demonstrate the fee structure and there is no guarantee that positive returns will be realized. Actual returns may vary from those shown in the examples above.

 

 

 

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