SUPPLEMENT TO THE INVESTMENT ADVISORY MANAGEMENT AGREEMENT DATED MARCH 25, 2004 BETWEENAPOLLO INVESTMENT CORPORATION AND APOLLO INVESTMENT MANAGEMENT, L.P.
EXHIBIT 10.1(b)
SUPPLEMENT TO THE INVESTMENT ADVISORY MANAGEMENT AGREEMENT
DATED MARCH 25, 2004 BETWEEN APOLLO INVESTMENT CORPORATION AND
APOLLO INVESTMENT MANAGEMENT, L.P.
This Supplement clarifies the Capital Gains Fee calculation set out in Section 3(b)(ii) of the Investment Advisory Management Agreement between AIC and AIM (the “Advisory Agreement”). Nothing contained in this Addendum modifies any term of the Advisory Agreement.
For purposes of determining any amount due under Section 3(b)(ii) of the Advisory Agreement, the Capital Gains Fee shall incorporate unrealized depreciation on a gross investment-by-investment basis at the end of such year. Capital gains with respect to any investment will equal the difference between the proceeds from the sale of such investment and the accreted or amortized cost basis of such investment.
Examples of Determination of Capital Gains Fee:
Alternative 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 is 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 capital gains portion of the incentive fee would be:
| • | Year 1: None |
| • | Year 2: Capital gains incentive fee of $6 million ($30 million realized capital gains on sale of Investment A multiplied by 20%) |
| • | Year 3: None |
$5 million (20% multiplied by ($30 million cumulative capital gains less $5 million cumulative capital depreciation)) less $6 million (previous capital gains fee paid in Year 2)
| • | Year 4: Capital gains incentive fee of $200,000 |
$6.2 million ($31 million cumulative realized capital gains multiplied by 20%) less $6 million (capital gains fee taken in Year 2)
Alternative 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 capital gains incentive fee, if any, would be:
| • | Year 1: None |
| • | Year 2: $5 million capital gains incentive fee |
20% multiplied by $25 million ($30 million realized capital gains on Investment A less unrealized capital depreciation on Investment B)
| • | Year 3: $1.4 million capital gains incentive fee(1) |
$6.4 million (20% multiplied by $32 million ($35 million cumulative realized capital gains less $3 million unrealized capital depreciation)) less $5 million capital gains fee received in Year 2.
| • | Year 4: None |
| • | Year 5: None |
$5 million (20% multiplied by $25 million (cumulative realized capital gains of $35 million less realized capital losses of $10 million)) less $6.4 million cumulative capital gains fee paid in Year 2 and Year 3
| (1) | As illustrated in Year 3 of Alternative 1 above, if the Corporation were to be wound up on a date other than December 31st of any year, it may have paid aggregate capital gain incentive fees that are more than the amount of such fees that would be payable if it had been wound up on December 31st of such year. |
