FS Investment Corporation 8-K [fsic-8k_071714.htm]

Exhibit 10.1

 

 

AMENDED AND RESTATED

 

INVESTMENT ADVISORY

 

AGREEMENT

 

BETWEEN

 

FS INVESTMENT CORPORATION

 

AND

 

FB INCOME ADVISOR, LLC

 

This Amended and Restated Investment Advisory Agreement (the “Agreement”) made
this 17th day of July, 2014, by and between FS INVESTMENT CORPORATION, a
Maryland corporation (the “Company”), and FB INCOME ADVISOR, LLC, a Delaware
limited liability company (the “Adviser”). This Agreement amends and restates in
its entirety that certain Amended and Restated Investment Advisory Agreement,
dated as of April 16, 2014, by and between the Company and the Adviser (as
amended, the “Original Investment Advisory Agreement”).

 

WHEREAS, the Company is a non-diversified, closed-end management investment
company that has elected to be regulated as a business development company
(“BDC”) under the Investment Company Act of 1940, as amended (the “Investment
Company Act”);

 

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

 

WHEREAS, pursuant to the Original Investment Advisory Agreement, the Company
retained the Adviser to furnish investment advisory services (the “Investment
Advisory Services”) to the Company on the terms and conditions set forth
therein;

 

WHEREAS, the Company and the Adviser desire to amend and restate in its entirety
the Original Investment Advisory Agreement; and

 

WHEREAS, the Company desires to continue to retain the Adviser to furnish the
Investment Advisory Services to the Company on the terms and conditions
hereinafter set forth, and the Adviser wishes to continue to be retained to
provide such services.

 

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) Retention of the Adviser. The Company hereby employs the Adviser 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 herein set forth:

 

(i) in accordance with the investment objectives, policies and restrictions that
are set forth in the Company’s then effective Registration Statement on Form N-2
filed with the Securities and Exchange Commission (the “SEC”), as amended from
time to time, if any, and/or the Company’s periodic reports filed with the SEC
from time to time; and

 

(ii) during the term of this Agreement in accordance with all other applicable
federal and state laws, rules and regulations, and the Company’s charter and
bylaws, in each case as amended from time to time.

 

(b) Responsibilities of the Adviser. 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 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, monitor and service 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 require for
the investment of its funds.

 

(c) Power and Authority. To facilitate the Adviser’s performance of these
undertakings, but subject to the restrictions contained herein, the Company
hereby delegates to the Adviser (which power and authority may be delegated by
the Adviser to one or more investment sub-advisers), and the Adviser 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 or other financing, the Adviser
shall arrange for such financing on the Company’s behalf, subject to the
oversight and approval of the Board. If it is necessary for the Adviser to make
investments on behalf of the Company 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.

 

(d) Acceptance of Employment. The Adviser 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.

 

(e) Sub-Advisers. 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 Company’s investment objectives, policies and
restrictions, and work, along with the Adviser, 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 Adviser and the Company.

 

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

 

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

 

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

 

(f) Independent Contractor Status. 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 Company in any way or otherwise be deemed an agent of the Company.

 

(g) Record Retention. Subject to review by and the overall control of the Board,
the Adviser shall keep and preserve for the period required by the Investment
Company Act any books and records relevant to the provision of the 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 Adviser 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 Adviser may retain a copy of such records.

 

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

 

(a) Adviser Personnel. All personnel of the Adviser, when and to the extent
engaged in providing the 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 Adviser and not by the Company.

 

3. Compensation of the Adviser. The Company 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 Adviser may agree to temporarily
or permanently waive, in whole or in part, the Base Management Fee and/or the
Incentive Fee.

 

(a) Base Management Fee. The Base Management Fee shall be calculated at an
annual rate of 1.75% 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 recently
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 Adviser shall determine. The Base Management Fee for
any partial month or quarter shall be appropriately pro rated.

 

(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 rate of
return on the value of the Company’s net assets at the end of the most recently
completed calendar quarter, of 1.875% (7.50% annualized), subject to a “catch
up” feature (as described below).

 

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 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 that certain Administration Agreement, dated as of
April 16,2014, as the same may be amended from time to time, whereby the Adviser
provides administrative services necessary for the operation of the Company, and
any interest expense and dividends 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 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.

 

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 Adviser in
any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment
Income does not exceed the preferred return rate of 1.875% or 7.50% annualized
(the “Preferred Return”) on net assets;

 

(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 2.34375% in any
calendar quarter (9.375% annualized) shall be payable to the Adviser. This
portion of the company’s Subordinated Incentive Fee on Income is referred to as
the “catch up” and is intended to provide the Adviser 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 2.34375% (9.375%
annualized) on net assets in any calendar quarter; and

 

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(C) For any quarter in which the Company’s Pre-Incentive Fee Net Investment
Income exceeds 2.34375% (9.375% annualized) on net assets, 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;

 

provided that, no Subordinated Incentive Fee on Income in respect of this
Section 3(b)(i) will be payable except to the extent that 20.0% of the
cumulative net increase in net assets resulting from operations over the
calendar quarter for which such fees are being calculated and the eleven
preceding calendar quarters exceeds the cumulative Incentive Fees accrued and/or
paid pursuant to Section 3(b) for such eleven preceding calendar quarters. For
the foregoing purpose, the “cumulative net increase in net assets resulting from
operations” is an amount, if positive, equal to the sum of Pre-Incentive Fee Net
Investment Income, Base Management Fees, realized gains and losses and
unrealized appreciation and depreciation of the Company for the calendar quarter
for which such fees are being calculated and the eleven preceding calendar
quarters.

 

(ii) The second part of the Incentive Fee, referred to as the “Incentive Fee on
Capital Gains,” shall be determined and payable in arrears as of the end of each
calendar year (or upon termination of this 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 each calendar 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 gain incentive fees.

 

4. Covenants of the Adviser.

 

The Adviser covenants that it will register as an investment adviser under the
Advisers Act and will maintain such registration. 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. Brokerage Commissions.

 

The Adviser 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 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 Company’s portfolio, and constitutes the best net results for the
Company.

 

6. Other Activities of the Adviser.

 

The services of the Adviser to the Company 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
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 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 Company’s portfolio companies,
subject to applicable law). 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 Company
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 Company as stockholders or otherwise.

 

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7. Responsibility of Dual Directors, Officers and/or Employees.

 

If any person who is a manager, partner, member, officer or employee of the
Adviser is or becomes a director, officer and/or employee of the Company and
acts as such in any business of the Company, then such manager, partner, member,
officer and/or employee of the Adviser 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 Adviser or under the control or direction of the Adviser,
even if paid by the Adviser.

 

8. Indemnification.

 

The Adviser (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 Adviser) shall not be liable
to the Company 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 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 Adviser (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 Adviser, 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 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 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 or the charter
of the Company. Notwithstanding the preceding sentence of this Section 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 Company or its
stockholders to which the Indemnified Parties would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Advisor’s duties or by reason of the reckless disregard of the Advisor’s
duties and obligations under this Agreement (to the extent applicable, as the
same shall be determined in accordance with the Investment Company Act and any
interpretations or guidance by the SEC or its staff thereunder).

 

9. Duration and Termination of Agreement.

 

(a) Term. This Agreement shall remain in effect for two years commencing on
April 16, 2014, and thereafter shall continue automatically for successive
annual 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, 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, upon 60 days’ written notice, (a) by the vote of a
majority of the outstanding voting securities of the Company, (b) by the vote of
the Board or (c) by the Adviser. 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 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 to it
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 Company
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. 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.

 

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

 

  FS INVESTMENT CORPORATION       By: /s/ Stephen S. Sypherd      
    Name:  Stephen S. Sypherd          Title:    Vice President, Secretary and
Treasurer                FB INCOME ADVISOR, LLC       By: /s/ Michael C. Forman
          Name:  Michael C. Forman          Title:    Manager