INVESTMENT ADVISORY AGREEMENT BETWEEN GOLUB CAPITAL BDC, INC. AND GC ADVISORS LLC
BETWEEN
▇▇▇▇▇ CAPITAL BDC,
INC.
AND
GC ADVISORS
LLC
Agreement
made this _____ day of ____________ 2010, by and between ▇▇▇▇▇ CAPITAL BDC,
INC., a Delaware corporation (the “Corporation”), and GC ADVISORS LLC, a
Delaware limited liability company (the “Adviser”).
WHEREAS,
the Corporation is a newly organized corporation that will operate as a
closed-end, non-classified management investment company;
WHEREAS,
the Corporation has filed a registration statement on Form N-2 (the
“Registration Statement”) to register shares of its common stock for issuance in
an initial public offering (the “Offering”);
WHEREAS,
prior to the effectiveness of the Registration Statement, the Corporation filed
an election to be treated as a business development company under the Investment
Company Act of 1940, as amended (the “Investment Company Act”);
WHEREAS,
prior to and in anticipation of the Offering, the Corporation has acquired
interests in senior secured loans and other debt obligations that will comprise
a portion of the Corporation’s initial portfolio;
WHEREAS,
the Adviser is registered as an investment adviser under the Investment Advisers
Act of 1940, as amended (the “Investment Advisers Act”); and
WHEREAS,
the Corporation desires to retain the Adviser to furnish investment advisory
services to the Corporation on the terms and conditions hereinafter set forth,
and the Adviser wishes 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) The
Corporation hereby employs the Adviser to act as the investment adviser to the
Corporation and to manage the investment and reinvestment of the assets of the
Corporation, subject to the supervision of the Board of Directors of the
Corporation, for the period and upon the terms herein set forth, (i) in
accordance with the investment objective, policies and restrictions that are set
forth in the Registration Statement, as the same may be amended
from
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time to
time, (ii) in accordance with the Investment Company Act and (iii) in accordance
with all other applicable federal and state laws, rules and regulations, and the
Corporation’s certificate of incorporation and bylaws. Without limiting the
generality of the foregoing, the Adviser shall, during the term and subject to
the provisions of this Agreement, (i) determine the composition of the
portfolio of the Corporation, the nature and timing of the changes therein and
the manner of implementing such changes; (ii) identify, evaluate and negotiate
the structure of the investments made by the Corporation (including performing
due diligence on prospective portfolio companies); (iii) execute, close, service
and monitor the Corporation’s investments; (iv) determine the securities and
other assets that the Corporation will purchase, retain, or sell; and (v)
provide the Corporation with such other investment advisory, research and
related services as the Corporation may, from time to time, reasonably require
for the investment of its funds. The Adviser shall have the power and authority
on behalf of the Corporation to effectuate its investment decisions for the
Corporation, including the execution and delivery of all documents relating to
the Corporation’s investments and the placing of orders for other purchase or
sale transactions on behalf of the Corporation. In the event that the
Corporation determines to acquire debt financing, the Adviser will arrange for
such financing on the Corporation’s behalf, subject to the oversight and
approval of the Corporation’s Board of Directors. If it is necessary for the
Adviser to make investments on behalf of the Corporation through a special
purpose vehicle, the Adviser shall have authority to create or arrange for the
creation of such special purpose vehicle and to make such investments through
such special purpose vehicle in accordance with the Investment Company
Act.
(b) The
Adviser hereby accepts such employment and agrees during the term hereof to
render the services described herein for the compensation provided
herein.
(c) Subject
to the requirements of the Investment Company Act, the Adviser is hereby
authorized, but not required, to enter into one or more sub-advisory agreements
with other investment advisers (each, a “Sub-Adviser”) pursuant to which the
Adviser may obtain the services of the Sub-Adviser(s) to assist the Adviser in
fulfilling its responsibilities hereunder. Specifically, the Adviser may retain
a Sub-Adviser to recommend specific securities or other investments based upon
the Corporation’s investment objective and policies, and work, along with the
Adviser, in structuring, negotiating, arranging or effecting the acquisition or
disposition of such investments and monitoring investments on behalf of the
Corporation, subject to the oversight of the Adviser and the Corporation. The
Adviser, and not the Corporation, shall be responsible for any compensation
payable to any Sub-Adviser. Any sub-advisory agreement entered into by the
Adviser shall be in accordance with the requirements of the Investment Company
Act, the Investment Advisers Act and other applicable federal and state
law.
(d) The
Adviser shall for all purposes herein provided be deemed to be an independent
contractor and, except as expressly provided or authorized herein, shall have no
authority to act for or represent the Corporation in any way or otherwise be
deemed an agent of the Corporation.
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(e) The
Adviser shall keep and preserve, in the manner and for the period that would be
applicable to investment companies registered under the Investment Company Act
any books and records relevant to the provision of its investment advisory
services to the Corporation and shall specifically maintain all books and
records with respect to the Corporation’s portfolio transactions and shall
render to the Corporation’s Board of Directors such periodic and special reports
as the Board of Directors may reasonably request. The Adviser agrees that all
records that it maintains for the Corporation are the property of the
Corporation and will surrender promptly to the Corporation any such records upon
the Corporation’s request, provided that the Adviser may retain a copy of such
records.
2. Corporation’s
Responsibilities and Expenses Payable by the Corporation. All
investment professionals of the Adviser and their respective staffs, when and to
the extent engaged in providing investment advisory and management services
hereunder, and the compensation and routine overhead expenses of such personnel
allocable to such services, will be provided and paid for by the Adviser and not
by the Corporation. The Corporation will bear all other costs and expenses of
its operations and transactions, including (without limitation) those relating
to: organization and offering; calculating the Corporation’s net asset value
(including the cost and expenses of any independent valuation firm); fees and
expenses incurred by the Adviser payable to third parties, including agents,
consultants or other advisors, in monitoring financial and legal affairs for the
Corporation and in monitoring the Corporation’s investments and performing due
diligence on its prospective portfolio companies or otherwise relating to, or
associated with, evaluating and making investments; interest payable on debt, if
any, incurred to finance the Corporation’s investments and expenses related to
unsuccessful portfolio acquisition efforts; offerings of the Corporation’s
common stock and other securities; investment advisory and management fees;
administration fees payable under the administration agreement (the
“Administration Agreement”) between the Corporation and GC Service Company, LLC
(the “Administrator”), the Corporation’s administrator; fees payable to third
parties, including agents, consultants or other advisors, relating to, or
associated with, evaluating and making investments, including costs associated
with meeting potential financial sponsors; transfer agent,
dividend agent and custodial fees and expenses; federal and state
registration fees; all costs of registration and listing the Corporation’s
securities on any securities exchange; federal, state and local taxes;
independent Directors’ fees and expenses; costs of preparing and filing reports
or other documents required by the Securities and Exchange Commission or other
regulators; costs of any reports, proxy statements or other notices to
stockholders, including printing costs; costs associated with individual or
group stockholders; the Corporation’s allocable portion of the fidelity bond,
directors and officers/errors and omissions liability insurance, and any other
insurance premiums; direct costs and expenses of administration, including
printing, mailing, long distance telephone, copying, secretarial and other
staff, independent auditors and outside legal costs; proxy voting expenses; and
all other expenses incurred by the Corporation or the Administrator in
connection with administering the Corporation’s business, including payments
under the Administration Agreement based upon the Corporation’s allocable
portion of the Administrator’s overhead in performing its obligations under the
Administration Agreement, including rent and the allocable portion of the cost
of the Corporation’s chief compliance officer and chief financial officer and
their respective staffs.
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3. Compensation of the
Adviser. The Corporation agrees to pay, and the Adviser agrees to accept,
as compensation for the services provided by the Adviser hereunder, a base
management fee (“Base Management Fee”) and an incentive fee (“Incentive Fee”) as
hereinafter set forth. The Corporation shall make any payments due hereunder to
the Adviser or to the Adviser’s designee as the Adviser may otherwise direct. To
the extent permitted by applicable law, the Adviser may elect, or adopt a
deferred compensation plan pursuant to which it may elect, to defer all or a
portion of its fees hereunder for a specified period of time.
(a) The Base
Management Fee shall be calculated at an annual rate of 1.375% of the
Corporation’s average adjusted gross assets (excluding cash and cash equivalents
and including assets purchased with borrowed funds). For services
rendered under this Agreement, the Base Management Fee will be payable quarterly
in arrears. The Base Management Fee will be calculated based on the average
value of the Corporation’s gross assets at the end of the two most recently
completed calendar quarters, and appropriately adjusted for any share issuances
or repurchases during the current calendar quarter. Base Management Fees for any
partial month or quarter will be appropriately pro-rated. For purposes of this
Agreement, cash equivalents means U.S. government securities and commercial
paper maturing within 270 days of issuance.
(b) The
Incentive Fee shall be calculated and paid as set forth on Schedule A hereto, as
it may be amended from time to time; provided that, no incentive
fee shall be paid at any time where, after such payment, the cumulative
incentives fees paid to date would exceed 20% of the “cumulative pre-incentive
net income,” as defined in Schedule A, since the Corporation’s election to be
treated as a business development company.
4. Covenants of the
Adviser. The Adviser covenants that it is registered as an investment
adviser under the Investment Advisers Act. The Adviser agrees that its
activities will at all times be in compliance in all material respects with all
applicable federal and state laws governing its operations and
investments.
5. Excess Brokerage
Commissions. The Adviser is hereby authorized, to the fullest extent now
or hereafter permitted by law, to cause the Corporation to pay a member of a
national securities exchange, broker or dealer an amount of commission for
effecting a securities transaction in excess of the amount of commission another
member of such exchange, broker or dealer would have charged for effecting that
transaction, if the Adviser determines in good faith, taking into account such
factors as price (including the applicable brokerage commission or dealer
spread), size of order, difficulty of execution, and operational facilities of
the firm and the firm’s risk and skill in positioning blocks of securities, that
such amount of commission is reasonable in relation to the value of the
brokerage and/or research services provided by such member, broker or dealer,
viewed in terms of either that particular transaction or its overall
responsibilities with respect to the Corporation’s portfolio, and constitutes
the best net results for the Corporation.
6. Proxy
Voting. The Adviser shall be responsible for voting any proxies
solicited by an issuer of securities held by the Corporation in the best
interest of the Corporation and in accordance with the Adviser’s proxy voting
policies and procedures, as they may be amended
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from time to time. The Corporation has been
provided with a copy of the Adviser’s proxy voting policies and procedures and
has been informed as to how it can obtain further information from the Adviser
about proxy voting activities undertaken on behalf of the
Corporation. The Adviser shall be responsible for reporting the
Corporation’s proxy voting activities, as required, through periodic filings on
Form N-PX.
7. Limitations on the
Employment of the Adviser. The services of the Adviser to the Corporation
are not exclusive, and the Adviser may engage in any other business or render
similar or different services to others including, without limitation, the
direct or indirect sponsorship or management of other investment based accounts
or commingled pools of capital, however structured, having investment objectives
similar to those of the Corporation, so long as its services to the Corporation
hereunder are not impaired thereby, and nothing in this Agreement shall limit or
restrict the right of any manager, partner, officer or employee of the Adviser
to engage in any other business or to devote his or her time and attention in
part to any other business, whether of a similar or dissimilar nature, or to
receive any fees or compensation in connection therewith (including fees for
serving as a director of, or providing consulting services to, one or more of
the Corporation’s portfolio companies, subject to applicable law). So long as
this Agreement or any extension, renewal or amendment remains in effect, the
Adviser shall be the only investment adviser for the Corporation, subject to the
Adviser’s right to enter into sub-advisory agreements. The Adviser assumes no
responsibility under this Agreement other than to render the services called for
hereunder. It is understood that directors, officers, employees and stockholders
of the Corporation are or may become interested in the Adviser and its
affiliates, as directors, officers, employees, partners, stockholders, members,
managers or otherwise, and that the Adviser and directors, officers, employees,
partners, stockholders, members and managers of the Adviser and its affiliates
are or may become similarly interested in the Corporation as stockholders or
otherwise.
Subject
to any restrictions prescribed by law and the provisions of the Code of Ethics
of the Corporation and the Adviser and the Adviser's Allocation Policy, the
Adviser and its members, officers, employees and agents shall be free, from time
to time, to acquire, possess, manage, and dispose of securities or other
investment assets for their own accounts, for the accounts of their family
members, for the account of any entity in which they have a beneficial interest,
or for the accounts of others for whom they may provide investment advisory,
brokerage or other services (collectively, “Managed Accounts”), in transactions
that may or may not correspond with transactions effected or positions held by
the Corporation or to give advice and take action with respect to Managed
Accounts that differs from advice given to, or action taken on behalf of, the
Corporation, so long as the Adviser allocates investment opportunities to the
Corporation, over a period of time on a fair and equitable basis compared to
investment opportunities extended to other Managed Accounts. The
Adviser is not obligated to initiate the purchase or sale for the Corporation of
any security that the Adviser and its members, officers, employees or agents may
purchase or sell for its or their own accounts or for the account of any other
client, if in the opinion of the Adviser, such transaction or investment appears
unsuitable or undesirable for the Corporation. Moreover, it is
understood that when the Adviser determines that it would be appropriate for the
Corporation and one or more Managed Accounts to participate in the same
investment opportunity, the Adviser will seek to execute orders for the
Corporation and for such
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Managed
Account(s) on a basis that the Adviser considers to be fair and equitable over
time. In such situations, the Adviser may (but is not required to)
place orders for the Corporation and each Managed Account simultaneously or on
an aggregated basis. If all such orders are not filled at the same
price, the Adviser may cause the Corporation and each Managed Account to pay or
receive the average of the prices at which the orders were filled for the
Corporation and all relevant Managed Accounts on each applicable
day. If all such orders cannot be fully executed under prevailing
market conditions, the Adviser may allocate the investment opportunities among
participating accounts in a manner that the Adviser considers equitable, taking
into account, among other things, the size of each account, the size of the
order placed for each account and any other factors that the Adviser deems
relevant.
8. Responsibility of Dual
Directors, Officers and/or Employees. If any person who is a manager,
partner, officer or employee of the Adviser or the Administrator is or becomes a
director, officer and/or employee of the Corporation and acts as such in any
business of the Corporation, then such manager, partner, officer and/or employee
of the Adviser or the Administrator shall be deemed to be acting in such
capacity solely for the Corporation, and not as a manager, partner, officer or
employee of the Adviser or the Administrator or under the control or direction
of the Adviser or the Administrator, even if paid by the Adviser or the
Administrator.
9. Limitation of Liability of
the Adviser; Indemnification. The Adviser (and its officers, managers,
partners, agents, employees, controlling persons, members and any other person
or entity affiliated with the Adviser, including without limitation its general
partner and the Administrator) shall not be liable to the Corporation for any
action taken or omitted to be taken by the Adviser in connection with the
performance of any of its duties or obligations under this Agreement or
otherwise as an investment adviser of the Corporation, except to the extent
specified in Section 36(b) of the Investment Company Act concerning loss
resulting from a breach of fiduciary duty (as the same is finally determined by
judicial proceedings) with respect to the receipt of compensation for services,
and the Corporation shall indemnify, defend and protect the Adviser (and its
officers, managers, partners, agents, employees, controlling persons, members
and any other person or entity affiliated with the Adviser, including without
limitation its general partner and the Administrator, each of whom shall be
deemed a third party beneficiary hereof) (collectively, the “Indemnified
Parties”) and hold them harmless from and against all damages, liabilities,
costs and expenses (including reasonable attorneys’ fees and amounts reasonably
paid in settlement) incurred by the Indemnified Parties in or by reason of any
pending, threatened or completed action, suit, investigation or other proceeding
(including an action or suit by or in the right of the Corporation or its
security holders) arising out of or otherwise based upon the performance of any
of the Adviser’s duties or obligations under this Agreement or otherwise as an
investment adviser of the Corporation. Notwithstanding the preceding sentence of
this Paragraph 9 to the contrary, nothing contained herein shall protect or be
deemed to protect the Indemnified Parties against or entitle or be deemed to
entitle the Indemnified Parties to indemnification in respect of, any liability
to the Corporation or its security holders to which the Indemnified Parties
would otherwise be subject by reason of willful
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misfeasance,
bad faith or gross negligence in the performance of the Adviser’s duties or by
reason of the reckless disregard of the Adviser’s duties and obligations under
this Agreement (as the same shall be determined in accordance with the
Investment Company Act and any interpretations or guidance by the Securities and
Exchange Commission or its staff thereunder).
10. Effectiveness, Duration and
Termination of Agreement. This Agreement shall become effective as of the
first date above written. This Agreement shall remain in effect for two years,
and thereafter shall continue automatically for successive annual periods,
provided that such continuance is specifically approved at least annually by (a)
the vote of the Corporation’s Board of Directors, or by the vote of a majority
of the outstanding voting securities of the Corporation and (b) the vote of a
majority of the Corporation’s Directors who are not parties to this Agreement or
“interested persons” (as such term is defined in Section 2(a)(19) of the
Investment Company Act) of any such party, in accordance with the requirements
of the Investment Company Act. This Agreement may be terminated at any time,
without the payment of any penalty, upon 60 days’ written notice, by the vote of
a majority of the outstanding voting securities of the Corporation, or by the
vote of the Corporation’s Directors or by the Adviser. This Agreement will
automatically terminate in the event of its “assignment” (as such term is
defined for purposes of Section 15(a)(4) of the Investment Company Act). The
provisions of Section 9 of this Agreement shall remain in full force and effect,
and the Adviser shall remain entitled to the benefits thereof, notwithstanding
any termination of this Agreement. Further, notwithstanding the termination or
expiration of this Agreement as aforesaid, the Adviser shall be entitled to any
amounts owed under Section 3 through the date of termination or expiration and
Section 9 shall continue in force and effect and apply to the Adviser and its
representatives as and to the extent applicable.
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 by mutual consent, but the consent of the Corporation
must be obtained in conformity with the requirements of the Investment Company
Act.
13. Entire Agreement; Governing
Law. This Agreement contains the entire agreement of the parties and
supersedes all prior agreements, understandings and arrangements with respect to
the subject matter hereof. This Agreement shall be construed in accordance with
the laws of the State of New York and the applicable provisions of the
Investment Company Act. To the extent the applicable laws of the State of New
York, or any of the provisions herein, conflict with the provisions of the
Investment Company Act, the latter shall control.
* * * *
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date above written.
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CAPITAL BDC, INC.
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Name:
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Name:
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Title:
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SCHEDULE
A
Calculation
and Payment of Incentive Fee
The
Incentive Fee is calculated as provided below and payable quarterly in arrears
(or, upon termination of the Investment Advisory Agreement, as of the
termination date) (a “Performance Period”). The Adviser is not required to
reimburse the Corporation for any part of an Incentive Fee it receives that was
based on accrued interest that the Corporation never actually
receives.
Limitation
on Incentive Fee
Each
quarterly Incentive Fee payable on the Income and Capital Gains Incentive Fee
Calculation (as defined below) is subject to a cap (the “Incentive Fee
Cap”). The Incentive Fee Cap in any quarter is the difference between
(a) 20.0% of Cumulative Pre-Incentive Fee Net Income (as defined below) and (b)
cumulative incentive fees of any kind paid to the Adviser by the Corporation
since the effective date of the Corporation’s election to become a business
development company. To the extent the Incentive Fee Cap is zero or a negative
value in any quarter, no incentive fee would be payable in that quarter.
“Cumulative Pre-Incentive Fee Net Income” is equal to the sum of (a)
Pre-Incentive Fee Net Investment Income (as defined below) for each period since
the effective date of the Corporation’s election to become a business
development company and (b) cumulative aggregate realized capital gains,
cumulative aggregate realized capital losses, cumulative aggregate unrealized
capital depreciation and cumulative aggregate unrealized capital appreciation
since the effective date of the Corporation’s election to become a business
development company. “Pre-Incentive Fee Net Investment Income” means
interest income, dividend income and any other income (including any other fees
such as commitment, origination, structuring, diligence and consulting fees or
other fees that the Corporation receives from portfolio companies but excluding
fees for providing managerial assistance) accrued during the calendar quarter,
minus operating expenses for the calendar quarter (including the base management
fee, taxes, any expenses payable under the Investment Advisory Agreement and the
Administration Agreement, and any interest expense and dividends paid on any
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 market discount, debt instruments with payment in kind
(“PIK”) interest, preferred stock with PIK dividends and zero coupon securities,
accrued income that the Corporation has not yet received in cash.
Income and Capital Gains Incentive Fee
Calculation
The
income and capital gains incentive fee calculation (the “Income and Capital
Gains Incentive Fee Calculation”) has two parts: (i) the income component; and
(ii) the capital gains component.
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Income
Component
The
income component is calculated quarterly in arrears based on the Corporation’s
Pre-Incentive Fee Net Investment Income for the immediately preceding calendar
quarter.
Pre-Incentive
Fee Net Investment Income does not include any realized capital gains, realized
capital losses or unrealized capital appreciation or
depreciation. Once calculated, Pre-Incentive Fee Net Investment
Income, expressed as a rate of return on the value of the Corporation’s net
assets (defined as total assets less indebtedness and before taking into account
any incentive fees payable during the period) at the end of the immediately
preceding calendar quarter, is compared to a fixed “hurdle rate” of 2.0%
quarterly. The Pre-Incentive Fee Net Investment Income used to
calculate this part of the incentive fee is also included in the amount of the
Corporation’s total assets (other than cash and cash equivalents but including
assets purchased with borrowed funds) used to calculate the 1.375% base
management fee.
The
income component of the Income and Capital Gains Incentive Fee Calculation with
respect to the Corporation’s Pre-Incentive Fee Net Investment Income is
calculated quarterly, in arrears, as follows:
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zero
in any calendar quarter in which the Pre-Incentive Fee Net Investment
Income does not exceed the hurdle
rate;
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100.0%
of the Corporation’s Pre-Incentive Fee Net Income with respect to that
portion of the Pre-Incentive Fee Net Investment Income, if any, that
exceeds the hurdle rate but is less than 2.5% in any calendar quarter;
and
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20.0%
of the amount of the Corporation’s Pre-Incentive Fee Net Investment
Income, if any, that exceed 2.5% in any calendar
quarter.
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These
calculations are adjusted for any share issuances or repurchases during the
quarter.
Capital Gains
Component
The
second part of the Income and Capital Gains Incentive Fee Calculation equals (a)
20.0% of the Corporation’s Incentive Fee Capital Gains (as defined below), if
any, calculated in arrears as of the end of each calendar year (or upon
termination of the Investment Advisory Agreement, as of the termination date),
commencing with the year ending December 31, 2010 less (b) the aggregate amount
of any previously paid capital gain incentive fees. “Incentive Fee
Capital Gains” equals the sum of (1) the Corporation’s realized capital gains on
a cumulative positive basis from the date of the Corporation’s election to
become a business development company through the end of each calendar year, (2)
all realized capital losses on a cumulative basis, and (3) all unrealized
capital depreciation on a cumulative basis.
The
cumulative aggregate realized capital gains are calculated as the sum of the
differences, if positive, between (a) the net sales price of each investment in
the Corporation’s
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portfolio
when sold and (b) the accreted or amortized cost basis of such
investment. The cumulative aggregate realized capital losses are
calculated as the sum of the amounts by which (a) the net sales price of each
investment in the Corporation’s portfolio when sold is less than (b) the
accreted or amortized cost basis of such investment. The aggregate
unrealized capital depreciation is calculated as the sum of the differences, if
negative, between (a) the valuation of each investment in the Corporation’s
portfolio as of the applicable Capital Gains Fee calculation date and (b) the
accreted or amortized cost basis of such investment.
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