INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT BY AND BETWEEN GSC INVESTMENT CORP AND SARATOGA INVESTMENT ADVISORS, LLC
Exhibit 10.1
INVESTMENT ADVISORY AND MANAGEMENT AGREEMENT
BY AND BETWEEN
GSC INVESTMENT CORP AND SARATOGA INVESTMENT ADVISORS, LLC
BY AND BETWEEN
GSC INVESTMENT CORP AND SARATOGA INVESTMENT ADVISORS, LLC
This Agreement made as of July 30, 2010, by and between GSC Investment Corp., a Maryland
corporation (the “Company”), and Saratoga Investment Advisors, LLC, a Delaware limited liability
company (the “Investment Adviser”).
WHEREAS, the Company is a Maryland corporation that has filed an election to be treated as a
business development company under the Investment Company Act of 1940, as amended (the “Investment
Company Act”), and has further elected to be treated as a regulated investment company (“RIC”) for
tax purposes.
WHEREAS, the Investment Adviser is an investment adviser that has registered under the
Investment Advisers Act of 1940, as amended (the “Advisers Act”); and
WHEREAS, the Company desires to retain the Investment Adviser to furnish investment advisory
services to the Company on the terms and conditions hereinafter set forth, and the Investment
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 Investment Adviser.
The Company hereby employs the Investment 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 determined by the Board from time to time and disclosed to the Investment
Adviser, which objectives, policies and restrictions are set forth in the Company’s registration
statements and periodic reports filed with the Securities and Exchange Commission (the “SEC”), as
amended by subsequent filings of such registration statements and periodic reports with the SEC;
(ii) in accordance with the Investment Company Act; (iii) during the term of this Agreement in
accordance with all other applicable federal and state laws, rules and regulations, and the
Company’s operating agreement, or charter and by-laws, as applicable; and (iv) in accordance with
the RIC rules (within the meaning of Section 851(a) of the Internal Revenue Code of 1986, as
amended).
Without limiting the generality of the foregoing, the Investment Adviser shall, during the
term and subject to the provisions of this Agreement: (i) determine the composition 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) close and monitor the Company’s investments; (iv) determine the
securities and other assets that the Company will 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. The Investment Adviser shall have the
power and authority on behalf of the Company to effectuate 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 incur debt financing, the Investment Adviser will arrange for such
financing on the Company’s behalf, subject to the oversight and approval of the Board. If it is
necessary for the Investment Adviser to make investments on behalf of the Company through a special
purpose vehicle, the Investment 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 Investment Adviser hereby accepts such engagement and agrees during the term hereof to
render the services described herein for the compensation provided herein.
(c) The Investment 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.
(d) Subject to review by and the overall control of the Board of the Company, the Investment
Adviser 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. The Investment Adviser agrees that all records that it maintains for the Company are the
property of the Company and will surrender promptly to the Company any such records upon the
Company’s request, provided that the Investment Adviser may retain a copy of such records.
(e) The Investment Adviser has adopted and implemented written policies and procedures
reasonably designed to prevent its violation of the federal securities laws. The Investment Adviser
has also provided to the Company, and shall provide the Company at such times in the future as the
Company shall reasonably request, a copy of such policies and procedures (and any amendments
thereto) and a report of such policies and procedures. Such report shall be of sufficient scope and
in sufficient detail, as may reasonably be required to comply with Rule 38a-1 under the Investment
Company Act and to provide reasonable assurance that any material inadequacies would be disclosed
by such examination, and, if there are no such inadequacies, the report shall so state.
2. Company’s Responsibilities and Expenses Payable by the Company.
All investment professionals of the Investment Adviser and its staff, when and to the extent
engaged in providing investment advisory services required to be provided by the Investment Adviser
under Section 1(a), and the compensation and routine overhead expenses of such personnel allocable
to such services, will be provided and paid for by the Investment
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Adviser and not by the Company.
The Company will bear all costs and expenses of its operations and transactions, including those
relating to: the Company’s organization; calculating the Company’s net asset value (including the
cost and expenses of any independent valuation firm); expenses incurred by the Investment Adviser
payable to third parties, including agents,
consultants or other advisors, in monitoring financial and legal affairs for the Company and
in monitoring the Company’s investments and performing due diligence on its prospective portfolio
companies; interest payable on debt, if any, incurred to finance the Company’s investments;
offerings of the Company’s common shares and other securities; investment advisory and management
fees; fees payable to third parties, including agents, consultants or other advisors, relating to,
or associated with, evaluating and making investments; transfer agent and custodial fees; federal
and state registration fees; all costs of registration and listing the Company’s common shares 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 governmental bodies (including
the Securities and Exchange Commission (the “SEC”)); costs of any reports, proxy statements or
other notices to common shareholders including printing costs; the Company’s 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; and
administration fees and all other expenses incurred by the Company or, if applicable, the
Administrator in connection with administering the Company’s business (including payments under the
administration agreement to be entered into by the Company and the Investment Adviser (the
“Administration Agreement”) based upon the Company’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 Company’s officers and their respective staffs (including
travel expenses)).
3. Compensation of the Investment Adviser.
The Company agrees to pay, and the Investment Adviser agrees to accept, as compensation for
the services provided by the Investment Adviser hereunder, a base management fee (“Base Management
Fee”) and an incentive fee (“Incentive Fee”) as hereinafter set forth. The Company shall make any
payments due hereunder to the Investment Adviser or to the Investment Adviser’s designee as the
Investment Adviser may otherwise direct.
(a) The Base Management Fee shall be 1.75% per annum of the Company’s gross assets (other than
cash or cash equivalents but including assets purchased with borrowed funds). The Base Management
Fee will be payable quarterly in arrears and will be calculated at the end of each fiscal quarter
based on the average value of the Company’s gross assets (other than cash or cash equivalents but
including assets purchased with borrowed funds) as of the end of such fiscal quarter and the end of
the immediate prior fiscal quarter. Base Management Fees for any partial month or quarter will be
appropriately pro rated.
(b) The Incentive Fee shall consist of two parts, as follows:
(i) The first part will be calculated and payable quarterly in arrears based on the
Pre-Incentive Fee net investment income for the immediately preceding fiscal quarter. Payments
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based on Pre-Incentive Fee net investment income will be based on the Pre-Incentive Fee net
investment income earned for the quarter. For this purpose, “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, managerial and consulting fees or other fees
that the Company receives from portfolio companies) accrued by the Company during the fiscal
quarter, minus the Company’s operating expenses for the quarter (including the Base Management Fee,
expenses payable under the Administration Agreement, 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 market discount, debt instruments with payment-in-kind
interest, preferred stock with payment-in-kind dividends and zero coupon securities), accrued
income that has not yet been 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. Pre-Incentive Fee net investment income, expressed as a rate of return on the value
of the Company’s net assets (defined as total assets less liabilities) at the end of the
immediately preceding fiscal quarter, will be compared to a “hurdle rate” of 1.875% per quarter
(7.5% annualized), subject to a “catch-up” provision (as described below). The Company
acknowledges that the Base Management Fee is calculated prior to giving effect to the payment of
any Incentive Fees.
The Company will pay the Investment Adviser an Incentive Fee with respect to the Company’s
Pre-Incentive Fee net investment income in each fiscal quarter as follows: (A) no Incentive Fee in
any fiscal quarter in which the Company’s Pre-Incentive Fee net investment income does not exceed
the hurdle rate; or (B) (i) 100% of the Company’s Pre-Incentive Fee net investment income with
respect to that portion of such Pre-Incentive Fee net investment income, if any, that exceeds the
hurdle rate but is less than or equal to 2.344% in any fiscal quarter (9.376% annualized) is
payable to the Investment Adviser; and (ii) 20% of the amount of the Company’s Pre-Incentive Fee
net investment income, if any, that exceeds 2.344% in any fiscal quarter (9.376% annualized). The
Company refers to the amount specified in clause (B)(i) as the “catch-up.” Notwithstanding the
foregoing, with respect to any period ending on or prior to December 31, 2010, the Investment
Adviser shall be entitled to 20% of the amount of the Company’s Pre-Incentive Fee net investment
income, if any, that exceeds 1.875% in any fiscal quarter (7.5% annualized) without any catch-up
provision.
These calculations will be appropriately pro rated when such calculations are applicable for
any period of less than three months.
(ii) The second part of the Incentive Fee (the “Capital Gains Fee”) will be determined and
payable in arrears as of the end of each fiscal year (or upon termination of this Agreement as set
forth below), commencing with the fiscal year ending on February 28, 2011, and is calculated at the
end of each applicable year by subtracting (1) the sum of the Company’s cumulative aggregate
realized capital losses and aggregate unrealized capital depreciation from (2) the Company’s
cumulative aggregate realized capital gains, in each case calculated from May 31, 2010 (the
“Commencement Date”). If such amount is positive at the end of such year, then the Capital Gains
Fee for such year is equal to 20% of such amount, less the cumulative aggregate amount of Capital
Gains Fees paid in all prior years. If such amount is negative, then
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there is no Capital Gains Fee
for such year. If this Agreement shall terminate as of a date that is not a fiscal year end, the
termination date shall be treated as though it were a fiscal year end for purposes of calculating
and paying a Capital Gains Fee.
For purposes of this Section 3(b)(ii):
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 Company’s 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 differences,
if negative, between (a) the net sales price of each investment in the Company’s portfolio when
sold and (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 Company’s portfolio as of the
applicable Capital Gains Fee calculation date and (b) the accreted or amortized cost basis of such
investment.
The accreted or amortized cost basis of an investment shall mean, with respect to an
investment owned by the Company as of the Commencement Date, the fair value of such investment as
of the Commencement Date as set forth on Schedule A hereto and, with respect to an investment
acquired by the Company subsequent to the Commencement Date, the accreted or amortized cost basis
of such investment as reflected in the Company’s financial statements.
4. Covenants of the Investment Adviser.
The Investment Adviser represents that it is registered as an investment adviser under the
Advisers Act and 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 Investment 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 Investment 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. Limitations on the Employment of the Investment Adviser.
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The services of the Investment Adviser to the Company are not exclusive, and the Investment
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, and nothing in this Agreement shall limit or restrict the right of
any member, manager, partner, officer or employee of the Investment 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). So long as this Agreement or any
extension, renewal or amendment remains in effect, the Investment Adviser shall be the only
investment adviser for the Company, subject to the
Investment Adviser’s right to enter into sub-advisory agreements. The Investment Adviser
assumes no responsibility under this Agreement other than to render the services called for
hereunder. It is understood that directors, officers, employees or shareholders of the Company are
or may become interested in the Investment Adviser and its affiliates, as directors, officers,
employees, partners, stockholders, members, managers or otherwise, and that the Investment Adviser
and directors, officers, employees, partners, stockholders, members and managers of the Investment
Adviser and its affiliates are or may become similarly interested in the Company as shareholders or
otherwise.
7. Responsibility of Dual Directors, Officers and/or Employees.
If any person who is a member, manager, partner, officer or employee of the Investment Adviser
or the Administrator is or becomes a director, officer and/or employee of the Company and acts as
such in any business of the Company, then such member, manager, partner, officer and/or employee of
the Investment Adviser or the Administrator shall be deemed to be acting in such capacity solely
for the Company, and not as a member, manager, partner, officer or employee of the Investment
Adviser or the Administrator or under the control or direction of the Investment Adviser or the
Administrator, even if paid by the Investment Adviser or the Administrator.
8. Limitation of Liability of the Investment Adviser; Indemnification.
The Investment Adviser, its partners and their respective officers, managers, partners,
agents, employees, controlling persons, members and any other person affiliated with any of them
(collectively, the “Indemnified Parties”), shall not be liable to the Company for any action taken
or omitted to be taken by the Investment 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 except to the extent such
action or omission constitutes gross negligence, willful misfeasance, bad faith or reckless
disregard of its duties and obligations under this Agreement. The Company shall indemnify, defend
and protect the Indemnified Parties (each of whom shall be deemed a third party beneficiary hereof)
and hold them harmless from and against all damages, liabilities, costs
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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 Investment Adviser’s
duties or obligations under this Agreement or otherwise as an investment adviser of the Company.
Notwithstanding the foregoing provisions 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 security holders to which the Indemnified Parties would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance of any Indemnified
Party’s duties or by reason of the reckless disregard of the Investment 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 SEC or its staff thereunder). For the
avoidance of doubt, none of the Indemnified Parties
will be liable for trade errors, such as errors in the investment decision-making process
(e.g., a transaction was effected in violation of the Company’s investment guidelines) or in the
trade process (e.g., a buy order was entered instead of a sell order, or the wrong security was
purchased or sold, or a security was purchased or sold in an amount or at a price other than the
correct amount or price), other than those trade errors resulting from an Indemnified Party’s gross
negligence, willful misfeasance, bad faith or reckless disregard of its duties and obligations
under this Agreement.
9. Effectiveness, Duration and Termination of Agreement.
(a) This Agreement shall become effective as of the first date above written. This Agreement
shall remain in effect for two years after such date, 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 shareholders holding 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 party to this Agreement, in accordance with
the requirements of the Investment Company Act.
(b) This Agreement may be terminated at any time, without the payment of any penalty, upon 60
days’ written notice, by the vote of shareholders holding a majority of the outstanding voting
securities of the Company, or by the vote of the Company’s Directors or by the Investment Adviser.
(c) 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).
(d) The provisions of Section 8 of this Agreement shall remain in full force and effect, and
the Investment Adviser and the other Indemnified Parties 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 Investment Adviser shall be entitled
to any amounts due and payable under Section 3 through the date of termination or expiration.
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11. Amendments of this Agreement.
This Agreement may not be amended or modified except by an instrument in writing signed by all
parties hereto, but the consent of the Company must be obtained in conformity with the requirements
of the Investment Company Act.
12. Governing Law.
This Agreement shall be governed by, and construed in accordance with, the laws of the State
of New York, including without limitation Sections 5-1401 and 5-1402 of the New York General
Obligations Law and New York Civil Practice Laws and Rules 327(b), and the applicable provisions of
the Investment Company Act, if any. To the extent that the applicable laws of the State of New
York, or any of the provisions herein, conflict with the applicable provisions of the Investment
Company Act, if any, the latter shall control. The parties unconditionally and irrevocably consent
to the exclusive jurisdiction of the courts located in the State of New York and waive any
objection with respect thereto, for the purpose of any action,
suit or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
13. No Waiver.
The failure of either party to enforce at any time for any period the provisions of or any
rights deriving from this Agreement shall not be construed to be a waiver of such provisions or
rights or the right of such party thereafter to enforce such provisions, and no waiver shall be
binding unless executed in writing by all parties hereto.
14. Severability.
If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced by any law or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially adverse to any party.
15. Headings.
The descriptive headings contained in this Agreement are for convenience of reference only and
shall not affect in any way the meaning or interpretation of this Agreement.
16. Counterparts.
This Agreement may be executed in one or more counterparts, each of which when executed shall
be deemed to be an original instrument and all of which taken together shall constitute one and the
same agreement.
17. Notices.
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All notices, requests, claims, demands and other communications hereunder shall be in writing
and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by
delivery in person, by overnight courier service (with signature required), by facsimile, or by
registered or certified mail (postage prepaid, return receipt requested) to the respective parties
at their respective principal executive office addresses, c/o Chief Financial Officer.
18. Entire Agreement.
This Agreement constitutes the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written and oral, between
the parties with respect to such subject matter.
19. Certain Matters of Construction.
(a) The words “hereof”, “herein”, “hereunder” and words of similar import shall refer to this
Agreement as a whole and not to any particular Section or provision of this Agreement, and
reference to a particular Section of this Agreement shall include all subsections thereof.
(b) Definitions shall be equally applicable to both the singular and plural forms of the terms
defined, and references to the masculine, feminine or neuter gender shall include each other
gender.
(c) The word “including” shall mean including without limitation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the
date above written.
GSC INVESTMENT CORP. |
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By: | /s/ Xxxx X. Xxxxxxxxxxx | |||
Name: | Xxxx X. Xxxxxxxxxxx | |||
Title: | President & CEO | |||
SARATOGA INVESTMENT ADVISORS, LLC |
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By: | /s/ Xxxxxxx X. Xxxxxxxxxx | |||
Name: | Xxxxxxx X. Xxxxxxxxxx | |||
Title: | Managing Director | |||
[Signature page to Investment Advisory and Management Agreement]