CONDITIONAL FEE WAIVER AGREEMENT
Exhibit (k)(1)
CONDITIONAL FEE WAIVER AGREEMENT
This Conditional Fee Waiver Agreement (this “Agreement”) is made as of May 31, 2012 by and among HMS Income Fund, Inc. (the “Company”), HMS Adviser LP (the “Adviser”) and Main Street Capital Partners, LLC (the “Sub-Adviser”). The Adviser and the Sub-Adviser are collectively referred to herein as the “Advisers.”
WHEREAS, the Company maintains on file with the U.S. Securities and Exchange Commission (the “SEC”) an effective registration statement on Form N-2, as amended (File No. 333-178548) covering the continuous offering and sale of the Company’s common stock pursuant to the Securities Act of 1933, as amended (the “Registration Statement”);
WHEREAS, the Company and the Adviser have entered into an Investment Advisory and Administrative Services Agreement dated as of May 31, 2012, as amended (the “Advisory Agreement”), and the Company, the Adviser, the Sub-Adviser and Main Street Capital Corporation, the parent company of the Sub-Adviser, have entered into an Investment Sub-Advisory Agreement dated as of May 31, 2012 (the “Sub-Advisory Agreement” and together with the Advisory Agreement, the “Advisory Agreements”); and
WHEREAS, the Company and the Advisers have determined that it is appropriate and in the best interests of the Company for the Advisers to conditionally waive certain fees under the Advisory Agreements to the extent that some or all of the distributions paid to the Company’s stockholders are estimated to represent a return of capital for purposes of U.S. federal income tax, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows:
| 1. | Waived Fees. During the period beginning at the time that the Company’s Registration Statement is declared effective by the SEC and continuing for a period of one (1) year thereafter (the “Fee Waiver Period”), the Advisers hereby agree to waive the Base Management Fee and/or Incentive Fee, proportionally, as each term is defined and further described in the Advisory Agreement, due and payable by the Company to the Advisers in the event the Company estimates that a distribution declared and payable to the Company’s stockholders during the Fee Waiver Period represents, or would represent when paid, a return of capital for purposes of U.S. federal income tax. The amounts waived pursuant to the preceding sentence shall be referred to herein as the “Waived Fees.” The Company shall promptly notify the Advisers of the amount of any Waived Fees and shall deduct the Waived Fees from the amount, if any, otherwise due and payable by the Company to the Adviser pursuant to the terms of the Advisory Agreement (and therefrom payable by the Adviser to the Sub-Adviser pursuant to the Sub-Advisory Agreement) for the applicable month. If the amount owed by the Company to the Adviser pursuant to the Advisory Agreement exceeds the Waived Fees, the Company shall pay any such excess amount to the Adviser in accordance with the terms of the Advisory Agreement (and therefrom payable by the Adviser to the Sub-Adviser pursuant to the Sub-Advisory Agreement). |
| 2. | Conditional Repayment of Waived Fees. To the extent the Company determines it to be reasonable and appropriate, the Company hereby agrees to reimburse the Advisers proportionately for any Waived Fees following any quarter in which the Company’s Net Increase in Net Assets (as hereinafter defined) exceeds the amount of the Company’s cumulative distributions paid to the Company’s stockholders in such calendar quarter (the “Excess Net Increase Net Assets”). If payable, the amount of the reimbursement payment for any calendar quarter shall equal the lesser of (i) the Excess Net Increase in Net Assets in such calendar quarter and (ii) the aggregate amount of all Waived Fees made by the Advisers to the Company within three years prior to the last business day of such calendar quarter that have not been previously reimbursed to the Company (the “Reimbursements Payment”). If payable, the Reimbursement Payment for any calendar quarter shall be paid by the Company no later than forty-five days after the end of such calendar quarter. The repayment of all |
such Waived Fees is to be made within a period not to exceed three (3) years from the end of the fiscal year in which the waiver of such Waived Fees is made. As used herein, “Net Increase in Net Assets” shall mean the sum of (i) the Company’s tax basis net investment income, (ii) taxable net capital gains/losses (whether short-term or long-term), and (iii) dividends and other distributions paid to the Company on account of investments in portfolio companies (to the extent such amounts are not included in clauses (i) and (ii) above. For the avoidance of doubt, operating expenses deducted in calculating tax basis net investment income does not include offering expenses as defined in the Advisory Agreement or any accrued Incentive Fee related to net unrealized appreciation.
| 3. | Term and Termination of Agreement. This Agreement shall become effective immediately upon the date hereof. Once effective, this Agreement shall remain in effect unless otherwise terminated pursuant to Section 3(a) hereof. |
| a. | Termination of Agreement. This Agreement may be terminated by the Advisers upon written notice to the Company, except that once effective, the Advisers may not terminate their obligations under Section 1 hereof. This Agreement shall automatically terminate in the event of (i) the termination by the Company of the Advisory Agreements or (ii) the dissolution or liquidation of the Company. Notwithstanding any provision to the contrary, if this Agreement terminates automatically pursuant to clause (i) of this Section 3(a), the Company agrees to make a repayment to the Advisers in an amount equal to all Waived Fees not previously repaid in accordance with Section 2 hereof. Such repayment shall be made to the Adviser (and shall be repaid by the Adviser to the Sub-Adviser) not later than thirty (30) days after the termination of this Agreement. |
| 4. | Miscellaneous. |
| a. | Headings. The captions of this Agreement are included for convenience only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. |
| b. | Interpretation. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas (without reference to its conflicts of laws provisions) and the applicable provisions of the Investment Company Act of 1940, as amended (the “1940 Act”) and the Investment Advisers Act of 1940, as amended (the “Advisers Act”). To the extent that the applicable laws of the State of Texas or any of the provisions herein, conflict with the applicable provisions of the 1940 Act or the Advisers Act, the latter shall control. Further, nothing herein contained shall be deemed to require the Company to take any action contrary to the Company’s Amended and Restated Articles of Incorporation or By-Laws, as each may be amended or restated, or to relieve or deprive the Board of its responsibility for and control of the conduct of the affairs of the Company. |
| c. | Severability. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. |
| d. | Entire Agreement. This Agreement embodies the entire agreement and understanding of the parties hereto, and supersedes all prior agreements or understandings (whether written or oral), with respect to the subject matter hereof. |
| e. | Amendments and Counterparts. This Agreement may only be amended by mutual written consent of the parties. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall, together, constitute only one instrument. |
[Signature Page to Follow]
[Signature Page to Conditional Fee Waiver Agreement]
IN WITNESS WHEREOF, the parties have caused this Conditional Fee Waiver Agreement to be signed by their respective officers thereunto duly authorized, as of the day and year first above written.
| COMPANY:
| ||
| By: | /s/ Xxxx X. Xxxx | |
| Name: | Xxxx X. Xxxx | |
| Title: | Chief Financial Officer and Secretary | |
| ADVISER:
HMS ADVISER LP
By: HMS ADVISER GP, LLC, its general partner | ||
| By: | /s/ Xxxx X. Xxxx | |
| Name: | Xxxx X. Xxxx | |
| Title: | Chief Financial Officer | |
| SUB-ADVISER:
MAIN STREET CAPITAL PARTNERS, LLC | ||
| By: | /s/ Xxxxxxx X. Xxxxxx | |
| Name: | Xxxxxxx X. Xxxxxx | |
| Title: | Senior Managing Director | |
