FAIRHOLME FUNDS, INC. INVESTMENT MANAGEMENT AGREEMENT THE FAIRHOLME FOCUSED INCOME FUND
FAIRHOLME
FUNDS, INC.
THE
FAIRHOLME FOCUSED INCOME FUND
This
Agreement is made and entered into as of the ______ of __________, 2009, by and
between Fairholme Funds, Inc., a Maryland corporation (the "Company"), on behalf
of The Fairholme Focused Income Fund series (the "Portfolio"), and Fairholme
Capital Management, L.L.C., a Delaware limited liability company
("Manager").
WHEREAS,
the Company is an open-end management investment company, registered as such
under the Investment Company Act of 1940, as amended (the "Act"), and is
authorized to issue shares of common stock representing interests in the
Portfolio; and
WHEREAS,
Manager is registered as an investment adviser under the Investment Advisers Act
of 1940 and engages in the business of asset management; and
WHEREAS,
the Company desires to retain Manager to render certain investment management
services to the Portfolio pursuant to the terms of this Agreement, and Manager
is willing to render such services;
NOW
THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. OBLIGATIONS
OF MANAGER
(A) INVESTMENT
ADVISORY SERVICES. The Company hereby appoints Manager, and Manager hereby
accepts such appointment, to provide the following investment
advisory services (the "Investment Advisory Services") to the
Portfolio:
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(1)
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manage
the investment and reinvestment of the Portfolio's
assets;
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(2)
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continuously
review, supervise, and administer the investment program of the
Portfolio;
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(3)
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determine,
in its discretion, the securities to be purchased, retained or sold for
the Portfolio and implement those decisions for the
Portfolio;
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(4)
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if
applicable, vote proxies for the Portfolio and file beneficial ownership
reports required by Section 13(d) of the Securities Exchange Act of 1934,
as amended, for the Portfolio;
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(5)
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maintain
books and records with respect to Manager's activities for the Portfolio,
including the Portfolio's securities transactions, which the Company is
required to maintain; and
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(6)
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render
regular reports to the Company's officers and directors concerning
Manager's discharge of the foregoing responsibilities with respect to the
Portfolio.
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Manager
shall discharge the foregoing responsibilities subject to the general
supervision and control of the officers and the directors of the Company and in
compliance with such policies as the directors may from time to time establish
for the Portfolio, and in compliance with the objectives, policies, and
limitations of the Portfolio set forth in its prospectus and statement of
additional information, as amended from time to time, included in the Company's
registration statement and with all applicable laws and regulations. All
Investment Advisory Services to be furnished by Manager under this Agreement may
be furnished through the medium of any directors, officers or employees of
Manager or through such other parties as Manager may determine from time to
time.
(B) OPERATING
SERVICES. The Company hereby appoints Manager, and Manager hereby accepts such
appointment, to provide, or, upon receipt of written approval of the Company
arrange for other companies to provide, the following services to the Portfolio
in the manner and to the extent that such services are reasonably necessary for
the operation of the Portfolio (collectively, the "Operating Services" and
together with Investment Advisory Services, the "Services"):
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(1)
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accounting
services and functions, including costs and expenses of any independent
public accountants;
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(2)
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non-litigation
related legal and compliance services, including the expenses of
maintaining registration and qualification of the Fund and the Portfolio
under federal, state and any other applicable laws and
regulations;
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(3)
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dividend
disbursing agent, dividend reinvestment agent, transfer agent, and
registrar services and functions (including answering inquiries related to
shareholder Portfolio accounts);
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(4)
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custodian
and depository services and
functions;
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(5)
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distribution,
marketing, and/or underwriting
services;
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(6)
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independent
pricing services;
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(7)
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preparation
of reports describing the operations of the Portfolio, including the costs
of providing such reports to broker-dealers, financial institutions and
other organizations which render services and assistance in connection
with the distribution of shares of the
Portfolio;
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(8)
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sub-accounting
and recordkeeping services and functions (other than those books and
records required to be maintained by Manager under Paragraph 1(A) above),
including maintenance of shareholder records and shareholder information
concerning the status of their Portfolio accounts by investment advisors,
broker-dealers, financial institutions, and other organizations on behalf
of Manager;
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(9)
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shareholder
and board of directors communication services, including the costs of
preparing, printing and distributing notices of shareholders' meetings,
proxy statements, prospectuses, statements of additional information,
Portfolio reports, and other communications to the Portfolio's
shareholders, as well as all expenses of shareholders' and board of
directors' meetings, including the compensation and reimbursable expenses
of the directors of the Fund;
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(10)
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other
day-to-day administrative services, including the costs of designing,
printing, and issuing certificates representing shares of the Portfolio,
and premiums for the fidelity bond maintained by the Fund for the
Portfolio pursuant to Section 17(g) of the Act and rules promulgated
thereunder (except for such premiums as may be allocated to third parties,
as insureds thereunder); and
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(11)
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a
call center in order to respond to information and transaction requests
from existing and potential shareholders of the
Portfolio.
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Manager's
obligation to provide any of the Operating Services directly to the Portfolio is
subject to Manager's legal qualification to provide such Operating Service to
registered, open-end management investment companies, and nothing herein shall
require Manager to register with the Securities and Exchange Commission or any
state regulator in order to perform such Operating Service
directly.
Manager
shall not make payments for Portfolio distribution and marketing services, which
shall include payments in connection with the Operating Services set forth in
Paragraph 1(B)(5) above and may include payments in connection with the
Operating Services set forth in Paragraph 1(B)(11) above, from the compensation
Manager receives pursuant to this Agreement.
(C) EXCLUSIONS
FROM SERVICES. Except to the extent expressly assumed by Manager in Paragraphs
1(A) and 1(B) above and except to the extent required by law to be paid by the
Manager, the Company shall pay all costs and expenses in connection with its
operation and organization and those of the Portfolio, including:
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(1)
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all
brokers' commissions, issue and transfer taxes, and other costs chargeable
to the Company or the Portfolio in connection with securities transactions
to which the Company or the Portfolio is a party or in connection with
securities owned by the Company or the
Portfolio;
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(2)
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the
interest on indebtedness, if any, incurred by the Company or the
Portfolio;
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(3)
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the
taxes, including franchise, income, issue, transfer, business license, and
other corporate fees payable by the Fund or the Portfolio to federal,
state, county, city, or other governmental
agents;
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(4)
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the
expenses, including fees and disbursements of counsel, in connection with
litigation by or against the Company or the Portfolio;
and
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(5)
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any
other extraordinary expense of the Company or
Portfolio.
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(D) BOOKS
AND RECORDS. All books and records prepared and maintained by Manager for the
Portfolio under this Agreement shall be the property of the Fund and, upon
request therefor, Manager shall surrender to the Company such of the books and
records so requested. Manager shall preserve for the periods prescribed by Rule
31a-2 under the Act those records required by Rule 31a-1 that it retains for the
Company.
(E) STAFF
AND FACILITIES. Manager agrees, at its own expense or at the expense of one or
more of its affiliates, to render the Services and to provide the office space,
furnishings, equipment and personnel as may be reasonably required in the
judgment of the Board of Directors of the Company to perform the Services on the
terms and for the compensation provided herein. Manager shall authorize and
permit any of its officers, directors and employees, who may be elected as
directors or officers of the Company, to serve in the capacities in which they
are elected.
2. PORTFOLIO
TRANSACTIONS. Manager is authorized to select the brokers or dealers that will
execute the purchases and sales of securities for the
Portfolio. Manager shall seek best execution of such
transactions. In selecting brokers to effect transactions for the
Portfolio, the determination of what is expected to result in best execution
involves a number of considerations. Among these are the Manager's evaluation of
the broker-dealer's efficiency in executing and clearing transactions, the rate
of commission or the size of the broker-dealer's spread, the size and difficulty
of the order, the nature of the market for the security, and operational
capabilities of the broker-dealer. The Manager will not take into
account the sale of Portfolio shares when selecting brokers to execute
transactions for the Portfolio.
Manager
may, in its discretion, purchase and sell portfolio securities from and to
brokers and dealers who provide the Portfolio and any other account over which
the Manager exercises investment discretion with research and brokerage services
(as those terms are defined in Section 28(e) of the Securities and Exchange Act
of 1934 and interpretations thereunder), and Manager may pay to these brokers
and dealers, in return for research and brokerage services, a higher commission
or spread than may be charged by other brokers and dealers for that transaction,
provided that Manager determines in good faith that such commission is
reasonable relative to the value of the research and brokerage services provided
by such broker or dealer as viewed in terms either of that particular
transaction or of the overall responsibility of Manager to the Portfolio and its
other clients. Manager will promptly communicate to the officers and the
directors of the Company such information relating to portfolio transactions as
they may reasonably request.
When
Manager deems the purchase or sale of a security or other investment to be in
the best interests of the Portfolio and other advisory clients, Manager may, to
the extent permitted by applicable laws and regulations, aggregate orders for
the Portfolio and those other advisory clients for the purchase or sale of the
security or other investment. In such event, allocation of the
securities or investment so purchased or sold, as well as the expenses incurred
in the transaction, will be made by Manager in the manner it considers to be
most equitable and consistent with its fiduciary obligations to the Portfolio
and to such other clients.
3. COMPENSATION
OF MANAGER. The Company will pay to Manager on the last day of each month a fee
at an annual rate equal to 1.00% of the daily average net assets of the
Portfolio, such fee to be computed daily based upon the net assets of the
Portfolio as determined by a valuation made in accordance with the Company's
procedures for calculating Portfolio net asset value as described in the
Portfolio's Prospectus and/or Statement of Additional Information. During any
period when the determination of the Portfolio's net asset value is suspended by
the directors of the Company, the net asset value of a share of the Portfolio
and the corresponding value of the net assets of the Portfolio as of the last
business day prior to such suspension shall, for the purpose of this Paragraph
3, be deemed to be net asset value per share and value of the net assets of the
Portfolio, respectively, at the close of each succeeding business day until it
is again determined.
The
Manager may reduce or waive any portion of the fee due to it pursuant to this
Agreement (the "Management Fee"), or otherwise agree to make payments to limit
certain operating expenses of the Portfolio. The Manager retains its
right to receive reimbursement of any amount ("Waived Amount") corresponding to
its reduction or waiver of the Management Fee or to its payment of operating
expenses of the Portfolio. Any such Waived Amount is subject to
reimbursement by the Company, on behalf of the Portfolio, to the Manager, if so
requested by the Manager, in subsequent fiscal years provided that the aggregate
amount paid by the Portfolio for its operating expenses for such fiscal year
(taking into account any reimbursement) does not exceed the applicable
limitation on such expenses for that year or, if no such limitation is effective
for that year, the Management Fee payable by the Company, on behalf of the
Portfolio, to the Manager for that year. The Manager may recoup
from the Portfolio reimbursement of any Waived Amount made in any fiscal year of
the Portfolio over the following three fiscal years of the
Portfolio. Any such reimbursement is contingent upon the review and
approval of the Board of Directors of the Company at time the reimbursement is
made.
4. STATUS
OF MANAGER. The services of Manager to the Company and the Portfolio are not to
be deemed exclusive, and Manager shall be free to render similar services to
others so long as its services to the Company and the Portfolio are not impaired
thereby. Manager shall be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to act for
or represent the Company or the Portfolio in any way or otherwise be deemed an
agent of the Company or the Portfolio. Nothing in this Agreement shall limit or
restrict the right of any director, officer or employee of Manager, who may also
be a director, officer, or employee of the Company, to engage in any other
business or to devote his or her time and attention in part to the management or
other aspects of any other business, whether of a similar nature or a dissimilar
nature.
5. PERMISSIBLE
INTERESTS. Directors, agents, and stockholders of the Company are or may be
interested in Manager (or any successor thereof) as directors, partners,
officers, or stockholders, or otherwise, and directors, partners, officers,
agents, and stockholders of Manager are or may be interested in the Company as
directors, stockholders or otherwise; and Manager (or any successor) is or may
be interested in the Company and the Portfolio as a stockholder or
otherwise.
6. LIABILITY
OF MANAGER. Manager assumes no responsibility under this Agreement other than to
render the services called for hereunder in good faith. Manager shall not be
liable for any error of judgment or for any loss suffered by the Company or the
Portfolio in connection with the matters to which this Agreement relates, except
a loss resulting from a breach of fiduciary duty with respect to receipt of
compensation for Services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the Act) or a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of, or from reckless disregard by it of its obligations and
duties under, this Agreement.
7. TERM.
This Agreement shall become effective at the time the Portfolio commences
operations pursuant to an effective amendment to the Company's registration
statement under the Securities Act of 1933, as amended, and, unless sooner
terminated as provided for herein, shall remain in effect for a period of two
years. This Agreement shall continue in effect thereafter for additional periods
not exceeding one year so long as such continuance is approved at least annually
by (1) the vote of a majority of the Board of Directors of the Company or (2) a
vote of a "majority of the outstanding voting securities" (as that term is
defined in the Act ) of the Portfolio, provided that in either event the
continuance is also approved by the vote of a majority of the directors of the
Company who are not parties to this Agreement or "interested persons" (as
defined in the Act) of any such party, which vote must be cast in person at
meeting called for the purpose of voting on such approval. Notwithstanding the
foregoing, this Agreement may be terminated by:
(A) the
Company on behalf of the Portfolio, at any time and without the payment of any
penalty, upon 60 days prior written notice to Manager; or
(B) Manager,
at any time and without payment of penalty, upon 60 days prior written notice to
the Fund.
This
Agreement shall terminate immediately in the event of its assignment (within the
meaning of the Act and the rules thereunder). The terms of paragraph 6 of this
Agreement shall survive the termination of this Agreement.
8. NOTICES.
Except as otherwise provided in this Agreement, any notice or other
communication required by or permitted to be given in connection with this
Agreement will be in writing and will be delivered in person or sent by first
class mail, postage prepaid or by prepaid overnight delivery service to the
respective parties as follows:
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If to the Fund:
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If to the Manager:
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Fairholme
Funds, Inc.
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Fairholme
Capital Management, LLC
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0000
Xxxxxxxx Xxxx.
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0000
Xxxxxxxx Xxxx.
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0xx
Xxxxx
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0xx
Xxxxx
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Xxxxx,
XX 00000
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Xxxxx,
XX 00000
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Attn:
President
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Attn:
President
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9. AMENDMENTS.
No provision of this Agreement may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the parties hereto. No
material amendment of this Agreement shall be effective until approved by vote
of a majority of the outstanding voting securities of the Fund.
10. MISCELLANEOUS.
This Agreement shall be construed in accordance with the laws of the State of
Maryland and the applicable provisions of the Act. To the extent the
applicable law of the State of Maryland or any of the provisions herein conflict
with the applicable provisions of the Act, the latter shall control. 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.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as
of the day and the year first written above.
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FAIRHOLME
CAPITAL
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FAIRHOLME
FUNDS, INC. on behalf The Fairholme Focused Income Fund
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MANAGEMENT,
LLC
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By:
Xxxxx X. Xxxxxxxxx
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By:
Xxxxxxx X. Xxxxxxxxx
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President
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Chief
Operating Officer
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ATTEST:
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ATTEST:
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By:
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_______________________________
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________________________
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Its:
Secretary
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Its:
Secretary
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[Corporate
Seal]
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[Corporate
Seal]
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SK 22146
0013 1037146
