Exhibit 10.1
INVESTMENT MANAGEMENT
AGREEMENT
AGREEMENT, dated as of June 22,
2008, between BlackRock Kelso Capital Corporation, a Delaware
corporation (the “BDC”), and BlackRock Kelso Capital
Advisors LLC (the “Advisor”), a Delaware limited
liability company.
WHEREAS, Advisor has agreed to
furnish investment advisory services to the BDC, a business
development company registered under the Investment Company Act of
1940, as amended (the “1940 Act”);
WHEREAS, this Agreement has been
approved in accordance with the provisions of the 1940 Act, and the
Advisor is willing to furnish such services upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of
the mutual premises and covenants herein contained and other good
and valuable consideration, the receipt of which is hereby
acknowledged, it is agreed by and between the parties hereto as
follows:
1. In General . The Advisor
agrees, all as more fully set forth herein, to act as investment
advisor to the BDC with respect to the investment of the
BDC’s assets and to supervise and arrange for the day-to-day
operations of the BDC and the purchase of securities for and the
sale of securities held in the investment portfolio of the
BDC.
2. Duties and Obligations of the
Advisor with Respect to Investment of Assets of the BDC
.
(a) Subject to the succeeding
provisions of this paragraph and subject to the direction and
control of the BDC’s Board of Directors, the Advisor shall
(i) act as investment advisor for and supervise and manage the
investment and reinvestment of the BDC’s assets and in
connection therewith have complete discretion in purchasing and
selling securities and other assets for the BDC and in voting,
exercising consents and exercising all other rights appertaining to
such securities and other assets on behalf of the BDC;
(ii) supervise continuously the investment program of the BDC
and the composition of its investment portfolio;
(iii) arrange, subject to the provisions of Section 3(b)
hereof, for the purchase and sale of securities and other assets
held in the investment portfolio of the BDC; and (iv) oversee
the administration of all aspects of the BDC’s business and
affairs and provide, or arrange for others whom it believes to be
competent to provide, certain services as specified in paragraph
(b) below. Nothing contained herein shall be construed to
restrict the BDC’s right to hire its own employees or to
contract for administrative services to be performed by third
parties, including but not limited to, the calculation of the net
asset value of the BDC’s shares.
(b) Except to the extent provided
for directly by the BDC, the specific services to be provided or
arranged for by the Advisor for the BDC pursuant to paragraph
(a)(iv) above are (i) maintaining the BDC’s books and
records, to the extent not maintained by the BDC’s custodian,
transfer agent and dividend disbursing agent in accordance with
applicable laws and regulations; (ii) initiating all money
transfers to the
BDC’s custodian and from the BDC’s
custodian for the payment of the BDC’s expenses, investments
and dividends; (iii) reconciling account information and
balances among the BDC’s custodian, transfer agent and
dividend disbursing agent; (iv) preparing all governmental
filings by the BDC and all reports by the BDC to its shareholders;
(v) supervising the calculation of the net asset value of the
BDC’s shares; and (vi) preparing notices and agendas for
meetings of the BDC’s shareholders and the BDC’s Board
of Directors as well as minutes of such meetings in all matters
required by applicable law to be acted upon by the Board of
Directors.
(c) In the performance of its duties
under this Agreement, the Advisor shall at all times use all
reasonable efforts to conform to, and act in accordance with, any
requirements imposed by (i) the provisions of the Investment
Company Act of 1940 (the “Act”), and of any rules or
regulations in force thereunder; (ii) any other applicable
provision of law; (iii) the provisions of the Certificate of
Incorporation and the By-Laws of the BDC, as such documents are
amended from time to time; (iv) the investment objectives,
policies and restrictions applicable to the BDC as set forth in the
BDC’s Private Placement Memorandum; and (v) any policies
and determinations of the Board of Directors of the BDC.
(d) The Advisor will seek to provide
qualified personnel to fulfill its duties hereunder and, except as
set forth in the following sentence, will bear all costs and
expenses incurred in connection with its investment advisory duties
thereunder. The BDC shall reimburse the Advisor for all direct and
indirect cost and expenses incurred by the Advisor (i) for
office space rental, office equipment and utilities allocable to
performance of investment advisory and non investment advisory
administrative or operating services hereunder by the Advisor and
(ii) allocable to any non-investment advisory administrative
or operating services provided by the Advisor hereunder, including
salaries, bonuses, health insurance, retirement benefits and all
similar employment costs, such as office equipment and other
overhead items. All allocations made pursuant to this paragraph
(d) shall be made pursuant to allocation guidelines approved
from time to time by the Board of Directors. The BDC shall also be
responsible for the payment of all the BDC’s other expenses,
including (i) payment of the fees payable to the Advisor under
Section 8 hereof; (ii) organizational expenses;
(iii) brokerage fees and commissions; (iv) taxes;
(v) interest charges on borrowings; (vi) the cost of
liability insurance or fidelity bond coverage for the BDC’s
officers and employees, and directors’ and officers’
errors and omissions insurance coverage; (vii) legal, auditing
and accounting fees and expenses; (viii) charges of the
BDC’s administrator (if any), custodian, transfer agent and
dividend disbursing agent and any other service providers;
(ix) the BDC’s dues, fees and charges of any trade
association of which the BDC is a member; (x) the expenses of
printing, preparing and mailing proxies, stock certificates,
reports, prospectuses, registration statements and other documents
used by the BDC; (xi) expenses of registering and offering
securities of the BDC under applicable law; (xii) the expenses
of holding shareholder meetings; (xiii) the compensation,
including fees, of any of the BDC’s directors, officers or
employees who are not affiliated persons of the Advisor;
(xiv) all expenses of computing the BDC’s net asset
value per share; (xv) litigation and indemnification and other
extraordinary or non recurring expenses; and (xvi) all other
non investment advisory expenses of the BDC.
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(e) The Advisor shall give the BDC
the benefit of its professional judgment and effort in rendering
services hereunder, but neither the Advisor nor any of its
officers, directors, employees, agents or controlling persons shall
be liable for any act or omission or for any loss sustained by the
BDC in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of
its reckless disregard of its obligations and duties under this
Agreement; provided, however, that the foregoing shall not
constitute a waiver of any rights which the BDC may have which may
not be waived under applicable law.
3. Covenants . (a) In
the performance of its duties under this Agreement, the Advisor
shall at all times conform to, and act in accordance with, any
requirements imposed by: (i) the provisions of the 1940 Act
and the Investment Advisers Act of 1940, as amended, and all
applicable Rules and Regulations of the Securities and Exchange
Commission; (ii) any other applicable provision of law;
(iii) the provisions of the Certificate of Incorporation and
By-Laws of the BDC, as such documents are amended from time to
time; (iv) the investment objectives and policies of the BDC
as set forth in its Private Placement Memorandum; and (v) any
policies and determinations of the Board of Directors of the
BDC.
(b) In addition, the Advisor
will:
(i) place orders either directly
with the issuer or with any broker or dealer. Subject to the other
provisions of this paragraph, in placing orders with brokers and
dealers, the Advisor will attempt to obtain the best price and the
most favorable execution of its orders. In placing orders, the
Advisor will consider the experience and skill of the firm’s
securities traders as well as the firm’s financial
responsibility and administrative efficiency. Consistent with this
obligation, the Advisor may select brokers on the basis of the
research, statistical and pricing services they provide to the BDC
and other clients of the Advisor. Information and research received
from such brokers will be in addition to, and not in lieu of, the
services required to be performed by the Advisor hereunder. A
commission paid to such brokers may be higher than that which
another qualified broker would have charged for effecting the same
transaction, provided that the Advisor determines in good faith
that such commission is reasonable in terms either of the
transaction or the overall responsibility of the Advisor to the BDC
and its other clients and that the total commissions paid by the
BDC will be reasonable in relation to the benefits to the BDC over
the long term. In addition, the Advisor is authorized to take into
account the sale of shares of the BDC in allocating purchase and
sale orders for portfolio securities to brokers or dealers
(including brokers and dealers that are affiliated with the
Advisor), provided that the Advisor believes that the quality of
the transaction and the commission are comparable to what they
would be with other qualified firms. In no instance, however, will
the BDC’s securities be purchased from or sold to the
Advisor, or any affiliated person thereof, except to the extent
permitted by the SEC or by applicable law;
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(ii) maintain a policy and practice
of conducting its investment advisory services hereunder
independently of the commercial banking operations of its
affiliates. When the Advisor makes investment recommendations for
the BDC, its investment advisory personnel will not inquire or take
into consideration whether the issuer of securities proposed for
purchase or sale for the BDC’s account are customers of the
commercial department of its affiliates; and
(iii) treat confidentially and as
proprietary information of the BDC all records and other
information relative to the BDC, and the BDC’s prior, current
or potential shareholders, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior
notification to and approval in writing by the BDC, which approval
shall not be unreasonably withheld and may not be withheld where
the Advisor may be exposed to civil or criminal contempt
proceedings for failure to comply, when requested to divulge such
information by duly constituted authorities, or when so requested
by the BDC.
4. Services Not Exclusive .
Nothing in this Agreement shall prevent the Advisor or any officer,
employee or other affiliate thereof from acting as investment
advisor for any other person, firm or corporation, or from engaging
in any other lawful activity, and shall not in any way limit or
restrict the Advisor or any of its officers, employees or agents
from buying, selling or trading any securities for its or their own
accounts or for the accounts of others for whom it or they may be
acting; provided , however , that the Advisor will
undertake, and will cause its employees to undertake, no activities
which, in its judgment, will adversely affect the performance of
the Advisor’s obligations under this Agreement.
5. Books and Records . In
compliance with the requirements of Rule 31a-3 under the 1940 Act,
the Advisor hereby agrees that all records which it maintains for
the BDC are the property of the BDC and further agrees to surrender
promptly to the BDC any such records upon the BDC’s request.
The Advisor further agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. Agency Cross Transactions
. From time to time, the Advisor or brokers or dealers affiliated
with it may find themselves in a position to buy for certain of
their brokerage clients (each an “Account”) securities
which the Advisor’s investment advisory clients wish to sell,
and to sell for certain of their brokerage clients securities which
advisory clients wish to buy. Where one of the parties is an
advisory client, the Advisor or the affiliated broker or dealer
cannot participate in this type of transaction (known as a cross
transaction) on behalf of an advisory client and retain commissions
from one or both parties to the transaction without the advisory
client’s consent. This is because in a situation where the
Advisor is making the investment decision (as opposed to a
brokerage client who makes his own investment decisions), and the
Advisor or an affiliate is receiving commissions from both sides of
the transaction, there is a potential conflicting division of
loyalties and responsibilities on the Advisor’s part
regarding the
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advisory client. The SEC has adopted a rule
under the Investment Advisers Act of 1940, as amended, which
permits the Advisor or its affiliates to participate on behalf of
an Account in agency cross transactions if the advisory client has
given written consent in advance. By execution of this Agreement,
the BDC authorizes the Advisor or its affiliates to participate in
agency cross transactions involving an Account. The BDC may revoke
its consent at any time by written notice to the
Advisor.
7. Expenses . During the term
of this Agreement, the Advisor will bear all costs and expenses of
its employees and any overhead incurred in connection with its
duties hereunder and shall bear the costs of any salaries or
Directors’ fees of any officers or Directors of the BDC who
are affiliated persons (as defined in the 1940 Act) of the Advisor;
provided that the Board of Directors of the BDC may approve
reimbursement to the Advisor of the pro rata portion of the
salaries, bonuses, health insurance, retirement benefits and all
similar employment costs for the time spent on BDC operations
(other than the provision of investment advice and administrative
services required to be provided hereunder) of all personnel
employed by the Advisor who devote substantial time to BDC
operations or the operations of other investment companies advised
by the Advisor.
8. Compensation of the
Advisor .
(a) The Advisor, for its services to
the BDC, will be entitled to receive a management fee (the
“Management Fee”) from the BDC. The Management Fee will
be calculated at an annual rate of 2.00% of total assets. The
Management Fee will be paid quarterly in arrears based on the asset
valuation as of the end of the prior quarter.
(b) For purposes of this Agreement,
the assets and net assets of the BDC shall be calculated pursuant
to the procedures adopted by resolutions of the Directors of the
BDC for calculating the value of the BDC’s assets or
delegating such calculations to third parties.
(c) The Advisor will be entitled to
receive additional compensation (the “Incentive Fee”)
if performance of the BDC exceeds the Hurdle during different
measurement periods: the Pre-Offering Period; the Transition
Period; each Trailing Four Quarter Period (which will apply only to
the portion of the Incentive Fee based on income) and each Annual
Period (which will apply only to the portion of the Incentive Fee
based on capital gains), as follows:
(i) Incentive Fee Based on
Income .
(A) The portion of the Incentive Fee
based on income will be calculated separately for each of three
measurement periods: the Pre-Offering Period; the Transition
Period; and each Trailing Four Quarter Period. For each such
period, the Advisor will be entitled to receive an Incentive Fee
based on the amount by which (1) aggregate distributions and
amounts distributable out of taxable net income (excluding any
capital gain and loss) during the period less, as applicable
(x) the amount, if any, by which net
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unrealized capital depreciation
during the period exceeds net realized capital gains during the
period or (y) the amount, if any, equal to the sum of net
unrealized capital depreciation during the period plus net realized
capital loss during the period exceeds (2) the Hurdle for the
period. The amount of the excess of (1) over
(2) described in this paragraph (A) for each period shall
be referred to as the “Excess Income
Amount”.
(B) The portion of the Incentive Fee
based on income for each period will equal 50% of the
period’s Excess Income Amount, until the cumulative Incentive
Fee payments for the period equals 20% of the period’s Excess
Income Amount distributed or distributable to the BDC’s
stockholders. Thereafter, the portion of the Incentive Fee based on
income for the period will equal an amount such that the cumulative
Incentive Fee payments to the Advisor during the period based on
income equals 20% of the period’s Excess Income Amount. The
portion of the Incentive Fee based on income will be paid on a
quarterly basis during each of the Pre-Offering Period, the
Transition Period and the Trailing Four Quarter Period and will be
reduced for each quarter in a period (other than the first quarter
of each period) by the amount of the Incentive Fee based on income
paid in respect of each earlier quarter in the respective
period.
(ii) Incentive Fee Based on
Capital Gains .
(A) The portion of the Incentive Fee
based on capital gains will be calculated separately for each of
two periods: the Pre-Offering Period and for each Annual Period.
For each such period, the Advisor will be entitled to receive an
Incentive Fee based on the amount by which (1) the BDC’s
net realized capital gains occurring during the period, if any,
exceeds (2) the sum of (x) its unrealized capital
depreciation, if any, occurring during the period and (y) the
amount, if any, by which the Hurdle for the period exceeds the
amount of income used in determination of the portion of the
Incentive Fee based on income for the period. The amount of the
excess of (1) over (2) described in this paragraph
(A) shall be referred to as the “Excess Gain
Amount”.
(B) The portion of the Incentive Fee
based on capital gains for each period will equal 50% of the
period’s Excess Gain Amount, until such payments equal 20% of
the period’s Excess Gain Amount distributed or distributable
to the BDC’s stockholders. Thereafter, the portion of the
Incentive Fee based on capital gains for the period will equal an
amount such that the portion of the Incentive Fee payments to the
Advisor based on capital gains for the period will equal 20% of the
period’s Excess Gain Amount. The portion of the Incentive Fee
based on capital gains will be calculated and paid (1) on a
quarterly basis during the Pre-Offering Period and will be reduced
for each quarter during the Pre-Offering Period (other than the
first quarter of the period) by the amount of the Incentive Fee
based on capital gains paid in respect of each earlier quarter in
the Pre-Offering Period and (2) on an annual basis for each
Annual Period.
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(iii) In calculating the portion of
the Incentive Fee based on capital gains payable for any period,
the BDC’s investments shall be accounted for on a
security-by-security basis. In addition, the portion of the
Incentive Fee based on capital gains will be determined using the
“period-to-period” method pursuant to which the portion
of the Incentive Fee based on capital gains for any period will be
based on realized capital gains for the period reduced by realized
capital losses and unrealized capital depreciation for the
period.
(iv) The calculation of the
Incentive Fee described above in this Section 8(c) is
illustrated in the examples attached to this Agreement in Annex A.
In the event of a conflict between the language above and the
examples, the examples shall prevail.
(v) Notwithstanding anything else
set forth herein, the Incentive Fee shall not include any amounts
of capital gain that would violate Section 205(b)(3) of the
Investment Advisers Act of 1940 as interpreted from time to time by
the Securities and Exchange Commission or its staff.
(d) For purposes of
Section 8(c), the following terms shall have the meanings
ascribed to them below:
(i) “Annual Period”
means the period beginning on the first day of the calendar quarter
in which the Public Market Event occurs (i.e., July 1, 2007
because the initial public offering closed on July 2, 2007)
and ending on the last day prior to the anniversary of such date
(i.e., June 30, 2008) and thereafter beginning on July 1
of each calendar year and ending on June 30 of the next
calendar year;
(ii) “Hurdle” for any
period means the product of 2% times the sum of the net asset
values of the BDC attributable to its common shares as of the
beginning of each calendar quarter (or as of the Ramp-Up Date in
the calendar quarter in which the Ramp-Up Date occurs) during the
respective period calculated after giving effect to any
distributions paid in respect of the BDC’s common shares
during that period;
(iii) “Pre-Offering
Period” means the period beginning on July 25, 2006, the
first anniversary of the date the BDC commenced operations, and
ending on the last day prior to the calendar quarter in which the
Public Market Event occurs (i.e., June 30, 2007 because the
initial public offering closed on July 2, 2007);
(iv) “Public Market
Event” means the completion by the BDC of an initial public
offering of its common shares registered under the Securities Act
of 1933 and the commencement of trading of such common shares on a
national securities exchange or market;
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(v) “Ramp-up Date” means
the first anniversary of the date on which the BDC first draws
funds under accepted subscriptions for its common
shares;
(vi) “Trailing Four Quarter
Period” means the four quarter period ending on the last day
of the calendar quarter in which the first anniversary of the
Public Market Event occurs and, thereafter, the four quarter period
ending on the last day of each subsequent calendar quarter;
and
(vii) “Transition
