Business Context and Reporting Period
This Form 8-K is a current report filed by HMS Income Fund, Inc. (the "Company") on December 30, 2013. The filing discloses the entry into two material definitive agreements with HMS Adviser LP (the "HMS Adviser") and Main Street Capital Corporation (the "Sub-Adviser") regarding fee waivers and expense support.
Key Financial Metrics
This filing does not contain specific financial statements, revenue figures, profit margins, cash flow data, or debt levels. The document focuses exclusively on the terms of contractual agreements affecting future expense recognition and fee structures.
Material Changes and Agreements
- Extension of Fee Waiver: The Company amended its Conditional Fee Waiver Agreement. The HMS Adviser agreed to extend its waiver of base management and incentive fees through December 31, 2014. The Sub-Adviser's waiver expired on December 31, 2013. The waiver is discretionary and may be triggered if distributions are deemed a return of capital.
- Expense Support Agreement: The Company entered into an Expense Support and Conditional Reimbursement Agreement with the HMS Adviser. The Adviser agreed to pay up to 100% of the Company's operating expenses for the period of January 1, 2014, through March 31, 2014, to help achieve an "Operating Expense Objective."
- Reimbursement Terms:
- Mandatory Reimbursement: If the Company exceeds the Operating Expense Objective for the year ending December 31, 2014, it must reimburse the Adviser for the support payments.
- Conditional Reimbursement: Unreimbursed amounts may be repaid if the Board determines the Company has achieved the Operating Expense Objective in a future calendar quarter.
- Permanent Waiver: Any unreimbursed support payments remaining after three years will be permanently waived.
Outlook, Risks, and Management Commentary
The agreements indicate management's intent to maintain a reasonable level of operating expenses relative to investment income. The Expense Support Agreement may be terminated by the Company at any time and automatically terminates upon the termination of the Advisory Agreement or the liquidation of the Company. The fee waiver extension is not automatic and remains subject to the Advisers' sole discretion.
Investor Verification Checklist
- Verify the specific definition of the "Operating Expense Objective" as determined by the Board of Directors.
- Review the full text of Exhibit 10.1 (Fee Waiver Amendment) and Exhibit 10.2 (Expense Reimbursement Agreement) for detailed conditions.
- Monitor future filings to determine if the HMS Adviser exercises its discretion to waive fees in 2014.
- Check subsequent quarterly reports to see if the Company triggers mandatory or conditional reimbursements to the HMS Adviser.