Amended and restated INVESTMENT ADVISORY AGREEMENT BETWEEN MORGAN STANLEY direct lending fund AND MS CAPITAL PARTNERS ADVISER INC.
Exhibit (g)(2)
Amended
and restated
INVESTMENT ADVISORY AGREEMENT
BETWEEN
XXXXXX XXXXXXX direct lending fund
AND
MS CAPITAL PARTNERS ADVISER INC.
This Amended and Restated Investment Advisory Agreement (this “Agreement”) is made as of January 24, 2024, by and between Xxxxxx Xxxxxxx Direct Lending Fund, a Delaware corporation (the “Company”), and MS Capital Partners Adviser Inc., a Delaware corporation (the “Adviser”) and effective as of January 24, 2024.
WHEREAS, the Company and the Adviser entered into that certain Investment Advisory Agreement dated as of November 25, 2019 (the “Original Investment Advisory Agreement”); and
WHEREAS, the Company and the Adviser desire to amend and restate the Original Investment Advisory Agreement in its entirety as set forth in this Agreement.
Section 1. Duties of the Adviser.
(i) the investment objective, policies and restrictions that are set forth in the Company’s Registration Statement on Form 10 or Form N-2, as applicable, filed with the Securities and Exchange Commission (the “SEC”), as supplemented, amended or superseded from time to time, and in the Company’s confidential private placement memorandum, as amended from time to time or as may otherwise be set forth in the Company’s reports filed in compliance with the Securities Exchange Act of 1934, as amended, as applicable;
(ii) during the term of this Agreement, all other applicable federal and state laws, rules and regulations, and the Company’s certificate of incorporation and bylaws, as they may be amended from time to time (the “Organizational Documents”);
(iii) such investment policies, directives, regulatory restrictions as the Company may from time to time establish or issue and communicate to the Adviser in writing; and
(iv) the Company’s compliance policies and procedures as applicable to the Adviser and as administered by the Company’s chief compliance officer.
(i) determine the composition and allocation of the Company’s investment portfolio, the nature and timing of any changes therein and the manner of implementing such changes;
(ii) identify, evaluate and negotiate the structure of the investments made by the Company;
(iii) perform due diligence on prospective portfolio companies;
(iv) execute, close, service and monitor the Company’s investments;
(v) determine the securities and other assets that the Company shall purchase, retain or sell;
(vi) arrange financings and borrowing facilities for the Company;
(vii) 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; and
(viii) to the extent permitted under the 1940 Act and the Advisers Act, on the Company’s behalf, and in coordination with any Sub-Adviser (as defined below) and any administrator, provide significant managerial assistance to those portfolio companies to which the Company is required to provide such assistance under the 1940 Act, including utilizing appropriate personnel of the Adviser to, among other things, monitor the operations of the Company’s portfolio companies, participate in board and management meetings, consult with and advise officers of portfolio companies and provide other organizational and financial consultation.
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(i) The Adviser and not the Company shall be responsible for any compensation payable to any Sub-Adviser; provided, however, that the Adviser shall have the right to direct the Company to pay directly any Sub-Adviser the amounts due and payable to such Sub-Adviser from the fees and expenses otherwise payable to the Adviser under this Agreement.
(ii) Any Sub-Advisory Agreement entered into by the Adviser shall be in accordance with the requirements of the 1940 Act and the Advisers Act, including without limitation, the requirements of the 1940 Act relating to Board and Company stockholder approval thereunder, and other applicable federal and state law.
(iii) Any Sub-Adviser shall be subject to the same fiduciary duties as are imposed on the Adviser pursuant to this Agreement, the 1940 Act and the Advisers Act, as well as other applicable federal and state law.
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Section 2. Expenses Payable by the Company.
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For avoidance of doubt, it is agreed and understood that, from time to time, the Adviser or its affiliates may pay amounts or bear costs properly constituting Company expenses as set forth herein or otherwise and that the Company shall reimburse the Adviser or its affiliates for all such costs and expenses that have been paid by the Adviser or its affiliates on behalf of the Company.
Section 3. Compensation of the Adviser.
The Company agrees to pay, and the Adviser agrees to accept, as compensation for the services provided by the Adviser hereunder, a base management fee (“Base Management Fee”) and an incentive fee (“Incentive Fee”) as hereinafter set forth. Any of the fees payable to the Adviser under this Agreement for any partial calendar quarter shall be appropriately prorated based on the actual number of days elapsed during such partial quarter as a fraction of the number of days in the relevant calendar year.
(a) Base Management Fee. The Base Management Fee is calculated at an annual rate of 1.0% of the Company’s average gross assets at the end of the two most recently completed calendar quarters, including assets purchased with borrowed funds or other forms of leverage but excluding cash and cash equivalents. The Base Management Fee is payable quarterly in arrears and no management fee will be charged on committed but undrawn capital commitments. For the period from January 24, 2024 to January 24, 2025 (the “Waiver Period”), the Adviser hereby agrees to irrevocably waive 25% of the Base Management Fee calculated in accordance with this Section 3(a).
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(1) For the First Calendar Quarter, pre-incentive fee net investment income in respect of the First Calendar Quarter shall be compared to a hurdle rate of 1.50% (6.0% annualized). The Company shall pay the Adviser an incentive fee with respect to its pre-incentive fee net investment income as follows:
(A) no incentive fee based on pre-incentive fee net investment income if the Company’s aggregate pre-incentive fee net investment income for the First Calendar Quarter does not exceed the hurdle rate;
(B) 100% of the Company’s aggregate 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 1.8182% (7.2728% annualized). The portion of the pre-incentive fee net investment income that exceeds the hurdle rate but is less than 1.8182% is referred to as the “catch-up.” The “catch-up” is meant to provide the Adviser with approximately 17.5% of the Company’s pre-incentive fee net investment income for the First Calendar Quarter as if the hurdle rate did not apply if pre-incentive fee net investment income exceeds 1.8182% in such First Calendar Quarter; and
(C) 17.5% of the pre-incentive fee net investment income, if any, that exceeds 1.8182% in the First Calendar Quarter (7.2728% annualized).
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(2) Commencing with the quarter ending June 30, 2024, subject to the Incentive Fee Cap (as defined below), the income incentive fee that will be paid to the Adviser in respect of a particular calendar quarter will equal the excess of the income incentive fee as calculated pursuant to this Section 3(b)(i)(2) less the aggregate income incentive fees that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters. Pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters shall be compared to a “Hurdle Rate” equal to the product of (i) the “hurdle rate” of 1.50% per quarter (6.0% annualized) and (ii) the sum of the Company’s net assets (defined as total assets less indebtedness and before taking into account any Incentive Fees payable during the period) at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The Hurdle Rate will be calculated after making appropriate adjustments to the Company’s net asset value at the beginning of each applicable calendar quarter for all issuances by the Company of shares of its common stock, including issuances pursuant to its dividend reinvestment plan, and distributions during the applicable calendar quarter. Commencing with the quarter ending June 30, 2024, the Company shall pay the Adviser an incentive fee with respect to its pre-incentive fee net investment income as follows:
(A) no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which the Company’s aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters does not exceed the Hurdle Rate in respect of the relevant Trailing Twelve Quarters;
(B) 100% of the Company’s aggregate pre-incentive fee net investment income with respect to the relevant Trailing Twelve Quarters 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 an amount (the “Catch-Up Amount”) determined on a quarterly basis by multiplying 1.8182% in any calendar quarter (7.2728% annualized) by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters (after making appropriate adjustments to the Company’s net asset value at the beginning of each applicable calendar quarter for all issuances by the Company of shares of its common stock, including issuances pursuant to its dividend reinvestment plan, and distributions during the applicable calendar quarter). The Catch-Up Amount is meant to provide the Adviser with approximately 17.5% of the Company’s pre-incentive fee net investment income when the Company’s aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters reaches the Catch-Up Amount in respect of the relevant Trailing Twelve Quarters; and
(C) for any calendar quarter in which the Company’s aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters exceeds the Catch-Up Amount, the income incentive fee shall equal 17.5% of the amount of the Company’s aggregate pre-incentive fee net investment income, if any, that exceeds the Catch-Up Amount.
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(3) Notwithstanding the foregoing, for the Waiver Period, the Adviser hereby agrees to irrevocably waive any income incentive fee calculated in accordance with Section 3(b)(i)(1) and Section 3(b)(i)(2) in excess of amounts calculated as follows:
(A) For the First Calendar Quarter, pre-incentive fee net investment income in respect of the First Calendar Quarter shall be compared to a hurdle rate of 1.50% (6.0% annualized). The Company shall pay the Adviser an incentive fee with respect to its pre-incentive fee net investment income as follows:
(i) no incentive fee based on pre-incentive fee net investment income if the Company’s aggregate pre-incentive fee net investment income for the First Calendar Quarter does not exceed the hurdle rate;
(ii) 100% of the Company’s aggregate 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 1.7647% (7.0588% annualized) The portion of the pre-incentive fee net investment income that exceeds the hurdle rate but is less than 1.7647% is referred to as the “catch-up.” The “catch-up” is meant to provide the Adviser with approximately 15.0% of the Company’s pre-incentive fee net investment income for the First Calendar Quarter as if the hurdle rate did not apply if pre-incentive fee net investment income exceeds 1.7647% in such First Calendar Quarter; and
(iii) 15.0% of the pre-incentive fee net investment income, if any, that exceeds 1.7647% in such First Calendar Quarter (7.0588% annualized).
(B) Commencing with the quarter ending June 30, 2024, the income incentive fee shall be calculated with respect to its pre-incentive fee net investment income as follows:
(i) no incentive fee based on pre-incentive fee net investment income in any calendar quarter in which the Company’s aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters does not exceed the Hurdle Rate in respect of the relevant Trailing Twelve Quarters;
(ii) 100% of the Company’s aggregate pre-incentive fee net investment income with respect to the relevant Trailing Twelve Quarters 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 an amount (the “Waiver Catch-Up Amount”) determined on a quarterly basis by multiplying 1.7647% in any calendar quarter (7.0588% annualized) by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The Waiver Catch-Up Amount is meant to provide the Adviser with approximately 15.0% of the Company’s pre-incentive fee net investment income when the Company’s aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters reaches the Catch-Up Amount in respect of the relevant Trailing Twelve Quarters; and
(iii) for any calendar quarter in which the Company’s aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters exceeds the Waiver Catch-Up Amount, the income incentive fee shall equal 15.0% of the amount of the Company’s aggregate pre-incentive fee net investment income, if any, that exceeds 1.7647% in any calendar quarter (7.0588% annualized) in respect of the relevant Trailing Twelve Quarters that exceeds the Waiver Catch-Up Amount.
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Notwithstanding the foregoing, the application of the waiver described in this Section 3(b)(i)(3) with respect to the income incentive fee payable to the Adviser, if any, for (A) the First Calendar Quarter and (B) for the quarter ended March 31, 2025 shall be calculated at a weighted rate calculated based on this waiver being applicable only during the applicable days in such quarter during the Waiver Period, based, in each case, on the number of days in the applicable quarter.
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(c) Waiver or Deferral of Fees.
The Adviser shall have the right to elect to waive or defer all or a portion of the Base Management Fee and/or Incentive Fee that would otherwise be paid to it. Prior to the payment of any fee to the Adviser, the Company shall obtain written instructions from the Adviser with respect to any waiver or deferral of any portion of such fees. Any portion of a deferred fee payable to the Adviser and not paid over to the Adviser with respect to any calendar quarter or year shall be deferred without interest and may be paid over in any such other quarter prior to the termination of this Agreement, as the Adviser may determine upon written notice to the Company.
Section 4. Covenant of the Adviser.
The Adviser covenants that it is registered as an investment adviser under the Advisers Act on the effective date of this Agreement, and shall maintain such registration until the expiration or termination of this Agreement. The Adviser agrees that its activities shall at all times comply in all material respects with all applicable federal and state laws governing its operations and investments, except to the extent that any such noncompliance would not reasonably be expected to have a material adverse effect on the ability of the Adviser to fulfill its obligations under this Agreement. The Adviser agrees to observe and comply with applicable provisions of the code of ethics adopted by the Company pursuant to Rule 17j-1 under the 1940 Act, as such code of ethics may be amended from time to time.
Section 5. Brokerage Commissions.
The 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 Adviser determines in good faith, taking into account factors, including without limitation, 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 is consistent with the Adviser’s duty to seek the best execution on behalf of the Company. Notwithstanding the foregoing, with regard to transactions with or for the benefit of the Company, the Adviser may not pay any commission or receive any rebates or give-ups, nor participate in any business arrangements which would circumvent this restriction.
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Section 6. Other Activities of the Adviser.
The services of the Adviser to the Company are not exclusive, and the 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 or different from those of the Company, and nothing in this Agreement shall limit or restrict the right of any officer, director, stockholder (and their stockholders or members, including the owners of their stockholders or members), or employee of the 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). The Adviser assumes no responsibility under this Agreement other than to render the services set forth herein.
During the term of this Agreement and for a period of one year following any termination or nonrenewal of this Agreement for any reason, the Company shall not, directly or indirectly on behalf of itself or any other person or entity: (a) solicit the employment of or employ any partners, stockholders, directors, trustees, officers, employees, consultants and/or associated persons (each, an “Associate”) of the Adviser, any Sub-Adviser or any of their respective Affiliates (collectively, “Adviser Persons”) or any person or entity who was an Associate of an Adviser Person during the one-year period preceding such proposed solicitation or employment, or (b) induce, persuade or attempt to induce or persuade the discontinuation of, or in any way interfere or attempt to interfere with, the relationship between an Adviser Person and any Associate of such Adviser Person or any person or entity who was an Associate of such Adviser Person during the one-year period preceding such proposed inducement, persuasion or interference or attempted inducement, persuasion or interference. The parties intend that any provision of this Section 6 held invalid, illegal or unenforceable only in part or degree because of the duration or geographic scope thereof shall remain in full force to the extent not held invalid, illegal or unenforceable.
For purposes of this Agreement, “Affiliate” or “Affiliated” or any derivation thereof means with respect to any individual, corporation, partnership, trust, joint venture, limited liability company or other entity or association (“Person”): (a) any Person directly or indirectly owning, controlling, or holding, with the power to vote, 10% or more of the outstanding voting securities of such other Person; (b) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with the power to vote, by such other Person; (c) any Person directly or indirectly controlling, controlled by or under common control with such other Person; (d) any executive officer, director, trustee or general partner of such other Person; or (e) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.
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Section 7. Responsibility of Dual Directors, Officers and/or Employees.
If any person who is a director, officer, stockholder or employee of the Adviser is or becomes a director, officer, stockholder and/or employee of the Company and acts as such in any business of the Company, then such director, officer, stockholder and/or employee of the Adviser shall be deemed to be acting in such capacity solely for the Company, and not as a director, officer, stockholder or employee of the Adviser or under the control or direction of the Adviser, even if paid by the Adviser.
Subject to Section 9, the Adviser, any Sub-Adviser, each of their respective directors, trustees, officers, stockholders or members (and their stockholders or members, including the owners of their stockholders or members), agents, employees, controlling persons (as determined under the 1940 Act (“Controlling Persons”)), any other person or entity Affiliated with the Adviser or Sub-Adviser (including each of their respective directors, trustees, officers, stockholders or members (and their stockholders or members, including the owners of their stockholders or members), agents, employees or Controlling Persons) and any other person or entity acting on behalf of, the Adviser or Sub-Adviser (each an “Indemnified Party” and, collectively, the “Indemnified Parties”) shall not be liable to the Company or any stockholder thereof for any action taken or omitted to be taken by the Adviser or any Sub-Adviser in connection with the performance of any of their 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 1940 Act concerning loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services), and 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 losses, damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in satisfaction of judgments, in compromises and settlement, as fines and penalties and legal or other costs and reasonable expenses of investigating or defending against any claim or alleged claim) of any nature whatsoever, known or unknown, liquidated or unliquidated) (“Losses”) 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 Indemnified Parties’ duties or obligations under this Agreement, any Sub-Advisory Agreement, or otherwise as an investment adviser of the Company to the extent such Losses are not fully reimbursed by insurance and otherwise to the fullest extent such indemnification would not be inconsistent with the Organizational Documents, the 1940 Act, the laws of the State of New York and other applicable law.
Section 9. Limitation on Indemnification.
Notwithstanding anything in Section 8 to the contrary, nothing contained herein shall protect or be deemed to protect any of the Indemnified Parties against, or entitle or be deemed to entitle any of the Indemnified Parties to indemnification in respect of, any Losses to the Company or its security holders to which the Indemnified Parties would otherwise be subject primarily attributable to the willful misfeasance, bad faith or gross negligence in the performance of the Adviser’s or Sub-Adviser’s duties or by reason of the reckless disregard of the Adviser’s or Sub-Adviser’s duties and obligations under this Agreement or any Sub-Advisory Agreement (to the extent applicable, as the same shall be determined in accordance with the 1940 Act and any interpretations or guidance by the SEC or its staff thereunder).
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In addition, notwithstanding any of the foregoing to the contrary, the provisions of Section 8 and this Section 9 shall not be construed so as to provide for the indemnification of any Indemnified Party for any liability (including liability under federal securities laws which, under certain circumstances, impose liability even on persons that act in good faith), to the extent (but only to the extent) that such indemnification would be in violation of applicable law, but shall be construed so as to effectuate the provisions of Section 8 and this Section 9 to the fullest extent permitted by law.
Section 10. Effectiveness, Duration and Termination of Agreement.
(c) Duties of Adviser Upon Termination. The Adviser shall promptly upon termination:
(i) deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(ii) deliver to the Board all assets and documents of the Company then in custody of the Adviser; and
(iii) cooperate with the Company to provide an orderly transition of services.
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Any notice under this Agreement shall be given in writing, addressed and delivered or mailed, postage prepaid, to the other party at the address listed below or at such other address for a party as shall be specified in a notice given in accordance with this Section.
This Agreement may be amended by mutual written consent of the parties; provided that the consent of the Company is required to be obtained in conformity with the requirements of the 1940 Act.
If any provision of this Agreement shall be declared illegal, invalid, or unenforceable in any jurisdiction, then such provision shall be deemed to be severable from this Agreement (to the extent permitted by law) and in any event such illegality, invalidity or unenforceability shall not affect the remainder hereof.
This Agreement may be executed in counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one and the same instrument binding on all parties hereto, notwithstanding that all parties shall not have signed the same counterpart.
Notwithstanding the place where this Agreement may be executed by any of the parties hereto and the provisions of Sections 8 and 9, this Agreement shall be construed in accordance with the laws of the State of New York. For so long as the Company is regulated as a BDC under the 1940 Act, this Agreement shall also be construed in accordance with the applicable provisions of the 1940 Act and the Advisers Act. In such case, to the extent the applicable laws of the State of New York or any of the provisions herein conflict with the provisions of the 1940 Act or the Advisers Act, the 1940 Act and the Advisers Act shall control.
Section 16. Third Party Beneficiaries.
Except for any Sub-Adviser and any Indemnified Party, such Sub-Adviser and the Indemnified Parties each being an intended beneficiary of this Agreement, this Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein express or implied shall give or be construed to give to any person, other than the parties hereto and such assigns, any legal or equitable rights hereunder.
This Agreement contains the entire agreement of the parties and supersedes all prior agreements, understandings and arrangements with respect to the subject matter hereof.
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The Company shall acquire and maintain a directors and officers liability insurance policy or similar insurance policy, which may name the Adviser and any Sub-Adviser each as an additional insured party (each an “Additional Insured Party” and collectively the “Additional Insured Parties”). Such insurance policy shall include reasonable coverage from a reputable insurer. The Company shall make all premium payments required to maintain such policy in full force and effect; provided, however, each Additional Insured Party, if any, shall pay to the Company, in advance of the due date of such premium, its allocated share of the premium. Irrespective of whether the Adviser and any Sub-Adviser is a named Additional Insured Party on such policy, the Company shall provide the Adviser and any Sub-Adviser with written notice upon receipt of any notice of: (a) any default under such policy; (b) any pending or threatened termination, cancellation or non-renewal of such policy or (c) any coverage limitation or reduction with respect to such policy. The foregoing provisions of this Section 18 notwithstanding, the Company shall not be required to acquire or maintain any insurance policy to the extent that the same is not available upon commercially reasonable pricing terms or at all, as determined in good faith by the required majority (as defined in Section 57(o) of the 1940 Act) of the Board.
(signature page follows)
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XXXXXX XXXXXXX DIRECT LENDING FUND | ||
a Delaware corporation | ||
0000 Xxxxxxxx | ||
New York, NY 10036 | ||
By: | /s/ Xxxx Xxxxxxxx | |
Name: | Xxxx Xxxxxxxx | |
Title: | Chief Operating Officer and Secretary | |
MS CAPITAL PARTNERS ADVISER INC. | ||
a Delaware corporation | ||
0000 Xxxxxxxx | ||
New York, NY 10036 | ||
By: | /s/ Xxxx Xxxxxxxx | |
Name: | Xxxx Xxxxxxxx | |
Title: | Vice President |
[Signature Page to Amended and Restated Investment Advisory Agreement]