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EXHIBIT 10.4
MANAGEMENT AGREEMENT
THIS AGREEMENT (together with all Exhibits attached hereto, this
"Agreement") is made as of May __, 1997, between VENTURE LENDING & LEASING II,
INC., a Maryland corporation ("Fund"), on the one hand, and WESTECH INVESTMENT
ADVISORS, INC., a California corporation ("Westech Advisors"), and SIGULER GUFF
ADVISERS, LLC, a Delaware limited liability company ("Siguler Guff Advisers"),
on the other hand. Westech Advisors is sometimes referred to herein as the
"Manager"; Siguler Guff Advisers is sometimes referred to herein as the "Adviser
to the Manager".
WHEREAS, the Fund is a newly organized, non-diversified closed-end
management investment company that has elected status as a business development
company ("BDC") under the Investment Company Act of 1940 ("1940 Act");
WHEREAS, the Manager and the Adviser to the Manager are each investment
advisers registered as such under the Investment Advisers Act of 1940 ("Advisers
Act"); and
WHEREAS, the Fund desires to retain the Manager and the Adviser to the
Manager to furnish certain investment advisory, portfolio management and
administrative services to the Fund, and the Manager and Siguler Guff Advisers
are willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties as follows:
1. Appointment. The Fund hereby appoints Westech Advisors as Investment
Manager and Siguler Guff Advisers as Adviser to the Manager for the period and
on the terms set forth in this Agreement. Westech Advisors and Siguler Guff
Advisers each accepts such appointment and agrees to render the services herein
set forth, for the compensation herein provided.
2. Investment Duties. Subject to the supervision of the Fund's Board of
Directors ("Board"), the Manager will provide a continuous investment program
for the Fund and will determine from time to time what securities and other
investments will be purchased, retained or sold by the Fund. Subject to
investment policies and guidelines established by the Board, the Manager will
identify, evaluate, structure and close the investments to be made by the Fund,
arrange debt financing for the Fund, provide portfolio management and servicing
of loans or leases held in the Fund's portfolio, and administer the Fund's
day-to-day affairs. The Adviser to the Manager will advise the Manager
concerning the organization of the Fund, oversight of Fund administration, and
shareholder relations.
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3. Administrative Duties. The Manager will administer the affairs of
the Fund under the supervision of the Board and subject to the following:
(a) The Manager will supervise all aspects of the operations
of the Fund, including oversight of transfer agency, custodial and accounting
services; provided, however, that nothing contained herein shall be deemed to
relieve or deprive the Board of its responsibility for and control of the
conduct of the affairs of the Fund.
(b) The Manager will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as required) of the Fund's
registration statement under the Securities Exchange Act of 1934, proxy
material, tax returns and required reports to the Fund's shareholders and the
Securities and Exchange Commission ("SEC") and other appropriate federal or
state regulatory authorities.
(c) The Manager will oversee the computation of the net asset
value and the net income of the Fund in accordance with procedures adopted by
the Board.
(d) The Manager will maintain or oversee the maintenance of
all books and records with respect to the Fund, and will furnish the Board with
such periodic and special reports as the Board reasonably may request. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, the Manager
hereby agrees that all records, which it maintains for the Fund, are the
property of the Fund, agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any records, which it maintains for the Fund and which
are required to be maintained by Rule 31a-1 under the 1940 Act, and further
agrees, upon request by the Fund, to surrender promptly to the Fund any records
that it maintains for the Fund.
(e) All cash, securities and other assets of the Fund will be
maintained in the custody of one or more banks in accordance with the provisions
of Section 17(f) of the 1940 Act and the rules thereunder; the authority of the
Manager to instruct the Fund's custodian(s) to deliver and receive such cash,
securities and other assets on behalf of the Fund will be governed by a
custodian agreement between the Fund and each such custodian, and by resolution
of the Board.
4. Further Duties. In all matters relating to the performance of this
Agreement, the Manager and Siguler Guff Advisers will act in conformity with the
Articles of Incorporation and Bylaws of the Fund and with the instructions and
directions of the Board and will comply with the requirements of the 1940 Act,
the rules thereunder, and all other applicable federal and state laws and
regulations.
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5. ERISA Requirements. If any assets of the Fund are ever determined by
the Manager to constitute assets of any employee benefit plan investor governed
by the Employee Retirement Investment Security Act of 1974, as amended
("ERISA"), then the Manager shall also act in accordance with the requirements
of ERISA and hereby acknowledges that in such a situation it would be a
fiduciary of any such employee benefit plan investors and will be deemed to have
been appointed by such employee benefit plan investors as investment manager
with respect to the assets of such employee benefit plan investors invested in
the Fund.
6. Services Not Exclusive.
(a) The services furnished by the Manager and the Adviser to
the Manager hereunder are not to be deemed exclusive and the Manager and the
Adviser to the Manager, except as otherwise expressly provided in this Section
6, shall be free to furnish similar services to others so long as its services
under this Agreement are not impaired thereby. Except as otherwise expressly
provided in this Section 6, nothing in this Agreement shall limit or restrict
the right of any director, officer or employee of the Manager or of the Adviser
to the Manager, who may also be a director, officer or employee of the Fund, 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.
(b) Until the Fund has called and invested at least 75% of the
total amounts subscribed for by investors, except as provided below, neither the
Manager nor the Adviser to the Manager nor any "Controlled Person" of either
will, without the consent of the Fund, sponsor, distribute or act as investment
adviser or manager to any pooled investment vehicle other than the Fund or
Venture Lending & Leasing, Inc., a Maryland corporation ("VLLI") or act as
investment adviser or manager to any client if the investment program of such
pooled investment vehicle or client includes, as a primary or major component,
the provision of asset-backed financing to venture capital-backed companies. In
the event that the Fund elects irrevocably to release investors from any
uncalled portion of their subscription obligations, the "total amount subscribed
for by investors" shall be deemed reduced to reflect such release. The foregoing
restriction shall not be deemed to prohibit the Manager, the Adviser to the
Manager, or any Controlled Person of either from acting as investment adviser or
manager with respect to any existing client of such party as of May 19, 1997;
provided, however, that, until the 75% investment threshold described above has
occurred, such party shall not, without the consent of the Fund, accept from
such existing clients any additional investment funds (other than amounts
required for follow-on investments to existing investments) beyond the funds
invested or committed by such existing clients as of May 19, 1997. A "Controlled
Person" of the Manager or the Adviser to the Manager as used in this paragraph
means any entity (i) 50% or more of whose
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voting securities are beneficially owned by the Manager or (ii) 50% or more of
whose voting securities are controlled by any of the "Key Executives" of the
Manager or the Adviser to the Manager. For purposes of this paragraph, the "Key
Executives" of the Manager are Xxxxxx X. Xxxxxxx and Xxxxxxxx X. Xxxxxxxxx; the
"Key Executive" of the Adviser to the Manager is Xxxxxx X. Xxxxxxx.
7. Expenses.
(a) The Fund will pay all expenses (including, without
limitation, accounting, legal, printing, clerical, filing and other expenses)
incurred by the Fund, Xxxxxxxxx, Xxxxxxxx & Company LLC ("the Placement Agent")
or either of the Manager or the Adviser to the Manager, or their affiliates on
behalf of the Fund in connection with the organization of the Fund and the
initial offering of its shares. Except as otherwise expressly provided for in
Section 7(b), during the term of this Agreement, the Fund will bear all of its
expenses incurred in its operations including, but not be limited to, the
following: (i) brokerage and commission expense and other transaction costs
incident to the acquisition and dispositions of investments and the creation and
perfection of security interests with respect thereto, (ii) federal, state and
local taxes and fees, including transfer taxes and filing fees, incurred by or
levied upon the Fund, (iii) interest charges and other fees in connection with
borrowings, (iv) SEC fees and expenses and any fees and expenses of state
securities regulatory authorities, (v) expenses of printing and distributing
reports and notices to shareholders, (vi) costs of proxy solicitation, (vii)
costs of meetings of shareholders and the Board, (viii) charges and expenses of
the Fund's custodian, transfer and dividend disbursing agents, (ix) compensation
and expenses of the Fund's directors who are not interested persons of the Fund,
the Manager, the Adviser to the Manager or the Placement Agent, and of any of
the Fund's officers who are not interested persons of the Manager or the Adviser
to the Manager, and expenses of all directors in attending Board or shareholder
meetings, (x) legal and auditing expense, including expenses incident to the
documentation for, and consummation of, venture lending and leasing transactions
and legal actions to enforce the Fund's rights under such loans and leases, (xi)
costs of any certificates representing the Shares, (xii) costs of stationery and
supplies, (xiii) the costs of membership by the Fund in any trade organizations
and (xiv) expenses associated with litigation and other extraordinary or
non-recurring expenses.
(b) The expenses to be borne by the Manager and the Adviser to
the Manager in connection with their duties to the Fund hereunder are limited to
the following: (i) all costs and fees incident to the selection and
investigation of prospective Fund investments, such as travel expenses and
professional fees (but excluding legal and accounting fees and other costs
incident to the closing, documentation or consummation of such transactions),
(ii) the cost of adequate office space for the Fund and all necessary office
equipment and services, including telephone service, heat,
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utilities and similar items and (iii) the cost of providing the Fund with such
corporate, administrative and clerical personnel (including officers and
directors of the Fund who are interested persons of the Manager or the Adviser
to the Manager and are acting in their respective capacities as officers and
directors) as the Board reasonably deems necessary or advisable to perform the
services required to be performed by the Manager and the Adviser to the Manager
under this Agreement.
(c) The Fund may pay directly any expenses incurred by it in
its normal operations and, if any such payment is consented to by the Manager
and acknowledged as otherwise payable by the Manager or the Adviser to the
Manager pursuant to this Agreement, the Fund may reduce the fee payable to the
Manager and the Adviser to the Manager pursuant to Section 8 hereof by such
amount. To the extent that such deductions exceed the fee payable to the Manager
and the Adviser to the Manager on any quarterly payment date, such excess shall
be carried forward and deducted in the same manner from the fee payable on
succeeding quarterly payment dates.
(d) The payment or assumption by the Manager or the Adviser to
the Manager of any expense of the Fund that the Manager or the Adviser to the
Manager is not required by this Agreement to pay or assume shall not obligate
the Manager or the Adviser to the Manager to pay or assume the same or any
similar expense of the Fund on any subsequent occasion.
8. Compensation.
(a) For the services provided and the expenses assumed
pursuant to this Agreement, the Fund or its successor trustees will pay, whether
before or after dissolution of the Fund, to the Manager and the Adviser to the
Manager, together, a management fee ("Management Fee"), computed and paid
quarterly for the first two years following the first closing of the initial
offering of the Fund's shares, at an annual rate of 2.5% of the amount of the
Fund's Committed Equity Capital (as defined below) (regardless of when or if
such committed capital is called) as of the last day of each such fiscal
quarter; and computed and paid quarterly for each quarter thereafter, at an
annual rate of 2.5% of the Fund's total assets (including amounts derived from
borrowed funds) as of the last day of each such fiscal quarter. For purposes of
calculating the Management Fee, any capital committed to the Fund at a closing
subsequent to the first closing (regardless of when or if such committed capital
is called) shall be deemed to have been committed as of the first closing. To
illustrate, assuming the Fund has a first closing for $75 million on July 15,
1997, and a second closing for $25 million on November 15, 1997, then the $25
million committed on November 15, 1997 will be treated as if it had been
committed on July 15, 1997 for purposes of calculating the Management Fee.
Therefore, on November 15, 1997, for the $25 million committed at the second
closing, the Fund would pay to the Manger $156,250 (i.e., 1/4 of 2.5% of $25
million) for the
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Management Fee attributable to the quarter ending October 15, 1997. On January
15, 1998, the Fund would pay to the Manager $625,000 (i.e., 1/4 of 2.5% of $100
million) for the Management Fee attributable to the quarter ending on such date.
The Fund's Committed Equity Capital, as of the end of any fiscal
quarter, shall be the aggregate amount of subscription obligations for the
purchase of the Fund's shares (including any amounts of such obligations that
have been satisfied) as of the end of such fiscal quarter.
(b) For the services provided and the expenses assumed
pursuant to this Agreement, in addition to the Management Fee, the Fund will pay
to the Manager and the Adviser to the Manager a monthly incentive fee
("Incentive Fee") after shareholders have received a return of funds ("Payout")
equal to the following: (a) cumulative dividends and distributions equal to 100%
of all amounts paid, as of the date of calculation, by shareholders to the Fund
(but excluding any of the 2% placement fees paid to the Placement Agent by
certain of the shareholders) for the purchase of shares plus (b) a preferred
return on all amounts paid, as of the date of calculation, equal to an 8%
cumulative, non-compounded annual return on such amounts.
The Incentive Fee shall be calculated as follows: All amounts available
to be paid as dividends and distributions to shareholders in accordance with the
Fund's distribution policies will be distributed as follows (whether before or
after dissolution of the Fund): 80% as dividends to the Fund's shareholders, and
20% to the Manager and the Adviser to the Manager, together, as the Incentive
Fee. Notwithstanding the foregoing, the Incentive Fee shall not accrue or be
paid until the Fund is no longer permitted to make capital calls under the
subscription agreement pursuant to which shareholders purchased their shares or
irrevocably waives any right to make capital calls.
In calculating such 8% preferred return, any capital contributed that
is Make-Up Capital (as defined below) shall be treated as if contributed on the
date that investors subscribing for shares of the Fund at an earlier closing
("Earlier Investor") were required to contribute capital corresponding to such
Make-Up Capital. As used herein, "Make-Up Capital" means the capital that each
investor who purchases shares in the Fund for the first time at a closing
subsequent to the first closing of the offering are required, pursuant to the
terms of such investor's subscription agreement with the Fund, to contribute an
amount equal to the product of: (i) such subscriber's capital commitment and
(ii) a fraction, the numerator of which is the aggregate of all Capital Calls
that have been made to Earlier Investors and the denominator of which is the
aggregate amount of all Capital commitments of Earlier Investors. To illustrate,
assume the Fund has (i) a closing for $75 million of committed capital on July
15, 1997, (ii) a first capital call on August 1, 1997, for 10% of all committed
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capital, (iii) a second capital call for an additional 5% of committed capital
on October 1, 1997, and (iv) a second closing for $25 million of committed
capital on December 30, 1997. If an investor, subscribing for shares for the
first time, subscribes for a $1 million capital contribution at the second
closing on December 30, 1997, such investor, pursuant to the terms of his
Subscription Agreement, will contribute $150,000 as Make-Up Capital at the
second closing. For purposes of calculating the 8% preferred return, $100,000 of
such Make-Up Capital shall be treated as if the Fund received it on August 1,
1997, and $50,000 of such Make-Up Capital shall be treated as if it had been
contributed on October 1, 1997. Therefore, if there is more than one closing
such that Make-Up Capital must be contributed to the Fund, the actual return on
capital invested in the Fund will need to be higher than 8% to meet the 8%
preferred return threshold.
(c) If this Agreement is terminated by the Fund for any reason
prior to the final distribution in liquidation of all the Fund's assets to
shareholders, the Fund will pay, regardless of the dissolution of the Fund, to
the Manager and the Adviser to the Manager an annual post-termination fee
("Post-Termination Fee"), in addition to any Management Fee and Incentive Fee
previously paid to or earned by the Manager and the Adviser to the Manager,
calculated as provided in Annex A hereto; provided, however, that such Post-
Termination Fee will be paid only if, prior to the payment of any such
Post-Termination Fee, the Fund receives an opinion of its counsel to the effect
that payment of the Post-Termination Fee is permissible under the applicable
provisions of the 1940 Act and the Advisers Act, and applicable rules,
regulations and interpretations of the SEC thereunder. Within a reasonable time
after the Fund commences operations, the Fund will consult with its counsel as
to the permissibility of payment of the Post-Termination Fee under the 1940 Act
and the Advisers Act. If the Fund's counsel concludes that an exemptive order or
no-action relief of the SEC is required to permit the Fund to pay the
Post-Termination Fee or to provide such counsel with adequate assurances upon
which the aforementioned opinion can be based, the Fund agrees to seek, together
with the Manager and the Adviser to the Manager, such an exemptive order or
no-action relief within a reasonable time after the Fund commences operations.
The Post-Termination Fee will be payable as promptly as practicable following
the end of any fiscal year for which it is earned.
(d) If this Agreement becomes effective or terminates before
the end of any fiscal quarter, the Management Fee for the period from the
effective day to the end of the fiscal quarter or from the beginning of such
fiscal quarter to the date of termination, as the case may be, shall be prorated
according to the proportion which such period bears to the full fiscal quarter
in which such effectiveness or termination occurs.
(e) If (i) the Manager or the Adviser to the Manager, (ii) an
officer, director or employee of the Manager or the Adviser
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to the Manager, (iii) a company controlling, controlled by or under common
control with the Manager or the Adviser to the Manager, or (iv) an officer,
director or employee of any such company receives any compensation from a
company whose securities are held in the Fund's portfolio in connection with the
provision to that company of significant managerial assistance, the compensation
due to the Manager and the Adviser to the Manager hereunder shall be reduced by
the amount of such fee. If such amounts have not been fully offset at the time
of termination of this Agreement, the Manager and the Adviser to the Manager
shall pay such excess amounts to the Fund upon termination.
9. Limitation of Liability of Manager and the Adviser to the Manager.
Neither the Manager nor the Adviser to the Manager shall be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which this Agreement relates except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from its reckless disregard of its obligations and
duties under this Agreement. Any person, even though also an officer, director,
employee or agent of the Manager or the Adviser to the Manager, who may be or
become an officer, director, employee or agent of the Fund shall be deemed, when
rendering services to the Fund or acting with respect to any business of the
Fund, to be rendering such service to, or acting solely on behalf of, the Fund
and not as an officer, director, employee, or agent or one under the control or
direction of the Manager or the Adviser to the Manager even though paid by it.
10. Duration and Termination.
(a) This Agreement shall become effective upon the date
hereabove written provided that this Agreement shall not take effect unless it
has first been approved (i) by a vote, of a majority of those directors of the
Fund who are not parties to this Agreement or interested persons of any such
party, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) by vote of a majority of the Fund's outstanding voting
securities.
(b) Unless sooner terminated as provided herein, this
Agreement shall continue in effect for two years from the above written date.
Thereafter, regardless of the dissolution of the Fund, if not terminated, this
Agreement shall continue automatically for successive periods of twelve months
each, provided that such continuance is specifically approved at least annually
(i) by a vote, of a majority of those directors of the Fund who are not parties
to this Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) by the Board
or by vote of a majority of the outstanding voting securities of the Fund.
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(c) Notwithstanding the foregoing, this Agreement may be
terminated: (i) by vote of the Board or by a vote of a majority of the
outstanding voting securities of the Fund at any time, without the payment of
any penalty, on sixty days' written notice to the Manager and the Adviser to the
Manager or (ii) by the Manager and the Adviser to the Manager at any time,
without the payment of any penalty, on sixty days' written notice to the Fund.
This Agreement will automatically terminate in the event of its assignment.
11. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by vote of a majority of the Fund's outstanding voting
securities.
12. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Maryland, without giving effect to the conflicts of
laws principles thereof, and in accordance with the 1940 Act. To the extent that
the applicable laws of the State of Maryland conflict with the applicable
provisions of the 1940 Act, the latter shall control.
13. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. 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. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities",
"affiliated person", "interested person", "assignment", "broker", "investment
adviser", "national securities exchange", "net assets", "security" and
"significant managerial assistance" shall have the same meaning as such terms
have in the 1940 Act, subject to such exemption as may be granted by the
Securities and Exchange Commission by any rule, regulation or order. Where the
effect of a requirement of the 1940 Act reflected in any provision of this
Agreement is relaxed by a rule, regulation or order of the Securities and
Exchange Commission, whether of
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special or general application, such provision shall be deemed to incorporate
the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated as of the day and year first above
written.
VENTURE LENDING & LEASING II, INC.
By: ______________________________
Xxxxxxxx X. Xxxxxxxxx,
Chief Operating Officer
WESTECH INVESTMENT ADVISORS, INC.
By: ______________________________
Xxxxxx X. Xxxxxxx,
President
SIGULER GUFF ADVISERS, LLC
By: ______________________________
Xxxxxx X. Xxxxxxx,
Managing Director
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ANNEX A
to
Management Agreement
of
Venture Lending & Leasing II, Inc.
Subject to the conditions set forth in the Management Agreement, if the
Management Agreement is terminated by the Fund for any reason prior to the final
distribution in liquidation of all the Fund's assets to shareholders, the Fund
will pay, regardless of the dissolution of the Fund, the Manager and the Adviser
to the Manager an annual fee ("Post-Termination Fee"), in addition to any
Management Fee and Incentive Fee previously paid to or earned by the Manager and
the Adviser to the Manager, payable as promptly as practicable after the end of
the Fund's fiscal year and calculated as follows:
1. The "Attributable Assets" of the Fund will be determined.
Attributable Assets shall be all securities or other assets held in the Fund's
portfolio, including securities receivable, as of the time of termination of the
Management Agreement, and any assets to which the Fund is or may become entitled
under the terms of any securities or other assets held in the Fund's portfolio,
including, but not limited to, warrants issuable under the terms of venture
loans or leases, and securities issuable upon exercise of any warrants, but
excluding cash and cash equivalents.
2. The Post-Termination Fee shall be calculated and paid with respect
to the Attributable Assets of the Fund, in the same manner as the Incentive Fee
is calculated and paid, as though the entire Fund consisted of the Attributable
Assets as of the date of termination.
3. Any Capital Contributions made by investors subsequent to the date
of termination shall be disregarded, and any amounts paid by the Fund to acquire
additional Attributable Assets, including, but not limited to, amounts paid to
fund venture loans or leases pursuant to commitments existing on the date of
termination and amounts paid on exercise of warrants, shall be treated as
additional Capital Contributions.
4. All Total Distributions on or prior to the date of termination shall
be taken into account in calculating the Post-Termination Fee, and Total
Distributions as of the date of termination shall be deemed to include all cash
and cash equivalents held by the Fund on the date of termination.
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5. After the date of termination, Total Distributions shall be deemed
to consist of (i) the proceeds of any sale or other disposition of Attributable
Assets during the fiscal year that is recognized by the Fund for federal income
tax purposes, plus (ii) all income received or recognized in a fiscal year with
respect to Attributable Assets, including, without limitation, interest,
dividends, amortization of discount and accrual of residual payments, minus
(iii) an amount of the Fund's Allocable Expenses (as defined below) for the
fiscal year determined by multiplying such Allocable Expenses by a fraction, the
numerator of which is the average of the beginning and end values of
Attributable Assets for that fiscal year and the denominator of which is the
average of the beginning and end values of the Fund's total assets for that
fiscal year. Allocable Expenses shall consist of all Fund expenses other than
accrual of the Post-Termination Fee, accrual of any incentive fee paid to a
successor manager or advisor and any management or advisory fee paid to a
successor manager or advisor to the extent any such management or advisory fee
exceeds 2.5% of the Fund's total assets less Attributable Assets.
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