LEAD MANAGING UNDERWRITER
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ADDITIONAL COMPENSATION AGREEMENT
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June [16] , 2003
Xxxx Xxxxxxx Advisers, LLC
000 Xxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated the date
hereof (the "Underwriting Agreement"), by and among Xxxx Xxxxxxx Preferred
Income Fund III, a closed-end management investment company (the "Fund"), Xxxx
Xxxxxxx Advisers, LLC ("Xxxx Xxxxxxx Advisers" or the "Investment Adviser") and
each of the respective Underwriters named therein, with respect to the issue and
sale of the Fund's common shares of beneficial interest, no par value (the
"Common Shares"), as described therein. Reference is also made to (i) the
Investment Management Contract (the "Investment Advisory Agreement") to be
entered into between the Investment Adviser and the Fund and (ii) the
registration statement on Form N-2 regarding the Common Shares of the Fund (the
"Registration Statement"). Capitalized terms used herein and not otherwise
defined shall have the meanings given to them in the Underwriting Agreement.
The Investment Adviser hereby confirms its agreement with each
Lead Managing Underwriter (as defined in Section 1 hereof) with respect to the
additional compensation referred to in the "Underwriting" section of the
Registration Statement, payable by the Investment Adviser to each of the Lead
Managing Underwriters. The Investment Adviser agrees to pay to each Lead
Managing Underwriter additional compensation (collectively, the "Additional
Compensation") as provided for in Section 3 hereof; provided, however, that such
Additional Compensation shall not exceed an amount equal to 0.15% per annum of
the aggregate average daily net asset value of the Fund (including assets
attributable to any preferred shares of the Fund that may be outstanding); and
provided, further, that such payments shall not, in the aggregate, exceed the
"Maximum Additional Compensation Amount" (as defined in Section 4 hereof). The
Additional Compensation shall be payable as set forth in Section 3 hereof.
SECTION 1. Lead Managing Underwriters. For the purposes of this Lead
Managing Underwriter Additional Compensation Agreement, each of UBS Securities
LLC and Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated, each an Underwriter
of the Common Shares, shall be deemed to be a "Lead Managing Underwriter" and
this Lead Managing Underwriter Additional Compensation Agreement ("Additional
Compensation Agreement") shall be binding between the Investment Adviser and (i)
UBS Securities LLC, with respect to the Additional Compensation Agreement
(including Schedule A hereto) in the form executed by UBS Securities LLC and
(ii) Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated, with respect to the
Additional Compensation Agreement (including Schedule A hereto) in the form
executed by Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx Incorporated.
SECTION 2. Pro Rata Percentage. Each Lead Managing Underwriter shall be
assigned a "Pro Rata Percentage," the numerator of which shall equal the
aggregate purchase price to the public of the Common Shares sold by such Lead
Managing Underwriter as set forth on Schedule A hereto and the denominator of
which shall equal the aggregate purchase price to the public of all of the
Common Shares purchased by the Underwriters pursuant to the Underwriting
Agreement.
SECTION 3. Payment of Additional Compensation.
(a) The Investment Adviser shall pay the Additional Compensation,
quarterly in arrears, to each Lead Managing Underwriter in an amount equal to
the product of such Lead Managing Underwriter's Pro Rata Percentage multiplied
by (i) one-quarter of the "Applicable Percentage Factor" as set forth on
Schedule A hereto times (ii) the aggregate average daily net asset value of the
Fund for such quarter (including assets attributable to any preferred shares of
the Fund that may be outstanding); provided, however, that in the event that the
contractual advisory fee rate payable by the Fund to Xxxx Xxxxxxx Advisers or
such successor or affiliate under the Investment Advisory Agreement is reduced
below 0.55%, the fee payable by Xxxx Xxxxxxx Advisers to such Lead Managing
Underwriter shall reduced in proportion to, and for the period of, such
reduction of the advisory fee, and this agreement shall be deemed to be amended
automatically to reflect the same.
(b) All fees payable hereunder shall be paid to each Lead Managing
Underwriter by wire transfer of immediately available funds within 15 days
following the end of each calendar quarter to a bank account designated by such
Lead Managing Underwriter. At the time of each payment of Additional
Compensation hereunder, the Investment Adviser shall deliver to each Lead
Managing Underwriter receiving an installment of Additional Compensation a
statement indicating the amount of the of the aggregate average daily net asset
value of the Fund for such quarter (including assets attributable to any
preferred shares of the Fund that may be outstanding) on which such payment was
based.
(c) The initial payments of Additional Compensation hereunder shall be
paid with respect to the calendar quarter ending September 30, 2003. In the
event that this Additional Compensation Agreement terminates prior to the end of
a calendar quarter, the Additional Compensation required to be paid hereunder
shall be due and payable within 15 days following the termination hereof and
shall be pro-rated in respect of the period prior to such termination.
Notwithstanding the foregoing, if any payment hereunder would otherwise fall on
a day which is not a business day, it shall be due on the next day which is a
business day. All fees payable hereunder shall be in addition to any fees paid
by the Investment Adviser pursuant to the Underwriting Agreement.
SECTION 4. Maximum Additional Compensation Amount. The "Maximum Additional
Compensation Amount" payable by the Investment Adviser hereunder shall be, with
respect to each Lead Managing Underwriter, such amount as, when taken together
with the amount of all underwriting compensation other than the Additional
Compensation received by such Underwriter in connection with the offering of the
Common Shares of the Fund, equals the maximum compensation allowed under the
conduct rules of the National Association of Securities Dealers, Inc. (which we
currently understand is 9.00%), as such rules are then in effect; provided, that
in determining when the maximum amount has been paid the value of each of the
quarterly payments shall be discounted at the annual rate of 10% to the closing
date of the initial offering of the Fund's Common Shares.
SECTION 5. Term. This Additional Compensation Agreement shall continue
coterminously with and so long as the Investment Advisory Agreement, dated June
[16], 2003, remains in effect between the Fund and Xxxx Xxxxxxx Advisers, or any
similar investment advisory agreement with a successor in interest or affiliate
of Xxxx Xxxxxxx Advisers remains in effect, as, and to the extent, that such
investment advisory agreement is renewed periodically in accordance with the
Investment Company Act of 1940, as amended. This Additional Compensation
Agreement shall terminate on the earliest to occur of (a) with respect to any
Lead Managing Underwriter, the payment by the Investment Adviser to such Lead
Managing Underwriter of the Maximum Additional Compensation Amount, (b) with
respect to the Fund, the dissolution and winding up of the Fund and (c) with
respect to the Fund, the date on which the Investment Advisory Agreement or
other investment advisory agreement between the Fund and the Investment Adviser
or any successor in interest to the Investment Adviser, including but not
limited to an affiliate of the Investment Adviser, shall terminate.
SECTION 6. Not an Investment Adviser. The Investment Adviser acknowledges
that the Underwriters are not providing any advice hereunder as to the value of
securities or regarding the advisability of purchasing or selling any securities
for the Fund. No provision of this Additional Compensation Agreement shall be
considered as creating, nor shall any provision create, any obligation on the
part of any Underwriter, and the Underwriters are not hereby agreeing, to: (i)
furnish any advice or make any recommendations regarding the purchase or sale of
portfolio securities or (ii) render any opinions, valuations or recommendations
of any kind or to perform any such similar services.
SECTION 7. Not Exclusive. Nothing herein shall be construed as prohibiting
any Underwriter or its respective affiliates from acting as such for any other
clients (including other registered investment companies or other investment
advisers).
SECTION 8. No Liability. The Investment Adviser agrees that no Underwriter
shall have liability to the Investment Adviser or the Fund for any act or
omission to act by such Underwriter in the course of its performance under this
Additional Compensation Agreement, in the absence of gross negligence or willful
misconduct on the part of such Underwriter. The Investment Adviser agrees to
indemnify and hold harmless each Underwriter and its respective officers,
directors, agents and employees against any loss or expense arising out of or in
connection with such Underwriter's performance under this Additional
Compensation Agreement. This provision shall survive the termination, expiration
or supersession of this Additional Compensation Agreement.
SECTION 9. Assignment. This Additional Compensation Agreement may not be
assigned by any party without the prior written consent of each other party.
SECTION 10. Amendment; Waiver. No provision of this Additional Compensation
Agreement may be amended or waived except by an instrument in writing signed by
the parties hereto.
SECTION 11. Governing Law. This Additional Compensation Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 12. Counterparts. This Additional Compensation Agreement may be
executed in any number of counterparts, each of which shall be an original, and
all of which, when taken together, shall constitute one agreement. Delivery of
an executed signature page of this Additional Compensation Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument,
along with all counterparts, will become a binding agreement among Xxxx Xxxxxxx
Advisers and the Lead Managing Underwriters in accordance with its terms.
Very truly yours,
XXXXXXX LYNCH, PIERCE, XXXXXX &
XXXXX INCORPORATED
By:
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Name:
Title:
By:
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Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
XXXX XXXXXXX ADVISERS, LLC
By:
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Name:
Title:
SCHEDULE A
Aggregate
Purchase Price to Public Pro Rata
Name of Lead Managing Underwriter of Common Shares Sold Percentage
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Xxxxxxx Lynch, Pierce, Xxxxxx &
Xxxxx Incorporated $[ ] [ ]
$[ ] [ ]
"Applicable Percentage Factor" shall mean 0.125% from the date of this Lead
Managing Underwriter Additional Compensation Agreement until the fifth
anniversary of the Investment Advisory Agreement; 0.13125% in the sixth year of
the Investment Advisory Agreement; 0.1375% in the seventh year of the Investment
Advisory Agreement; and 0.14375% in the eighth year of the Investment Advisory
Agreement; and 0.15% thereafter.
