INTERIM INVESTMENT CO-ADVISORY AGREEMENT
THIS
INTERIM INVESTMENT CO-ADVISORY AGREEMENT (this "Agreement") is made as of the
26th day of October, 2007, by and among XXXXXXX INVESTMENT ADVISERS, a Barbados
international business company (the "Adviser") and THE DENALI FUND INC., a
Maryland corporation (the "Fund").
RECITALS
A.
On October 26, 2007, Xxxxxxxxx Xxxxxx Management Inc. and Xxxxxxxxx Xxxxxx
LLC
(collectively, the "NB Affiliates") resigned as investment adviser and
sub-adviser, respectively, to the Fund.
B.
Under Rule 15a-4 (Temporary Exemption for Certain Investment Advisers)
("Rule 15a-4") of the Rules and Regulations, Investment Company Act of
1940, as amended (the "1940 Act"), the Fund is permitted to enter into an
"interim" investment advisory contract that "has a duration no greater than
150
days following the date on which the previous contract terminates".
C.
The Board of Directors of the Fund (the "Board") has approved the Adviser as
adviser to the Fund and will recommend to stockholders the approval of the
Adviser at a special stockholder meeting tentatively scheduled for February,
2008 (the "Special Meeting").
D.
The Board has agreed to engage the Adviser on an interim basis in accordance
with Rule 15a-4 and in accordance with the terms and conditions of this
Agreement.
COVENANTS
1. Investment
Description; Appointment. The Fund desires to employ its capital by
investing and reinvesting in investments of the kind and in such manner and
to
such extent as may from time to time be approved by the Board. The
Fund desires to employ and hereby appoints the Adviser to act as investment
adviser to the Fund. Adviser hereby accepts the appointment and
agrees to furnish the services described herein for the compensation set forth
below.
2. Services
as Investment Adviser. Subject to the supervision and direction of
the Board, the Adviser will (a) act in accordance with the Investment Company
Act of 1940 (the "1940 Act") and the Investment Advisers Act of 1940, as the
same may be from time to time amended, (b) manage the Fund's portfolio on a
discretionary basis in accordance with its investment objectives and policies,
(c) make investment decisions and exercise voting rights in respect of portfolio
securities for the Fund, (d) place purchase and sale orders on behalf of the
Fund, (e) employ, at its own expense, professional portfolio managers and
securities analysts to provide research services to the Fund, (f) determine
the
portion of the Fund's assets to be invested, from time to time, in various
asset
classes (e.g., common stocks, fixed income securities, cash equivalents), (g)
determine the portion of the Fund's assets to be leveraged, from time to time,
and the form that such leverage will take, and (h) monitor and
evaluate the services provided by the Fund's investment sub-adviser(s), if
any,
under the terms of the applicable investment sub-advisory
agreement(s). In providing these services, the Adviser will provide
investment research and supervision of the Fund's evaluation and, if
appropriate, sale and reinvestment of the Fund's assets. In addition,
the Adviser will furnish the Fund with whatever statistical information the
Fund
may reasonably request with respect to the securities that the Fund may hold
or
contemplate purchasing.
3. Co-Advisor
to the Fund. Subject to the approval of the Board, the Fund will engage an
investment co-adviser, Boulder Investment Advisers, L.L.C., a Colorado limited
liability company and registered investment adviser under the Investment
Advisers Act of 1940, in respect of all or a portion of the Fund's assets (the
"Co-Adviser"). The Adviser and the Co-Adviser will be jointly
responsible for providing the services described in subparagraphs (b), (c),
(d),
(e), (f) and (g) in Paragraph 2 above and Paragraphs 5 and 6 below (Information
Provided to Fund) with respect to the Fund's assets, although the Adviser will
have primary responsibility for all record-keeping and day-to-day business
activities relating to the investment operations of the Fund. In the
event that the Co-Adviser's engagement is terminated, the Adviser shall be
responsible for furnishing the Fund with the services theretofore performed
by
such Co-Adviser under the applicable investment advisory agreement or arranging
for a successor co-adviser or sub-adviser, as the case may be, to provide such
services under terms and conditions acceptable to the Fund and the Board and
subject to the requirements of the 1940 Act.
4. Engagement
of Sub-Advisers to the Fund. Subject to the approval of the Board,
the Adviser may engage an investment sub-adviser or sub-advisers to provide
advisory services in respect of all or a portion of the Fund's assets (the
"Sub-Advised Portion") and may delegate to such investment sub-adviser(s) all
or
a portion of the responsibilities described in subparagraphs (b), (c), (d),
(e),
(f) and (g) in Paragraph 2 above and Paragraph 6 below (Information Provided
to
Fund) with respect to the Sub-Advised Portion. In the event that an
investment sub-adviser's engagement has been terminated, the Adviser shall
be
responsible for furnishing the Fund with the services required to be performed
by such investment sub-adviser(s) under the applicable investment sub-advisory
agreements or arranging for a successor co-adviser or sub-adviser, as the case
may be, to provide such services under terms and conditions acceptable to the
Fund and the Board and subject to the requirements of the 1940 Act.
5. Brokerage. In
executing transactions for the Fund and selecting brokers or dealers, the
Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Fund
transaction, the Adviser will consider all factors it deems
relevant including, but not limited to, breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of any commission
for
the specific transaction and on a continuing basis. In selecting
brokers or dealers to execute any transaction and in evaluating the best overall
terms available, the Adviser may consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act
of
1934) provided to the Fund and/or other accounts over which the Adviser or
any
affiliate exercises investment discretion.
6. Information
Provided to the Fund. The Adviser will use its best efforts to keep
the Fund informed of developments materially affecting the Fund, and will,
on
its own initiative, furnish the Fund from time to time with whatever information
the Adviser believes is appropriate for this purpose.
7. Standard
of Care. The Adviser shall exercise its best judgment in rendering
the services described herein. The Adviser shall not be liable for
any error of judgment or mistake of law or omission or any loss suffered by
the
Fund in connection with the matters to which this Agreement relates, provided
that nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Fund to which the Adviser would otherwise be
subject by reason of willful misfeasance, bad faith or negligence on its part
in
the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement ("Disabling
Conduct"). The Fund will indemnify the Adviser against, and hold it
harmless from, any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses), including any amounts paid
in
satisfaction of judgments, in compromise or as fines or penalties, not resulting
from Disabling Conduct by the Adviser. Indemnification shall be made
only following (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the Adviser was not liable by reason
of Disabling Conduct, or (ii) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the Adviser was not liable
by reason of Disabling Conduct by (a) the vote of a majority of the Directors
of
the Fund who are neither "interested persons" of the Fund nor parties to the
proceeding ("disinterested non-party Directors"), or (b) independent legal
counsel in a written opinion. The Adviser shall be entitled to
advances from the Fund for payment of the reasonable expenses incurred by it
in
connection with the matter to which it is seeking indemnification in the manner
and to the fullest extent permissible under the law. The Adviser
shall provide to the Fund a written affirmation of its good faith belief that
the standard of conduct necessary for indemnification by the Fund has been
met
and a written undertaking to repay any such advance if it should ultimately
be
determined that the standard of conduct has not been met. In
addition, at least one of the following additional conditions shall be met:
(a)
the Adviser shall provide a security in form and amount acceptable to the Fund
for its undertaking; (b) the Fund is insured against losses arising by reason
of
the advance; or (c) a majority of disinterested non-party Directors, or
independent legal counsel, in a written opinion, shall have determined, based
on
a review of facts readily available to the Fund at the time the advance is
proposed to be made, that there is reason to believe that the Adviser will
ultimately be found to be entitled to indemnification.
8. Compensation. In
consideration of the services rendered pursuant to this Agreement, the Fund
will
pay the Adviser the Advisory Fee (as defined in the Fee Schedule) such amount
to
be paid monthly, in the amount set forth in the fee schedule attached hereto
as Exhibit A (the "Fee Schedule"). The Advisory Fee shall
be the aggregate and entirety of all advisory fees to be paid by the Fund and
will be divided between the Adviser and the Co-Adviser as set forth in the
Fee
Schedule, which fee split may be adjusted from time to time in the discretion
of
the Board so long as the aggregate advisory fee does not exceed the Advisory
Fee. The fee payable to Adviser for any period shorter than a full
calendar month shall be prorated according to the proportion that such payment
bears to the full monthly payment.
9.
Expenses.
Except as indicated below, the Adviser will bear all expenses in connection
with
the performance of its services under this Agreement, including the fees payable
to the Co-Adviser and to any investment sub-adviser engaged pursuant to
Paragraphs 3 or 4 of this Agreement. The Fund will bear certain other expenses
to be incurred in its operation, including organizational expenses, taxes,
interest, brokerage costs and commissions and stock exchange fees; fees of
Directors of the Fund who are not also officers, directors or the employees
of
Adviser; Securities and Exchange Commission fees; state Blue Sky qualification
fees; charges of any custodian, any sub-custodians and transfer and
dividend-paying agents; insurance premiums; outside auditing and legal expenses;
costs of maintenance of the Fund's existence; membership fees in trade
associations; stock exchange listing fees and expenses; litigation and other
extraordinary or non-recurring expenses. Additionally, the Fund will bear the
reasonable travel-related expenses (or an appropriate portion thereof) to attend
Board of Directors' meetings for (i) the Fund's executive officers who are
also
officers of the Adviser or the Co-Adviser and (ii) the Adviser's, Co-Adviser’s
or a sub-adviser’s portfolio manager(s) who are primarily responsible for
managing all or a portion of the Fund's portfolio.
10. Services
to other Companies or Accounts. The Fund understands that the Adviser
now acts, or may act in the future as an investment adviser to fiduciary and
other managed accounts or other trusts, or as investment adviser to one or
more
other registered or unregistered investment companies, and the Fund has no
objection to the Adviser so acting. The Fund understands that the
persons employed by Adviser to assist in the performance of the Adviser's duties
hereunder will not devote their full time to such service and nothing contained
herein shall be deemed to limit or restrict the right of the Adviser or any
affiliate of the Adviser to engage in and devote time and attention to other
businesses or to render services of whatever kind or nature.
11. Term
of
Agreement. This Agreement shall become effective as of the date of
this Agreement, and shall terminate on the earlier of (i) approval of the
Adviser and a new advisory agreement at the Special Meeting or an adjournment
thereof in conformance with the 1940 Act or (ii) 150 days following
the date of this Agreement in accordance with Rule
15a-4. Notwithstanding the foregoing, this Agreement is terminable by
a party hereto on sixty (60) days' written notice to the other
party. Any termination shall be without penalty and any notice of
termination shall be deemed given when received by the addressee.
12. No
Assignment. This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged by any party hereto and will terminate
automatically in the event of its assignment (as defined in the 1940
Act). It may be amended by mutual agreement, in writing, by the
parties hereto.
13. Entire
Agreement. This Agreement constitutes the entire agreement between
the parties hereto.
14. Governing
Law. This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of Colorado.
15. Counterparts. This
Agreement may be executed in counterparts, each of which shall be deemed an
original for all purposes, and together shall constitute one and the same
Agreement.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as
of the date first above written.
ADVISER:
XXXXXXX
INVESTMENT ADVISERS, a Barbados international business company
By:
/s/
Xxxxx X. Xxxxxxxxxxx
Xxxxx
X.
Xxxxxxxxxxx
Its:
President
FUND:
THE
DENALI FUND INC., a Maryland corporation
By:
/s/
Xxxxxxx X. Xxxxxx
Xxxxxxx
X. Xxxxxx
Its: President
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Exhibit
A
FEE
SCHEDULE
The
Advisor shall be paid after the end of each calendar month, a fee for the
previous month computed as follows:
For
the
period ending October 31, 2007: At the annual rate of 20 basis points
of the value of the Fund’s average monthly net assets; and
For
the
period commencing November 1, 2007: At the annual rate of 28 basis
points of the value of the Fund’s average monthly net assets (the "Advisory
Fee").
For
purposes of calculating the Advisory Fee, the Fund’s average monthly net assets
will be deemed to be the average monthly value of the Fund’s total assets minus
the sum of the Fund’s liabilities (excluding leverage borrowings such as bank or
institutional borrowings, preferred stock, bonds, debentures, etc.) and accrued
dividends.
The
Advisory Fee is the maximum aggregate fee that is to be paid to the Adviser
and
any co-adviser or sub-adviser under this and any other co-advisory or
sub-advisory agreements.
FEE
SPLIT
BETWEEN ADVISER AND CO-ADVISER
The
Advisory Fee shall be split among
the Adviser and Co-Adviser, 25% to Boulder Investment Advisers LLC and 75%
to
Xxxxxxx Investment Advisers.
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