Exhibit 10.1

FOURTH AMENDED AND RESTATED
 
INVESTMENT ADVISORY AGREEMENT
 
BETWEEN
 
FIFTH STREET FINANCE CORP.
 
AND
 
FIFTH STREET MANAGEMENT LLC

This Fourth Amended and Restated Investment Advisory Agreement (this
“Agreement”) made effective as of January 1, 2017 (the “Effective Date”), by and
between FIFTH STREET FINANCE CORP., a Delaware corporation (the “Company”), and
FIFTH STREET MANAGEMENT LLC, a Delaware limited liability company (the
“Adviser”).

WHEREAS, the Company is a closed-end management investment fund that has elected
to be regulated as a business development company (“BDC”) under the Investment
Company Act of 1940, as amended (the “Investment Company Act”); and

WHEREAS, the Adviser is organized as an investment adviser that is registered
under the Investment Advisers Act of 1940, as amended (the “Advisers Act”); and

WHEREAS, the Company and the Adviser entered into an investment advisory
agreement, dated December 14, 2007 (the “Original Advisory Agreement”);

WHEREAS, the Company and the Adviser entered into an amended and restated
investment advisory agreement, dated April 30, 2008 (the “First Amended and
Restated Advisory Agreement”), which amended and restated in its entirety the
Original Advisory Agreement; and

WHEREAS, the Company and the Adviser entered into an amended and restated
investment advisory agreement, dated May 2, 2011 (the “Second Amended and
Restated Advisory Agreement”), which amended and restated in its entirety the
First Amended and Restated Advisory Agreement; and

WHEREAS, the Company and the Adviser entered into an amended and restated
investment advisory agreement, effective January 1, 2016 (the “Third Amended and
Restated Advisory Agreement”), which amended and restated in its entirety the
Second Amended and Restated Advisory Agreement; and

WHEREAS, the Company and the Adviser further desire to amend and restate in its
entirety the Third Amended and Restated Advisory Agreement in order to revise
the incentive fee structure.

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the parties hereby agree as follows:

1. DUTIES OF THE ADVISER.

(a) The Company hereby employs the Adviser to act as the investment adviser to
the Company and to manage the investment and reinvestment of the assets of the
Company, subject to the supervision of the Board of Directors of the Company,
(the “Board”) for the period and upon the terms herein set forth, (i) in
accordance with the investment objective, policies and restrictions that are set
forth in the reports and/or registration statements that the Company files with
the Securities and Exchange Commission (the “SEC”) from time to time; (ii)
during the term of this Agreement in accordance with all other applicable
federal and state laws, rules and regulations, and the Company’s charter and
by-laws; and (iii) in accordance with the Investment Company Act. Without
limiting the generality of the foregoing, the Adviser shall, during the term and
subject to the provisions of this Agreement (A) determine the composition of the
portfolio of the Company, the nature and timing of the changes therein and the
manner of implementing such changes; (B) identify, evaluate and negotiate the
structure of the investments made by the Company; (C) close, monitor and service
the Company’s investments; (D) determine the securities and other assets that
the Company shall purchase, retain, or sell; (E) perform due diligence on
prospective portfolio companies; and (F) provide the

 

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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. The Adviser shall have the power and authority on behalf of the Company
to effectuate its investment decisions for the Company, including the execution
and delivery of all documents relating to the Company’s investments and the
placing of orders for other purchase or sale transactions on behalf of the
Company. In the event that the Company determines to obtain debt financing, the
Adviser shall arrange for such financing on the Company’s behalf, subject to the
oversight and approval of the Board.

(b) The Adviser hereby accepts such employment and agrees during the term hereof
to render the services described herein for the compensation provided herein.

(c) The Adviser is hereby authorized to enter into one or more sub-advisory
agreements with other investment advisers (each, a “Sub-Adviser”) pursuant to
which the Adviser may obtain the services of the Sub-Adviser(s) to assist the
Adviser in fulfilling its responsibilities hereunder. Specifically, the Adviser
may retain a Sub-Adviser to recommend specific securities or other investments
based upon the Company’s investment objective and policies, and work, along with
the Adviser, in structuring, negotiating, arranging or effecting the acquisition
or disposition of such investments and monitoring investments on behalf of the
Company, subject to the oversight of the Adviser and the Company. The Adviser
and not the Company shall be responsible for any compensation payable to any
Sub-Adviser. Any sub-advisory agreement entered into by the Adviser shall be in
accordance with the requirements of the Investment Company Act and other
applicable federal and state law.

(d) The Adviser shall, for all purposes herein provided, be deemed to be an
independent contractor and, except as expressly provided or authorized herein,
shall have no authority to act for or represent the Company in any way or
otherwise be deemed an agent of the Company.

(e) Subject to review by and the overall control of the Board, the Adviser shall
keep and preserve for the period required by the Investment Company Act any
books and records relevant to the provision of its investment advisory services
to the Company and shall specifically maintain all books and records with
respect to the Company’s portfolio transactions and shall render to the Board
such periodic and special reports as the Board may reasonably request. The
Adviser agrees that all records that it maintains for the Company are the
property of the Company and shall surrender promptly to the Company any such
records upon the Company’s request, provided that the Adviser may retain a copy
of such records.

2. COMPANY’S RESPONSIBILITIES AND EXPENSES PAYABLE BY THE COMPANY.

All personnel of the Adviser, when and to the extent engaged in providing
investment advisory services hereunder, and the compensation and routine
overhead expenses of such personnel allocable to such services, shall be
provided and paid for by the Adviser and not by the Company. The Company shall
bear all other costs and expenses of its operations and transactions, including
(without limitation) fees and expenses relating to: organizational and offering
expenses; the investigation and monitoring of the Company’s investments; the
cost of calculating the Company’s net asset value; the cost of effecting sales
and repurchases of shares of the Company’s common stock and other securities;
management and incentive fees payable pursuant to this Agreement; fees payable
to third parties relating to, or associated with, making investments and valuing
investments (including third-party valuation firms); transfer agent and
custodial fees; fees and expenses associated with marketing efforts (including
attendance at investment conferences and similar events); federal and state
registration fees; any exchange listing fees; federal, state and local taxes;
independent directors’ fees and expenses; brokerage commissions; costs of proxy
statements, stockholders’ reports and notices; costs of preparing government
filings, including periodic and current reports with the SEC; fidelity bond,
liability insurance and other insurance premiums; and printing, mailing,
independent accountants and outside legal costs and all other direct expenses
incurred by either the Company’s administrator, currently FSC CT, LLC, or the
Company in connection with administering the Company’s business, including
payments under the Company’s administration agreement with its administrator (as
in effect from time to time, the “Administration Agreement”) that are based upon
the Company’s allocable portion of overhead and other expenses incurred by the
Company’s administrator in performing its obligations under the Administration
Agreement and the compensation of the Company’s chief financial officer and
chief compliance officer, and their respective staffs.

 

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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. The Adviser may agree to temporarily or permanently waive, in whole or in
part, the Base Management Fee and/or the Incentive Fee. See Appendix A for
examples of how these fees are calculated.

(a) Effective as of January 1, 2016, the Base Management Fee shall be calculated
at an annual rate of 1.75% of the Company’s gross assets, excluding any cash and
cash equivalents. For purposes of this Agreement, the term “cash and cash
equivalents” will have the meaning ascribed to it from time to time in the notes
to the financial statements that the Company files with the SEC. The Base
Management Fee shall be payable quarterly in arrears, and shall be calculated
based on the value of the Company’s gross assets at the end of each fiscal
quarter, and appropriately adjusted for any equity capital raises or repurchases
during such quarter. The Base Management Fee for any partial month or quarter
shall be appropriately prorated.

(b) Incentive Fee.  The Incentive Fee shall consist of two parts, as follows:

(i) The first part, referred to as the “Subordinated Incentive Fee on Income,”
shall be calculated and payable quarterly in arrears based on the Company’s
“Pre-Incentive Fee Net Investment Income” for the immediately preceding quarter.
The payment of the Subordinated Incentive Fee on Income shall be subject to
payment of a preferred return to investors each quarter, expressed as a rate of
return on the value of the Company’s net assets at the end of the most recently
completed fiscal quarter, of 1.75%, subject to a “catch up” feature (as
described below).

For this purpose, “Pre-Incentive Fee Net Investment Income” means interest
income, dividend income and any other income (including any other fees, other
than fees for providing managerial assistance, such as commitment, origination,
structuring, diligence and consulting fees or other fees that the Company
receives from portfolio companies) accrued during the fiscal quarter, minus the
Company’s operating expenses for the quarter (including the Base Management Fee,
expenses payable under the Administration Agreement, and any interest expense
and dividends paid on any issued and outstanding preferred stock, but excluding
the Incentive Fee). Pre-Incentive Fee Net Investment Income includes, in the
case of investments with a deferred interest feature (such as original issue
discount debt instruments with payment-in-kind interest and zero coupon
securities), accrued income that the Company has not yet received in cash.
Pre-Incentive Fee Net Investment Income does not include any realized capital
gains, realized capital losses or unrealized capital appreciation or
depreciation.

The calculation of the Subordinated Incentive Fee on Income for each quarter is
as follows:

(A) No Subordinated Incentive Fee on Income shall be payable to the Adviser in
any fiscal quarter in which the Company’s Pre-Incentive Fee Net Investment
Income does not exceed the preferred return rate of 1.75% (the “Preferred
Return”) on net assets;

(B) 100% of the Company’s Pre-Incentive Fee Net Investment Income, if any, that
exceeds the Preferred Return but is less than or equal to 2.1875% in any fiscal
quarter shall be payable to the Adviser. This portion of the Company’s
Subordinated Incentive Fee on Income is referred to as the “catch up” and is
intended to provide the Adviser with an incentive fee of 20% on all of the
Company’s Pre-Incentive Fee Net Investment Income when the Company’s
Pre-Incentive Fee Net Investment Income reaches 2.1875% on net assets in any
fiscal quarter; and

(C) For any quarter in which the Company’s Pre-Incentive Fee Net Investment
Income exceeds 2.1875% on net assets, the Subordinated Incentive Fee on Income
shall equal 20% of the amount of the Company’s Pre-Incentive Fee Net Investment
Income, as the Preferred Return and catch-up will have been achieved;

provided that, in the event the cumulative Subordinated Incentive Fee on Income
accrued for the Lookback Period (after giving effect to any reduction(s)
pursuant to this paragraph for any prior fiscal quarters of the Lookback Period
but not the quarter of calculation) exceeds 20.0% of the cumulative net increase
in net assets resulting from operations during the Lookback Period, then the

 

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Subordinated Incentive Fee on Income for the quarter shall be reduced by an
amount equal to (1) 25% of the Subordinated Incentive Fee on Income calculated
for such quarter (prior to giving effect to any reduction pursuant to this
paragraph) less (2) any Base Management Fees waived by the Adviser for such
fiscal quarter. For the foregoing purpose, the “cumulative net increase in net
assets resulting from operations” is an amount, if positive, equal to the sum of
Pre-Incentive Fee Net Investment Income, Base Management Fees, realized gains
and losses and unrealized capital appreciation and depreciation of the Company
for the Lookback Period. “Lookback Period” means (1) through December 31, 2019,
the period which commences on the Effective Date and ends on the last day of the
fiscal quarter for which the Subordinated Incentive Fee on Income is being
calculated, and (2) after December 31, 2019, the fiscal quarter for which the
Subordinated Incentive Fee on Income is being calculated and the eleven
preceding fiscal quarters.

(ii) The second part of the Incentive Fee, referred to as the “Incentive Fee on
Capital Gains,” shall be determined and payable in arrears as of the end of each
fiscal year (or upon termination of the investment advisory agreement, as of the
termination date), and shall equal 20% of the Company’s realized capital gains,
if any, on a cumulative basis from inception through the end of each fiscal
year, computed net of all realized capital losses and unrealized capital
depreciation on a cumulative basis, less the aggregate amount of any previously
paid capital gain incentive fees.

4. COVENANTS OF THE ADVISER.

The Adviser covenants that it will maintain its registration as an investment
adviser under the Advisers Act. The Adviser agrees that its activities will at
all times be in compliance in all material respects with all applicable federal
and state laws governing its operations and investments.

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 such factors as 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 constitutes the best net results for the
Company.

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 those of the
Company, so long as its services to the Company hereunder are not impaired
thereby, and nothing in this Agreement shall limit or restrict the right of any
manager, partner, member (including its members and the owners of its members),
officer 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). So long as this Agreement or any extension, renewal
or amendment remains in effect, the Adviser shall be the only investment adviser
for the Company, subject to the Adviser’s right to enter into sub-advisory
agreements. The Adviser assumes no responsibility under this Agreement other
than to render the services called for hereunder. It is understood that
directors, officers, employees and stockholders of the Company are or may become
interested in the Adviser and its affiliates, as directors, officers, employees,
partners, stockholders, members, managers or otherwise, and that the Adviser and
directors, officers, employees, partners, stockholders, members and managers of
the Adviser and its affiliates are or may become similarly interested in the
Company as stockholders or otherwise.

 

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7. RESPONSIBILITY OF DUAL DIRECTORS, OFFICERS AND/OR EMPLOYEES.

If any person who is a manager, partner, member, officer or employee of the
Adviser is or becomes a director, officer and/or employee of the Company and
acts as such in any business of the Company, then such manager, partner, member,
officer and/or employee of the Adviser shall be deemed to be acting in such
capacity solely for the Company, and not as a manager, partner, member, officer
or employee of the Adviser or under the control or direction of the Adviser,
even if paid by the Adviser.

8. LIMITATION OF LIABILITY OF THE ADVISER; INDEMNIFICATION.

The Adviser (and its officers, managers, partners, members (and their members,
including the owners of their members), agents, employees, controlling persons
and any other person or entity affiliated with the Adviser) shall not be liable
to the Company for any action taken or omitted to be taken by the Adviser in
connection with the performance of any of its 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 Investment Company Act concerning loss
resulting from a breach of fiduciary duty (as the same is finally determined by
judicial proceedings) with respect to the receipt of compensation for services,
and the Company shall indemnify, defend and protect the Adviser (and its
officers, managers, partners, members (and their members, including the owners
of their members), agents, employees, controlling persons and any other person
or entity affiliated with the Adviser, each of whom shall be deemed a third
party beneficiary hereof) (collectively, the “Indemnified Parties”) and hold
them harmless from and against all damages, liabilities, costs and expenses
(including reasonable attorneys’ fees and amounts reasonably paid in settlement)
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 Adviser’s
duties or obligations under this Agreement or otherwise as an investment adviser
of the Company. Notwithstanding the preceding sentence of this Section 8 to the
contrary, nothing contained herein shall protect or be deemed to protect the
Indemnified Parties against or entitle or be deemed to entitle the Indemnified
Parties to indemnification in respect of, any liability to the Company or its
security holders to which the Indemnified Parties would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Adviser’s duties or by reason of the reckless disregard of the Adviser’s
duties and obligations under this Agreement.

9. EFFECTIVENESS, DURATION AND TERMINATION OF AGREEMENT.

This Agreement shall become effective as of the Effective Date; provided, that
this Agreement shall not have any effect on the fees which were paid to the
Adviser pursuant to the Third Amended and Restated Advisory Agreement for the
fiscal quarter ended December 31, 2016. This Agreement shall continue
automatically for successive annual periods, provided that such continuance is
specifically approved at least annually by (a) the vote of the Board or a
majority of the outstanding voting securities of the Company and (b) the vote of
a majority of the Company’s directors who are not parties to this Agreement or
“interested persons” (as such term is defined in Section 2(a)(19) of the
Investment Company Act) of any such party, in accordance with the requirements
of the Investment Company Act and each of whom is an “independent director”
under applicable New York Stock Exchange listing standards. This Agreement may
be terminated at any time, without the payment of any penalty, upon 60 days’
written notice, by the vote of a majority of the outstanding voting securities
of the Company, or by the vote of the Company’s directors or by the Adviser.
This Agreement shall automatically terminate in the event of its “assignment”
(as such term is defined for purposes of Section 15(a)(4) of the Investment
Company Act). The provisions of Paragraph 8 of this Agreement shall remain in
full force and effect, and the Adviser shall remain entitled to the benefits
thereof, notwithstanding any termination of this Agreement.

 

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10. NOTICES.

Any notice under this Agreement shall be given in writing, addressed and
delivered or mailed, postage prepaid, to the other party at its principal
office.

11. AMENDMENTS.

This Agreement may be amended by mutual consent.

12. ENTIRE AGREEMENT; GOVERNING LAW.

This Agreement contains the entire agreement of the parties and supersedes all
prior agreements, understandings and arrangements with respect to the subject
matter hereof. Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, 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 Investment Company Act, this Agreement shall also be construed in
accordance with the applicable provisions of the Investment Company 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 Investment Company Act,
the latter shall control. To the fullest extent permitted by law, in the event
of any dispute arising out of the terms and conditions of this Agreement, the
parties hereto consent and submit to the jurisdiction of the courts of the State
of New York in the county of New York and of the U.S. District Court for the
Southern District of New York.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the date above written.

FIFTH STREET FINANCE CORP.

 By: /s/ Patrick Dalton
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Name: Patrick Dalton
Title:  Chief Executive Officer

FIFTH STREET MANAGEMENT LLC

 By: /s/ Leonard Tannenbaum
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Name: Leonard Tannenbaum
Title:  Chief Executive Officer

 

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APPENDIX A

EXAMPLE 1: INCOME RELATED PORTION OF INCENTIVE FEE FOR EACH FISCAL QUARTER

ALTERNATIVE 1

ASSUMPTIONS

Preferred Return = 1.75%

Net assets at end of most recently completed quarter = $1.1 billion

Investment income (including interest, dividends, fees, etc.) = $30 million
Management fee(1) = $9 million
Other expenses (legal, accounting, custodian, transfer agent, etc.)(2) = $6
million
Pre-Incentive Fee Net Investment Income
(investment income – (management fee + other expenses) = $15 million
Pre-incentive Fee Net Investment Income as % of net assets at prior quarter end
= 1.3636%
Cumulative Subordinated Incentive Fee on Income accrued for Lookback Period = $5
million
Cumulative net increase in net assets resulting from operations during Lookback
Period = $100 million

Pre-Incentive Fee Net Investment Income does not exceed the Preferred Return,
therefore there is no Subordinated Incentive Fee on Income.

ALTERNATIVE 2

ASSUMPTIONS

Preferred Return = 1.75%

Net assets at end of most recently completed quarter = $1.1 billion

Investment income (including interest, dividends, fees, etc.) = $35 million
Management fee(1) = $9 million
Other expenses (legal, accounting, custodian, transfer agent, etc.)(2) = $6
million
Pre-Incentive Fee Net Investment Income
(investment income – (management fee + other expenses) = $20 million
Pre-incentive Fee Net Investment Income as % of net assets at prior quarter end
= 1.8182%
Cumulative Subordinated Incentive Fee on Income accrued for Lookback Period = $5
million
Cumulative net increase in net assets resulting from operations during Lookback
Period = $100 million

Subordinated Incentive fee = 100% × Pre-Incentive Fee Net Investment Income
(subject to “catch-up”)(3)

= 100% × (1.8182% – 1.75%)

= 0.0682% × $1.1 billion = $750,200

Pre-Incentive Fee Net Investment Income exceeds the Preferred Return, but does
not fully satisfy the “catch-up” provision, therefore the Subordinated Incentive
Fee on Income is 0.0682% of net assets at prior quarter end or $750,200.

A-1

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ALTERNATIVE 3

ASSUMPTIONS

Preferred Return = 1.75%

Net assets at end of most recently completed quarter = $1.1 billion

Investment income (including interest, dividends, fees, etc.) = $40 million
Management fee(1) = $9 million
Other expenses (legal, accounting, custodian, transfer agent, etc.)(2) = $6
million
Pre-Incentive Fee Net Investment Income
(investment income – (management fee + other expenses) = $25 million
Pre-incentive Fee Net Investment Income as % of net assets at prior quarter end
= 2.2727%
Cumulative Subordinated Incentive Fee on Income accrued for Lookback Period = $5
million
Cumulative net increase in net assets resulting from operations during Lookback
Period = $100 million

Subordinated Incentive fee = 100% × Pre-Incentive Fee Net Investment Income
(subject to “catch-up”)(3)

Subordinated Incentive fee = 100% × “catch-up” + (20% × (Pre-Incentive Fee Net
Investment Income – 2.1875%))

Catch up = 2.1875% – 1.75%

    = 0.4375%

Subordinated Incentive fee = (100% × 0.4375%) + (20% × (2.2727% – 2.1875%))

    = 0.4375% + (20% × 0.0852%)

    = 0.4375% + 0.0174%

    = 0.4545% × $1.1 billion = $5 million

Pre-Incentive Fee Net Investment Income exceeds the Preferred Return, and fully
satisfies the “catch-up” provision, therefore the Subordinated Incentive Fee on
Income is 0.4545% of net assets at prior quarter end or $5 million.

ALTERNATIVE 4

ASSUMPTIONS

Preferred Return = 1.75%

Net assets at end of most recently completed quarter = $1.1 billion

Investment income (including interest, dividends, fees, etc.) = $40 million
Management fee(1) = $9 million
Other expenses (legal, accounting, custodian, transfer agent, etc.)(2) = $6
million
Pre-Incentive Fee Net Investment Income
(investment income – (management fee + other expenses) = $25 million
Pre-incentive Fee Net Investment Income as % of net assets at prior quarter end
= 2.2727%
Cumulative Subordinated Incentive Fee on Income accrued for Lookback Period = $5
million
Cumulative net increase in net assets resulting from operations during Lookback
Period = $25 million

Subordinated Incentive fee = 100% × Pre-Incentive Fee Net Investment Income
(subject to “catch-up”)(3)

Subordinated Incentive fee = 100% × “catch-up” + (20% × (Pre-Incentive Fee Net
Investment Income – 2.1875%))

A-2

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Catch up = 2.1875% – 1.75%

    = 0.4375%

Subordinated Incentive fee = (100% × 0.4375%) + (20% × (2.2727% – 2.1875%))

    = 0.4375% + (20% × 0.0852%)

    = 0.4375% + 0.0174%

    = 0.4545% × $1.1 billion = $5 million

Cumulative Subordinated Incentive Fee on Income accrued for Lookback Period = $5
million

Cumulative net increase in net assets resulting from operations during Lookback
Period = $20 million × 20% = $4 million

Reduction of Subordinated Incentive Fee on Income = $5 million × 25% = $1.25
million

Subordinated Incentive Fee on Income after reduction = $3.75 million

Pre-Incentive Fee Net Investment Income exceeds the Preferred Return, and fully
satisfies the “catch-up” provision, therefore the Subordinated Incentive Fee on
Income is 0.4545% of net assets at prior quarter end or $5 million. However,
since the cumulative Subordinated Incentive Fee on Income accrued for the
Lookback Period exceeds the cumulative net increase in net assets resulting from
operations during the Lookback Period, the Subordinated Incentive Fee on Income
is reduced by 25% to $3.75 million.

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(1) Represents 1.75% annualized base management fee.

(2) Excludes organizational and offering expenses.

(3) The “catch-up” provision is intended to provide the Adviser with a
subordinated incentive fee of 20% on all Pre-Incentive Fee Net Investment Income
as if a preferred return did not apply when the Company’s Pre-Incentive Fee Net
Investment Income exceeds 2.1875% in any quarter.

EXAMPLE 2: CAPITAL GAINS PORTION OF INCENTIVE FEE(*):

ALTERNATIVE 1:

ASSUMPTIONS

Year 1: $20 million investment made in Company A (“Investment A”), and $30
million investment made in Company B (“Investment B”)

Year 2: Investment A sold for $50 million and fair market value (“FMV”) of
Investment B determined to be $32 million

Year 3: FMV of Investment B determined to be $25 million

Year 4: Investment B sold for $31 million

The capital gains portion of the incentive fee would be:

Year 1: None

Year 2: Capital gains incentive fee of $6 million ($30 million realized capital
gains on sale of Investment A multiplied by 20%)

Year 3: None [GRAPHIC MISSING] [v458713_right-arrow.jpg] $5 million (20%
multiplied by ($30 million cumulative capital gains less $5 million cumulative
capital depreciation)) less $6 million (previous capital gains fee paid in Year
2)(1)

Year 4: Capital gains incentive fee of $200,000 [GRAPHIC MISSING]
[v458713_right-arrow.jpg] $6.2 million ($31 million cumulative realized capital
gains multiplied by 20%) less $6 million (capital gains incentive fee taken in
Year 2)

A-3

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ALTERNATIVE 2

ASSUMPTIONS

Year 1: $20 million investment made in Company A (“Investment A”), $30 million
investment made in Company B (“Investment B”) and $25 million investment made in
Company C (“Investment C”)

Year 2: Investment A sold for $50 million, FMV of Investment B determined to be
$25 million and FMV of Investment C determined to be $25 million

Year 3: FMV of Investment B determined to be $27 million and Investment C sold
for $30 million

Year 4: FMV of Investment B determined to be $35 million

Year 5: Investment B sold for $20 million

The capital gains incentive fee, if any, would be:

Year 1: None

Year 2: $5 million capital gains incentive fee [GRAPHIC MISSING]
[v458713_right-arrow.jpg] 20% multiplied by $25 million ($30 million realized
capital gains on Investment A less unrealized capital depreciation on Investment
B)

Year 3: $1.4 million capital gains incentive fee [GRAPHIC MISSING]
[v458713_right-arrow.jpg] $6.4 million (20% multiplied by $32 million ($35
million cumulative realized capital gains less $3 million unrealized capital
depreciation)) less $5 million capital gains incentive fee received in Year 2

Year 4: None

Year 5: None [GRAPHIC MISSING] [v458713_right-arrow.jpg] $5 million (20%
multiplied by $25 million (cumulative realized capital gains of $35 million less
realized capital losses of $10 million)) less $6.4 million cumulative capital
gains incentive fee paid in Year 2 and Year 3(2)

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* The hypothetical amounts of returns shown are based on a percentage of the
Company’s total net assets and assume no leverage. There is no guarantee that
positive returns will be realized and actual returns may vary from those shown
in this example.

(1) As illustrated in Year 3 of Alternative 1 above, if the Company were to be
wound up on a date other than its fiscal year end of any year, the Company may
have paid aggregate capital gains incentive fees that are more than the amount
of such fees that would be payable if the Company had been wound up on its
fiscal year end of such year.

(2) As noted above, it is possible that the cumulative aggregate capital gains
fee received by the Adviser ($6.4 million) is effectively greater than $5
million (20% of cumulative aggregate realized capital gains less net realized
capital losses or net unrealized depreciation ($25 million)).

A-4

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