Item 5 – Fees and Compensation
A. The Funds
The Advisers do not receive a management fee from the Funds based on investors’
committed capital.
3P Equity has delegated, subject to its oversight, day-to-day responsibility for the
management and operations of the Funds to the Manager. The Manager has exclusive authority to
manage, control, vote on, and approve each Fund’s portfolio investments pursuant to separate
Operating Agreements, as amended.
The Manager provides on-going monitoring services to its company investments. Once the
investment is made, in partnership with such company’s management, the Manager employs
specific strategies to help the company distinguish itself operationally, accelerate the growth of the
business and expand the business’ total addressable market.
3P Equity has partnered with Silver Sail Capital, LLC (“SSC”), an unaffiliated private
equity firm located in Los Angeles, California, for assistance in managing a portion of its existing
portfolio companies. SSC provides management, accounting, valuation and due diligence services
to certain portfolio company investments. SSC holds a minority interest in the Manager.
As of the date of this filing, the Advisers have agreed, pursuant to the terms of the
Settlement Transactions, to terminate their management rights over Client capital contributions to
the Funds, including the Advisers’ authority to manage, control, vote on and approve investments
using capital contributions made to the Funds.
The Advisers and SSC are entitled to receive Monitoring Fees, Carried Interest and Closing
Fees, as those terms are defined below and subject to any changes prescribed by the Settlement
Transactions as described below.
1. Monitoring Fees
The Manager may take an active role in structuring operational improvements and strategic
initiatives that it believes will position a Fund’s investments to achieve both top-line and earnings
results. In consideration for such management services, the Manager may receive a monitoring fee
(“Monitoring Fee”) for any such management services provided to any investment made by the
Funds, with such amount not to exceed $150,000 annually, payable by the applicable “operating
company” with respect to each investment. The amount of the Monitoring Fee shall be determined
by the Manager on a deal-by-deal basis and in its sole discretion. Generally, SSC is entitled to
receive 20% of the Monitoring Fee payable to the Manager, with the balance payable to 3P Equity.
As of the date of this filing, pursuant to the terms of the Settlement Transactions,
Monitoring Fees accrued and received by the Advisers since December 31, 2019 will be forfeited to
the benefit of the Plaintiff via an offset mechanism that deducts any such payments from the
economics of the Settlement Transactions agreed to by the parties.
2. Carried Interest
The Manager is entitled to receive a 50% Carried Interest on net profits of each investment
above the 8% annual hurdle rate, with proceeds from a capital event applied to the return of the
investor’s unreturned capital with respect to such investment (“Carried Interest”). Carried Interest is
calculated on a deal-by-deal basis in accordance with the terms of each Fund’s Operating
Agreement. Generally, SSC is entitled to receive 10% of the Carried Interest payable to the
Manager, with the balance payable to 3P Equity.
As of the date of this filing, pursuant to the terms of the Settlement Transactions, the
Advisers have agreed to release the rights to and forfeit any unrealized Carried Interest with respect
to certain investments held by the Funds.
3. Investment Closing Fees
The Advisers are entitled to collect a one-time closing fee (the “Closing Fee”) in connection
with successful transaction closings. Closing Fees are negotiated on a deal-by-deal basis in the sole
discretion of the Advisers. Generally, Closing fees are calculated based on an amount equal to (a)
$100,000 multiplied by (b) the amount of acquisition capital contributed by a Fund or Client
towards such acquisition (whether equity or debt) expressed as a percentage of all acquisition
capital contributed towards such acquisition (whether equity or debt) by all Funds or Clients
(including any co-investment or other similar vehicles managed or under control of the Manager).
Generally, SSC is entitled to receive 30% of each Closing Fee payable to the Manager, with the
balance payable to 3P Equity.
Pursuant to the terms of the Settlement Transactions, the Advisers have agreed to terminate
their rights to make investments using capital contributions made to the Funds, thereby forfeiting
their entitlement to future Closing Fees.
4. Co-Investments
The Advisers have full discretion to cause a Fund to co-invest in certain investments with
another Fund (the “Co-Invest Fund”). Under such circumstances, the Co-Invest Fund will typically
bear its pro-rata share of any expenses relating to consummated investments in which it
participates.
5. Special Purpose Vehicles
From time to time, the Manager may create a “special purpose vehicle” or similar
structuring vehicle for purposes of accommodating certain tax, legal and regulatory considerations
of investors. In the event the Manager creates such a vehicle, the Fund, and indirectly the investors
thereof, will typically bear all expenses related to its organization and formation and other expenses
incurred solely for the benefit of the special purpose vehicle.
6. Other Fees
Each Fund will reimburse the Manager for reasonable business expenses incurred on behalf
of the Fund in an amount not to exceed $10,000 per month.
B. Non-U.S. Investments
...