Item 5. Fees and Compensation
Blackford, or one of its affiliates, typically receives compensation for providing investment
advisory services from each of its Clients in the form of (1) an annual advisory fee (though no
Clients currently pay an advisory fee) of up to 2% per annum based on a percentage of assets
managed (“Advisory Fee”) (generally based on capital committed or capital deployed); (2)
performance-based compensation of up to 20% of all net income and gains and losses derived from
portfolio investments which is typically referred to as carried interest (“Carried Interest”) and (3)
Portfolio Company Fees (as defined below). Additionally, consistent with the Governing
Documents of a Client, the Client typically bears certain out-of-pocket expenses incurred by the
Adviser in connection with the services provided to the Client and the portfolio companies.
The details of how Blackford calculates its Advisory Fee, Carried Interest and Portfolio Company
Fees is set forth in each Client’s Governing Documents. Fees for advisory services are negotiable.
The Adviser only receives performance-based compensation when distributions occur in
accordance with the relevant Governing Documents for each Client relationship. As a result, the
Adviser does not receive performance-based compensation on a regularly-scheduled basis.
If applicable, the Adviser deducts its Advisory Fees directly from Clients’ accounts each quarter
in advance. Clients who pay Advisory Fees in advance may be refunded a prorated portion of the
fee if the advisory relationship is terminated prior to the end of the relevant billing period.
The Adviser performs transaction-related, financial advisor and other services for, and receives
fees from, actual or prospective portfolio companies or other investment vehicles of the Clients,
including fees in connection with structuring investments in such portfolio companies, as well as
mergers, acquisitions, add-on acquisitions, refinancings, public offerings, sales or other
dispositions and similar transactions with respect to such portfolio companies (“Transaction Fees”)
pursuant to management services agreements with portfolio companies of the Clients.
The Adviser and its affiliates also receive management consulting fees (“Management Consulting
Fees, and together with Transaction Fees, collectively (“Portfolio Company Fees”) pursuant to
management services agreements with portfolio companies of the Clients governing the advice,
consultation and other similar ongoing services provided by the Adviser to such portfolio
companies. The terms of a management services agreement may include (among other things)
reimbursement of certain fees and expenses, indemnification obligations, automatic renewals and
the payment of Management Consulting Fees (which are typically fixed fees that are augmented
as a percentage of organic or acquired EBITDA or a similar performance metric). Portfolio
Company Fees are in addition to Advisory Fees and Carried Interest. Portfolio Company Fees are
often substantial and may be paid in cash, in securities of the portfolio companies or investment
vehicles (or rights thereto) or otherwise.
In most cases with respect to the implementation of the arrangements described above, there is not
an independent third-party involved on behalf of the relevant portfolio company. Therefore, a
conflict of interest exists in the determination of any such fees and other related terms in the
applicable agreement with the portfolio company. To ensure a market-based approach to fees, the
Advisor coordinates with banks, mezzanine lending firms, boards of directors, and management
teams. Additionally, investors in each Client have the opportunity to review fees in advance of
making a capital commitment to the Client.
A portfolio company will typically reimburse the Adviser for expenses (including without
limitation travel expenses, meals and entertainment expenses, indemnification expenses, certain
legal and consulting expenses and similar out-of-pocket expenses) incurred by the Adviser in
connection with its performance of services for such portfolio company.
In addition, directly or indirectly, Clients may bear any and all fees, costs and expenses attributable
to the activities of the Clients or the Adviser incurred for the benefit of the Clients, in accordance
with the terms of the investment advisory agreements or other Governing Documents.
Fees costs and expenses attributable to the activities of the Clients or the Adviser and/or its
affiliates on behalf of the Clients include, but are not limited to, those related to the evaluation,
discovery, investigation, development, acquisition, managing, monitoring, or disposition of
investments (whether or not consummated). These include, but are not limited to, the fees, costs
and expenses (including disbursements) related to: loan fees, private placement fees, brokerage
and sales fees, commissions, appraisal fees, research fees and dealer spreads; any affiliated or
unaffiliated service providers (including fixed fees (such as retainers) and/or performance-based
fees), including any agent in respect of any private investment; underlying investment vehicles;
interest and clearing and settlement charges, commitment fees, transfer taxes and premiums, and
underwriting commissions and discounts; market data; legal, accounting, audit, investment
banking, and third party industry and due diligence experts; any finders, senior advisors,
originators, consultants and other persons acting in a similar capacity, including fixed fees and/or
performance based fees, in each case, whether in the form of cash, options, warrants, stock or
otherwise, and including expenses of any of the foregoing persons, including communications,
travel, meals, lodging and other similar expenses; oversight servicers and servicers; filings;
communications; travel, meals, lodging; organizing, maintaining and operating entities controlled
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