Item 5. FEES AND COMPENSATION
Fees
In exchange for the services provided by BuildGroup Management, its clients (“Clients” or Funds”)
generally pays, directly or through reimbursement of BuildGroup Management, all of the operating
expenses of BuildGroup Management. Except as otherwise provided herein, these operating expenses
include, but are not limited to, (i) the salaries, benefits and bonuses of the employees of BuildGroup
Management; (ii) expenses relating to personnel recruiting and severance arrangements including
hiring, on-boarding and termination of employees of BuildGroup Management (including recruitment
fees and retainers paid, certain up-front compensation and buy-out payments payable to employees
and related legal expenses); (iii) expenses related to the furniture, fixtures, rent and facilities of
BuildGroup Management as well as any leasehold improvements; and (iv) other routine
administrative expenses of BuildGroup Management, including, but not limited to, the cost of the
preparation of applicable tax returns of BuildGroup Management.
The operating expenses of BuildGroup Management are subject to an annual budget approved
by BuildGroup LLC’s board of directors. Such expenses are generally allocated to the preferred
members of BuildGroup LLC (excluding BuildGroup affiliates and certain portfolio company
executives) on a pro rata basis, subject to certain caps and adjustments applicable to various preferred
members, as detailed in the BuildGroup LLC’s Governing Documents. Any such capped or adjusted
amount in respect of any partial fiscal year of management by BuildGroup Management will be pro-
rated based on the actual number of days in such partial fiscal year.
Clients generally seeks to fund operating expenses through the Client’s gross revenues. In the event
of an operating deficit, Clients may draw down capital from preferred members or investors other
than the BuildGroup affiliates and certain portfolio company executives. Drawdowns may be made
quarterly on at least 10 business days’ advance notice or such other times as set forth in the Governing
Documents of each Client. For BuildGroup LLC, the amount drawn down will be based on the
projected amount of gross revenues in excess of Client Expenses, the projected amount of BuildGroup
Management expenses and any past operating deficit not previously covered. Detailed information
regarding the foregoing and the fees and expenses applicable to the Clients are set forth in the
Governing Documents of each Client.
Subject to the terms and conditions of the Governing Documents of the Clients, BuildGroup
Management’s principals and affiliates generally are entitled to receive performance distributions
equal to a percentage of profits on distributions (following the return of contributed capital and a
preferred return to members).
As disclosed in the Governing Documents, private placement memorandum, and the operating
agreements, the BuildGroup Management principals and their affiliates received certain amounts
from Funds in connection with the transfer of their existing indirect equity investments in three
warehoused investments to Funds prior to the initial closing at the contribution values set forth on
Appendix A to the operating agreement.
Please see the Governing Documents of the Clients for detailed information regarding the
performance distributions that may be made to BuildGroup Management affiliates and other persons.
BuildGroup Management has the authority to form additional co-investment vehicles (and has
previously done so) to facilitate the investment by existing preferred members in the Funds or new
third-party investors alongside the Funds (each such Fund, a “Parallel Company”). Potential conflicts
of interest may be inherent in, or arise from, BuildGroup Management’s discretion in determining
when to establish a Parallel Company to co-invest alongside the Funds. Parallel Companies will
generally not charge a management fee to existing preferred members (subject to a cap on such fee-
free commitments), but may charge a management fee based on committed capital to new investors in
BuildGroup Management’s sole discretion. Any management fee charged to third-party investors in
such a Parallel Company is in turn paid to Funds (or, if received directly by BuildGroup Management,
is treated as a fee offset for investors in Funds against otherwise payable pass-through management
expenses), unless Funds’ board of directors approves an alternative fee sharing arrangement between
the Parallel Company and the Funds.
Client Expenses
Subject to the terms and conditions set forth in the each Clients’ Governing Documents, the Clients
bears or pays all expenses attributable to or incurred in connection with its operation and activities
including, but not limited to, (i) all expenses incurred in connection with the identification, discovery,
structuring, screening, evaluation (including due diligence), negotiation, acquisition, monitoring or
disposition of investments in portfolio companies, whether or not the investment is consummated,
including consultants’ and finders’ fees (including the payment of consultants fees to former officers
or employees, which may include performance-based compensation or participation in performance-
based compensation with respect to one or more investments); investment banking fees, appraisal
fees, brokerage fees, financing fees and other similar fees; transfer fees, registration fees and similar
fees and expenses; taxes; commissions; reasonable travel expenses; reasonable rental or lodging
expenses; legal, compliance, accounting, audit, administration, consulting and other professional fees
(including due diligence in connection therewith); information services, and research expenses related
to portfolio companies; and other investment or disposition costs (to the extent not subject to
reimbursement) (collectively, “Transaction Expenses”); (ii) expenses incurred in connection with
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