Item 5 Fees and Compensation
Management Fees
CP receives management fees, which are payable quarterly in advance and are generally calculated
as 1.5% of each client’s actively invested capital (the cost basis of all Portfolio Investments that
have not been disposed of). Effective as of February 25, 2017, and pursuant to an amendment to
the Shareholders Agreement of CP II, CP was instead paid a flat management fee by the
shareholders of CP II of $3,500,000 for the period beginning on February 25, 2017 and ending on
February 24, 2018, and will be paid a flat management fee by the shareholders of CP II of
$2,500,000 (payable quarterly in advance) for the period beginning on February 25, 2018 and
ending on February 24, 2019. Thereafter, the shareholders of CP II will no longer be charged a
management fee. CP’s management fees are directly deducted from clients’ custodial accounts.
In the event a client terminates its operations or terminates its advisory agreement with CP prior
to the end of a quarter, CP will refund the client for any unearned management fees deducted from
the client’s custodial account. The amount of the refund will be calculated by dividing the most
recent management fee by the number of days in the quarter and multiplying that figure by the
number of days left in the quarter following the date of termination.
Carried Interest Allocations
Carried interest is a share of the net profits realized on the disposition of investments that is paid
to clients’ carried interest shareholders. Effective as of February 25, 2017, and pursuant to an
amendment to the Shareholders Agreement of CP II, all of CP’s current clients are subject to a
carried interest of 10% of profits on distributions derived from the disposition of investments or
securities after a preferred return of 10% per annum. Corporate Partners II Manager Holdings
LLC (“CP Holdings”), an affiliated entity of CP, is the carried interest shareholder of all of CP’s
current clients.
Directors and Monitoring Fees
CP may receive both directors and monitoring fees directly from certain Portfolio Companies,
which are payable either quarterly or monthly in advance. All fees for such services are negotiated
on a case-by-case basis with each Portfolio Company. Please see Item 14 “Client Referrals and
Other Compensation” for additional information regarding these services.
Other Fees
CP’s clients are also responsible for paying for all expenses related to their operations, including
fees, costs and expenses directly related to the purchase and sale of securities, expenses of counsel,
accountants and other consultants and professionals, any insurance, indemnity or litigation expense
or the costs and expenses of any lenders, investment banks and other financing sources and any
taxes, fees or other governmental charges, and any such costs incurred in connection with
transactions which are not consummated. Out-of-pocket expenses associated with completed
transactions will be reimbursed by Portfolio Companies or capitalized as part of the acquisition
price of the transaction.
Other Compensation
Messrs. Wambold and Kagan as well as other employees of CP are registered representatives of
an affiliated broker-dealer, Corporate Partners & Co. LLC (“CP & Co.”, CRD No. 168356, SEC
File No. 8-69303). Messrs. Wambold and Kagan are Managing Directors and principals of CP &
Co. CP & Co. primarily engages in investment banking activities, including advising on or
facilitating private placement debt or equity security offerings as well as mergers and
acquisitions. CP’s clients may be solicited to take part in debt or equity security offerings
facilitated by CP & Co. (subject to certain limitations in the Shareholders Agreement of CP II)
and CP & Co. may receive transaction-based compensation related to the sale of such securities
that is separate from any management fees, carried interest allocations, and/or directors and
monitoring fees received by CP. Consequently, CP, its Managing Principals and employees may
have an incentive to recommend such securities to CP’s clients based on the compensation
received, rather than the needs of the client. To address these risks, CP requires that its
Managing Principals and employees comply with its Code of Ethics when engaging in any
activity that may give rise to a potential conflict of interest with CP’s clients and seeks to provide
full and fair disclosure of all material facts, including conflicts of interest, to clients.
Furthermore, CP’s Managing Principals and employees are aware of CP’s fiduciary obligations
to its private fund clients and endeavor to always put the interests of CP’s advisory clients first.