Item 5. Fees and Compensation
Criterion typically charges an annualized fee of 1.0% to 1.5% (depending on the Client and
liquidity terms) of a Client’s assets under management, which is payable in quarterly installments
at the beginning of each calendar quarter based on the net market value of each Client’s account
on the date the fee accrues and becomes payable. Criterion also typically is allocated from each
Client, and Investor, where applicable a performance allocation equal to 15% to 20% (depending
on the Client and liquidity terms) of net profits (including both realized and unrealized gains and
losses).
Criterion’s Domestic Funds and Offshore Funds invest through their applicable Master Funds
organized as limited partnerships, and such Master Funds pay Criterion management fees and
allocate to it performance allocations with respect to the applicable Domestic Funds and Offshore
Funds. Criterion in its role as investment adviser to the Funds, has in the past and may from time
to time in the future agree to supplements, clarifications, or variations of the terms of a Fund’s
Governing Documents in “side letters” or similar agreements.
Criterion may waive or reduce all or part of any annualized fee or performance allocation with
respect to any Investor, in any period. For example, for certain partners, employees, independent
contractors and affiliates of Criterion, certain persons with whom Criterion and its affiliates have
a close personal or business relationship, and their families.
Performance allocations are assessed in arrears on an annual basis, and are only applied to the
portion of profits that exceeds the cumulative losses previously allocated to or incurred by Clients.
Criterion complies with Rule 205-3 under the Investment Advisers Act of 1940, to the extent
required by applicable law. Performance allocations create an incentive for Criterion to make
more risky and speculative investments than it would otherwise make.
In all cases, expenses, the pro rata portion of the management fee and the performance allocation
through the date of withdrawal or termination, are charged to Investors. An Investor who
withdraws from a Fund on a date other than the last day of a quarter receives a refund of a pro rata
portion of the management fee previously paid for that quarter and is charged a performance
allocation with respect to the amount withdrawn for the period ending on the withdrawal date.
Criterion bears its own operating and administrative costs and expenses, without reimbursement
by Clients. The costs of certain services are paid, however, by brokerage firms to which Criterion
directs the Clients’ securities trades, as discussed in Item 12 below.
To the extent provided in the applicable Fund’s Governing Documents, the Funds bear all expenses
incidental to their operation and securities transactions. Such expenses include without limitation,
(a) all trading costs and expenses incurred, by the Master Funds (such as brokerage commissions
and charges, expenses relating to short sales, clearing and settlement charges, option premiums
and custodial and service fees), (b) all interest and commitment fees on loans and debit balances
(on margin or otherwise), (c) all costs and expenses of negotiating and entering into contracts and
arrangements and making investments in the Master Funds (such as brokerage, legal, accounting,
investment banking, appraisal and other professional and consulting fees and expenses arising
from particular investments and potential investments), and similar expenses in terminating those
contracts and arrangements and disposing of the Master Funds’ investments, (d) all costs and
expenses incurred in attempting to protect or enhance the value of investments (including the costs
of instituting and defending lawsuits), (e) all income taxes, withholding taxes, transfer taxes and
other governmental charges and duties, (f) all fees and charges of custodians, clearing agencies
and banks, (g) all legal, auditing, tax preparation and other professional, expert and consulting fees
and expenses arising in connection with the Funds’ activities (including fees and expenses of
counsel for the Funds, Criterion or its officers and managers arising in connection with their
services to the Funds and fees and expenses incurred in connection with regulatory filings relating
to the Funds), (h) research costs and costs of quotation services and equipment and news wire
services, (i) all fees, costs and expenses of accounting, auditing and recordkeeping services of each
Fund’s administrator or any similar service provider retained by a Fund or Criterion to assist it in
performing these services for the Fund, (j) all fees, costs and expenses of offering and selling Fund
interests (including, without limitation, legal and accounting fees and expenses, and governmental
and self-regulatory agency filing fees, costs and expenses), (k) all premiums and other costs and
expenses of insurance policies as Criterion considers appropriate, insuring the Funds, Criterion
and their affiliates against liabilities in connection with the business or management of the Funds,
(l) organizational expenses; (m) the fees and expenses of each Fund’s directors (as applicable),
(n) the costs of maintaining certain Funds’ registered office in the Cayman Islands or any other
jurisdiction, (o) the costs of maintaining any appropriate registrations of the Funds, (p) any
contingencies for which the Funds or Criterion determines reserves are required and (q) any
extraordinary expenses (such as litigation expenses). The Domestic Funds and the Offshore Funds
also bear their proportionate share of the foregoing costs and expenses incurred by their applicable
Master Funds.
To the extent provided in the applicable Client’s investment management agreements, the
separately managed account clients are responsible for their own costs and expenses, as agreed
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