ITEM 5. FEES AND COMPENSATION
Management Fees
Our fee schedule is provided directly to investors in the Falcon Fund, all of which are
“qualified purchasers” as defined in Section 2(a)(51)(A) of the IC Act as amended.
Fees may be deducted directly from Falcon Fund accounts or capital may be called directly
from investors in the Falcon Fund for this purpose.
Management fees are paid quarterly in advance. In the event of any termination of our
services mid-quarter, a pro rata portion of the management fees applicable to such quarter
would be refunds to the investors in the Falcon Fund. Carried interest, if any, is distributed
quarterly from net cash available for distribution for such purpose.
We have entered into an administrative service agreement with Highland Capital
Management, L.P., a Delaware limited partnership (“HCM” or “Highland”) pursuant to which
HCM will provide administrative services to the General Partner on mutually agreed terms.
Payments from the Falcon Fund to HCM pursuant to the administrative service agreement
will be funded solely by the Management Fee.
Falcon’s fees are negotiable, and we have entered into side letters with investors in the Falcon
Fund that provide for a reduction in fees set forth above.
In addition to management fees, the Funds are responsible for paying or directly reimbursing
the management company for certain expenses, as outlined in the governing documents for
each fund.
Operating Expenses
Operating Expenses shall mean all direct, out-of-pocket costs and expenses reasonably
incurred either by the Partnership or by the General Partner thereof on behalf of the
Partnership relating to the management, conduct and operation of Partnership business,
including (a) the fees and expenses associated with the preparation of the Partnership’s
financial statements and the reports and other information to investors, tax returns and
Forms K-1, printing expenses, mailing and courier expenses, fees and expenses of
establishing bank or custodial accounts and insurance costs and expenses relating to
protection against liability for loss and damage which may be occasioned by the activities to
be engaged in by the Partnership, (b) the fees, costs and expenses incurred in connection with
investigating, negotiating, acquiring, holding, selling or exchanging of Investments
(including fees and expenses of lawyers, accountants, consultants, petroleum engineers,
geologists, geophysicists, appraisers, brokerage or finder’s fees and investment banker’s fees),
(c) fees, costs and expenses of the type described in clause (b) above incurred in connection
with potential or proposed but unconsummated transactions, (d) the costs and other amounts
attributable to the Partnership’s obligations for insurance policies, (e) the costs and expenses
attributable to meetings of the Advisory Committee and of the Partners, and (f) other
extraordinary, nonrecurring expenses, including the costs and expenses of prosecuting or
defending a litigation claim, any indemnification costs or expenses and any costs to settle
claims.
Operating Costs may include similar costs incurred by Affiliates of the General Partner to
the extent that the Partnership is required to reimburse such amounts to such Affiliates
pursuant to a contract between the Partnership and such Affiliate approved in accordance
with the terms of the Agreement of Limited Partnership (“LPA”), but not to the extent
governed by any Administrative Services Agreement or Management Services Agreement.
Notwithstanding the foregoing, Operating Costs shall not include the ordinary
administrative and overhead expenses of the General Partner or any of its Affiliates in
connection with the management of the Partnership, including salaries, other compensation
and costs of providing benefits, rent and the cost of office equipment. Operating Costs have
also not included Organization Costs or placement fees with respect to the admission of
Limited Partners to the Partnership of any kind.
The Fund will also bear third party expenses incurred in connection with transactions not
consummated. These costs may be deducted directly from the operating accounts of the
Falcon Fund.
We do not intend to purchase eligible investments from affiliates.