ITEM 5. FEES AND COMPENSATION
Management Fees
Our funds generally pay us annual management fees in exchange for our investment management
services. The management fees that our funds pay us are provided for in the respective fund
limited partnership or other operative agreement ("fund agreements") and in the investment
management agreements that our funds enter into with us. Such management fees are payable in
two equal semi-annual installments, on each of January 15 and July 15, for the respective semi-
annual periods beginning on January 1 and July 1. The amount of management fees payable by a
fund during its commitment period (i.e., period of time during which we may draw upon the
investors' capital commitments to the fund ("capital commitments") to make new investments)
are calculated based on a percentage per annum (generally, 2.00%) of aggregate capital
commitments to the fund during the applicable commitment period. Thereafter, management
fees are reduced to an amount equal to a percentage per annum (typically 2.00%) of the
aggregate capital commitments funded in respect of portfolio investments that have not been the
subject of a disposition or other realization event by the fund. As described below, the
management fee may be reduced in some circumstances in connection with the receipt by us of
various fees paid by portfolio companies of our funds or in connection with actual or potential
transactions involving portfolio companies. Moreover, management fees may be subject to
waiver or reduction. The specific management fees and related terms thereof payable by a fund
are determined at the time the fund is formed and may vary by fund and circumstance.
Other Fees
We may also receive monitoring, transaction, break-up, consulting, directors and other fees in
connection with the activities of our funds ("Other Fees"). In addition, we may be reimbursed by
our funds' portfolio companies for expenses we incur in connection with our performance of the
services that give rise to Other Fees. The monitoring fees that we receive with respect to a
portfolio investment are often determined by reference to the adjusted EBITDA or revenues upon
which the purchase price for such portfolio investment is based. The transaction fees that we
receive with respect to portfolio investments are often determined by reference to the transaction
value of the portfolio investment at the time of acquisition or other transaction. Both monitoring
fees and transaction fees and the methodology for calculating such fees are generally agreed to
with the applicable portfolio companies at the closing of the investments in such portfolio
companies.
In general, pursuant to the terms of the applicable fund agreement, a percentage of Other Fees
may be applied prospectively to reduce management fees. Although agreements may vary by
fund, typically 100% of directors' fees received by us, net of unreimbursed related expenses, are
applied to reduce management fees, and 50% (or in some cases 80% after certain thresholds are
exceeded) of transaction, monitoring, break-up, advisory or other fees, net of applicable
expenses, are applied to reduce management fees. If the management fees payable by Fund II
are reduced to zero as a result of our receipt of Other Fees (or because the management fee is no
longer payable), the excess amount of Other Fees is carried forward to reduce subsequent
management fees, and we will refund any unapplied excess amount (up to the amount of
aggregate management fees previously paid by the fund) to Fund II for the benefit of its investors
upon dissolution of Fund II.
We deduct management fees from the account of each fund.
If we cease to serve as the investment manager of a fund during a semi-annual period, the
management fee payable by the fund for such semi-annual period will be pro rated based on the
number of days during such semi-annual period that we served as investment manager and we
will refund any excess.
Additional fees and expenses for which a fund may be responsible are described in the fund
agreement of such fund. Generally, each fund pays all costs and expenses relating to its
operations, including but not limited to: legal, auditing, consulting and accounting fees and
expenses; expenses of meetings of its investor advisory committee and of investors;
indemnification and insurance expenses; expenses associated with the acquisition, holding and
disposition of its proposed or actual investments (including related due diligence other than
travel-related due diligence expenses of our personnel); extraordinary expenses such as
litigation; interest on and fees and expenses arising out of any permitted borrowing; third party
expenses relating to unconsummated transactions; expenses of liquidating the fund; expenses
relating to a defaulting investor; and any taxes, fees or other governmental charges levied against
the fund and expenses incurred in connection with any tax audit, investigation, settlement or
review of the fund. Expenses associated with the acquisition, holding and disposition of an
investment may also include the expenses of brokers or dealers to the extent that any such person
is engaged in connection with a transaction. See Item 12 - Brokerage Practices. Such expenses
may also include commissions, custodian fees, rating agency fees and other transaction expenses.
Neither we nor any of our "supervised persons" accepts compensation for the sale of securities or
other investment products.