Item 5 - Fees and Compensation
Compensation and Fee Schedule
Grey Mountain is compensated via management fees based on the aggregate committed
capital of all investors (other than the general partner) of the Funds as well as a carried
interest subject to a preferred return. All investors should review the Governing Documents
for each Fund in conjunction with this Brochure for more complete information on the fees
and compensation payable with respect to each Fund.
The Funds will pay the management fees and will bear the expenses related to each Fund’s
respective operations. Such fees will reduce the actual returns to investors. Fees and
expenses will be paid regardless of whether a Fund produces positive investment returns.
If a Fund does not produce significant positive investment returns, these fees and expenses
could reduce the amount of the investment recovered by an investor to an amount less than
the amount invested in the Fund by such investor.
In certain circumstances, the advisory fees payable to Grey Mountain by individual clients
or investors in the Funds may be negotiable. Investors and prospective investors in the
Funds should refer to the Governing Documents of the Funds for more complete
information on the advisory fees charged by Grey Mountain.
Investors and prospective investors in the Funds should note that similar advisory services
may (or may not) be available from other investment advisers for similar or lower fees.
Deduction of Fees
As a general matter, Grey Mountain will charge and deduct advisory fees directly from the
Funds pursuant to the terms of the Governing Documents.
Payment of advisory fees are generally made quarterly in advance and in accordance with
the terms of the Governing Documents. Please refer to the Governing Documents of each
Fund for complete information on the timing of advisory fee payments.
Upon termination of any investment management agreement, any prepaid, unearned fees
will be promptly refunded (determined on a pro rata basis based on the number of days
elapsed in the applicable payment period), and any earned, unpaid fees will be due and
payable.
Other Compensation
In addition to management fees discussed above, Grey Mountain may receive remuneration
directly from portfolio companies in which the Funds have investments. Typically, such
fees are related to advisory services provided to portfolio companies as well as transaction
fees related to securing, structuring and negotiating acquisition of portfolio companies.
Furthermore, employees of Grey Mountain may assume officer and/or directorship
positions within portfolio companies following acquisition, and may be compensated for
such positions. With respect to Fund II, eighty percent (80%) of any such additional
compensation will be treated as an offset against future management fees. Notwithstanding
the foregoing, any such compensation paid (i) in connection with the provision of
operational services to a portfolio company, the amount and terms of which are no less
favorable to such portfolio company or its subsidiaries than would be obtained on an arms-
length basis or (ii) that has been approved by Fund II’s Advisory Board, shall not be
considered fees subject to offset. For Fund III, one hundred percent (100%) of such
additional compensation is subject to the same offset provisions as Fund II.
Notwithstanding the partial or total offset provisions discussed above, Fund investors
should understand that the receipt of any such additional compensation creates a potential
conflict of interest for Grey Mountain. Grey Mountain seeks to mitigate these potential
conflicts of interest by placing Fund investor interests ahead of the firm’s interests or the
personal interests of the firm’s employees by considering the time involved for serving in
such capacity or the overall offset that could be realized. In general, when a conflict (or
potential conflict) of interest exists between a Fund and Grey Mountain, the firm seeks to
consider the interests of the parties involved, taken as a whole, in any such conflict of
interest and will use its best judgment to balance such interests in resolving such conflicts
of interest.
Other Fees and Expenses
In addition to the fees payable to Grey Mountain and its affiliated entities, the Funds (and
therefore, indirectly, the limited partners of the Funds) may incur certain charges imposed
by third parties and other expenses as set forth in the Governing Documents attributable to
the Funds. Such expenses may include (but are not limited to) all costs and expenses
incurred in investigating, developing, negotiating, structuring, acquiring, closing, holding,
monitoring and disposing of the Funds’ investments and other assets (whether or not
consummated), including, without limitation, travel expenses in connection therewith;
commissions or brokerage fees or similar charges incurred in connection with the purchase
or sale (or proposed purchase or sale) of securities and other instruments (whether or not
any such purchase or sale is consummated); expenses attributable to normal and
extraordinary investment banking, commercial banking, accounting, auditing, appraisal,
legal, consulting, custodial and registration services provided to the Funds, including in
each case services with respect to the proposed purchase or sale of securities by the Funds
that are not reimbursed by the issuer of such securities (whether or not any such purchase
or sale is consummated); premiums for liability insurance in connection with the activities
of the Fund; indemnification obligations; interest and other expenses for borrowed money;
any sales taxes or other taxes of any kind, fees or government charges that may be assessed
against the Funds; all expenses relating to litigation and threatened litigation involving the
Fund, including indemnification expenses; any extraordinary expense of the Fund,
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