ITEM 5 – FEES AND COMPENSATION
Item 5.A Describe how you are compensated for your advisory services. Provide your
fee schedule. Disclose whether the fees are negotiable.
HM Clipper is compensated through the payment of management fees and
performance based compensation by the Fund. The specific terms relating to the
fees paid by the Fund, summarized below, are negotiated by the Investors in the
Fund at the time of its formation.
• Management Fee: As detailed in the Fund Agreement, HM Clipper
receives annual management fees from the Fund based upon (i) during the
commitment period, the capital commitments of the Fund; and (ii)
thereafter the funded capital commitments of the fund minus the amount
of certain capital contributions (as detailed in the Fund’s offering
documents). The annual Management Fee for the Fund is 2.0% of the
amount from (i) or (ii) above, as the case may be, payable quarterly in
advance. Prior to the beginning of each year HM Clipper may waive a
portion of the Management Fees payable for such year.
• Carried Interest: In addition, the Affiliated General Partners may
receive a performance allocation (“Carried Interest”). All distributions are
split between Investors and the Affiliated General Partner as set forth in the
Fund’s governing documents. The Carried Interest is generally equal to
20% of realized gains, which applies once an Investor in the Fund has
received a specific preferred return (the “Return”). Investors are generally
allocated all gains until they have surpassed the Return. Thereafter, gains
are generally shared on an 80%/20% basis between Investors and the
Affiliated General Partner.
• EMC Fee: As detailed in the Fund Agreement, an affiliate of HM Clipper,
the Executive Management Company (the “EMC”), advises the Fund with
respect to Portfolio Company industry due diligence, management issues,
internal processes and related matters for a fee. The EMC assigned its
obligations to perform these services to HM Clipper and its affiliates. HM
Clipper and its affiliates utilized a team of personnel, such as operating
executives, industry specialists, other professionals and administrative
support staff, to provide the EMC services. During the commitment period
of the Fund, the Fund pays HM Clipper, as assignee of the EMC, an annual
fee (the “EMC Fee”) of 0.50% of the capital commitments of the Investors
invested in the Fund. After the Commitment Period, the EMC Fee is
calculated based on the funded capital of the Investors. The EMC Fee is
payable quarterly, in advance, and reduces any unfunded capital
commitments.
• Management Fee Offset: HM Clipper and/or its affiliates may receive
customary fees for certain corporate finance, investment banking and
advisory and monitoring services performed for Portfolio Companies or
in conjunction with unconsummated transactions. Although fees from these
activities will not be paid to the Fund, the Management Fee to be paid to
HM Clipper will be reduced by an amount equal to 50% of the following
fees (“Other Fees”): (i) break-up fees received by the Affiliated General
Partner, HM Clipper and their affiliates in connection with the Fund’s
uncompleted transactions and (ii) transaction fees and ongoing
monitoring, advisory, consulting or similar fees received by the Affiliated
General Partner, HM Clipper and their affiliates (other than HM Clipper
and its affiliates and their respective employees, in their capacities as
assignees of the EMC) attributable to the Fund’s investments in Portfolio
Companies.
It should be noted that the fees paid by Investors are negotiable prior to
an investment in the Fund, at the discretion of the Affiliated General Partner.
Item 5.B Describe whether you deduct fees from clients’ assets or bill clients for fees
incurred. If clients may select either method, disclose this fact. Explain how
often you bill clients or deduct your fees.
HM Clipper or its affiliates deduct fees applicable to the Fund (and Investors)
directly from the Fund’s assets or issues capital call letters to Investors to request
funds to pay specific expenses.
The management fees are payable quarterly in advance and the Carried Interest
distribution may be made when earned or at a later date.
It is critical that Investors refer to the confidential private placement
memorandum or other governing documents for a complete understanding
of how fees are paid to HM Clipper. The information contained herein is a
summary only and is qualified in its entirety by such documents.
Item 5.C Describe any other types of fees or expenses clients may pay in connection
with your advisory services, such as custodian fees or mutual fund expenses.
Disclose that clients will incur brokerage and other transaction costs, and
direct clients to the section(s) of your brochure that discuss brokerage.
The Affiliated General Partner bears all the following expenses as the general
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