Item 5. Fees and Compensation
The Adviser receives from the Funds management fees ranging from 0.125% per month
(equivalent to approximately 1.5% annually) to 0.167% per month (equivalent to approximately
2.0% annually) of each investor’s share of the applicable Fund’s net asset value (including,
without limitation, the value of any Side Pocket Accounts (as defined below)). The management
fee generally is debited directly from assets of the Fund. The management fee is payable
quarterly in arrears and calculated and accrued as of the last day of each month during the
relevant quarter. A pro rated management fee will be charged for any amounts permitted to be
invested or withdrawn during any quarter and for any quarter in which the Adviser does not act
as the Adviser for the entire quarter. Currently, the management fees are paid by FIP LP, FIP III,
and the HCO Master Fund.
The Adviser may waive, reduce or rebate the management fees paid by a Fund with respect to
any investor in such Fund, including, without limitation, any employee, agent or affiliate of the
Adviser and/or its affiliates. The Adviser, in its sole and absolute discretion, may also pay a
portion of the management fee to certain investors, affiliates or other third parties.
The Adviser has the authority to alter or change the manner and method of calculating and
paying the management fee solely for the purpose of ease of administration, including, without
limitation, charging the management fee to the HCO US Feeder and/or the HCO Cayman Feeder,
rather than charging the HCO Master Fund the management fee, provided that no such alteration
or change in the method of calculation and payment shall in any way alter or affect the
substantive rights of any investor in such Fund.
In addition, provided that the Aggregate Contributed Capital (as defined below) of an investor
and his, her or its Eligible Affiliates (as defined below) equals (or exceeds) $100,000,000 (the
“Threshold Capital Amount”), the Hovde Management Fees (as defined below) generally
payable by such investor and/or his, her or its Eligible Affiliates, as applicable, to the Adviser, in
each case to the extent accrued on or after June 1, 2009, shall be calculated based on the
following rate schedule:
(i) in the event that the Aggregate Investment Value (as defined below) of such investor and/or
his, her or its Eligible Affiliates, as applicable, as of the relevant dates of determination is less
than or equal to $200,000,000, the relevant Hovde Management Fees on the portion thereof that
is less than or equal to $100,000,000 shall accrue at a rate equal to 0.125% per month (equivalent
to approximately 1.5% annually), and the relevant Hovde Management Fees on the remainder
shall accrue at a rate equal to 0.10416% per month (equivalent to approximately 1.25%
annually); and
(ii) in the event that the Aggregate Investment Value of such investor and/or his, her or its
Eligible Affiliates, as applicable, as of the relevant dates of determination is greater than
$200,000,000, the relevant Hovde Management Fees on the portion thereof that is less than or
equal to $200,000,000 shall accrue at the rates and in the manner provided in clause (i) above,
and the relevant Hovde Management Fees on the remainder shall accrue at a rate equal to
0.0833% per month (equivalent to approximately 1.0% annually);
A/74083849.5
The foregoing rate schedule applicable to the relevant Hovde Management Fees set forth in
clauses (i) and (ii) above shall not apply to the extent that the Aggregate Contributed Capital of
such investor and his, her or its Eligible Affiliates is less than the Threshold Capital Amount
(except to the extent that such reduction is as a result of the performance of one or more Hovde
Products (as defined below)) during any relevant calendar quarter (or other period) relating to a
relevant date of determination, in which case, for the avoidance of doubt, the rate or rates
otherwise in effect pursuant to the terms and provisions hereof and of any other relevant account
or fund documentation shall apply.
“Aggregate Contributed Capital” shall mean, with respect to an investor and/or his, her or its
Eligible Affiliates, without duplication, the aggregate amount as of the relevant dates of
determination of any capital placed in or otherwise contributed to, subscriptions made for shares
or other interests in, or other investments made in any Hovde Product (but excluding any
appreciation thereon), by such investor or any of his, her or its Eligible Affiliates.
“Aggregate Investment Value” shall mean, with respect to an investor and/or his, her or its
Eligible Affiliates, without duplication, the aggregate net asset value or net worth as of the
relevant dates of determination of all investments in Hovde Products held by such investor and
his, her or its Eligible Affiliates, in each case calculated in accordance with the relevant account
or fund documentation governing such Hovde Product.
“Eligible Affiliates” shall mean, collectively, with respect to an investor, all persons, family
members and entities controlling, controlled by or under common control with such investor, as
well as any separate or managed account, fund or other investment vehicle sponsored, managed
or advised by the investment manager or adviser, general partner or managing member of such
investor or other person or entity acting in a similar capacity on behalf of such investor and that
invests in any Hovde Product pursuant to an allocation of capital made by any of the foregoing.
For purposes of the foregoing, the determination of an Eligible Affiliate shall be subject to the
final review by and approval of the Adviser in its sole and absolute discretion.
“Hovde Management Fees” shall mean, collectively, any and all management fees and similar
fees (but, for the avoidance of doubt, not any performance- or incentive-based fees or
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