Item 5. Fees and Compensation
Lombard (including its affiliated Fund general partners) generally receives management fees and
carried interest allocations in connection with the investment management and administrative
services provided to the Funds. The Funds’ portfolio companies will also make payments to
Lombard for services provided to such portfolio companies which, in certain cases, will reduce
management fees payable. Additionally, the Funds or their portfolio companies will bear certain
out of pocket expenses incurred by Lombard in connection with the services provided to the
Fund or such portfolio companies. Further details about certain common fees and expenses are
set forth below.
Management Fees
Our Funds pay us management fees in exchange for our investment management and
administrative services. The specific amount of, and manner and calculation of, management
fees payable by a Fund are established and negotiated with the Investors in our Funds at the time
the Fund is formed, and are set out in the Funds’ Governing Documents. The management fees
are typically paid quarterly and in advance, but also can be charged at a later date. Investors in
our Funds bear indirectly their pro rata share of such management fees. In certain cases a Fund’s
general partner will not be required to bear a share of the Fund’s management fee, though in such
cases it will be required to bear its pro rata share of other Fund expenses.
Other Fees
We will receive directors’, consulting, monitoring and other similar fees and financing or other
transaction fees in connection with the investment activities of the Funds (“Other Fees”). In
addition, we will be reimbursed by the Funds’ portfolio companies for expenses we incur in
connection with our performance of the services that give rise to Other Fees.
The management fees that the Funds pay us are reduced by all or a portion of Other Fees, if any,
received by us or by employees of PETCL, our sub-advisor, in connection with the activities of
the Funds. Such reduction will be offset for our share of third-party expenses related to
unconsummated Fund transactions with respect to which a binding agreement (or the equivalent)
has been entered into (“broken deal costs”) which we have previously been required to bear
under the Fund’s Governing Documents. If the next installment of the management fee payable
by a Fund is reduced to zero as a result of our receipt of Other Fees, the excess is carried over to
the succeeding management fee payment date(s) and applied as a reduction of the management
fee, but not below zero. Generally, upon dissolution of a Fund, we will refund the excess (up to
the amount of aggregate management fees previously paid by the Fund) to such Fund for the
benefit of its Investors.
Fees, including management fees, are typically deducted from the accounts of the Funds at the
payment date, but also can be charged at a later time. Investors in the Funds bear indirectly their
pro rata share of management fees and Fund expenses for the time period they are invested in the
Funds. If we cease to serve as the investment manager of a particular Fund during a quarterly
period, the management fee payable by that Fund for such quarterly period will be prorated
based on the number of days during such quarterly period that we served as investment manager,
and we will refund any excess in the event of liquidation of that Fund.
Each Fund will typically be required to pay all costs and expenses relating to its operations,
including, but not limited to: (i) legal, auditing, consulting, and accounting fees and expenses
(including costs of reports to the Fund’s Investors, financial statements, tax returns and
Schedules K-1); (ii) expenses of meetings of the Fund’s advisory committee and of Investors;
(iii) all indemnification and insurance expenses; (iv) all expenses associated with the acquisition,
holding and disposition of its proposed or actual portfolio investments, including custody; (v) all
extraordinary expenses (such as litigation); (vi) interest on and fees and expenses arising out of
all permitted borrowings made by the Fund; (vii) an agreed portion of broken deal costs; (viii) all
expenses of liquidating the Fund; (ix) any taxes, fees or other governmental charges levied
against such Fund; and (x) all expenses incurred in connection with any tax audit, investigation,
settlement or review of the Fund, including all expenses incurred by the Fund’s general partner
in connection with its duties as the tax matters partner of the Fund.
Each Fund will typically pay all legal, organizational and offering expenses, including the out-
of-pocket expenses of the Fund’s general partner and its agents, actually incurred in the
formation of such Fund and such general partner, including travel, printing, legal, capital raising,
accounting, regulatory compliance and administrative and other filings. Organizational expenses
above an agreed upon cap, as provided for in the Governing Documents of the relevant Fund, are
typically borne by Lombard through an offset to the management fee. In certain cases such
offset may be spread over a number of subsequent quarterly periods.
From time to time the general partner of a Fund will create special purpose vehicles, holding
companies or similar structuring vehicles for the purpose of accommodating certain tax,
regulatory or other considerations of Investors or transactions. In the event such an entity is
formed, such entity (and indirectly the Fund and its Investors) will bear all costs and expenses
related to its organization, operation, maintenance and dissolution as well as other expenses
incurred for the benefit of such entity.
The definition of Fund expenses will differ from one Fund to another. The Fund expenses
described above are generally subject to waiver or reduction by Lombard in its sole discretion.
To the extent Lombard elects to voluntarily waive or reduce a Fund’s expenses, such election
...