ITEM 5: FEES AND COMPENSATION
The following discussion represents basic compensation arrangements for Madison Capital.
The fee arrangements with clients vary depending on a variety of factors such as the structure
of the fund or vehicle; the size of the account; the investment strategy; and the client strategy.
Madison Capital typically receives fees for services based on a percentage of the amount of
assets in the client’s account, which are referred to as “asset-based fees.” Certain clients also
have performance-based fees which are described in further detail in Item 6: Performance-
Based Fees and Side-by-Side Management.
Compensation paid to Madison Capital as a result of services that Madison Capital may provide
to a borrower as part of the loan origination process, such as an underwriting fee, a structuring
fee, an arrangement fee, a documentation fee, a syndication fee, or an administrative fee, will
not be passed on to Madison Capital clients’ portfolios. Additionally, the transfer prices will
not include an allocation of any such compensation paid to Madison Capital. However, client
portfolios do receive a ratable portion of fees earned by Madison Capital for consenting to
amendments to existing loan documentation. Additionally, the transfer price to clients’
portfolios will reflect a full pass through of the original issue discount for all loans originated
by Madison Capital.
MANAGEMENT FEES AND PERFORMANCE FEES
The fee for investment advisory and management services provided by Madison Capital to
private funds generally consists of two components – a base management fee and a performance
fee. The rate, calculation method, and payment method for Madison Capital’s fees are set forth
in the investment management agreement between Madison Capital and the private fund, or in
the organizational documents for the private fund, and are disclosed in the private placement
memorandum or other offering documents for the private fund. There is no standard fee
schedule for services provided by Madison Capital to private funds.
Madison Capital charges lower fees or waives fees for investment advisory and management
services provided to certain affiliated private funds or with respect to certain affiliated investors
in private funds advised or managed by Madison Capital.
Madison Capital’s fees are typically paid quarterly in arrears, and are generally deducted from
the assets of the private fund in accordance with the terms of the private fund’s organizational
documents. Upon termination of Madison Capital’s investment management or investment
advisory role for a private fund, any earned, unpaid fees would be due and payable.
OTHER EXPENSES ASSOCIATED WITH MADISON CAPITAL’S ADVISORY SERVICES
In addition to Madison Capital’s management fees described above, each of the private funds
managed or advised by Madison Capital (and, indirectly, the investors therein) bear all costs
and expenses incurred by or on behalf of such private fund, as set forth in the operating
agreements of such private funds, which costs and expenses may include, without limitation,
(i) organizational expenses of the private fund; (ii) fees and expenses incurred in connection
with the transfer, acquisition, assignment, management, amendment, enforcement, pricing,
valuation or disposition of investments by the private fund; (iii) any insurance, indemnity or
litigation expense, including the cost of liability insurance for the private fund and D&O
insurance; (iv) fees, costs and expenses of any accountants, auditors, counsel, custodians,
administrators, consultants and other advisors and third-party professionals; (v) any and all
expenses incurred in order to comply with any law or regulation related to the activities of the
private fund; and (vi) all ordinary out of pocket administrative expenses related to the operation,
administration and liquidation of the private fund.
FOREIGN ACCOUNT TAX COMPLIANCE
The Foreign Account Tax Compliance Act (“FATCA”) generally imposes a reporting and 30%
withholding tax regime with respect to certain U.S. source income (including dividends and
interest) and gross proceeds from the sale or other disposition of property that can produce U.S.
source interest or dividends (“withholdable payments”). As a general matter, the rules are
designed to require U.S. persons’ direct and indirect ownership of non-U.S. accounts and non-
U.S. entities to be reported to the Internal Revenue Service (“IRS”), and the 30% withholding
tax regime applies if there is a failure to provide any required information. Some of the private
funds managed by Madison Capital will be required to provide certain information, including
information regarding their investors, to the IRS and to enter into an agreement with the IRS or
comply with an applicable intergovernmental agreement with the U.S. FATCA also provides
that payments from the private funds to an investor that are attributable to withholdable
payments will be subject to the 30% withholding tax unless the investor provides certain
information, including, in the case of a non-U.S. investor, information regarding certain U.S.
direct and indirect owners of such non-U.S. investor. The failure of an investor to provide such
information may also result in other adverse consequences for the investor, including being
required to transfer its interest in the applicable private fund or otherwise withdraw from the
private fund. Certain investors will generally be subject to withholding unless they enter into
an agreement with the IRS or comply with an applicable intergovernmental agreement.