ITEM 5: FEES AND COMPENSATION
A. Fees Paid to MCM and its Affiliates
Investor Fees
Investors are generally not charged any direct fees by the Fund, the Series or MCM in
connection with the Fund’s portfolio investments, on-going monitoring and
administration of each Series, nor any transactional or management fee or organizational
costs or operating expenses of the Fund or of the Series. But Investors who commit to the
Fund as a whole and invest in multiple Series with a pre-determined diversification will
bear a 1.0% annual administrative fee on the total principle amount invested in the Fund to
date, payable to the Fund. In addition, PDN investors will not bear any contingent
compensation including carried interest on any investment return realized on portfolio
investment of the Fund.
Fees Paid to the Sponsor or the Series by the Portfolio Companies
In some cases, the Sponsor may perform pre-investment consulting with potential
portfolio companies, to advise the issuer regarding due diligence and investment
structuring, for a flat fee, payable in advance and non-refundable.
Prior to making an investment, the Sponsor charges the respective potential portfolio
company for upfront due diligence and documentation associated with evaluating,
diligencing, and structuring the Fund’s potential investment in the portfolio company’s
debt (the “Upfront Fees”). The Sponsor requires all prospective portfolio companies to
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pay these Upfront Fees regardless if the Fund ultimately makes an investment. These fees
are payable in advance and are non-refundable. The Upfront Fees are retained and used to
cover initial fees and expenses including, without limitation, the Fund’s legal fees and
reimbursing MCM’s out-of-pocket costs as well as for its time and efforts during the
evaluation, diligence, and structuring processes. Any non-refundable Upfront Fees from
prospective portfolio companies will be used to offset due diligence expenses. Any excess
Upfront Fees will be allocated to MCM’s affiliate, the General Partner. Conversely, due
diligence expenses incurred in excess of non-refundable Upfront Fees will be borne by the
General Partner.
Each Series also charges its portfolio company an origination fee and a facility fee (the
“Funding Fees”) when the Series funds an investment. These Funding Fees cover the time,
efforts, and costs of the Series to negotiate and finalize the terms of the investment
documents, including the purchase agreement, the promissory note or other security,
collateral agreement, or subordination agreements and associated organizational costs and
expenses, including legal expenses, of the investment. The origination fee and facility fee
may vary based on prevailing market rates and other considerations identified by the
Fund. These Funding Fees are paid by the portfolio company at the time the applicable
Series closes on its investment, in whole or in part, on a pro rata basis and are non-
refundable. The Series does not share any of these Funding Fees with the holders of its
PDNs, though a portion of these fees will be used by the Fund to compensate MCM for the
Management Fee (see below).
Each Series also charges its portfolio company an annual note servicing fee (“Note
Servicing Fee”), payable annually in advance, commencing with the initial closing of each
investment. The Note Servicing Fee compensates for the on-going maintenance, operation
and administration of that Series’ investment during the investment period, including
bookkeeping, audit, tax preparation, and reporting to the holders of the PDNs associated
with that Series. The General Partner will pay any shortfall of these expenses to the extent
the amounts collected from the Note Servicing Fee do not fully cover the total expenses of
the Fund and the Series. The General Partner may at times have a conflict of interest
against the Fund and PDN holders, due to its obligation to cover such a shortfall.
The Sponsor, the Fund and its Series generally apply the Upfront Fees, Funding Fees and
Note Servicing Fees to cover the Management Fee (see below) and to compensate MCM
and the General Partner for their out-of-pocket costs and expenses associated with the
Fund and the Series. Although PDN holders do not pay these fees directly, these fees may
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reduce a Series’ ability to make payments on its PDNs, and they create a conflict of interest
between the Fund and MCM.
Fund Level Management Fee
The Fund pays MCM an asset management fee at the time of closing of each portfolio
investment equivalent to 2% of the aggregate face amount of securities purchased by the
Fund (the “Management Fee”). The Management Fee compensates MCM for its time,
efforts, resources and services expended to identify, diligence, structure, and negotiate
potential investments as well as for the time and resources necessary to monitor and
manage the investment over the life of the investment. The Management Fee will be paid
out of fees received by the Sponsor and the Fund and its series from portfolio companies
as described above.
B. Payment of Fees
The Upfront, Funding, Management and Note Servicing Fees are payable at the times
described in Item 5.A. above.
C. Expenses
Each Series of the Fund is responsible for its own expenses, including accounting,
administration, audits and legal expenses. Although the Fund receives the Note Funding
Fees and the Servicing Fees from the companies that issue the portfolio securities, as
described in Item 5.A. above, those fees may be insufficient to cover these expenses.
D. Termination
MCM’s relationship with the Fund is terminable on expiration of the Fund’s term,
dissolution of the Fund or on MCM’s termination of the Management Services Agreement.
PDN holders have no early repayment rights, but the issuers of the notes held by a Series
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