Item 5 | Fees and Compensation
OFS receives a management fee for providing investment advisory services to the Equity
Funds. Detailed information regarding the fees charged to each Equity Fund is provided in
each Equity Fund’s offering documents and limited partnership agreement. General
descriptions of such fees are provided below.
Management Fees
OFS initially receives management fees of up to 2% per annum of the limited partners’
capital commitments (excluding the capital commitments of OFS, including OFS’ affiliates
and principals, which we refer to herein as the “Principal’s Commitment”) during the first
five years after the initial closing of each Equity Fund and, thereafter, 2% per annum of the
unreturned capital contributions attributable to the limited partners (excluding capital
contributions in respect of the Principal’s Commitment). Management fees charged to each
Equity Fund are generally payable quarterly in advance, are non- refundable, and are pro-
rated for any period that is less than the applicable period. It should be noted that OFS does
not receive any management fees from any Equity Fund that is a co-investment vehicle.
Performance Compensation
Certain OFS affiliates will have the right to receive allocations of carried interest with
respect to the Equity Funds of up to 20% of all realized profits in excess of an 8%
compound preferred return, subject to a catch-up provision, as more fully described in the
applicable Partnership Agreements. Carried interest that has been paid is subject to claw
back under certain circumstances as set forth in such limited partnership agreements. It
should be noted that none of OFS or any affiliate has the right to receive allocations of
carried interest from any Equity Fund that is a co-investment vehicle.
Referral Fees
In the event that a limited partner refers a portfolio investment to the Equity Fund and the
Equity Fund consummates such investment, then, subject to compliance with applicable
law, such limited partner will be entitled to a referral fee payable directly by the buyer upon
the Equity Fund’s disposition of such investment. The referral fee will equal 1% of
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the net equity profit realized by the Equity Fund for such investment. Any carried interest
payable to the OFS affiliates with respect to such investment will be calculated based on
the net amount realized by the Equity Fund (i.e., after payment of any referral fee). In the
event the Equity Fund consummates an investment based on a referral pursuant to the terms
of this paragraph, it will notify the Advisory Committee at its next regularly scheduled
meeting.
Operating and Organizational Expenses
In addition to management fees and allocations of carried interest, the Equity Funds
generally pay all costs and expenses associated with their respective operations, as well as
all organizational and offering expenses incurred in their formation, including those
expenses of the GPs and other entities necessary to the formation of the Equity Funds,
provided that the organizational and offering expenses in excess of certain amounts will be
applied to reduce management fees payable by such Equity Fund. Terms relating to
organizational and offering expenses borne by each Equity Fund are set forth in detail its
limited partnership agreement.
In addition to management fees and allocations of carried interest, the Equity Funds
generally pay all costs and expenses associated with their respective operations, as well as
all organizational and offering expenses incurred in their formation, including those
expenses of the GPs and other entities necessary to the formation of the Equity Funds,
provided that the organizational and offering expenses in excess of certain amounts will be
applied to reduce management fees payable by such Equity Fund. Terms relating to
organizational and offering expenses borne by each Equity Fund are set forth in detail its
limited partnership agreement. It is OFS’ policy that any expenses attributable to two or
more funds managed by OFS shall be allocated equitably between such funds. In general,
OFS’ policy is to allocate any such expenses to the applicable funds based on those funds’
relative committed capital. If any situation arises whereby an allocation of expenses in
accordance with the foregoing policy would not be equitable to the funds involved, OFS
will consider whether a different allocation would be more appropriate in that instance. In
any such allocation process, OFS will consider factors such the nature of the expense,
whether it relates to a certain investment or operational issue, and why an allocation in
accordance with the relevant funds’ respective committed capital would not be equitable
in that instance. This analysis will determine the metric used (e.g., investment cost,
proportion of a fund’s investment, etc.).
It should be noted that OFS does not charge the Equity Funds any portion of the salaries
of any employees of the Manager or General Partner to the extent such employees are
providing legal, accounting, financial management and other similar services to the Equity
Fund nor does it charge ordinary overhead to the Equity Funds.
Management Fee Offsets
The limited partnership agreements of each Equity Fund provide in effect that
compensation of any kind that may be received by OFS or any employee or affiliate in
connection with any investment in, holding or refinancing of, or exits from any existing or
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proposed portfolio company undertaken on behalf of such Equity Fund shall be used to
offset some or all of the management fees otherwise payable by such Equity Fund, all in
accordance with the provisions of the limited partnership agreement and offering materials
of the Equity Fund. This policy applies, without limitation, to transaction, monitoring,
advisory, investment banking, directors’, amendment, closing, break-up, and other similar
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