Item 5. Fees and Compensation
Fees and Allocations. Pacific Grove’s clients (the Funds) and each U.S. Feeder investor,
Offshore Feeder U.S. investor, U.S Opportunities I Master Fund investor, and Offshore
Opportunities I Feeder U.S. investor are qualified purchasers as defined in section 2(a)(51)(A) of
the ICA, as amended. Therefore, information on how Pacific Grove is compensated for its
advisory services and its fee schedule is not included here. Pacific Grove’s compensation is
negotiable and varies, but is set forth generally in each Fund’s confidential offering circular or
private offering memorandum.
Pacific Grove’s affiliate, Pacific Grove Capital GP LLC, a Delaware limited liability company,
serves as general partner of the Master Fund, the U.S. Feeder, the U.S. Opportunities I Master
Fund, and the Offshore Opportunities I Feeder. As general partner, Pacific Grove Capital GP
LLC deducts a management fee directly from the Master Fund and the U.S. Opportunities I
Master Fund, which it has assigned to Pacific Grove, and is allocated a performance allocation.
Investors pay these management fees and performance allocations indirectly, through their
investments in the Offshore Feeder, the U.S. Feeder, and the Offshore Opportunities I Feeder and
directly through their investments in the U.S. Opportunities I Master Fund.
If a Fund terminates or an investor withdraws or redeems, the investor (through the Master Fund
or U.S. Opportunities I Master Fund) bears expenses, and the pro rata portion of the management
fees and performance allocations through the date of termination or withdrawal/redemption,
except that if an investor withdraws or redeems from a Fund on a date other than the last day of a
measurement period, there is no refund to that investor of any management fee that it previously
paid for that period.
Pacific Grove may provide certain investors special fee and allocation arrangements that it does
not provide to other investors. Pacific Grove may waive all or any portion of the management
fees or performance allocations with respect to any investor.
Pacific Grove complies with Rule 205-3 under the Investment Advisers Act of 1940 (“Advisers
Act”), if required. Performance allocations may create an incentive for Pacific Grove to make
riskier and speculative investments than it would otherwise make.
Pacific Grove believes that its fees are competitive with fees charged by other investment advisers
for comparable services. Comparable services may be available, however, from other sources for
lower fees.
Withdrawal/Redemption Rights and Distributions.
For Offshore Feeder and U.S. Feeder investors:
An investor may, on at least 65 days’ advance notice to Pacific Grove Capital GP LLC and
subject to certain restrictions, withdraw/redeem as follows:
Tranche A: A Fund investor may withdraw/redeem up to 25% of its related Tranche A Master
Fund capital account balance as of the end of any fiscal quarter that occurs on or after the date
immediately preceding the first anniversary of such investor’s admission to the Fund, except that
if a Tranche A investor makes withdrawals/redemptions in consecutive fiscal quarters:
(a) The 1/4 limit will apply in the first fiscal quarter;
(b) If the maximum 1/4 is withdrawn/redeemed in the first fiscal quarter, then the
investor may withdraw/redeem up to 1/3 of its Master Fund capital account balance in
the next fiscal quarter;
(c) If the maximum 1/3 is withdrawn/redeemed in the second consecutive fiscal quarter,
then the investor may withdraw/redeem up to 1/2 of its Master Fund capital account
balance in the next fiscal quarter; and
(d) If the maximum 1/2 is withdrawn/redeemed in the third consecutive fiscal quarter,
then the investor may withdraw/redeem up to the balance of its remaining Master
Fund capital account in the next fiscal quarter.
Thus, if a Tranche A investor desires to withdraw/redeem all of its Master Fund capital account
balance, it will take at least 4 consecutive fiscal quarters to do so. In each case, the investor must
provide the minimum 65-day prior notice and, except as provided below, if the investor does not
withdraw/redeem the maximum permissible amount in any fiscal quarter, then the 1/4 restriction
again applies the next time a withdrawal/redemption occurs. If, however, the investor ever again
makes withdrawals/redemptions in consecutive fiscal quarters, then the expanded limits in clauses
(b) through (d) above will again apply, so long as the Tranche A investor withdraws/redeems the
maximum permitted amount in each consecutive fiscal quarter.
Subject to certain restrictions, a Tranche A investor may withdraw/redeem (a) more than the
portion of its Master Fund capital account balance described above, and (b) at the end of any
fiscal quarter that occurs before the date immediately preceding the first anniversary of each
investor’s admission to the Fund, subject to certain restrictions, but in any such case, the investor
must pay the Fund or the Master Fund a withdrawal/redemption fee of 4% of the amount
withdrawn/redeemed that either (1) exceeds the limits described in clauses (a) through (d) above,
which amount will be deducted from the proceeds otherwise payable to the investor, or (2) is
withdrawn/redeemed prior to the day preceding the first anniversary of that investor’s admission
to the Fund. This fee will not be charged in connection with withdrawals/redemptions relating to
certain events that occur to Pacific Grove’s principal, Jamie Mendola, on certain amendments to
the Fund’s constituent documents or following any expulsion.
Tranche B: A Fund investor may withdraw/redeem up to 1/6 of its related Tranche B Master
Fund capital account balance as of any June 30 or December 31, except that if a Tranche B
investor makes withdrawals/redemptions on consecutive permitted withdrawal/redemption dates:
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