Item 5. Fees and Compensation
Compensation
True West is compensated through the payment of management fees by the True West Funds
(“Management Fees”). The specific terms relating to the Management Fees paid by each True West Fund
are negotiated by the investors in such fund at the time of its formation and, as such, are expected to vary
from fund to fund. The following describes the Management Fee payable with respect to the True West
Funds:
In reliance on IM Guidance dated March 2016 (No. 2016-3) and the FAST ACT (Fixing America’s Surface
Transportation Act), the assets of Fund II are excluded because it operates as a small business investment company
under the SBIC Act.
The True West Funds pay Management Fees in cash quarterly in advance, with fees for any period
shorter than a full quarter being prorated for such quarter.
The annual amount of the Management Fee during Fund I’s investment period is a percentage of
total investor capital commitments. Specifically, Fund I pays a Management Fee of 2.0% of its
first $100 million in capital commitments, plus 0.5% of commitments in excess of $100 million up
to $150 million, and 1.5% of capital commitments in excess of $150 million. The annual amount
of Fund II’s Management Fee is 2% of its capital as determined in accordance Fund II’s Fund
Agreement and SBIC Act regulations for the initial investment period and based on the cost of
loans and investments for all active portfolio companies after the initial investment period.
Following the end of Fund I’s investment period, the fee transitions to a declining percentage of
its invested capital, which is determined by reference to the cost of assets remaining under
management.
The Management Fee obligation may be terminated only in connection with the dissolution of the
applicable True West Fund. If the obligation were terminated mid-quarter, True West would be
obligated to return a pro-rated portion of the Management Fee to the applicable True West Fund in
connection with its dissolution.
True West anticipates that the Management Fee structure with respect to future True West Funds will be
similar to the foregoing, though such terms may vary depending upon negotiations with investors in such
funds at the time of their formation.
True West deducts Management Fees directly from each True West Fund’s account with its qualified
custodian.
In addition, True West or the Fund Managers are entitled to certain break-up, topping, investment banking,
transaction, monitoring, directors’, advisory, consulting or other similar fees in connection with portfolio
investments of the True West Funds as compensation for financial advisory and similar services provided
to the True West Funds’ portfolio companies. Typically, any such fees are paid to the True West Funds,
though alternatively such fees could be retained by True West or the Fund Managers, in which case such
fees would offset a portion of the Management Fees payable by the True West Funds pursuant to the terms
of the applicable Fund Agreement.
The True West Funds also generally pay a performance-based fee to their Fund Managers, which is
described in further detail in Item 6 below.
Neither True West nor its affiliates accept compensation for the sale of securities or other investment
products.
Other Expenses Paid by True West Funds
Each True West Fund also generally bears all expenses relating to its activities, operations and meetings,
including without limitation:
costs and expenses incurred in the purchase, holding or sale or exchange of securities, including
without limitation: expenses for investment transactions which are formally commenced, but are
not consummated, private placement fees and finder’s fees; interest on borrowed money; brokerage
fees; fees incurred in connection with the maintenance of bank or custodian accounts; and expenses
incurred in connection with the registration of the fund’s securities under applicable securities laws
or regulations;
taxes applicable to the fund on account of its operations;
expenses associated with the fund’s financial statements and tax returns;
the fees of an independent certified public accountant incurred in connection with the annual audit
of the fund’s books and the preparation of the fund’s annual tax return;
legal and audit expenses of the fund;
the cost of directors’ and officers’ professional and other similar insurance premiums;
costs associated with investor and advisory committee meetings and mailings;
out-of-pocket costs, fees and expenses incurred in connection with the organization and liquidation
of the fund; and
costs and expenses arising out of the fund’s indemnification obligation pursuant to the fund’s Fund
Agreement.