Item 5. Fees and Compensation
Fees and Allocations. Each U.S. Feeder investor and Offshore Feeder U.S. investor are qualified
purchasers as defined in section 2(a)(51)(A) of the Investment Company Act of 1940, as amended
Investors and prospective investors should refer to the relevant Fund’s Governing Documents for
a detailed description of the fees applicable to an investment in the Funds. The discussion in this
Item below is applicable unless as otherwise noted to only investors and prospective investors in
the Offshore Feeder and U.S. Feeder to the Master Fund.
As general partner, SQN GP deducts a management fee, payable quarterly, directly from the
Master Fund, which it has assigned to SQN, and is allocated a performance allocation, which is
payable annually (as earned). Investors pay these management fees in advance and performance
allocations (as earned) indirectly through their investments in the U.S. Feeder and the Offshore
Feeder.
If a Fund terminates or an investor withdraws or redeems, the investor (through the Master Fund)
bears expenses, 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.
SQN or its affiliate, SQN GP, has provided certain investors special management fee and
performance allocation arrangements that it does not provide to other investors. SQN or SQN GP
has waived, and may waive in the future, all or any portion of the management fees or performance
allocations with respect to any investor.
Withdrawal/Redemption Rights. A Fund investor generally may, on at least 60 days’ advance
written notice to the Fund and subject to certain other restrictions, withdraw/redeem up to 25% of
its related Master Fund capital account balance as of the end of any fiscal quarter that occurs on or
after the date immediately preceding the second anniversary (founders class) or first anniversary
(standard class) of that investor’s admission to the Fund, except that if an 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b) If the maximum 1/4 is withdrawn in the first fiscal quarter, then the investor may withdraw
up to 1/3 of its capital account balance in the next fiscal quarter;
c) If the maximum 1/3 is withdrawn in the second fiscal quarter, then the investor may
withdraw up to 1/2 of its capital account balance in the next fiscal quarter; and
d) If the maximum 1/2 is withdrawn in the third consecutive fiscal quarter, then the investor
may withdraw up to the balance of its remaining capital account balance in the next fiscal
quarter.
Thus, if an investor desires to withdraw/redeem all of its capital account balance, it will take at
least 4 consecutive fiscal quarters to do so. In each case, the investor must provide the minimum
60 day prior notice and if the investor does not withdraw/redeem the maximum permissible amount
in any fiscal quarter, then the 1/4 withdrawal/redemption 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 investor withdraws/redeems the maximum
permitted amount in each consecutive fiscal quarter.
SQN may provide different withdrawal rights to certain large or strategic investors.
Expenses. Each Fund is responsible for its own costs and expenses, including, but not limited to,
trading costs and expenses (such as brokerage commissions, expenses related to short sales, and
clearing and settlement charges), ongoing legal, accounting, bookkeeping, professional, expert and
consulting fees and expenses, and the fees and expenses charged by the Funds’ administrator for
its accounting, bookkeeping and other services. Investors should refer to the detailed disclosure
in the relevant Fund’s Governing Documents. SQN and SQN GP each bears its own operating,
general, administrative and overhead costs and expenses, other than the expenses described above.
SPV Fees and Expenses. Each investor in an SPV is a qualified client within the meaning of Rule
205-3 under the Advisers Act as amended. Limited partners are charged a management fee in
advance semi-annually, but less than 6 months in advance. Management fees are based on
committed capital; however, such fees may be reduced or waived at the sole discretion of SQN
GP.
In addition to a management fee, the SPVs pay various expenses including but not limited to:
professional fees charged for audit, tax and legal work, organizational expenses, fees and expenses
for generating and distributing reports and notices to investors, partnership meetings, insurance
premiums, and maintenance of bank and custodial accounts. A complete list of permitted expenses
is further discussed in the SPV’s Governing Documents. Investors and prospective investors
should review the SPV’s Governing Documents to fully understand the expenses that will be borne
by the SPV and indirectly by the limited partners.