ITEM 5 – FEES AND COMPENSATION
General
The Funds are typically organized as limited partnerships and governed by limited partnership agreements,
which we refer to as “LPAs.” As the manager of the Funds, Third Security generally receives a management
fee equal to 90% of the management fees earned by the general partners of such Funds, which we refer to as
the “General Partners.” The fees earned by the General Partners of each Fund typically range from 2% to
2.25% of the (i) capital committed to a Fund, or (ii) following the expiration of a Fund’s investment
commitment period, its net invested capital. Management fees are determined quarterly and paid in advance
by deducting the fees from the account of each Fund. Management fees are non-refundable unless the Fund is
terminated pursuant to its LPA, in which case the unearned portion of the management fee, determined on a
pro rata amount per day, is returned to the Fund and available for distribution to the Fund Investors in
connection with the liquidation of the Fund.
Management fees are negotiated at the inception of each Fund. All Fund Investors in each Fund are subject to
the same management fee unless agreed to by the General Partner in its sole discretion.
Incentive Fees (Carried Interest)
Each General Partner, in addition to the management fee, is entitled to a certain percentage of the Fund’s
distributions in excess of limited partner capital contributions and expenses, which is referred to as “carried
interest.” The percentage of carried interest earned on a Fund is negotiated with Fund Investors, collectively,
at the inception of each Fund. The carried interest ranges from 20% to 30% of the ultimate performance of a
Fund; provided, however, that certain Insider Funds are either not subject to a carried interest or are subject to
a carried interest at reduced rates ranging from 13% to 17%. The carried interest amount is determined
following the realization of a Fund’s investment, including an investment that has been written off, and is
calculated on a cumulative basis. Amounts earned by the General Partners as carried interest are paid to the
General Partner after the basis of the underlying investment, including any costs and expenses of a Fund
allocable to such investment, has first been returned to the Fund Investors.
If, upon the final distribution of the assets of a Fund, the aggregate amount paid to a General Partner as carried
interest exceeds the agreed-upon carried interest percentage, the General Partner is obligated to return the
excess amount to the Fund, less an amount equal to the tax distributions that were made or would have been
permitted to be made pursuant to the LPA to the General Partner. The amount of any carried interest returned
by a General Partner to a Fund is available for distribution to the Fund Investors in connection with the
liquidation of such Fund in accordance with its terms.
Other Compensation
Under the terms of the respective LPAs governing each Fund, Third Security may make loans to a Fund in the
event cash is not otherwise available to meet such Fund’s needs. In such case, Third Security earns interest on
these loans at an interest rate that generally includes Third Security’s incremental borrowing rate or the
applicable rate prescribed by the Internal Revenue Service for the period to be covered by such loan plus 1%.
FIRM BROCHURE THIRD SECURITY, LLC
Third Security or Randal J. Kirk may receive compensation from certain portfolio companies in which the
Funds invest, which we refer to as “portfolio companies,” (i) for the service of Third Security’s employees, or
Mr. Kirk, on the boards of directors of these portfolio companies, (ii) pursuant to a services agreement entered
into between any such portfolio company and Third Security, and (iii) in connection with Randal J. Kirk’s
service as an executive officer of any such portfolio company.
Neither Third Security nor any of its employees or supervised persons accepts compensation for the sale of
securities or other investment products to the Funds.
Fees Charged to Insiders and Insider Funds
Typically, no or nominal management fees are imposed by the General Partner for Insiders or Insider Funds.
Other Fees and Expenses
The management fees paid by each Fund include the cost of fund accounting and administration. However,
each Fund is responsible for its own fees and expenses incurred in connection with brokerage, legal, audit, tax
return preparation, due diligence costs incurred with respect to proposed investments, regulatory filings (if
required), custody and any other costs directly attributable to a Fund or its investments. Short-term cash
balances held in brokerage accounts of Funds are often invested in money market mutual funds and government
bonds. Any fees charged by such mutual funds are paid by the respective Fund. Third Security is reimbursed
by the Funds for any of the expenses described above incurred by Third Security directly on behalf of a Fund.
Please see Item 12 - Brokerage Practices for additional information concerning brokerage selection by Third
Security.
Redemptions
Fund Investors do not have a right of redemption.
FIRM BROCHURE THIRD SECURITY, LLC