Item 5: Fees and Compensation
Management Fee
The Funds will pay an annual management fee (the “Management Fee”) to Tower Three payable
quarterly in advance equal to 2% per annum, based on the total amount of committed capital in
the Fund during a defined commitment period. Thereafter, the management fee is reduced as its
basis shifts from aggregate capital commitments to invested capital. Such fees are pro-rated for
any period that is less than a full calendar quarter.
Tower Three has the right to contract for and receive Transaction Fees, Break-up Fees, portfolio
company management fees and Directors’ Fees in connection with the activities of the Funds.
Such fees are retained in full by Tower Three; however, a percentage (e.g. 50% -100%) of such
fees received reduces management fees otherwise payable by the applicable fund. Tower Three
may receive these fees regardless if a Fund profits from an investment.
Detailed information regarding management fees and offsets for each fund is contained in the
respective Fund’s offering documents and Limited Partnership Agreements. Investors should not
consider an investment in a Fund without fully understanding the Fund’s management fee
structure.
Performance-Based Fee
The Funds are subject to a carried interest of 20% of profits on distributions from the disposition of
investments (after taking into account limited partner expenses of the Fund, including
management fees) and following a preferred return of 8% to the Investors, which is paid to
affiliates of Tower Three.
Fund Expenses
Detailed information regarding the fees charged to each Fund is provided in the respective Fund’s
offering documents and Limited Partnership Agreements. In addition to management fees and
carried interest, the Funds will bear all legal, organizational and offering expenses, including the
out-of-pocket expenses of Tower Three and its agents, actually incurred in the formation of the
Funds. The Funds will also pay all costs and expenses relating to its respective operations,
including, but not limited to: legal, auditing, consulting and accounting fees and expenses
(including costs of reports to the Partners, financial statements, tax returns and K-1s), expenses of
meetings of the LP Advisory Committee and of Limited Partners, expenses incurred in connection
with the maintenance of the Partnership’s books of account and the preparation of audited or
unaudited financial statements, directors and officers liability insurance premiums allocable to the
Funds, all extraordinary expenses (such as litigation), all expenses relating to unconsummated
transactions, fees and expenses incurred in sourcing, evaluating and negotiating investment
opportunities, including expenses related to third party services providers which may include
research and valuation providers, and fees and expenses incurred in managing the Funds’
investments. Out-of-pocket expenses also include meals, entertainment, lodging and travel
expenses, which may include travel by way of private or non-commercial aircraft. Tower Three will
be responsible for its own operations, including rent, salaries and benefits, furniture and fixtures
and all other office equipment.
Further, the Fund will bear the costs associated with sourcing, evaluating and negotiating
investment opportunities incurred by Partners (who may be compensated by the Fund) even
though the opportunity may not be pursued by the Fund and the Partners act independently.
For more specific discussion of fees and expenses paid by investors please refer to the
private placement memorandum and the Limited Partnership Agreement for each of the Funds.
The fees and expenses borne by a Fund are negotiated with the Investors during such Fund’s
fundraising period. Investors should review all fees charged by Tower Three to fully understand
the total amount of fees paid by the Fund.
Reserves
Each General Partner may, in its discretion, retain on behalf of a Fund any amount (which would
otherwise be distributed to the partners in accordance with the applicable Fund’s governing
documents) which it deems prudent as reserves to meet future Fund expenses or liabilities.
Pro-rata Fees
Due to the nature of the Funds, clients will be committed to investing a specified amount into a
Fund at designated times. Clients will not generally be permitted to withdraw from a Fund or
become an investor in a Fund after that Fund closes. Clients who invest in a Fund subsequent
to the first closing of that Fund will be required to (a) purchase from the first closing investors their
pro-rata share of any investments made by the Fund; (b) reimburse the first closing investors for
their pro-rata share of Management Fees and expenses incurred by the Fund since the first close;
and (c) pay interest to the first close investors. Accordingly, there will be no need to calculate
pro-rata fees.
Compensation for the Sale of Securities
None of the employees of Tower Three is a registered representative of a broker-dealer. None of
the employees of Tower Three will receive any compensation for executing trades on behalf of a
Fund aside from Tower Three’s receipt of fees described above.
Other Professionals
Tower Three and its affiliates also engage and retain senior advisors, consultants, operating
partners and other similar professionals who are not employees or affiliates of Tower Three and
who will, from time to time, receive payments from, or allocations with respect to, portfolio
companies. The nature of the relationship with each of the senior advisors, consultants, operating
partners and/or other professionals and the amount of time devoted or required to be devoted by
them varies considerably. In certain cases, they provide the Funds, and/or Tower Three with
industry-specific insights and feedback on investment themes, assist in transaction due diligence,
make introductions to and provide reference checks on management teams. In other cases, they
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