ITEM 5: FEES AND COMPENSATION
A. Management Fees and Performance Compensation
TriArtisan is generally entitled to receive an annual 1% management fee (payable quarterly, in advance)
of the amount of invested capital from each LLC member. LLC members typically receive a quarterly
invoice and send their payments directly to TriArtisan. Management fees are based on a member’s
contributions and distributions and are not affected by the appreciation or depreciation of an LLC’s
investment in a Company. Certain LLCs no longer require the payment of management fees and certain
other LLCs have never required the payment of any management fees. TriArtisan may be entitled to
performance compensation from all but one of the LLCs it advises. While performance compensation
terms vary, TriArtisan is generally entitled to 10% of the realized net profits distributable to each LLC
member above a priority return that must be distributed to such member before TriArtisan is entitled to
performance compensation, with the potential for higher incentive payments above certain internal rates
of return. The specific performance compensation terms for each LLC are described in detail in their
respective LLC Agreements.
Employees (as defined in Item 11) and their relations as well as certain MJT Group shareholders and
persons with TriArtisan and/or MJT Group business relationships may participate directly or indirectly as
a member of an LLC to the extent permitted by the terms of the relevant LLC Agreement. Such
participation is on substantially the same terms and conditions as provided to other LLC members except
that management fees and performance compensation for these members is typically waived. TriArtisan
(in its discretion) has permitted certain substantial institutional members to acquire LLC interests on
different terms than other members (including, without limitation, with respect to fees and investment
reporting). Unless notification or offering rights have been separately granted in an LLC Agreement or a
side letter with one or more members, TriArtisan is not required to notify any or all of the other LLC
members of any such terms, nor is TriArtisan required to offer such additional and/or different rights
and/or terms to any or all of the other LLC members. Other than its interest in the ultimate profitability
of the members’ interests in the LLC (via performance compensation payments), TriArtisan does not make
capital investments in the LLCs.
B. Other Fees and Expenses
In addition to the management fee and performance compensation payable to TriArtisan, the LLCs
generally pay other fees and expenses associated with its investments as disclosed in the LLC Agreements.
The LLC Agreements specify the nature of fees and expenses borne by the Company, the LLC or its
members during its founding and over the course of the investment period. These fees and expenses
generally include legal, tax preparation, registration, administration, bookkeeping, audit, bank fees,
investment banking, brokerage and/or consulting services. Certain LLCs require their members be
separately invoiced for their proportionate share of such expenses while other LLCs allow for such
expenses to be advanced by TriArtisan and deducted from an LLC member’s distributions.
While TriArtisan does not intend to form any new LLCs or make any new investments on behalf of existing
LLCs, a Company currently held by an LLC could hire an investment bank to assist it with recapitalizing or
to engage in some other related activity. Under certain circumstances, a Company may hire Cowen and
Company LLC, a registered broker-dealer specializing in investment banking services. Although TriArtisan
is not an affiliate of Cowen and Company LLC or its parent company, Cowen Inc. ("Cowen"), Gerald H.
Cromack II and Rohit Manocha are both employees of Cowen and currently registered representatives of
Cowen and Company, LLC.
Due to the fee-paying arrangements described above (some of which may be deemed to be significant),
there is the potential for conflicting interests between TriArtisan, Mr. Cromack, Mr. Manocha and the
LLCs. TriArtisan endeavors to resolve these conflicts in the best interests of the LLC and will disclose all
known fees to the LLCs and their respective members.
Please see the relevant LLC Agreement for more details regarding the payment of fees and expenses borne
by the Company, the LLC or its members.
C. Payment Method
1. Calculation and Payment of Fees:
Management Fees
Management fees are calculated as a percentage of the LLC member’s capital account as of an
anniversary or as specified in the LLC Agreement or member’s side letter (if any). The 1%
management fee for each annual period is invoiced quarterly in advance and is paid directly by
the member to TriArtisan. As noted above, the LLCs managed by TriArtisan do not (or no longer)
charge management fees.
Performance Compensation
Performance compensation is based on the realized net profits distributable to each member
above a priority return that must be distributed to such member before TriArtisan is entitled to
any performance compensation. All performance compensation payable to TriArtisan is
dependent upon certain threshold rates of return and/or multiples of invested capital.
While performance compensation terms vary by LLC, TriArtisan is generally entitled to 10% of the
realized profits distributable to each member above an 8% per annum priority return, with the
potential for higher incentive payments above certain greater internal rates of return. TriArtisan
has the discretion to, waive, rebate or calculate differently the performance-based fee as to all or
any of the members in an LLC and/or agree with a member to waive or alter their performance
compensation distribution.
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