to such Limited Partner. Such mandatory withdrawal will be treated in the same manner as
a voluntary withdrawal from the Fund. The General Partner may, in its sole discretion, also
permit withdrawals other than on the last day of a fiscal quarter.
Allocation of Net income and gains for each fiscal quarter are to be allocated first to the Limited Partners to
Income, Expenses, the extent of the Preferred Return, then to the General Partner in the amount of its Incentive
Gains and Losses Allocation, and thereafter 80% to the Limited Partners and 20% to the General Partner. If the
Fund should incur a net loss in any fiscal quarter, such loss generally will be allocated among
the Partners in accordance with the Partners’ respective percentage ownership interests in
the Fund.
Investment As an investment guideline, the Fund generally will not invest in any Investment that exceeds
Guidelines and more than 15% of the Fund’s aggregate Commitments at the time of the Investment; provided,
Restrictions however, that the General Partner may waive this guideline with respect to any Investment.
For purposes of the Fund’s guidelines and restrictions, each investment in a portfolio of
Investments not originated by the Fund shall be treated as a separate Investment. For the
avoidance of doubt, these investment guidelines shall not apply to subsidiary or affiliate
entities created by the General Partner to make Investments. This may include subsidiary or
affiliate entities in which Parallel Investment Entities are investors.
Origination of US Capital Global Partners will originate and initially structure 100% of the Fund’s Investments.
Investments
Management Fee 2.00% of the amount of the Partnership’s Assets Under Management. “Assets Under
Management” means the total Partnership assets including, cash, the cost of the non-publicly
traded securities and investments, Portfolio Securities, Money Market Investments, real
estate owned (at the lower of cost or fair market value), accounts receivables, unamortized
organizational expenses, the market value of any publicly traded securities, loan assets and
other equity investments, and any other Partnership assets (valued at fair market value), as of
the close of business on the last business day of the quarter. In addition, if the Fund employs
leverage, prospective investors should understand that the General Partner will be paid the
Management Fee based on the total investments of the Fund. The terms “Portfolio Securities”
and “Money Market Investments” shall have the meaning ascribed to them in Section 14 of the
Partnership Agreement.
Incentive Subject always to the Preferred Return in favor of Limited Partners, the Fund shall provide
Allocation to the General Partner (or to such affiliate entity as the General Partner may designate) an
Incentive Allocation, payable quarterly and calculated net of the Fund’s expenses, equal to
20% of the net sum of (i) any cash dividends, interest, or other cash income realized during
each quarter on any investment and (ii) any gains realized during each quarter upon the sale
or disposition of any investments.
Transaction Fees All origination fees, collateral or portfolio monitoring fees, and acquisition, disposition, financing,
break-up and similar transaction fees that are directly related to the investment activities or
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 87
operations of the Fund or any special purpose vehicle through which the Fund invests are
to be paid 100% to the General Partner by the company obtaining credit from the Fund.
Origination and collateral monitoring fees will vary between 0.5% to 3.0% depending on the
size of the transaction. All fees received by the General Partner that are not directly related to
interest earned on the investment activities or operations of the Fund or such special purpose
vehicle shall be for the account of the General Partner. The Limited Partners will not share or
benefit from any such fees.
Leverage The Fund is authorized to borrow funds as a Credit Facility to finance its investments, to
process withdrawal requests, or for such other purposes as determined by the General
Partner in its sole discretion. Loans generally may be obtained through margin credit, credit
facilities, swaps, options or other derivative arrangements entered into with securities brokers,
financial institutions or other third parties. Such loans may be secured by securities or other
capital of the Fund pledged to such brokers, leveraged loan funds, financial institutions, or
other third parties. The use and terms of leverage employed by the Fund will be determined
by the General Partner in its sole discretion.
Fund Set-Up The Fund will pay for its initial organization and set-up costs, including legal fees and
Costs administrative expenses, and will reimburse the General Partner for any organization and set-
up costs incurred by the General Partner.
Fund Operational The Fund will pay all costs and expenses associated with the operation of the Fund, including
Expenses legal, auditing, consulting, financing, accounting and custodian fees and expenses; expenses
associated with the Fund’s financial statements, tax returns and Schedule K-1s; the costs
of marketing and promoting the Fund; out-of-pocket expenses incurred in connection with
transactions not consummated; insurance; other expenses associated with the acquisition,
holding, impairment and disposition of its Investments, including extraordinary expenses
(such as litigation, if any); Costs involved with a Credit Facility or other borrowing and any
taxes, fees or other governmental charges levied against the Fund. The Fund will reimburse
the General Partner for all costs, fees and expenses incurred by the General Partner in the
operation of the Fund.
General Partner The General Partner will bear the costs of its own overhead expenses, including employees’
Expenses salaries, rent and utilities.
Co-investment The General Partner may, but will be under no obligation to, provide co-investment
Policy opportunities to one or more Limited Partners. Affiliates of the General Partner may make
co-investments with the Fund. In addition, the General Partner may advise other entities,
including Parallel Funds, which may co-invest with the Fund.
Alternative For legal, tax, regulatory, or other reasons, the Fund may form one or more alternative
Investment investment entities to make Investments outside of the Fund. Generally, in such event, each
Vehicles Limited Partner would participate in such an alternative investment vehicle on substantially
the same terms and conditions as it participates in the Fund.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 88
Parallel The General Partner or its affiliates may, at its discretion, create one or more parallel investment
Investment entities to accommodate the investment requirements of certain non-U.S. and other investors
Entities (“Parallel Funds”), the structure of which may differ from that of the Fund. Parallel Funds will
either (i) invest substantially all of their assets directly in the Fund, (ii) invest proportionately
in all transactions on substantially the same terms and conditions as the Fund, except as
necessary to address tax, regulatory or other investor considerations or (iii) invest in an entity
owned by the Fund and the Parallel Fund, in proportion to their commitments to such entity,
to make Investments. To the extent a Parallel Fund invests directly in the Fund, the Fund shall
be responsible for the fees and expenses of such entity.
It is possible that, due to the timing of an Investment or the initial closing date of the Parallel
Fund, both the Parallel Fund and Fund may not be able to participate in such Investment or
there will be a delay in when both the Fund and Parallel Fund can participate in such Investment.
While it is intended that each of the Parallel Fund and the Fund will participate on the same
terms and in the same proportion to their aggregate capital commitments, it is possible that
a Parallel Fund will invest under scenario (ii) or (iii) above at a later time than the Fund or
not at all. To the extent a Parallel Fund invests after the Fund in a particular Investment, the
Fund’s ownership of such Investment will be decreased by the amount of the Parallel Fund’s
investment and the Fund’s opportunity for returns will be reduced accordingly. Investors
should also understand that, because of regulatory, tax or other reasons, the portfolio of the
Fund and a Parallel Fund may differ.
Reports to The Fund will furnish to the Limited Partners (i) annual financial statements within 120 days
Limited Partners after the end of the Fund’s fiscal year, (ii) annual tax information necessary for each Partner’s
U.S. tax returns, and (iii) quarterly reports and capital account statements.
Transferability Limited Partners may not, directly or indirectly, sell, transfer, assign, pledge or otherwise
of Interests dispose of their interests in the Fund, in whole or in part, except with the prior written consent
of the General Partner, which consent may be granted or withheld in the sole and absolute
discretion of the General Partner.
Indemnification Except as provided by law or to the extent necessary to fund the Fund’s indemnification or
and Limitation other obligations, Investors will have no liability in their capacity as Limited Partners for the
of Liability debts and obligations of the Fund although their interests in the Fund (including their Capital
Commitment) will be subject to such debts and obligations.
To the fullest extent permitted by applicable law, the General Partner, any affiliate, partner,
member, shareholder, officer, director, employee or agent of the General Partner or any
employee, attorney or agent of the Fund (each, an “Indemnified Person”) will be indemnified
and held harmless by the Fund from and against any liabilities, losses, claims, damages, costs
and expenses (“Losses”) arising out of or in connection with any act or omission by such
Indemnified Person in the performance of its duties for and on behalf of the Fund unless
such act or omission is finally found by a court of competent jurisdiction to constitute willful
malfeasance or gross negligence (as determined in accordance with the laws of the State of
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 89
Certain ERISA Delaware) in the performance such Indemnified Person’s duties, in each case which directly
Considerations causes a material adverse effect to the Partnership or its assets. The Fund may, in the sole
discretion of the General Partner, upon concluding, with or without advice of counsel, that
an Indemnified Person is likely to be entitled to indemnification, advance to any Indemnified
Person attorneys’ fees and other costs and expenses incurred in connection with the defense
of any action or proceeding which arises out of such conduct. Any advance made by the Fund
will be subject to repayment to the extent that it is finally found by a court of competent
jurisdiction that the Indemnified Person was not entitled to indemnification.
To the fullest extent permitted by applicable law, no Indemnified Person will be liable to the
Fund or any Limited Partner for honest mistakes of judgment, or for any action taken or omitted
to be taken by them in good faith, or for losses due to such mistakes, action or inaction.
The Fund intends to restrict the direct or indirect ownership of Interests by Benefit Plan
Investors (which is defined in Section 3(42) of the U.S. Employee Retirement Income Security
Act of 1974, as amended (“ERISA”)) so that no assets of the Fund will be deemed to be “plan
assets” subject to ERISA and/or Section 4975 of the Internal Revenue Code of 1986, as
amended (the “Code”), as such term is defined in the “Plan Asset Regulation” issued by the U.S.
Department of Labor. The General Partner may effect a mandatory withdrawal of a Limited
Partner’s interests in the Fund, in whole or in part, if the ownership of such interests by such
Limited Partner would cause the assets of the Fund to be deemed to be “plan assets” subject
to ERISA and/or Section 4975 of the Code.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 90
X. RISK FACTORS selling collateral may be diminished and, as a result, the
Fund is more likely to suffer losses on defaulted loans.
General Business Risks Therefore, the Fund could experience reduced income,
increased expenses and less cash available for lending
The Fund may suffer losses in its portfolio. and other activities, which could have a material adverse
effect on our financial condition and results of operations
In the Fund’s business as a lender, it faces the risk that and our ability to achieve our investment objectives. As
borrowers may fail to pay their loans when due. If borrower a result, you could lose all or part of your investment in
defaults cause aggregate losses, it could have a material the Fund.
adverse impact on the Fund’s business, profitability and
financial condition and its ability to achieve the Fund’s Investments are generally risky and offer no guarantee of
investment objectives. success.
The General Partner will attempt to mitigate the risks All securities and investments generally bear the risk
inherent in extending credit by adhering to specific of loss of capital. There is no guarantee that any of
underwriting and due diligence practices, managed by our the Fund’s investment objectives will be achieved, that
professionals. Although the General Partner believes that the General Partner will be successful in executing
its underwriting and due diligence criteria is appropriate the Fund’s investment strategies, that the Fund’s
for the various kinds of loans the Fund intends to make, investments will generate a positive return, that the
the Fund may still incur losses on loans that meet the Fund’s investments will appreciate in value, or that any
underwriting and due diligence criteria. If the underwriting of the Fund’s investments will generate any return or be
practices prove to be ineffective, the Fund may incur losses profitable.
in its portfolio, which could have a material and adverse
effect on the Fund’s financial condition and performance. The Fund’s performance is dependent on key personnel
Depending on the scope of losses, you could lose part and the loss of one or more of those key personnel may
or all of your investment in the Fund. In addition, to the materially and adversely affect the Fund’s performance
extent the Fund makes any equity investment, the General and prospects.
Partner cannot provide any assurance that the value of
those equity investments will increase over time or that The Fund’s success depends to a significant degree
such investments will not experience a complete loss in upon the General Partner’s management team and the
value, resulting in substantial losses in the Fund’s overall contributions of our investment committee, as well as
performance. our origination, finance, administrative, marketing and
business development and technical personnel, and
Poor economic conditions may cause the Fund to suffer upon the continued contributions of our management
higher default rates on its loans and decreased value of the and personnel and in particular, Mr. Jeffrey Sweeney
assets it holds as collateral. and Mr. Charles Towle. If we fail to attract and retain
the necessary personnel, or if we lose one of our key
Economic conditions can have a significant influence on personnel, the Fund’s performance, financial condition
the performance of the Fund’s portfolio of investments. and results of operations may be materially and
A deterioration in economic conditions may result in an adversely affected.
increase in the level of our defaults and a decline in the value
of the collateral securing our secured loans. As a result, the The Fund may lack diversification which could increase
Fund may experience greater charge-offs and, similarly, the negative impact of the performance of a small
our ability to recover on defaulted loans by foreclosing and number of investments.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 91
The Fund is not subject to any diversification requirements Fund may choose from time to time to borrow funds
and may invest in a limited number of companies, sectors, pursuant to a credit facility with a financial institution, a
countries, or regions. To the extent the Fund concentrates leveraged loan fund, or another affiliated or third-party
its investments in a particular company, sector, country, lender (the “Credit Facility”). Although the purpose of
or region, its investments will become more susceptible leverage is to provide flexibility and additional liquidity
to fluctuations in value resulting from adverse business options to the Fund, reduce required Fund equity, as
or economic conditions affecting that particular company, well as potentially increase the overall Fund return, its
country, or region. As a consequence, the aggregate use is inherently risky and can instead increase risk.
return of the Fund may be adversely affected by the
unfavorable performance of one or a small number of The interest rates at which the Fund is able to borrow
companies, sectors, countries or regions in which the funds will affect the Fund’s operating results. While the
Fund has invested. use of borrowed funds will increase returns if the Fund
earns a greater return on the incremental investments
The Fund will make unspecified investments so Limited purchased with borrowed funds than it pays for the funds,
Partners must rely solely on the General Partner. the use of leverage will decrease returns if the Fund fails
to earn as much on such incremental investments as it
Although the Fund’s investments will be made in a targeted pays for the funds. The effect of leverage may therefore
group of companies, the General Partner has not yet result in a greater decrease in the net asset value of the
identified which companies will receive investments by the Fund than if the Fund was not so leveraged. The use of
Fund or how much of the Fund’s capital will be committed leverage has the potential to magnify the gains or the
to such companies. An investor in the Fund must rely losses on the Fund’s investments and to make the Fund’s
on the ability of the General Partner to make portfolio returns more volatile.
investments. An investor will not have the opportunity to
independently evaluate such investments. The Fund may be unable to meet its obligations to a
lender under a Credit Facility. If this occurs, the Fund
The Fund’s portfolio will lack liquidity. may be liable for increased payments and penalties to
the lender. The lender may also foreclose on any Fund
The Fund’s investment portfolio will, to a significant extent, assets in which it holds a security interest. As such, the
consist of debt investments in SMB’s. The marketability Fund’s inability to perform under a Credit Facility could
and value of each such investment will depend upon many have significant negative effects on the Fund, its assets,
factors beyond the General Partner’s control. Generally, and ultimately the Fund.
the investments made by the Fund will be illiquid.
The Fund could be in a position where it must borrow
The Fund’s operating history extends back to Q1 2017. funds in order to cover its operating expenses, overhead
or committed investments. In any of these events, it is
The Fund has a history of operations or earnings that uncertain whether debt financing will be available to
extends back only to Q1 2017. There can be no assurance the Fund on desirable terms, or at all. If the Fund is
that the operations of the Partnership will be profitable, unable to secure debt financing in these circumstances,
that the Fund will generate any positive returns or that any the Fund could end up in default of its obligations to
investment in the Fund will be recouped. third parties and incur significant penalties and other
negative consequences. If the Fund is able to secure
The Fund may seek leverage. debt financing in these circumstances, the Fund could
be highly leveraged and would be subject to all the risks
As described in this Private Placement Memorandum, the associated with borrowing.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 92
If the Fund employs leverage, this may result in the Fund The General Partner will seek to identify investments
controlling substantially more assets than its equity that it believes will produce attractive levels of current
capital. Leverage generally increases returns if the Fund income for the Partnership. A general description of
earns a greater return on investments purchased with the process by which the General Partner will seek to
borrowed funds than the Fund’s cost of borrowing identify such investments included elsewhere in this
such funds; however, the use of leverage exposes the memorandum. In determining whether to make a loan,
Fund to a high degree of additional risk, including: (i) the General Partner, as indicated elsewhere above, will
greater losses from investments than would otherwise use whatever factors it deems appropriate. There can be
have been the case had the Fund not used leverage to no assurance that the General Partner’s analysis in this
make the investments; (ii) margin calls or interim margin regard, as implemented, will take into considerations all
requirements which may force premature liquidations of appropriate factors or appropriately weigh the factors
investment positions; (iii) losses on investments where the that are considered in its analysis. There can also not
investment fails to earn a return that equals or exceeds be any assurance that the loss made by the Fund will
the Fund’s cost of leverage related to such investment; not suffer any principal loss or will produce any level of
and (iv) the risk of default by the Fund on margin or current income or capital appreciation.
other financing and the potential consequences thereof,
including the acceleration of borrowed amounts, the Projections may have no relation to actual events.
exercise of remedies by the lender (such as the forced
liquidation of positions and/or the seizing or marshalling The Partnership may rely upon projections, forecasts
of collateral), the possibility of cross-defaults to other or estimates developed by the General Partner or a
Fund agreements, and the potential for litigation against portfolio company in which the Partnership has made
the Fund and/or for the Fund to be liable for additional a loan concerning the issuer’s future performance and
damages. In the event of a sudden, precipitous drop in cash flow. Projections, forecasts and estimates are
value of the Fund’s assets, the Fund might not be able to forward-looking statements and are based upon certain
liquidate assets quickly enough to repay its borrowings assumptions. Actual events are difficult to predict and
or post additional margin, further magnifying losses beyond the Partnership’s control. Actual events may
incurred by the Fund. To the extent the Fund employs differ from those assumed. Some important factors
structured financial instruments to seek leverage, it which could cause actual results to differ materially from
should be noted that credit default swaps and other those in any forward-looking statements include, among
synthetic instruments and derivatives contain much others, changes in interest rates; domestic and foreign
greater leverage than a non-margined purchase of the economic, business, market, financial or legal conditions.
underlying security or instrument. This is due to the fact Accordingly, there can be no assurance that estimated
that generally only a very small portion (and in some returns or projections can be realized or that actual
cases none) of the value of the underlying security or returns or results will not be materially lower than those
instrument is required to be paid in order to make estimated therein.
such investments. In light of this implicit leverage, such
synthetic and derivative financial instruments bear many Partnership investments are subject to general credit and
of the same heightened risks inherent in the use of interest rate risk.
leverage generally.
Debt portfolios are subject to credit and interest rate
Market and Interest Rate Risks risk. “Credit risk” refers to the likelihood that an issuer or
borrower will default in the payment of principal and/or
Portfolio investment selection may not fulfill investment interest on an instrument. Credit risk also includes the
objective. risk that a counterparty to a derivatives instrument (e.g.,
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 93
a swap counterparty) will be unwilling or unable to meet leveraged capital structures, such investments will be
its obligations (see “Counterparty Risk” below). Financial subject to increased exposure to adverse economic
strength and solvency of an issuer or borrower are the factors such as a rise in interest rates, a downturn in
primary factors influencing credit risk. In addition, degree the economy or further deterioration in the condition
of subordination, lack or inadequacy of collateral or credit of such portfolio company or its industry. In addition,
enhancement for a debt instrument may affect its credit portfolio companies may experience an inability
risk. In evaluating the risk of principal loss, the General to generate sufficient cash flow to meet principal
Partner will take into account such factors as it deems and interest payments despite our underwriting
appropriate in particular cases (including, where applicable, and diligence process. Accordingly, the value of the
credit quality of the issuer and/or counterparty, expected Partnership’s investment in such a portfolio company
performance of the underlying assets/referenced assets, could be significantly reduced or even eliminated due to
and structure and level of subordination, if any). Such further credit deterioration.
factors may differ from conventional criteria associated
with the quality of investments. In the event that the Leverage by the Fund could result in Fund losses.
credit quality of any Portfolio Investment is subsequently
determined by the General Partner to have declined, the The Fund is authorized to borrow for investment
Partnership will not be required, based on that condition purposes, funding of withdrawal requests or any other
alone, to dispose of any such portfolio investments. purpose determined by the General Partner. In the
Therefore, the General Partner’s capabilities in analyzing event the Fund is not able to meet its debt obligations,
credit quality and associated risks will be particularly the Fund may suffer losses or otherwise experience a
important, and there can be no assurance that the General material adverse effect on its financial condition.
Partner will be successful in this regard.
Lender liability and equitable subordination may impede
Interest rate risk refers to the risks associated with market the Fund’s performance.
changes in interest rates. In general, rising interest rates will
negatively impact the price of fixed rate debt instruments Holders of debt securities are also subject to so-called
and falling interest rates will have a positive effect on “lender liability” claims by the issuer of the obligations,
price. Adjustable rate instruments also react to interest which is founded upon the premise that an institutional
rate changes in a similar manner although generally to a lender has violated a duty (whether implied or
lesser degree (depending, however, on the characteristics contractual) of good faith and fair dealing owed to the
of the reset terms, including the index chosen, frequency borrower or has assumed a degree of control over the
of reset and reset caps or floors, among other factors). borrower resulting in a creation of a fiduciary duty owed
Interest rate sensitivity is generally more pronounced and to the borrower or its other creditors or shareholders.
less predictable in instruments with uncertain payment While believed to be unlikely, because of the nature of
or prepayment schedules. Declines in market value, if not certain portfolio investments, the Partnership could
offset by any corresponding gains on hedging instruments, be subject to allegations of lender liability. In addition,
may ultimately reduce earnings or result in losses to the because of the nature of certain of the Partnership’s
Partnership. portfolio investments, the Partnership could be
subject to claims from creditors of an obligor that
Leverage at portfolio company level increases Partnership’s the Partnership’s investments issued by such obligor
exposure. that are held by the Partnership should be equitably
subordinated because of actions by the Partnership
Because the Partnership’s investments will cause additional that are deemed to be inequitable to other creditors.
leverage at portfolio companies who may already have
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 94
Risks Related to the Nature and business such that the Fund is not able to achieve its
Geographical Location of our Business objectives.
The markets in which we operate are subject to the risk of Substantial competition in the market could adversely
natural disasters. affect the Fund.
In addition to possibly sustaining damage to its own Lending is a highly competitive business. The Fund will
properties, if there is a major earthquake, flood or other compete actively for loan and other financial services
natural disaster, we face the risk that many of our borrowers business. Our competitors include a large number of
may experience uninsured property losses, or sustained state and national banks, thrift institutions and credit
job interruption and/or loss which may materially impair unions, as well as many financial and non-financial firms
their ability to meet the terms of their loan obligations. that engage in businesses similar to that of the Fund.
Although we do not engage in agricultural lending, the Other competitors include large financial institutions
drought in California could have an impact on the State’s that have substantial capital, technology and marketing
economy and our customers. Therefore, the continuing resources. Such large financial institutions may have
drought or a major earthquake, flood or other natural greater access to capital at a lower cost than us, which
disaster in California could have a material adverse effect may adversely affect our ability to compete effectively.
on our business, financial condition, results of operations
and cash flows. The Fund is subject to systems, accounting and internal
control risks.
The Fund and General Partner are subject to government
regulation. The accuracy of our judgments and estimates about
financial and accounting matters will impact operating
The Fund will be regulated as a lender under various results and financial condition. We make certain
federal, state and local statutes and regulations and estimates and judgments in preparing the financial
these regulations extend, in part, to the General Partner. statements. The quality and accuracy of those estimates
These regulations affect the Fund’s lending practices and and judgments will impact the Fund’s operating results
business operations, among other things. Statutes and and financial condition.
regulations affecting the Fund’s business may be changed
at any time and the interpretation of these statutes and Our information systems may experience an interruption
regulations by examining authorities may also change. or breach in security.
In addition, regulations may be adopted which increase
our obligations and expense associated with running We rely on communications and information systems
the Fund’s business. There can be no assurance that to conduct our business. Any failure, interruption or
such statutes and regulations, any changes thereto or breach in security of these systems could result in
to their interpretation will not adversely affect the Fund’s failures or disruptions in our customer relationship
business. In particular, these statutes and regulations, and management and systems. We cannot provide any
any changes thereto, could subject us to additional costs assurance that such failures, interruptions or security
(including legal and compliance costs), limit the types of breaches will not occur or, if they do occur, that they
lending we may perform or Interests we may be able to will be adequately corrected. The occurrence of any
sell. In addition, regulatory authorities have the authority such failures, interruptions or security breaches could
to bring enforcement actions against us for violations damage our reputation, result in a loss of customer
of any law, rule or regulation which could substantially business, subject us to heightened regulatory scrutiny,
increase our operating costs and adversely affect our or expose us to litigation and possible financial liability,
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 95
any of which could have a material adverse effect on our which were not negotiated on an arm’s-length basis.
financial condition and results of operations. In addition, legal counsel for the General Partner has
not acted and will not in the future act as counsel for
Our controls and procedures may fail or be circumvented. or represent the interests of the Limited Partners. The
Our management regularly reviews and updates our Partnership has also not had independent legal counsel
internal control over financial reporting, disclosure controls and is not expected to have independent legal counsel in
and procedures, and corporate governance policies and the future. Prospective Limited Partners should consult
procedures. Any system of controls and procedures, with their own legal counsel regarding the Partnership.
however well designed and operated, is based in part on
certain assumptions and can provide only reasonable, not Valuations and appraisals at discretion of General Partner.
absolute, assurances that the objectives of the system
are met. Any failure or circumvention of our controls and The Partnership may from time to time obtain a
procedures or failure to comply with regulations related third party valuation or appraisal of one or more of
to controls and procedures could have a material adverse the portfolio investments when determined to be
effect on our business, results of operations and financial appropriate, in its discretion; provided, however, that
condition. the Partnership is under no obligation to do so. In lieu
of obtaining an independent valuation or appraisal,
Management Risks the General Partner will estimate the fair value of the
Partnership’s portfolio investments. Any determination
There is no participation by limited partner investors in the of the value of the Partnership’s assets may involve
management of the Fund. subjective analysis which provides no more than a
speculative estimate of value. Valuations and appraisals
Limited Partners will have very limited rights and power may result in adjustments of the carrying value of
to take part in the management of the Partnership. All Partnership investments. Accordingly, there can be no
prospective investors must be willing to entrust all aspects assurance that the Partnership’s net asset value, as
of the operation and management of the Partnership to calculated based upon such valuation, appraisals and/
the General Partner, including the selection of portfolio or opinions, will be accurate on any particular date, nor
companies. can there be any assurance that the sale of any Portfolio
Investment owned by the Partnership would be at a
The General Partner and its members enjoy limited liability. price equivalent to the last estimated or appraised value
of such property.
The Partnership Agreement includes exculpation and
indemnification provisions that limit the circumstances Incentive allocation may lead to increased risk-taking
under which the General Partner, our management by managers.
team and their respective affiliates can be held liable to
the Partnership and which obligate the Partnership to The General Partner will receive the incentive allocation
indemnify them under certain circumstances. As a result, from the Fund based on a percentage of any realized
investors may have a more limited right of action in certain gains, which will be paid after the Limited Partners
cases than they would in the absence of such limitations. receive their preferred return. As a result of the incentive
allocation, the returns realized by the Limited Partners
No negotiation of terms or independent legal from the Partnership’s activities may be substantially
representation. less than the returns the Limited Partners would
realize from engaging in the same activities directly,
The General Partner has determined the terms of the if they were able to make such investments directly
Partnership Agreement and the Subscription Agreement, without investing in the Partnership. As is the case with
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 96
most standard private investment funds, the incentive Partnership Agreement and federal and state securities
allocation may create an incentive for the General Partner laws, no market currently exists for the Interests and it is
to make investments that are riskier or more speculative highly unlikely that a market will exist at any time in the
than would be the case in the absence of such incentive future. Investors who cannot remain as Limited Partners
compensation arrangements. under these terms should not invest in the Partnership.
Moreover, there can be no assurance regarding the
Other Risks frequency or amount of distributions. Accordingly, an
investment in the Partnership is not appropriate for
Limited transferability of the Partnership interests. investors who seek liquidity in their investment.
Investors in the Partnership interests will be required There is recourse to the partnership’s assets and
to enter into the Partnership Agreement, which limits indemnification liabilities which could result in losses to
the transferability of the interests. Transferability of the Limited Partners.
interests is further limited because the interests have not
been registered under the Securities Act or under any state The Partnership’s assets, including any investments
securities laws. made by the Partnership and any funds held by it, are
available to satisfy all liabilities and other obligations of
Long-term nature of investment and illiquidity. the Partnership, including indemnification obligations.
If the Partnership becomes subject to a liability, parties
Investors should be fully aware that an investment in the seeking to have the liability satisfied may have recourse
Partnership is subject to a Lock-up Period as described to the Partnership’s assets generally and may not be
above. During the Lock-Up Period, a Limited Partner cannot limited to any particular asset, such as the Portfolio
withdraw any funds from the Custodial Account other Investment giving rise to the liability. The General Partner
than by electing to receive cash distributions of realized and other indemnitees are entitled to indemnification,
gains income. After the Lock-Up Period, a Limited Partner except under certain circumstances, from the
can choose to withdraw from the Fund in full by making Partnership. The obligation to fund any indemnification
a redemption request. Notwithstanding the foregoing, will survive the dissolution of the Partnership or a Limited
a Limited Partner will not receive all amounts from the Partner’s withdrawal or exclusion from the Partnership.
Custodial Account in response to a redemption request if Accordingly, Limited Partners may suffer losses of their
any such amounts are to be used by the Fund for (i) Fund investment in the Fund as a result of such obligations.
investments with respect to which the Fund has entered
into a binding commitment prior to the redemption request; A Limited Partner may be liable for the return of distributions.
(ii) binding follow-on investments; (iii) repayment of any
advances made by a creditor of the Fund to fund existing If the Partnership is otherwise unable to meet its
Investments and secured by commitments of the General liabilities and obligations, the Limited Partners may
Partner; or (iv) to cover Fund expenses and obligations. under applicable law be required to return cash
Thereafter, all returns attributable to a Limited Partner from distributions previously received by them to the extent
investments, including payments of interest and payments that such distributions are deemed to constitute a
of principal, will be paid out quarterly as they are received return of their contributed capital or are deemed to
in the Custodial Account. Accordingly, Limited Partners will have been wrongfully paid to them. In addition, a Limited
be paid out as investments amortize. The maturity period Partner may be liable under applicable federal and state
of investments is generally 36 months, and will usually not bankruptcy laws to return a distribution made during
exceed 48 months. Although it may be possible to dispose the Partnership’s insolvency or within a certain period of
of the Interests under certain circumstances subject to the time prior thereto.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 97
Reserves may expose Limited Partners to losses. Risks for certain benefit plan investors subject to ERISA.
Under certain circumstances, the Partnership may find it Prospective investors that are benefit plan investors
necessary to establish a reserve for contingent liabilities or subject to the Employee Retirement Income Security Act
withhold a portion of distributions to Limited Partners, in of 1974, as amended (“ERISA”), and Department of Labor
which case the reserved portion would remain at the risk Regulations issued thereunder should read the section
of the Partnership’s activities. hereof entitled “ERISA Considerations” in its entirety for
a discussion of certain risks related to an investment by
The General Partner may enter into side letters with certain benefit plan investors in the Partnership.
Limited Partners.
Prevention of money laundering.
The Partnership and the General Partner may enter into
agreements with certain Limited Partners that will result As part of the General Partner’s responsibility for the
in different terms of an investment in the Partnership than prevention of money laundering under the Uniting and
the terms applicable to other Limited Partners. As a result Strengthening America by Providing Appropriate Tools
of such agreements, certain Limited Partners may receive Required to Interrupt and Obstruct Terrorism Act of 2001
additional benefits which other Partners will not receive (the “PATRIOT Act”) and other laws, the Partnership may
(e.g., additional information, better economic terms). The require a detailed verification of a prospective Limited
Partnership and the General Partner will not be required Partner’s identity and the source of such prospective
to notify the other Limited Partners of any such agreement Limited Partner’s capital contributions. In the event of delay
or any of the rights and/or terms or provisions thereof, nor or failure by a prospective Limited Partner to produce any
will the Partnership or the General Partner be required such information required for verification purposes, the
to offer such additional and/or different terms or rights Partnership may refuse to accept the subscription and
to any other Limited Partner. The Partnership and the any monies relating thereto. In addition, each prospective
General Partner may enter into any such agreement with Limited Partner will be required to represent and warrant
any Limited Partner at any time in the sole discretion of the to the Partnership, among other things, that (a) the
General Partner. proposed investment by such prospective Limited Partner
will not directly or indirectly contravene U.S. federal, state,
Regulations under Investment Company Act of 1940. international or other laws or regulations, including the
PATRIOT Act, (b) no capital contribution to the Partnership
The Partnership’s operations are similar to an investment by such prospective Limited Partner will be derived from any
company as defined under the Investment Company Act of illegal or illegitimate activities, (c) such prospective Limited
1940, as amended (the “Investment Company Act”) because Partner is not a country, territory, person or entity named
the Partnership engages in the business of purchasing on a list promulgated by the U.S. Treasury Department’s
securities for investment. The Partnership is currently Office of Foreign Assets Control (“OFAC”) prohibiting,
not required to register under the Investment Company among other things, the engagement in transactions with,
Act due to an exemption for an entity which is beneficially and the provision of services to, certain foreign countries,
owned by less than 100 persons and which complies territories, entities and individuals, nor is such prospective
with certain other statutory provisions. Accordingly, the Limited Partner or any of its affiliates a natural person or
provisions and extensive regulations of the Investment entity with whom dealings are prohibited under any OFAC
Company Act, which might otherwise govern the activities regulations or (d) such prospective Limited Partner is not
of the Partnership, will not be applicable and Limited otherwise prohibited from investing in the Partnership
Partners will not have any of the benefits provided under pursuant to other applicable U.S. anti-money laundering,
the Investment Company Act. anti-terrorist and foreign asset control laws, regulations,
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 98
rules or orders. Each Limited Partner will be required to vary based on each taxpayer’s particular circumstances.
promptly notify the General Partner if any of the foregoing THEREFORE, INVESTORS SHOULD CONSULT THEIR OWN
will cease to be true with respect to such Limited Partner. TAX ADVISERS TO DETERMINE THE TAX EFFECTS OF AN
INVESTMENT IN THE PARTNERSHIP, ESPECIALLY IN LIGHT
As a result of the above-described money laundering OF THEIR PARTICULAR FINANCIAL SITUATIONS.
regulations, the General Partner may from time to time
request (outside of the subscription process), and the Tax Considerations; Distributions to Partners and
Limited Partners will be obligated to provide to the General Payment of Tax Liability. It is not possible to provide
Partner upon such request, additional information as from here a description of all potential tax risks to a person
time to time may be required for it and the Partnership to considering investing in the Partnership. Prospective
satisfy their respective obligations under these and other investors are urged to consult their own legal counsel
laws that may be adopted in the future. Also, the General and tax advisors with respect thereto. The Partnership
Partner may from time to time be obligated to file reports will not seek a ruling from the Internal Revenue Service
with various jurisdictions with regard to, among other (“IRS”) with respect to any tax issues affecting the
things, the identity of the Partnership’s Limited Partners Partnership.
and suspicious activities involving the Interests.
All returns from the investments, including payments
In the event it is determined that any Limited Partner, of interest and repayments of principal by portfolio
or any direct or indirect owner of any Limited Partner, is companies will be paid into each Limited Partner’s custodial
a person identified in any of these laws as a prohibited account. Unless a Limited Partner elects to receive cash
person, or is otherwise engaged in activities of the type distributions of realized gains income, such income will be
prohibited under these laws, the General Partner may be used to fund subsequent investments by the Partnership.
obligated, among other actions to be taken, to withhold A Partner will be required each year, however, to pay
distributions of any funds otherwise owing to such Limited applicable U.S. federal and state income taxes on its share
Partner or to cause such Limited Partner’s Interest to be of the Partnership’s taxable income, and will have to obtain
cancelled or otherwise redeemed (without the payment of cash from other sources in order to pay such applicable
any consideration in respect of such Interest). taxes. The amount and timing of any distributions will be
determined in the discretion of the General Partner. The
Tax Risks General Partner may consider such possible tax liability
of the Partners when determining whether to make
General distributions, but no assurance is given that distributions,
The General Partner intends that the Partnership will be if made, will equal the amount of any Partner’s tax liability.
classified as a partnership for federal tax purposes. Each
Partner must take into account its allocable share of the Differential Taxes for Investors
partnership items of the Partnership. The Partnership is The Partnership’s investors may include both tax-exempt
subject to a risk of audit by the IRS. Any adjustments made entities and taxable investors such as high net worth
to the Partnership’s information return produced by such individuals and persons or entities organized in various
an audit might result in adjustments to the Limited Partners’ jurisdictions. Certain conflicts of interest may arise in
tax returns, with respect not only to items related to the connection with decisions made by the General Partner
Partnership but also to unrelated items. Furthermore, that may be more beneficial for one type of investor than
federal, state and local tax laws are subject to change, and for another type. In selecting investments appropriate
Limited Partners could incur substantial tax liabilities as a for the Partnership, the General Partner will consider the
result of changes thereto. Finally, various aspects of income investment objectives of the Partnership as a whole, and
taxation, including federal, state and local taxation and will not be required to consider the investment objectives
the alternative minimum tax, produce tax effects that can or tax consequences to any specific investor.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 99
Certain Deductions and Allocations consultants, partners and members (including the
The IRS could challenge the deductibility of expenses Principals) (the “Affiliated Persons”) engage in activities
the Partnership incurs for several reasons, including that that may conflict with the interests of the Limited Partners,
those expenses constitute capital expenditures that, or the Partnership, notwithstanding the fact that the
among other things, should be added to the Partnership’s General Partner and the Investment Manager manage
cost of acquiring its investments and amortized over a the Partnership. The following discussion enumerates
period of time or held in suspense until the Partnership certain potential divergences and conflicts of interest.
liquidates or dissolves. In addition, certain expenses
the Partnership incurs may constitute “miscellaneous Other Activities of the General Partner
itemized deductions,” the deductibility of which by
individual taxpayers is subject to a separate limitation The Partnership Agreement does not require the
as well as an overall limitation on itemized deductions. General Partner or its managing members to devote
In this regard, the IRS also could attempt to challenge all of their business time to managing the Partnership’s
any allocations to the General Partner pursuant to the affairs. The Affiliated Persons will not be precluded from
Carried Interest and instead try to treat such amounts engaging directly or indirectly in any other business or
as a management fee. If the IRS were to prevail in such other activity, including exercising investment advisory
position, the Limited Partners would be allocated the and management responsibility and buying, selling
profits otherwise allocable to the General Partner and or otherwise dealing with investments for their own
their ability to deduct the amounts re-characterized as accounts, for the accounts of family members, for the
a fee could be disallowed or limited as described above. accounts of other funds and for the accounts of individual
See “Federal Tax Aspects.” and institutional clients (collectively, “Other Accounts”).
**************** Such Other Accounts may have investment objectives
or may implement investment strategies similar to
The foregoing list of risk factors does not purport to those of the Partnership. The Affiliated Persons may
be a complete enumeration or explanation of the also have investments in certain of the Other Accounts.
risks involved in an investment in the Partnership. Accordingly, the General Partner and the Affiliated
Prospective Limited Partners should read the entire Persons will have conflicts of interest in allocating
Memorandum and the Partnership Agreement and management time, services and functions among the
consult with their own advisers before deciding Partnership and other business endeavors, whether in
whether to invest in the Partnership. In addition, as existence now or in the future. The General Partner, the
the Partnership’s investment program develops and Investment Manager, key personnel and those Affiliated
changes over time, an investment in the Partnership Persons will only devote so much time to the business
may be subject to additional and different risk and affairs of the Partnership as is reasonably required
factors. in their judgment. The Partnership Agreement does
not prohibit the General Partner, the Principal or any of
POTENTIAL CONFLICTS OF INTEREST their Affiliated Persons from engaging in other existing
or future business in which neither the Partnership nor
In connection with the management of the Partnership, any Limited Partner will be entitled to have an interest.
the General Partner may be deemed to have a fiduciary The Affiliated Persons will have no obligation to purchase
relationship with the Partnership and consequently the or sell for the Partnership any investment that the
responsibility for dealing fairly with the Partnership. Affiliated Persons purchase or sell, or recommend for
However, affiliates of the General Partner, and their purchase or sale, for their own accounts or for any of the
respective officers, managers, directors, employees, Other Accounts.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 100
The Other Accounts may invest in various investment of the Placement Agent, and a stockholder of the parent
opportunities similar or dissimilar to the Partnership’s company of the General Partner and the Placement Agent.
activities and in which neither the Partnership nor any Jeffrey Sweeney is Co-Managing Partner of the General
Limited Partner will be entitled to have an interest. The Partner and is also Chairman, CEO, and the controlling
Partnership will not have any rights of first refusal, co- stockholder of the parent company of the General Partner
investment or other rights in respect of the investments and the Placement Agent. Conflicts of interest may arise
made by Affiliated Persons for the Other Accounts, or in in connection with Mr. Towle’s and Mr. Sweeney’s control
any fees, profits or other income earned or otherwise of both the General Partner and the Placement Agent.
derived from them. No Limited Partner will, by reason Investors should be aware that these conflicts of interest,
of being a Partner of the Partnership, have any right to and should not invest in the Fund unless they are willing to
participate in any manner in any profits or income earned accept these conflicts of interest and the associated risk.
or derived by or accruing to the Affiliated Persons from
the conduct of any business or from any transaction in Leveraged Loan Fund
investments effected by the Affiliated Persons for any
account other than that of the Partnership. Additionally, The General Partner manages a leveraged loan fund that
the General Partner, the Investment Manager, the may be a lender to the Partnership or may create new
Principals or any of the other Affiliated Persons may funds or provide a Credit Facility directly or indirectly to
also invest, directly or indirectly, in various investment the Fund in the future The General Partner and Charles
opportunities similar or dissimilar to the Partnership’s Towle Co-Managing Partner of the General Partner and
activities and in which neither the Partnership nor any a stockholder of the parent company of the General
Limited Partner will be entitled to have an interest. Partner and Jeffrey Sweeney Co-Managing Partner of
Circumstances may arise, however, in which an allocation the General Partner and also Chairman, CEO, and the
of opportunities among the Partnership, the Affiliated controlling stockholder of the parent company of the
Persons and the Other Accounts could have adverse General Partner may have an economic interest in such
effects on the Partnership with respect to the availability lenders which may be conflicts of interest. Investors
of transactions, the pricing of a transaction, collateral, should be aware of these conflicts of interest and should
priority of lien or of payment, or other matters. not invest in the Fund unless they are willing to accept
these conflicts of interest and the associated risk.
Incentive Allocation
Co-Investments
The Incentive Allocation to be received by the General
Partner is based on realized gains income, if any, resulting The General Partner may in its discretion make available
from the Partnership’s portfolio investments. The co-investment opportunities to strategic investors,
Incentive Allocation therefore, may create an incentive lenders, and/or one or more Partners. Co-investment
for the General Partner to cause the Partnership to make opportunities may be made available through limited
investments that are riskier or more speculative than partnerships or other entities formed to make such
would be the case if it were not made. investments.
Placement Agent
The Placement Agent is US Capital Global Securities, LLC, a
registered broker-dealer member of FINRA and an affiliate
of the General Partner. Charles Towle is Co-Managing
Partner of the General Partner, CEO and licensed principal
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 101
XI. LEGAL AND TAX MATTERS any issuer whose outstanding securities are beneficially
owned by not more than 100 persons (as defined in
Certain Other Regulatory Matters Section 3(c)(1)) and which meets the other conditions
therein.
UNITED STATES SECURITIES ACT OF 1933
There can be no assurance that the Fund will not
Limited partnership interests in the Fund will not be be subject to the registration requirements of the
registered under the 1933 Act, and must be acquired Investment Company Act in the future. The performance
for investment and not with a view to distribution within of the Fund’s investment portfolio could be materially
the meaning of the 1933 Act. Offers and sales of limited adversely affected, and risks involved in financing
partnership interests in the United States will be made companies could substantially increase, if the Fund or
by the Fund only to prospective investors that satisfy, the General Partner becomes subject to the Investment
in the sole judgment of the General Partner, certain Company Act, due to the various burdens of compliance
suitability standards. Each United States investor must, at under the Investment Company Act. Neither the Fund
a minimum, meet the definition of “accredited investor” nor its counsel can assure investors that, under certain
in Regulation D under the 1933 Act and the definition of conditions, changing circumstances, or changes in the
“qualified client” in the Investment Advisers Act of 1940, law, the Fund may not become subject to the Investment
as amended. Company Act or similar laws in the future.
Each investor will be required to make certain other INVESTMENT ADVISERS ACT OF 1940
representations in the Limited Partnership Agreement
and such investor’s Subscription Agreement. The General Neither the General Partner of the Fund nor any of its
Partner will determine, in its sole and absolute discretion, affiliated companies currently intend to register as an
which of the subscriptions received it will accept and investment adviser under the Investment Advisers Act of
whether, in the case of any particular investor, a limit will be 1940, as amended, or any equivalent state law. There can
placed on his, her or its maximum investment in the Fund. be no assurance that the General Partner or any of its
affiliated companies will not be subject to the registration
Offers to non-United States investors must satisfy the requirements under the Investment Advisers Act in
requirements of Regulation S or Rule 506(c) of Regulation the future. If the General Partner or any of its affiliated
D under the 1933 Act. Accordingly, interests in the Fund companies are required to register as an investment
offered to or purchased by non-United States investors adviser under the Investment Advisers Act, there will
must not be offered or sold in the United States or to be significant compliance burdens. Neither the Fund
United States persons unless such offers or sales comply nor its counsel can assure investors that, under certain
with Regulation S or Rule 506(c) of Regulation D under conditions, changing circumstances, or changes in the
the 1933 Act. law, the General Partner and its affiliated management
company may not become subject to the Investment
UNITED STATES INVESTMENT COMPANY ACT OF 1940 Advisers Act or similar laws in the future.
The Fund has not and is not expected to register under
the United States Investment Company Act of 1940, as
amended (the “Investment Company Act”), in reliance
on Section 3(c)(1) of the Investment Company Act, which
excludes from the definition of “investment company”
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 102
Certain Tax and ERISA Matters federal income tax purposes (as a result of changes in
the Code, the Regulations or judicial interpretations
CERTAIN U.S. FEDERAL INCOME TAX thereof, a material adverse change in facts, or otherwise),
CONSIDERATIONS the taxable income of the Partnership would be subject
to corporate income tax when recognized by the
The following is a summary of certain U.S. federal Partnership; distributions of such income, other than in
income tax consequences associated with the purchase, certain redemptions of Interests, would be treated as
ownership and disposition of limited partnership dividend income when received by the Partners to the
interests. This summary is based upon various provisions extent of the current or accumulated earnings and profits
of the Internal Revenue Code of 1986, as amended (the of the Partnership; and Partners would not be entitled to
“Code”), existing and proposed Treasury Regulations, report profits or losses realized by the Partnership.
existing administrative rulings and practices of the
Internal Revenue Service (“IRS”), and judicial decisions. As a partnership, the Partnership is not itself subject
Legislative, judicial or administrative changes may occur to federal income tax. The Partnership files an annual
which could affect the accuracy of this summary. partnership information return with the Service which
reports the results of operations. Each Partner is
This summary does not discuss all of the U.S. federal required to report separately on its income tax return its
income tax consequences that may be relevant to a distributive share of the Partnership’s ordinary income
particular investor or to certain investors subject to special or loss, any net long-term capital gain or loss, and net
treatment under the U.S. federal income tax laws (such as short-term capital gain or loss and all items entering
securities broker-dealers, insurance companies, financial into their computation. Each Partner is taxed on its
institutions, persons whose “functional currency” is other distributive share of the Partnership’s taxable income
than the U.S. dollar or persons that hold their interests and gain regardless of whether it has received or will
as part of a “straddle,” “hedge,” “conversion transaction” receive a distribution from the Partnership.
or otherwise as part of a “synthetic asset”) and is limited
to partners that hold their limited partnership interests Allocation of Profits and Losses. Under the Partnership
in the Fund as capital assets. Agreement, items of Partnership income, deduction,
gain, loss or credit are to be allocated for income tax
Accordingly, prospective investors are urged to consult purposes among the Partners in such manner as to
their own tax advisors to determine the federal, state, cause the amounts credited or debited to each Partner’s
local and foreign income and other tax consequences Capital Account for each fiscal period to correspond
to them of acquiring, holding and disposing of limited to the economic effects of the Partnership’s activities
partnership interests in the Fund. during such fiscal periods. Such Allocations will be made
pursuant to the principles of Sections 704(b) and 704(c)
Some of the investors in the Fund may not be citizens or of the Code, and the Treasury Regulations promulgated
residents of the United States. This summary does not thereunder, as applicable, or the successor provisions
attempt to address non-U.S. tax systems applicable to to such Code Sections and Treasury Regulations, and
such potential investors. the General Partner shall be authorized to make such
allocations in such manager as it shall determine shall
Classification of the Partnership. The Partnership be necessary in order to comply with the requirements
intends to operate as a partnership for federal income of such Code Sections 704(b) and 704(c) and Treasury
tax purposes that is not a publicly traded partnership Regulations.
taxable as a corporation. If it were determined that
the Partnership should be taxable as a corporation for
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 103
Tax Elections; Returns; Tax Audits. The General Partner interest. Such capital gain or loss will be short-term, long-
decides how to report the partnership items on the term, or some combination of both, depending upon
Partnership’s tax returns, and all Partners are required the timing of the Limited Partner’s contributions to the
under the Code to treat the items consistently on their Partnership. However, a withdrawing Limited Partner will
own returns, unless they file a statement with the Service recognize ordinary income to the extent such Limited
disclosing the inconsistency. Given the uncertainty Partner’s allocable share of the Partnership’s “unrealized
and complexity of the tax laws, it is possible that the receivables” exceeds the Limited Partner’s basis in
Service may not agree with the manner in which the such unrealized receivables (as determined pursuant
Partnership’s items have been reported. In the event to the Regulations). For these purposes, accrued but
the income tax returns of the Partnership are audited unpaid interest, if any, on debt investments held by the
by the Service, the tax treatment of the Partnership’s Partnership will be treated as an unrealized receivable,
income and deductions generally is determined at the with respect to which a withdrawing Limited Partner would
limited partnership level in a single proceeding rather recognize ordinary income. A Limited Partner receiving a
than by individual audits of the Partners. The General cash non-liquidating distribution will recognize income in
Partner, designated as the “Tax Matters Partner,” has a similar manner only to the extent that the amount of
considerable authority to make decisions affecting the the distribution exceeds such Limited Partner’s adjusted
tax treatment and procedural rights of all Partners. In tax basis in its partnership interest.
addition, the Tax Matters Partner has the authority to
bind certain Partners to settlement agreements and Tax Treatment of Partnership Investments. The Partner-
the right on behalf of all Partners to extend the statute ship expects most of its income to be interest income
of limitations relating to the Partners’ tax liabilities with from its debt investments, which income is taxable as
respect to Partnership items. ordinary income.
The Code provides for optional adjustments to the basis To the extent that the Partnership may buy and sell debt
of partnership property upon distributions of partnership investments, it intends to act as a trader or investor,
property to a partner and transfers of partnership interests and not as a dealer, with respect to such transactions.
(including by reason of death) provided that a partnership A trader and an investor are persons who buy and sell
election has been made pursuant to Section 754. Under securities for their own accounts. A dealer, on the other
the Partnership Agreement, the General Partner, in its sole hand, is a person who purchases securities for resale to
discretion, may cause the Partnership to make such an customers rather than for investment or speculation.
election. Any such election, once made, cannot be revoked Generally, the gains and losses realized by a trader or
without the Service’s consent. As a result of the complexity an investor on the sale of investments are capital gains
and added expense of the tax accounting required to and losses. Thus, the Partnership expects that any gains
implement such an election, the General Partner presently and losses from its investment transactions typically will
does not intend to make such election. be capital gains and capital losses. These capital gains
and losses may be long-term or short-term depending,
Tax Consequences to a Withdrawing Limited Partner in general, upon the length of time the Partnership holds
a particular investment. Property held for more than one
A Limited Partner receiving a cash liquidating distribution year generally will be eligible for long-term capital gain or
from the Partnership, in connection with a complete loss treatment. Currently, the maximum federal ordinary
withdrawal from the Partnership, generally will recognize income tax rate for individuals is 39.6% and, in general,
capital gain or loss to the extent of the difference between the maximum federal individual income tax rate for long-
the proceeds received by such Limited Partner and such term capital gains is 20.0%, although in all cases the
Limited Partner’s adjusted tax basis in its partnership actual rates may be higher due to the Medicare 3.8% tax
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 104
on net investment income above specified thresholds operation. In such case, a non-corporate Limited
and the phase out of certain tax deductions, exemptions Partner would be denied a deduction for all or part of
and credits. The excess of capital losses over capital gains that portion of its distributive share of the Partnership’s
may be offset against the ordinary income of an individual ordinary losses attributable to interest expenses, if
taxpayer, subject to an annual deduction limitation of any, unless it had sufficient investment income from all
$3,000. For corporate taxpayers, the maximum income sources including the Partnership. A Limited Partner
tax rate is 35% (although some marginal rates may be as that could not deduct losses currently as a result of the
high as 39%). Capital losses of a corporate taxpayer may application of Section 163(d) would be entitled to carry
be offset only against capital gains, but unused capital forward such losses to future years, subject to the same
losses may be carried back three years (subject to certain limitation. The investment interest limitation would
limitations) and carried forward five years. also apply to interest paid by a non-corporate Limited
Partner on money borrowed to finance its investment
The Partnership may realize ordinary income from in the Partnership. Potential investors are advised to
accruals of interest on investments. The Partnership consult with their own tax advisers with respect to the
may hold debt obligations with “original issue discount.” application of the investment interest limitation in their
In such case, the Partnership would be required to particular tax situations.
include amounts in taxable income on a current basis
even though receipt of such amounts may occur in a Deductibility of Partnership Investment Expenditures
subsequent year. The Partnership may also acquire debt and Certain Other Expenditures. Investment expenses
obligations with “market discount.” Upon disposition of (e.g. investment advisory fees) of an individual, trust or
such an obligation, the Partnership generally would be estate are deductible only to the extent they exceed 2%
required to treat gain realized as interest income to the of adjusted gross income. In addition, the Code further
extent of the market discount which accrued during the restricts the ability of an individual with an adjusted gross
period the debt obligation was held by the Partnership. income in excess of a specified amount to deduct such
investment expenses. Under such provision, investment
Limitation on Deductibility of Interest. For non-corporate expenses in excess of 2% of adjusted gross income may
taxpayers, Section 163(d) of the Code limits the deduction only be deducted to the extent such excess expenses
for “investment interest” (i.e. interest on “indebtedness (along with certain other itemized deductions) exceed the
properly allocable to property held for investment”). lesser of (i) 3% of the excess of the individual’s adjusted
Investment interest is not deductible in the current gross income over the specified amount or (ii) 80% of
year to the extent that it exceeds the taxpayer’s “net the amount of certain itemized deductions otherwise
investment income,” consisting of net gain and ordinary allowable for the taxable year. Moreover, such investment
income derived from investments in the current year less expenses are miscellaneous itemized deductions which
certain directly connected expenses (other than interest are not deductible by a non-corporate taxpayer in
or short sale expenses). For this purpose, any long-term calculating its alternative minimum tax liability.
capital gain is excluded from net investment income
unless the taxpayer elects to pay tax on such amount at Although the Partnership intends to treat the Incentive
ordinary income tax rates. Allocation to the General Partner as not being subject
to the foregoing limitations on deductibility, there can
For purposes of this provision, the Partnership’s activities be no assurance that the Service may not treat such
will be treated as giving rise to investment income for allocation as an investment expense which is subject to
a Limited Partner, and the investment interest limitation the limitations.
would apply to a non-corporate Limited Partner’s share
of the interest expenses attributable to the Partnership’s The consequences of these limitations will vary
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 105
depending upon the particular tax situation of each amount such Limited Partner has “at risk” with respect
taxpayer. Accordingly, non-corporate Limited Partners to its Interest at the end of the year. The amount that a
should consult their tax advisers with respect to the Limited Partner has “at risk” will generally be the same
application of these limitations. as its adjusted basis as described above, except that
it will generally not include any amount attributable to
A Limited Partner will not be allowed to deduct syndication liabilities of the Partnership or any amount borrowed by
expenses, including placement fees, paid by such Limited the Limited Partner on a non-recourse basis.
Partner or the Partnership. Any such fees will be included
in the Limited Partner’s adjusted tax basis for its Interest. Losses denied under the basis or “at risk” limitations are
suspended and may be carried forward in subsequent
Application of Rules for Income and Losses from Passive taxable years, subject to these and other applicable
Activities. The Code restricts the deductibility of losses limitations.
from a “passive activity” against certain income which
is not derived from a passive activity. This restriction Foreign Taxes. It is possible that certain interest received
applies to individuals, personal service corporations and by the Partnership from sources within foreign countries
certain closely held corporations. Pursuant to Temporary will be subject to withholding taxes imposed by such
Regulations issued by the Treasury Department, income countries. Tax treaties between certain countries and
or loss from the Partnership’s debt investment and the United States may reduce or eliminate such taxes.
trading activity generally will not constitute income or It is impossible to predict in advance the rate of foreign
loss from a passive activity. Therefore, passive losses tax the Partnership will pay since the amount of the
from other sources generally could not be deducted Partnership’s assets to be invested in various countries
against a Limited Partner’s share of such income and is not known.
gain from the Partnership.
The Limited Partners will be informed by the Partnership
Application of Basis and “At Risk” Limitations on as to their proportionate share of the foreign taxes
Deductibility. The amount of any loss of the Partnership paid by the Partnership, which they will be required to
that a Limited Partner is entitled to include in its income include in their income. The Limited Partners generally
tax return is limited to its adjusted tax basis in its Interest will be entitled to claim either a credit (subject, however,
as of the end of the Partnership’s taxable year in which to various limitations on foreign tax credits) or, if they
such loss occurred. Generally, a Limited Partner’s itemize their deductions, a deduction (subject to the
adjusted tax basis for its Interest is equal to the amount limitations generally applicable to deductions) for their
paid for such Interest, increased by the sum of (i) its share share of such foreign taxes in computing their Federal
of the Partnership’s liabilities, as determined for Federal income taxes.
income tax purposes, and (ii) its distributive share of the
Partnership’s realized income and gains, and decreased Tax Shelter Reporting Requirements. Under Regulations,
(but not below zero) by the sum of (i) distributions made the activities of the Partnership may include one or more
by the Partnership to such Limited Partner and (ii) such “reportable transactions,” requiring the Partnership and,
Limited Partner’s distributive share of the Partnership’s in certain circumstances, a Partner to file information
realized losses and expenses. returns as described below. In addition, the General
Partner and other material advisors to the Partnership
Similarly, a Limited Partner that is subject to the “at may each be required to maintain for a specified period
risk” limitations (generally, non-corporate taxpayers of time a list containing certain information regarding the
and closely held corporations) may not deduct losses “reportable transactions” and the Partnership’s investors,
of the Partnership to the extent that they exceed the and the Service could inspect such lists upon request.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 106
A “reportable transaction” of a partnership includes, Partners that it believes (based on information available
among others, a transaction that results in a loss claimed to the Partnership) are required to report a transaction
under Section 165 of the Code (computed without taking of the Partnership, and intends to provide such Partners
into account offsetting income or gain items, and without with any available information needed to complete and
regard to limitations on its deductibility) generally of at submit Form 8886 with respect to the Partnership’s
least $2 million in any one taxable year or an aggregate transactions.
of at least $4 million over a period of six taxable
years (beginning with the taxable year in which the Under the above rules, a Partner’s recognition of a loss
transaction is entered into), unless the transaction has upon its disposition of an interest in the Partnership
been exempted from reporting by the Service. Subject could also constitute a “reportable transaction” for such
to certain significant exemptions as described below, a Partner. Investors should consult with their advisors
partner will be treated as participating in a partnership’s concerning the application of these reporting obligations
“loss transaction,” and thus be required to report the to their specific situations.
transaction, if (among other circumstances) the partner’s
allocable share of such a partnership’s loss exceeds State and Local Taxation. In addition to the federal
certain thresholds. income tax consequences described above, prospective
investors should consider potential state and local tax
The Service has published guidance exempting many consequences of an investment in the Partnership. State
of the Partnership’s transactions from the reporting and local laws often differ from federal income tax laws
requirements, provided that the Partnership has a with respect to the treatment of specific items of income,
“qualifying basis” in the assets underlying the transaction. gain, loss, deduction, and credit. A Partner’s distributive
An asset with a “qualifying basis” includes, among others, share of the taxable income or loss of the Partnership
an asset purchased by the Partnership for cash. However, generally will be required to be included in determining
even if the Partnership has a “qualifying basis” in the asset its reportable income for state and local tax purposes in
generating the loss, each of the following transactions is the jurisdiction in which it is a resident.
still subject to the reporting requirements unless it is
marked to market under the Code (e.g. a Section 1256 The General Partner expects that Partnership will qualify
Contract): (i) a transaction involving an asset that is, or as an “investment partnership” within the meaning of
was, part of a straddle (other than a mixed straddle), (ii) California tax laws. As a result, a Partner who is not a
a transaction involving certain “stripped” instruments, (iii) resident of California should not be subject to California
the disposition of an interest in a pass-through entity, taxes on income and gains derived from his or her
and (iv) a foreign currency transaction which generates investment in the Partnership, provided the investment
an ordinary loss. is not interrelated with any trade or business activity of
that Partner in California.
The Regulations require the Partnership to complete
and file Form 8886 (“Reportable Transaction Disclosure CERTAIN ERISA CONSIDERATIONS
Statement”) with its tax return for each taxable year in which
the Partnership participates in a “reportable transaction.” ERISA PLANS AND IRAs THAT ARE PROSPECTIVE
Additionally, each Partner treated as participating in a PURCHASERS OF AN INTEREST IN THE FUND SHOULD
“reportable transaction” of the Partnership is required to CONSULT WITH AND RELY UPON THEIR OWN ADVISORS
file Form 8886 with its tax return. The Partnership and IN EVALUATING THESE MATTERS IN LIGHT OF THEIR
any such Partner, respectively, must also submit a copy OWN PARTICULAR CIRCUMSTANCES.
of the completed form with the Service’s Office of Tax
Shelter Analysis. The Partnership intends to notify the Before authorizing the purchase of a limited partnership
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 107
interest, fiduciaries of pension, profit-sharing or other Company Act, the ERISA Plan’s assets include both the equity
employee benefit plans (“ERISA Plans”) subject to interest and an undivided interest in each of the underlying
Title I of the U.S. Employee Retirement Income Security assets of the entity, unless it is established that the equity
Act of 1974, as amended (“ERISA”) should consider (i) participation in the entity by “benefit plan investors” is not
the fiduciary standards under ERISA, (ii) whether the “significant” or that the entity is an “operating company,” in
investment in the Fund satisfies the prudence and each case as defined in the Regulation.
diversification requirements of ERISA, including whether
the investment is prudent in light of limitations on the For purposes of the Regulation, equity participation in
marketability of limited partnership interests, (iii) whether an entity by benefit plan investors is not significant if
such fiduciaries have authority to make the investment their aggregate interest is less than 25% of the value of
under the appropriate plan investment policies and each class of equity interests in the entity (i.e., less than
governing instruments and under ERISA and (iv) the need 25% of the value of the limited partnership interests of
to value plan assets at least annually. Fiduciaries of plans the Limited Partners, other than the limited partnership
subject to Section 4975 of the Code (“IRC Plans”), which interests owned by the General Partner, and its affiliates).
include Individual Retirement Accounts and certain The 25% limit test applies continuously throughout
welfare plan accounts in addition to ERISA Plans, also the life of the Fund. Benefit plan investors, for these
should consider whether the investment is authorized purposes, include ERISA Plans, IRC Plans, and any entity
by the appropriate governing instrument. whose assets include plan assets by reason of ERISA
Plans’ and/or IRC Plans’ investments in the entity, such as
Any ERISA Plan or IRC Plan fiduciary also should consider a group trust exempt from taxation under Section 501(a)
(i) prohibitions in ERISA relating to improper delegation of of the Code, a common or collective trust fund of a bank
control over or responsibility for “plan assets,” (ii) prohibitions or a separate account of an insurance company. The
in ERISA and the Code, relating to an ERISA Plan or an IRC value of any partnership interests held by the General
Plan engaging in certain transactions involving “plan assets” Partner, any person controlling the General Partner,
with persons who are “parties in interest” under ERISA or any entity for which the General Partner exercises a
“disqualified persons” under the Code with respect to the controlling influence over its management and policies,
plan, and (iii) other provisions of ERISA regarding “plan or any entity under common control with the General
assets.” The prohibited transaction provisions are complex Partner is excluded from the total interests outstanding
and may prohibit an investment in the Fund by certain for purposes of computing the percentage of equity
ERISA Plans and IRC Plans, and the fiduciaries of ERISA investments held by benefit plan investors.
Plans and the persons directing the investment of IRC
Plans should determine whether an investment in the Fund If the assets of the Fund were deemed to be “plan assets”
would involve any transaction with a “party in interest” or of ERISA Plans or IRC Plans, whether as a result of the
“disqualified person.” application of the Regulation or otherwise, Subtitle A and
Parts 1 and 4 of Subtitle B of Title I of ERISA and Section
Regulations promulgated under ERISA by the U.S. 4975 of the Code would extend to investments made by
Department of Labor (the “Regulation”) provide that the the Fund. This would result, among other things, in: (i) the
assets of an entity in which employee benefit plans acquire need to hold such assets in trust; (ii) the application of the
an equity interest (such as an interest in the Fund) may be prudence and other fiduciary standards of ERISA (which
deemed “plan assets” under certain circumstances. The impose liability on fiduciaries) to investments made by the
Regulation generally provides that when an ERISA Plan Fund, which could materially affect the operations of the
acquires an equity interest in an entity like the Fund that is Fund; (iii) potential liability of persons having investment
neither a “publicly-offered security” nor a security issued by discretion over the assets of ERISA Plans investing in the
an investment company registered under the Investment Fund should investments made by the Fund not conform
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 108
to ERISA’s prudence and fiduciary standards under Part 4 Payment must be by wire transfer, check, bank draft or
of Subtitle B of Title I of ERISA, unless certain conditions are money order, made payable to “US CAPITAL GLOBAL
satisfied; and (iv) the possibility that certain transactions BUSINESS CREDIT INCOME FUND, LP” Payment of the
that the Fund might enter into in the ordinary course of subscription price will be deemed to have been received
its business and operations might constitute “prohibited by the General Partner only upon (a) clearance of any
transactions” under ERISA and the Code. A prohibited uncertified check, (b) receipt by the General Partner of
transaction, in addition to imposing potential personal any certified or cashier’s check, bank draft or money
liability upon fiduciaries of ERISA Plans, may also result order drawn upon a United States financial institution or
in the imposition of an excise tax under the Code upon (c) receipt of funds by wire transfer to the Fund. Limited
the party in interest or disqualified person with respect Partners will be required to fund 100 percent (100%) at
to the ERISA Plan or IRC Plan. the closing in which such Limited Partner participates in.
The General Partner will use its reasonable efforts to The address to which the Subscription Agreement and
conduct the affairs of the Fund in such a way that the payment of the subscription price must be delivered c/o
aggregate Interests of benefit plan investors in the Fund The Administrator:
at all times will represent less than 25% of the Interests
held by all investors other than the General Partner and its US Capital Global Investment Management, LLC
affiliates, so that none of the Fund’s assets will be deemed 555 Montgomery St. Suite 1501 San Francisco, CA 94111
to be plan assets.
Wire transfer information will be provided upon request.
Procedure for Subscription
All questions concerning the timeliness, validity, form
TERMINATION DATE and eligibility of any subscriptions will be determined by
the General Partner in its sole and absolute discretion,
The Fund is an open-ended fund, and accordingly there is whose determination will be final and binding in all
no termination date for the offering of interests set forth respects. Furthermore, the General Partner may waive
herein except as otherwise determined by the General any defect or irregularity or permit a defect or irregularity
Partner in accordance with the Partnership Agreement. to be corrected within such time as it may determine in
its sole and absolute discretion. The General Partner
PROCEDURE FOR SUBSCRIPTION FOR LIMITED will not be under any duty to give notification to any
PARTNERSHIP INTERESTS subscriber of any defect or irregularity in connection with
the submission of a Subscription Agreement or incur any
Limited partnership interests may be subscribed for by liability for failure to give such notification. Any questions
completing a Subscription Agreement (the “Subscription or requests for assistance concerning the method of
Agreement”) (a copy of which is attached to this subscribing for the limited partnership interests or
Memorandum as Appendix C), and forwarding it, together requests for additional copies of this Memorandum or
with payment for the limited partnership interests, the Subscription Agreement should be directed to the
to a transactional escrow account established by the General Partner at the address set forth above.
Administrator. All Subscription Agreements and related
payments must be received by the Administrator as set ELIGIBLE INVESTORS
forth in the Subscription Agreement. The General Partner
may, in its sole and absolute discretion, refuse to accept The offering is being made in reliance on the exemption
any subscription without giving any reason therefor, and available under Rule 506(c) of Regulation D of the
a Subscription Agreement will not become binding until Securities Act of 1933, as amended (the “1933 Act”),
accepted by the General Partner on behalf of the Fund. and registration and qualification requirements under
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 109
applicable state securities laws. Accordingly, subscriptions RETURN OF SUBSCRIPTION FUNDS
for the limited partnership interests under the offering
will be accepted only from “accredited investors,” as such If, for any reason, a prospective investor is issued less
term is defined in Rule 501(a) under Regulation D of than the total amount of limited partnership interests
the Securities Act. Rule 506(c) of Regulation D requires for which such investor subscribes, the excess funds
the General Partner to take “reasonable steps” to verify paid by such prospective investor with respect to such
that each investor is “accredited” prior to allowing them limited partnership interests shall be returned to such
admission to the Fund. There are eight (8) separate subscriber by mail without interest or deduction as
definitions of an “accredited investor” under which soon as practicable after the closing date. If the offering
an investor may qualify, as set out in the Subscription is terminated in its entirety by the General Partner for
Agreement, along with the documents the investor must any reason, all funds held by the General Partner in
provide to demonstrate its qualifications to invest in this connection with the Fund will be promptly returned to
offering of limited partnership interests. the subscribers, without any interest thereon or any
penalty to be assessed on the General Partner.
The Fund is also relying on Section 3(c)(1) of the
Investment Company Act of 1940, as amended (the NO REVOCATION
“Investment Company Act”) as the basis for its exemption
from regulation as an “Investment Company” under Once an investor has subscribed for a limited partnership
the Investment Company Act and, consequently, each interest, such subscription may not be revoked by the
investor in the Fund shall promptly notify the General investor for any reason whatsoever.
Partner of any change in the structure of, or other event
relating to, such investor that affects how the Interests are
held. The foregoing eligibility requirements are discussed
in greater detail in the Subscription Agreement, which the
investor is urged to read carefully. The General Partner
hereby reserves the right to approve or disapprove any
subscriber and to accept or reject any subscription, in
whole or in part, in its sole and absolute discretion, based
on the eligibility of the subscriber, or otherwise.
The target size of the Fund is $250 million. The General
Partner may accept subscriptions for up to $250 million,
in its sole and absolute discretion. If the General Partner
receives subscriptions for limited partnership interests
aggregating more than $250 million, then the General
Partner may, in its sole and absolute discretion, allow a
lesser number of limited partnership interests than the
number subscribed, or may allocate oversubscriptions
among the Limited Partners as it determines in its
sole and absolute discretion. The aggregate capital
commitments of the Limited Partners shall not exceed
$250 million; provided, however, that with the consent of
the Board of Advisors, that amount may be increased to
an amount that exceeds $250 million.
US CAPITAL GLOBAL BUSINESS CREDIT INCOME FUND, LP –– Confidential Private Placement Memorandum 110
US CAPITAL BUSINESS CREDIT INCOME FUND, LP
A DELAWARE LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
314346824.12
TABLE OF CONTENTS
Page
SECTION 1. NAME, PURPOSE AND OFFICES OF PARTNERSHIP...........................................................1
1.1 Name .........................................................................................................................................1
1.2 Purpose ...................................................................................................................................... 1
1.3 Principal Office; Registered Office.............................................................................................2
TERM OF PARTNERSHIP .......................................................................................................2
SECTION 2. Formation ..................................................................................................................................2
2.1 Term.......................................................................................................................................... 2
2.2 Events Affecting a Member of the General Partner .....................................................................2
2.3 Events Affecting a Limited Partner of the Partnership.................................................................2
2.4 NAME AND ADMISSION OF PARTNERS..............................................................................2
Name and Address .....................................................................................................................2
SECTION 3. Admission of Additional Partners...............................................................................................3
3.1 CAPITAL ACCOUNTS AND CAPITAL CONTRIBUTIONS ...................................................3
3.2 Capital Accounts........................................................................................................................3
Capital Contributions of the Limited Partners .............................................................................3
SECTION 4. Capital Contributions of the General Partner...............................................................................4
4.1 Acquisition of an Additional Interest by the General Partner .......................................................4
4.2 PARTNERSHIP ALLOCATIONS .............................................................................................4
4.3 Allocation of Profit and Loss......................................................................................................4
4.4 Special Allocations ....................................................................................................................5
Regulatory Allocations...............................................................................................................6
SECTION 5. Income Tax Allocations .............................................................................................................7
5.1 PARTNERSHIP EXPENSES.....................................................................................................7
5.2 Management Fee........................................................................................................................7
5.3 Expenses.................................................................................................................................... 8
5.4 WITHDRAWALS BY AND DISTRIBUTIONS TO THE PARTNERS......................................9
Interest....................................................................................................................................... 9
SECTION 6. No Withdrawals by the Partners .................................................................................................9
6.1 Discretionary In Kind Distributions .......................................................................................... 11
6.2 Withholding Obligations .......................................................................................................... 11
Withholding of Certain Amounts.............................................................................................. 12
SECTION 7. Amounts Held in Reserve......................................................................................................... 12
7.1 MANAGEMENT DUTIES AND RESTRICTIONS; CONFIDENTIALITY OF
7.2 PARTNERS............................................................................................................................. 12
7.3 Management ............................................................................................................................ 12
7.4 No Control by the Limited Partners .......................................................................................... 13
7.5 Commitment of the Managing Members of the General Partner ................................................ 13
7.6 Compliance with Partnership Agreement; Detrimental Acts; Investment Opportunities ............. 13
SECTION 8. -i-
8.1
8.2
8.3
8.4
314346824.12
TABLE OF CONTENTS
(continued)
Page
8.5 Indebtedness; Nature of Investments......................................................................................... 13
8.6 Confidentiality ......................................................................................................................... 14
8.7 Disclosures .............................................................................................................................. 17
8.8 Board of Advisors.................................................................................................................... 17
8.9 Warehousing and Transfer of Portfolio Investments.................................................................. 18
SECTION 9. LIMITED PARTNER REPRESENTATIONS AND COVENANTS; TRANSFER OF
PARTNERSHIP INTERESTS.................................................................................................. 18
9.1 Representations and Covenants of the Limited Partners ............................................................ 18
9.2 Transfer by General Partner...................................................................................................... 21
9.3 Transfer by Limited Partner...................................................................................................... 22
9.4 Substitution as a Limited Partner .............................................................................................. 22
9.5 Expenses of Transfer; Indemnification...................................................................................... 22
SECTION 10. DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP; LIQUIDATION OF
GENERAL PARTNERS’ INTEREST...................................................................................... 23
10.1 Winding Up after an Event of Dissolution ................................................................................ 23
10.2 Procedure if Partnership Continues with Successor General Partner .......................................... 23
10.3 Winding Up Procedures ........................................................................................................... 23
10.4 Payments in Liquidation........................................................................................................... 24
SECTION 11. FINANCIAL ACCOUNTING, REPORTS, MEETINGS AND VOTING ................................. 24
11.1 Financial Accounting; Fiscal Year............................................................................................ 24
11.2 Supervision; Inspection of Books ............................................................................................. 24
11.3 Quarterly Reports..................................................................................................................... 25
11.4 Annual Report; Financial Statements of the Partnership ............................................................ 25
11.5 Tax Returns ............................................................................................................................. 25
11.6 Tax Matters Partner.................................................................................................................. 25
11.7 Meetings.................................................................................................................................. 26
11.8 Banking ................................................................................................................................... 26
11.9 Voting ..................................................................................................................................... 26
SECTION 12. VALUATION.......................................................................................................................... 26
12.1 Valuation ................................................................................................................................. 26
SECTION 13. PARTNERS SUBJECT TO SPECIAL REGULATION ............................................................ 27
13.1 ERISA Partners........................................................................................................................ 27
13.2 Governmental Plan Partners ..................................................................................................... 28
13.3 Private Foundation Partners...................................................................................................... 29
13.4 Public Charity Partners............................................................................................................. 29
13.5 Bank Holding Company Partners.............................................................................................. 29
SECTION 14. CERTAIN DEFINITIONS ....................................................................................................... 31
14.1 Accounting Period ................................................................................................................... 31
314346824.12 -ii-
TABLE OF CONTENTS
(continued)
Page
14.2 Adjusted Asset Value ............................................................................................................... 31
14.3 Adviser.................................................................................................................................... 32
14.4 Affiliate ................................................................................................................................... 32
14.5 Capital Account ....................................................................................................................... 32
14.6 Capital Commitment ................................................................................................................ 32
14.7 Code ........................................................................................................................................ 32
14.8 Custodial Account.................................................................................................................... 33
14.9 Custodial Account Percentage .................................................................................................. 33
14.10 Detrimental Act ....................................................................................................................... 33
14.11 ERISA ..................................................................................................................................... 33
14.12 Event of Default....................................................................................................................... 33
14.13 Event of Dissolution................................................................................................................. 33
14.14 Fund Administrator.................................................................................................................. 34
14.15 Lock-Up Period ....................................................................................................................... 34
14.16 Marketable; Marketable Securities; Marketability..................................................................... 34
14.17 Majority in Interest................................................................................................................... 34
14.18 Memorandum........................................................................................................................... 34
14.19 Money Market Investments ...................................................................................................... 34
14.20 1940 Act .................................................................................................................................. 34
14.21 Non-Marketable Securities ....................................................................................................... 34
14.22 Partnership Percentage ............................................................................................................. 35
14.23 Percentage in Interest ............................................................................................................... 35
14.24 Person...................................................................................................................................... 35
14.25 Portfolio Company................................................................................................................... 35
14.26 Portfolio Securities................................................................................................................... 35
14.27 Profit or Loss ........................................................................................................................... 35
14.28 Regulatory Allocations............................................................................................................. 36
14.39 Regulated Partner..................................................................................................................... 36
14.30 Securities ................................................................................................................................. 36
14.31 Securities Act........................................................................................................................... 36
14.32 Treasury Regulations................................................................................................................ 36
SECTION 15. OTHER PROVISIONS ............................................................................................................ 36
15.1 Governing Law ........................................................................................................................ 36
15.2 Limitation of Liability of the Limited Partners.......................................................................... 36
15.3 Standard of Care ...................................................................................................................... 37
15.4 Indemnification........................................................................................................................ 38
15.5 Dispute Resolution................................................................................................................... 40
314346824.12 -iii-
TABLE OF CONTENTS
(continued)
Page
15.6 Execution and Filing of Documents.......................................................................................... 40
15.7 Other Instruments and Acts ...................................................................................................... 41
15.8 Binding Agreement .................................................................................................................. 41
15.9 Notices .................................................................................................................................... 41
15.10 Power of Attorney.................................................................................................................... 41
15.11 Amendment ............................................................................................................................. 42
15.12 New Issues............................................................................................................................... 43
15.13 Entire Agreement ..................................................................................................................... 43
15.14 Titles-Subtitles......................................................................................................................... 44
15.15 Partnership Name..................................................................................................................... 44
15.16 Counsel to the Partnership........................................................................................................ 44
15.17 Pronouns; Statutory References ................................................................................................ 44
15.18 Jurisdiction and Venue ............................................................................................................. 45
15.19 Time is of the Essence.............................................................................................................. 45
15.20 Reliance on Authority of Person Signing Agreement ................................................................ 45
15.21 Attorney Fees........................................................................................................................... 45
15.22 Remedies Cumulative .............................................................................................................. 45
15.23 No Third Party Beneficiary ...................................................................................................... 45
15.24 Severability.............................................................................................................................. 46
15.25 Warranties and Representations................................................................................................ 46
15.26 Construction ............................................................................................................................ 46
15.27 Certain Rules of Construction................................................................................................... 46
15.28 Non-Business Days.................................................................................................................. 46
15.29 Equitable Relief ....................................................................................................................... 46
15.30 Waiver of Jury Trial ................................................................................................................. 47
15.31 Not an Offer............................................................................................................................. 47
15.32 Change in Law......................................................................................................................... 47
15.33 REGISTRATION .................................................................................................................... 47
314346824.12 -iv-
US CAPITAL BUSINESS CREDIT INCOME FUND, LP
A DELAWARE LIMITED PARTNERSHIP
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT (this “Agreement”), made and entered
into as of the ____ day of ____________, 2015, by and among (i) US Capital Investment
Management, LLC, a Delaware limited liability company (in its capacity as general partner of
the Partnership, the “General Partner”) and (ii) the Persons listed as limited partners on
Schedule A (as such schedule may be amended from time to time in accordance with the terms
hereof) (in their capacities as limited partners of the Partnership, the “Limited Partners”), who
hereby form US Capital Business Credit Income Fund, LP, a Delaware limited partnership (the
“Partnership”), pursuant to the provisions of the Delaware Revised Uniform Limited Partnership
Act, as follows:
SECTION 1. NAME, PURPOSE AND OFFICES OF PARTNERSHIP.
1.1 Name. The name of the Partnership is US Capital Business Credit Income Fund,
LP. The affairs of the Partnership shall be conducted under the Partnership name. The General
Partner may change the name of the Partnership at any time without the consent of the Limited
Partners (but shall not use any name that would cause the Partnership to lose its status as a
limited partnership or that would cause any Limited Partner to lose its limited liability as a
limited partner) and shall promptly notify the Limited Partners of any such change in name.
1.2 Purpose; Powers. The principal objective of the Partnership is to primarily (but
not exclusively) make debt investments in Portfolio Companies located primarily in the United
States using a range of different transaction structures as determined by the General Partner in its
sole and absolute discretion. Subject to the terms of this Agreement, the Partnership is
authorized to invest domestically and globally without restriction at the discretion of the General
Partner, and the Partnership may from time to time be required to pay foreign taxes as a result.
The Partnership’s general purposes are (i) to buy, sell, hold and otherwise invest primarily in
direct debt investments (“Securities,” as defined in Section 14.30) of every kind and nature; (ii)
to exercise all rights, powers, privileges and other incidents of ownership or possession with
respect to Securities held or owned by the Partnership; (iii) to enter into, make and perform all
contracts and other undertakings; and to engage in all activities and transactions as may be
necessary, advisable or desirable to carry out the foregoing, including, but not limited to,
making, originating, holding, acquiring, funding, maintaining, processing, servicing,
encumbering, selling, exchanging, collecting, managing, and otherwise dealing with such
Securities, and (iv) to carry on any other activities determined by the General Partner as
permissible under the applicable laws of the State of Delaware. In making investments in
Portfolio Companies, the Partnership may set up and utilize special purpose vehicles (“SPVs”)
for this purpose, investing in such SPVs either alone or alongside other providers of capital, as
determined by the General Partner in its sole and absolute discretion and on such terms and
conditions determined by the General Partner in its sole and absolute discretion.
1
314346824.12
1.3 Principal Office; Registered Office. The principal office of the Partnership shall
be at 555 Montgomery Street, Suite 1501, San Francisco, California 94111, or such other place
or places as the General Partner may from time to time designate. The Partnership’s registered
office in Delaware, and the name of the registered agent for service of process in Delaware shall
be, United States Corporation Agents, Inc., 1521 Concord Pike, Wilmington, Delaware 19803, or
such other place or persons as the General Partner may from time to time designate.
SECTION 2. TERM OF PARTNERSHIP.
2.1 Formation. The parties hereto execute this Agreement for the purpose of
amending and restating the initial limited partnership agreement of the partnership between the
General Partner and Jeffrey Sweeney (the “Initial Limited Partner”), and for the purpose of
establishing their legal relationships under the Delaware Revised Uniform Limited Partnership
Act as amended from time to time (the “Delaware Act”), and this Agreement.
2.2 Term. The term of the Partnership commenced on October 28, 2014 and shall
continue until dissolved upon the occurrence of an Event of Dissolution (as defined in Section
14.13) or as otherwise determined by the General Partner.
2.3 Events Affecting a Member of the General Partner. Except to the extent that
such an event causes the occurrence of an Event of Dissolution, the death, bankruptcy,
withdrawal, insanity, incompetency, temporary or permanent incapacity, expulsion or removal of
a member of the General Partner shall not dissolve the Partnership.
2.4 Events Affecting a Limited Partner of the Partnership. The death, temporary
or permanent incapacity, insanity, incompetency, bankruptcy, liquidation, dissolution,
reorganization, merger, sale of all or substantially all the stock or assets of, or other change in the
ownership or nature of a Limited Partner shall not, in and of itself, dissolve the Partnership.
SECTION 3. NAME AND ADMISSION OF PARTNERS.
3.1 Name and Address. Each Person listed as a limited partner on Schedule A is
hereby admitted to the Partnership as a limited partner of the Partnership upon execution and
delivery by or on behalf of such Person and the General Partner of a counterpart of this
Agreement and the reflection of such Person as a Limited Partner on Schedule A. Upon such
admission, the Initial Limited Partner shall cease to be a limited partner of the Partnership and
shall receive the return of its capital contribution. US Capital Investment Management, LLC
hereby continues as a general partner of the Partnership upon execution and delivery of a
counterpart of this Agreement. Subject to the provisions of Section 8.6(e), the name and address
of each Limited Partner or General Partner (each a “Partner”), the amount of such Partner’s
Capital Commitment to the Partnership, each Partner’s Partnership Percentage, and the date of
such Partner’s admission to the Partnership are set forth on Schedule A hereto. The General
Partner shall cause Schedule A to be amended from time to time to reflect the admission of any
new Partner, the withdrawal or substitution of any Partner, the transfer of interests among
Partners, receipt by the Partnership of notice of any change of address of a Partner, any change in
any Partner’s Capital Commitment or any other change required to be noted on Schedule A. An
amended Schedule A shall supersede any prior Schedule A and become a part of this Agreement.
2
314346824.12
A copy of the most recent amended Schedule A shall be kept on file at the principal office of the
Partnership.
3.2 Admission of Additional Partners.
(a) An additional Person may be admitted as a General Partner with the
consent of the General Partner and a Majority in Interest of the Limited Partners or as otherwise
set forth in this Agreement.
(b) Other than pursuant to Sections 9.3 or 9.4, at any time, an additional
Person may be admitted as a Limited Partner with the consent solely of the General Partner
effective as of a Closing Date or at such other time determined by the General Partner in its sole
and absolute discretion.
(c) Each additional Person shall be admitted as a Partner upon the execution
and delivery to the Partnership of a counterpart of this Agreement or upon otherwise becoming
bound by the terms of this Agreement.
(d) Upon the admission of an additional Partner under (a) or (b) above, the
Partnership shall restate all Capital Accounts to reflect the then-current values of all Partnership
assets.
SECTION 4. CAPITAL ACCOUNTS AND CAPITAL CONTRIBUTIONS.
4.1 Capital Accounts. An individual Capital Account shall be maintained for each
Partner in accordance with the Treasury Regulations issued under Section 704 of the Code.
4.2 Capital Contributions of the Limited Partners.
(a) Subject to Section 4.2(d), each Limited Partner who is admitted to the
Partnership on a Closing Date (or who increases its Capital Commitment after initial admission
of such Limited Partner) shall contribute to the capital to the Partnership in cash equal to one
hundred percent (100%) of such Limited Partner’s Capital Commitment as set forth on Schedule
A, except as otherwise determined by the General Partner in its sole and absolute discretion.
Each Limited Partner shall be required to make a minimum Capital Commitment of at least
$250,000, which minimum may be waived by the General Partner in its sole and absolute
discretion. Any current Limited Partner may increase its Capital Commitment in an amount not
less than $10,000 at one or more times as determined by the General Partner in accordance with
this Agreement. Except as otherwise determined by the General Partner in its sole and absolute
discretion, all capital contributed by any Partner shall be immediately contributed by the General
Partner to the Custodial Account, where it may be utilized by the General Partner, without prior
notice to any Limited Partner, to make investments in Portfolio Securities, pay expenses and
obligations of the Partnership or otherwise facilitate the Fund’s purposes as set forth in this
Agreement and determined by the General Partner in its sole and absolute discretion. To the
extent allowed by the Code or the laws of any other relevant jurisdiction, any Limited Partner
who is admitted to the Partnership after the Initial Closing or that increases its Capital
Commitment after the Initial Closing shall share in any allocations of items of income, gain, loss
and expense of the Partnership as though it were admitted, or had made such increase, as of the
314346824.12 3
first day of the fiscal quarter following the quarter in which such Limited Partner is admitted to
the Partnership or in which it increases its Capital Commitment. Any interest earned on the
amounts placed in the Custodial Account shall be allocated among the Limited Partners in
proportion to their Custodial Account Percentages and added to the respective Limited Partners’
subaccounts under the Custodial Account and shall remain in the Custodial Account and be
available to the General Partner to fund Portfolio Investments or otherwise pay expenses and
obligations incurred by the Partnership in accordance with this Agreement. Subject to Section 7,
all returns from Portfolio Investments paid into the Custodial Account, including payments of
interest and repayments of principal by Portfolio Companies, shall be available to the General
Partner to fund Portfolio Investments or otherwise pay expenses and obligations incurred by the
Partnership in accordance with this Agreement, as determined by the General Partner in its sole
and absolute discretion.
(b) Capital contributions by the Partners shall be made in United States
dollars by check or wire transfer of immediately available funds to an account or accounts of the
Partnership specified by the General Partner or the Fund Administrator or as otherwise reflected
in the applicable Capital Demand Notice.
(c) Notwithstanding any other provision of this Section 4.2, the General
Partner, in its sole and absolute discretion, may delay receipt of capital contributions from
ERISA Partners to the extent necessary to satisfy any requirement that may prevent the
Partnership’s assets from being deemed “plan assets” (as determined under ERISA).
(d) Notwithstanding the provisions of Section 3.2, in no event shall the
aggregate Capital Commitments of the Limited Partners exceed $250,000,000 (the “Maximum
Cap”); provided, however, that with the consent of Board of Advisors, the General Partner may
cause the Partnership to raise aggregate Capital Commitments in excess of the Maximum Cap.
4.3 Capital Contributions of the General Partner. The General Partner (and/or its
Affiliates) shall make contributions to the capital of the Partnership in an amount equal to one
percent (1.0%) of the total capital contributions, or one ninety-ninth (1/99) of the amount
contributed by the Limited Partners, as of the last day of each fiscal quarter. Such capital
contributions shall be made in cash or by promissory note.
4.4 Acquisition of an Additional Interest by the General Partner. The General
Partner (and/or its Affiliates) may contribute capital to the Partnership in excess of that set forth
in the preceding paragraph or may acquire one or more additional interests in the Partnership
from another Partner or otherwise. To the extent that the General Partner makes such additional
contribution or acquires such additional interest(s), the General Partner shall have two (or more)
Partnership Percentages for purposes of making Partnership allocations as if such additional
interest(s) were held by a separate entity who is a Limited Partner, although for all other
purposes the General Partner shall have only one Capital Account.
SECTION 5. PARTNERSHIP ALLOCATIONS.
5.1 Allocation of Profit and Loss.
314346824.12 4
(a) Any interest income earned on amounts held in the Custodial Account
shall be allocated to all Partners in proportion to their respective Custodial Account Percentages.
(b) Except as otherwise provided in this Section 5, any net Profit of the
Partnership for an Accounting Period shall be allocated to the Partners’ Capital Accounts as
follows:
(i) First, one hundred percent (100%) to all Partners in proportion to
their Partnership Percentages until all Partners have been allocated hereunder an amount equal to
an aggregate two percent (2%) net return for all Accounting Periods in that fiscal quarter
combined on their capital called by the General Partner from the Custodial Account (the
“Preferred Return”);
(ii) Then, one hundred percent (100%) to the General Partner until the
General Partner has been allocated an amount equal to an aggregate one-half percent (0.5%) net
return for all Accounting Periods in that fiscal quarter combined on the sum of all Partners’
capital called by the General Partner from the Custodial Account;
(iii) Thereafter, for that Accounting Period, eighty percent (80%) to the
Partners in proportion to their Partnership Percentages and twenty percent (20%) to the General
Partner (such 20% allocation together with the one-half percent (0.5%) net return set forth in
5.1(b) above collectively referred to herein as the “Incentive Allocation”)
(c) Except as hereinafter provided in this Section 5, any net Loss of the
Partnership for each Accounting Period shall be allocated to all Partners in proportion to their
Partnership Percentages.
(d) For avoidance of doubt, the Preferred Return shall be tracked and
calculated separately for each Limited Partner by the General Partner.
(e) If the Preferred Return and/or Incentive Allocation are not met in any
fiscal quarter, they will not carry over to any subsequent fiscal quarter.
(f) The Partners share of Profit in respect of the last Accounting Period of any
fiscal year may be subject to adjustment at fiscal year-end following the Partnership’s annual
audit.
(g) All proceeds of investments corresponding to Profits allocated to a Partner
pursuant to this Section 5.1 shall be deposited into the Custodial Account, shall be credited to the
Partner’s subaccount under the Custodial Account, and shall be available for withdrawal by the
Partner pursuant to Section 7.2 or reinvestment by the General Partner pursuant to the terms of
this Agreement.
5.2 Special Allocations.
(a) To the extent the Partnership has taxable interest income or expense with
respect to any promissory note between any Partner and the Partnership as holder and maker or
maker and holder pursuant to Section 483, Sections 1271 through 1288, or Section 7872 of the
314346824.12 5
Code, such interest income or expense shall be specially allocated to the Partner to whom such
promissory note relates, and such Partner’s Capital Account shall be adjusted if appropriate.
(b) The General Partner is authorized to make such special allocations of
income, gain, loss or deduction, or Profit or Loss, as the General Partner deems necessary or
appropriate in its sole and absolute discretion to carry out the purposes and economic
arrangement contemplated by the Partners in entering into this Agreement and to comply with
the Treasury Regulations under Section 704 of the Code notwithstanding the provisions of
Section 5.1; provided, however, that no such allocation(s) shall materially adversely affect any
Limited Partner in a manner that is materially inconsistent or contrary to this Agreement.
5.3 Regulatory Allocations.
(a) This Agreement is intended to comply with Treasury Regulation 1.704-
1(b), and the allocations set forth in Section 5.3(b) below (the “Regulatory Allocations”) are
intended to comply with certain requirements of Treasury Regulation Section 1.704-1(b). In the
event the Regulatory Allocations result in allocations being made that are inconsistent with the
manner in which the Partners intend to divide Partnership Profit and Loss as reflected in Section
5.1, the General Partner shall use its best efforts to adjust subsequent allocations of any items of
profit, gain, loss, income or expense such that the net amount of the Regulatory Allocations and
such subsequent special adjustments to each Partner is zero.
(b) The allocations provided in this Section 5 shall be subject to the following
exceptions:
(i) Any loss or expense otherwise allocable to a Limited Partner
which exceeds the positive balance in such Limited Partner’s Capital Account shall instead be
allocated first to all Partners who have positive balances in their Capital Accounts in proportion
to their respective Partnership Percentages, and when all Partners’ Capital Accounts have been
reduced to zero, then to the General Partner. Partnership Profit shall first be allocated to reverse
any allocations made under the previous sentence, in reverse order.
(ii) In the event any Limited Partner unexpectedly receives any
adjustments, allocations or distributions described in Treasury Regulation Sections 1.704-1
(b)(2)(ii)(d)(4) through (d)(6), which cause or increase a deficit balance in such Partner’s Capital
Account, items of Partnership income and gain shall be specially allocated to such Limited
Partner in an amount and manner sufficient to eliminate the deficit balance in its Capital Account
created by such adjustments, allocations or distributions as quickly as possible. This
Section 5.3(b)(ii) is intended to comply with the “qualified income offset” requirement of the
Code.
(iii) For purposes of subparagraphs (b)(i) and (b)(ii), the balance in a
Partner’s Capital Account shall take into account the adjustments provided in Treasury
Regulation Sections 1.704-1 (b)(2)(ii)(d)(4) through (d)(6).
(iv) The General Partner may make other special allocations permitted
by the Treasury Regulations as the General Partner deems necessary or appropriate in its sole
and absolute discretion to carry out the purposes and economic arrangement contemplated by
314346824.12 6
this Agreement and to have the Partnership’s allocations respected for federal income tax
purposes; provided, however, that no such allocation(s) shall materially adversely affect any
Limited Partner in a manner that is inconsistent with or contrary to this Agreement.
5.4 Income Tax Allocations.
(a) Except as otherwise provided in this Agreement or as otherwise required
by the Code and the rules and Treasury Regulations promulgated thereunder, a Partner’s
allocation of Partnership income, gain, loss, deduction or credit for income tax purposes shall be
the same as is entered in each Partner’s Capital Account pursuant to this Agreement.
(b) In accordance with Code Section 704(c) and the Treasury Regulations
thereunder, income, gain, loss and deduction with respect to any asset contributed to the capital
of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the Partnership for
federal income tax purposes and its initial Adjusted Asset Value. The General Partner may elect
any permissible allocation method under Code Section 704(c) that is consistent with the purposes
of this Agreement.
(c) In the event the Adjusted Asset Value of any Partnership asset is adjusted
pursuant to the terms of this Agreement, subsequent distributive shares of income, gain, loss and
deduction with respect to such asset shall take account of any variation between the adjusted
basis of such asset for federal income tax purposes and its Adjusted Asset Value in the same
manner as under Code Section 704(c) and the Treasury Regulations thereunder.
SECTION 6. FEES; PARTNERSHIP EXPENSES.
6.1 Management Fees; Fund Administrator
(a) The General Partner will receive a quarterly management fee from any
Limited Partner calculated at an annual rate of 1.75% (approximately 0.1458% per month) of the
amount of the Partnership’s Portfolio Investments in connection with the provision of its services
and facilities to be provided by the General Partner to the Partnership. The Management Fee
shall be a Partnership Expense paid prior to any returns to Limited Partners.
(b) The Partnership may enter into agreements with one or more
administrators (collectively, the “Fund Administrator”) to provide certain administrative,
accounting, registrar and transfer agency services for the Partnership and such other
responsibilities as the General Partner may request the Administrator to perform from time to
time. The Partnership may also enter into agreements with one or more Affiliates of the General
Partner or the members of the General Partner (collectively, the “Adviser”) pursuant to which the
Adviser may, on behalf of the Partnership, (i) originate, recommend, structure, and identify
sources of capital for investment opportunity to the Partnership; (ii) monitor, evaluate and make
recommendations regarding the timing and amount manner of investment and disposition of
Portfolio Securities and (iii) provide such other services related thereto as the General Partner
may request.
314346824.12 7
(c) The Partnership may enter into agreements with one or more Affiliates of
the General Partner or the members of the General Partner to act as a selling agent on behalf of
the Partnership in connection with the offer and sale of Limited Partnership interests in the
Partnership.
(d) In the event that the Partnership, the General Partner, the Adviser, any
Affiliate of the General Partner or the Adviser or any member of the General Partner or Adviser,
receives any origination fees, portfolio monitoring fees, acquisition or disposition fees, financing
fees, directors’ fees, expense fees, consulting fees, break-up fees, investment banking fees,
warrants, or equivalent compensation or transaction fees, and whether in cash or securities, in
connection with investments made by the Partnership (collectively, the “Additional Fees”), such
fees shall accrue solely to the General Partner and no Limited Partner (or the Partnership) shall
be entitled to all or any part of such Additional Fees.
(e) Notwithstanding Section 6.1(d), all fees received by the General Partner
that are not directly related to interest earned on Portfolio Investments (whether through the
Partnership or any other investment vehicle) shall be for the account of the General Partner.
6.2 Expenses.
(a) Subject to Section 6.2(b) below, the Partnership shall bear the following
costs and expenses associated with the operation, portfolio investment activity, dissolution,
winding up and termination of the Partnership together with the costs and expenses described in
Section 6.2(d) below, the “Partnership Expenses”: (i) all costs and expenses incurred in the
holding, purchase, sale, transfer or exchange of Securities (whether or not ultimately
consummated), including, without limitation, out-of-pocket expenses and all legal expenses
which may arise from any legal or administrative proceedings or actions in connection with the
Fund’s activities; (ii) interest on borrowed money; (iii) personal property taxes on investments;
(iv) brokerage fees, legal fees, custodial fees of securities owned by the Partnership,
administrative, audit and accounting fees and other professional fees for services rendered to the
Partnership, including without limitation, consulting and software subscription and/or licensing
fees; (v) all transfer, capital and other taxes, duties and costs applicable to the Partnership on
account of its operations and disposition or transfer of Partnership assets; (vi) fees incurred in
connection with the maintenance of bank or custodian accounts; (vii) fees and expenses of the
Fund Administrator and the Adviser; (viii) all reasonable costs associated with Partnership and
Board of Advisors meetings (meetings of the Limited Partners or General Partner) or meetings of
executives of Portfolio Companies, and all other meetings concerning the Partnership which are
attended by a representative of the General Partner; (ix) fees incurred in connection with the
preparation of any tax reports (including K-1’s) on behalf of the Partners; (x) the Management
Fee pursuant to Section 6.1(a); (xi) all costs, fees and expenses incurred by the General Partner
in the operation of the Partnership and (xii) all expenses incurred in connection with the
registration of the Partnership’s Securities under applicable securities laws or regulations. The
Partnership shall also bear (w) expenses incurred by the General Partner in serving as the tax
matters partner, (x) the cost of liability and other insurance premiums, (y) all expenses of all
governmental returns, reports or other filings required for regulatory compliance, and (z) all
reasonable expenses that are not borne by the General Partner pursuant to Section 6.2(b) or
Section 6.2(c).
314346824.12 8
(b) The General Partner shall bear its own overhead expenses, including its
own employees’ salaries, and applicable rents and utilities.
(c) The General Partner shall bear all organizational and syndication costs,
fees and expenses incurred by or on behalf of the General Partner in connection with the
formation and organization of the General Partner, the Adviser, the Partnership, and Parallel
Vehicles and any of their respective Affiliates, including, but not limited to, legal and accounting
fees and expenses incident thereto; provided, however, one or more Limited Partners may agree
to reimburse the General Partner for expenses incurred in formation of any Parallel Vehicle
formed at the request of such Limited Partner(s).
(d) The Partnership shall bear all winding up costs, fees, and expenses
incurred by the General Partner (or its designee) in connection with the winding up of the
Partnership following the Partnership’s dissolution specifically including, but not limited to,
legal and accounting fees and expenses.
SECTION 7. WITHDRAWALS BY AND DISTRIBUTIONS TO THE PARTNERS.
7.1 Interest. No interest shall accrue or be paid to any Partner solely on account of
its interest in the capital of, or on account of its investment in, the Partnership. Notwithstanding
the prior sentence, interest income received by the Partnership from its Portfolio Securities and
Custodial Account investments shall be allocated to the Partners as provided in Sections 5.1 and
5.2.
7.2 Withdrawals by the Partners.
(a) Except as set forth in this Agreement, no Partner may withdraw any
amount from the Partner’s Capital Account or withdraw from the Partnership without the prior
written consent of the General Partner, which the General Partner may grant or withhold,
condition or delay, in its sole and absolute discretion.
(b) Both during and after expiration of the applicable Lock-Up Period, a
Limited Partner may withdraw realized income and gain allocated as Profit to such Limited
Partner to the extent, and only to the extent, such Limited Partner has elected, by written notice
to the General Partner received at least twenty (20) Business Days prior to the beginning of the
fiscal quarter in which such election is intended to be effective, to receive cash distributions of
realized income and gain.
(c) During the applicable Lock-Up Period, a Limited Partner may not
withdraw from the Fund and may not withdraw any capital contributions or any amount from
such Limited Partner’s Capital Account except as provided in Section 7.2(b) above or as
otherwise determined by the General Partner in its sole and absolute discretion.
(d) After the expiration of the applicable Lock-Up Period, a Limited Partner
may withdraw from the Partnership completely (and not partially) by making a written request to
the General Partner in a form provided by the General Partner to such Limited Partner (a
“Redemption Request”). Thereafter, all funds in the Custodial Account attributable to such
Limited Partner shall be paid to the Limited Partner on the last Business Day of the fiscal quarter
314346824.12 9
which is at least twenty (20) Business Days prior to the end of the fiscal quarter in which the
Redemption Request was received, except to the extent necessary to: (i) fund Portfolio
Investments with respect to which the Partnership has entered into a term sheet engagement or
written commitment on or prior to receipt of the Redemption Request; (ii) effect follow-on
investments in existing Portfolio Investments with respect to which the Fund has entered into a
term sheet engagement or written commitment on or prior to receipt of the Redemption Request;
(iii) repay any advances made by a creditor of the Fund to fund existing Portfolio Investments
and secured by any Capital Commitments or (iv) to pay any expenses, liabilities or obligations of
the Fund. Thereafter, all returns attributable to that Limited Partner from Portfolio Investments,
including payments of interest and repayments of principal by Portfolio Companies, will be paid
out to such Limited Partner quarterly as they are received into the Custodial Account, or at such
earlier time as may be determined by the General Partner in its sole and absolute discretion.
(e) A Redemption Request, once received by the General Partner, cannot be
withdrawn by the Limited Partner.
(f) All redemptions and distributions made pursuant to this Section 7.2 will be
paid out on a trailing quarterly basis.
(g) The General Partner may, in its sole and absolute discretion, suspend any
withdrawal rights of Limited Partners, in whole or in part, when there exists, in the opinion of the
General Partner, in its sole and absolute discretion, a state of affairs where disposal of the Fund’s
assets, or the determination of the balances of such Limited Partner’s capital account, would not
be reasonably practicable or would be seriously prejudicial to the Fund or the remaining Limited
Partners.
(h) The General Partner may establish reserves for contingencies (even if such
reserves are not otherwise required by GAAP) that could reduce the amount of a distribution
such Limited Partner would otherwise be entitled to receive pursuant to this Section 7.2. In
addition, amounts payable pursuant to this Section 7.2 shall be subject to reduction for all legal,
accounting, administrative or other costs and expenses associated with such withdrawal as
determined by the General Partner in its sole and absolute discretion.
(i) The General Partner may require the complete or partial withdrawal of a
Limited Partner as determined by the General Partner in its sole and absolute discretion upon not
less than thirty (30) days prior written notice to such Limited Partner. Such withdrawal shall be
treated in the same manner as a withdrawal pursuant to Section 7.2(d). Such withdrawal will be
effected as soon as practicable in the General Partner’s sole and absolute discretion at which time
the withdrawing Limited Partner shall be entitled to receive an amount equal to the fair market
value of such Limited Partner’s interest in the Partnership as determined by the General Partner
in accordance with Section 12 as of the effective date of such withdrawal. The withdrawing
Limited Partner shall be entitled to receive such amount within one hundred twenty (120) days
after the date of such withdrawal. Any distribution or payment to a withdrawing Limited Partner
pursuant to this paragraph may, in the sole and absolute discretion of the General Partner, be
made in cash, in Securities, in the form of a promissory note the terms of which shall be mutually
agreed upon by the General Partner and the withdrawing Limited Partner, or any combination
thereof.
314346824.12 10
7.3 Discretionary In Kind Distributions.
(a) Subject to the other provisions of this Agreement, at the sole and absolute
discretion of the General Partner, distributions of Marketable Securities, Non-marketable
Securities or other non-cash assets of the Partnership may be made in kind to the Partners;
provided, however, distributions of Non-marketable Securities may not be made prior to
liquidation of the Partnership. Such distributions shall be made pursuant to Section 7.2 or in
accordance with Section 10.3 in the ratios set forth in Section 10.4(d) as if such assets distributed
in kind had been sold by the Partnership for cash at their fair market values and the cash was
distributed pursuant to Section 7.2 or 10.4(d), as applicable.
(b) Immediately prior to any distribution in kind, the difference, if any,
between the fair market value and the Adjusted Asset Value of any assets distributed shall be
allocated to the Capital Accounts of the Partners as a Profit or Loss pursuant to Section 5.
(c) Securities distributed in kind shall be subject to such conditions and
restrictions as the General Partner determines in good faith are legally required or appropriate.
Whenever classes of Securities are distributed in kind, each Partner shall receive its ratable
portion of each class of Securities distributed in kind; provided, however, if any Limited Partner
would receive an amount of any Security that would cause such Limited Partner to own or
control in excess of the amount of such Security that it may legally own or control, then, upon
receipt of a notice to such effect from a Limited Partner, the General Partner shall vary the
method of distribution, in an equitable manner, so as to avoid such excessive ownership or
control.
(d) The General Partner shall limit the amount of any distribution in kind of
“restricted securities” (as defined in Rule 144) pursuant to this Section 7.3 to the amount saleable
by all Partners within the ninety (90) days following the distribution under Rule 144, or any
similar or successor rule.
7.4 Withholding Obligations.
(a) If, and to the extent, the Partnership is required (as determined in good
faith by the General Partner) to withhold tax or to make payments (“Tax Payments”) with
respect to any Partner in amounts required to discharge any legal obligation of the Partnership, or
the General Partner is required to make payments to any governmental authority with respect to
any federal, state or local tax liability of such Partner arising as a result of such Partner’s interest
in the Partnership, then the amount of any such Tax Payments shall be treated as a distribution
and charged to the Capital Account of such Partner. If, and to the extent, the amount of the
payment exceeds the balance in such Partner’s Capital Account, the excess portion of such
payment shall be deemed to be a loan by the Partnership to such Partner, which loan shall bear
interest at the Federal Funds rate in effect from time to time thereafter until repaid, and be
payable upon demand.
(b) If, and to the extent, the Partnership is required to make any Tax Payments
with respect to any distribution to a Partner, either (i) such Partner’s proportionate share of such
distribution shall be reduced by the amount of such Tax Payments (which Tax Payments shall be
314346824.12 11
treated as a distribution to such Partner), or (ii) such Partner shall pay to the Partnership prior to
such distribution an amount of cash equal to such Tax Payments. Each Partner hereby agrees to
indemnify and hold harmless the Partnership and the other Partners from and against any liability
with respect to income attributable to or distributions or other payments to such Partner. In the
event a portion of a distribution in kind is retained by the Partnership pursuant to clause (i)
above, such retained Securities may, in the sole and absolute discretion of the General Partner,
either (A) be distributed to the other Partners, or (B) be sold by the Partnership to generate the
cash necessary to satisfy such Tax Payments. If the Securities are sold, then for purposes of
income tax allocations only under this Agreement, any gain or loss on such sale or exchange
shall be allocated to the Partner to whom the Tax Payments relate.
7.5 Withholding of Certain Amounts. Notwithstanding anything else contained in
this Agreement, the General Partner may withhold, in its sole and absolute discretion, from any
distribution to any Partner pursuant to this Agreement, the following amounts:
(a) any amounts due from any such Partner to the Partnership or the General
Partner pursuant to this Agreement to the extent not otherwise paid, and
(b) any amounts required to pay or reimburse (i) the Partnership for the
payment of any taxes properly attributable to such Partner as set forth in Section 7.4 above, or
(ii) the General Partner for any advances made by the General Partner for such purpose.
Any amounts so withheld pursuant to this Section 7.5 shall be applied by the General Partner to
discharge the obligation in respect of which such amounts were withheld and shall be treated as
actual distributions pursuant to Section 7.3 or such other provision of this Agreement as may be
applicable.
7.6 Amounts Held in Reserve. In addition to the right to withhold certain amounts
in the circumstances set forth in Section 7.5, the General Partner shall have the power, in its sole
and absolute discretion, to withhold, on a pro rata basis, amounts otherwise distributable to the
Partners in order to maintain the Partnership in a sound financial and cash position and to make
such provision as the General Partner, in its sole and absolute discretion, reasonably deems
necessary or advisable for any and all liabilities and obligations, contingent or otherwise, of the
Partnership.
SECTION 8. MANAGEMENT DUTIES AND RESTRICTIONS; CONFIDENTIALITY
OF PARTNERS.
8.1 Management. The General Partner shall have the sole and exclusive right to
manage, control and conduct the business of the Partnership and to do any and all acts on behalf
of the Partnership, including exercise of rights to elect to adjust the tax basis of Partnership
assets and to revoke such elections and to make such other tax elections as the General Partner
shall deem appropriate.
Without any limitation of the first paragraph of this Section 8.1, the General Partner, on
behalf of the Partnership, may enter into and perform each subscription agreement, side letter,
advisory agreement and any documents contemplated thereby or related thereto and any
amendments thereto, without any further act, vote or approval of any Person, including any
314346824.12 12
Partner, notwithstanding any other provision of this Agreement. The General Partner is hereby
authorized to enter into the documents described in the preceding sentence on behalf of the
Partnership, but such authorization shall not be deemed a restriction on the power of the General
Partner to enter into other documents on behalf of the Partnership.
Notwithstanding any other provision of this Agreement to the contrary, the General
Partner, in its own name and on behalf of the Partnership, shall be authorized without the consent
of any Person, including any Limited Partner, to take such action as it determines in its sole
discretion to be necessary or advisable to comply with any anti-money laundering or anti-
terrorist laws, rules, regulations, directives or special measures, including the actions
contemplated by any subscription agreement of any Limited Partner.
8.2 No Control by the Limited Partners. The Limited Partners shall take no part in
the conduct, control or management of the business or affairs of the Partnership nor shall the
Limited Partners have any authority to act for or on behalf of the Partnership except as is
specifically permitted by this Agreement. The exercise by any Limited Partner of any right
conferred herein shall not be construed to constitute participation by such Limited Partner in the
conduct or control of the business of the Partnership so as to make such Limited Partner liable as
a general partner for the debts and obligations of the Partnership.
8.3 Commitment of the Managing Members of the General Partner. The General
Partner hereby agrees that its managing members, so long as any of them remains a managing
member of the General Partner, shall devote a sufficient amount of time and attention to the
affairs of the Partnership as shall be deemed, in its sole and absolute discretion, by the General
Partner appropriate to fulfill the Partnership’s purpose.
8.4 Compliance with Partnership Agreement; Detrimental Acts;
Investment Opportunities.
(a) The General Partner shall not knowingly take, and shall cause its
managing members not to knowingly take, any action in contravention of this Agreement, or
that constitutes a Detrimental Act, or that would make it impossible to carry on the business of
the Partnership.
(b) The General Partner may, in its sole and absolute discretion, also offer the
right to participate in investment opportunities of the Partnership to itself, its members, its
employees, its Affiliates, other private investors, groups, partnerships, corporations or Limited
Partners of the Partnership. In addition, the General Partner, or its members, directors, officers,
employees, agents, advisors, committees or Affiliates of any thereof may (i) organize, manage,
serve as a general partner of, or serve as the primary source of transactions for, other investment
funds (other than the Partnership), or (ii) pursue other business activities not involving the
Partnership.
8.5 Indebtedness; Nature of Investments.
(a) The General Partner may, on behalf of the Partnership, guarantee
indebtedness of companies which are, or will become, Portfolio Companies of the Partnership.
314346824.12 13
(b) The Partnership may otherwise borrow money or incur indebtedness on
behalf of the Partnership in the sole and absolute discretion of the General Partner for any
purpose.
Without any limitation of the foregoing, the General Partner, on its own behalf and on
behalf of the Partnership, may borrow money for investment purposes or funding of Redemption
Requests (as described in Section 7.2). Borrowings may be obtained through margin credit,
credit facilities, swaps, options or other derivative arrangements entered into with securities
brokers, financial institutions or other third parties. Such borrowings may be secured by
securities, or other capital of the Partnership pledged to such brokers, financial institutions or
other third parties. The use and terms of such borrowings shall be determined by the General
Partner in its sole and absolute discretion. In connection with any borrowing described in this
Section 8.5, the General Partner, on its own behalf and on behalf of the Partnership, is hereby
authorized to pledge, hypothecate, mortgage, assign, transfer or grant security interests in or
other liens on (i) the Limited Partners’ obligations to make capital contributions subject to the
terms hereof, and (ii) any other assets, rights or remedies of the Partnership or of the General
Partner hereunder or under the Subscription Agreements, including without limitation, the right
to exercise remedies upon a default by a Limited Partner in the payment of its capital
contributions and the right to receive capital contributions and other payments. All rights
granted to a lender pursuant to this Section 8.5 shall apply to its agents and its successors and
assigns.
(c) The Partnership will generally not invest more than fifteen percent (15%)
of aggregate Capital Commitments in any single portfolio company or group of affiliated
companies (including guarantees by the Partnership with respect to such portfolio company or
group); provided, however, that the General Partner may waive this guideline in its sole and
absolute discretion.
8.6 Confidentiality.
(a) The Limited Partners hereby acknowledge that the Partnership creates and
will be in possession of confidential and trade secret information, the improper use or disclosure
of which could have a material adverse effect upon the Partnership or upon one or more Partners
or Portfolio Companies in which the Partnership has invested. The Partners hereby acknowledge
that pursuant to Section 17-305(f) of the Delaware Act, the rights of a Limited Partner to obtain
information from the Partnership shall be limited to only those rights provided for in this
Agreement and any side letter to this Agreement to which such Limited Partner and the
Partnership are parties, and that any other rights provided under Section 17-305(a) of the
Delaware Act shall not be available to the Limited Partners or applicable to the Partnership.
Notwithstanding anything in this Agreement to the contrary, including any requirement to
deliver audited or unaudited financial statements or to allow the inspection of the Partnership’s
books, any information provided or disclosed to a Limited Partner may be adjusted, at the
General Partner’s discretion, such that the actual names and other identifying data that relate to
the Partnership’s current, past or prospective portfolio companies need not be disclosed to the
Limited Partners.
314346824.12 14
(b) The Limited Partners acknowledge and agree that all information provided
to them by or on behalf of the Partnership, the General Partner, the Administrator or any of their
respective Affiliates concerning the business or assets of the Partnership, a Partner, any of their
respective Affiliates or a Portfolio Company shall be deemed strictly confidential and shall not,
without the prior consent of the General Partner be (i) disclosed to any Person (other than a
Partner) or (ii) used by a Limited Partner other than for a Partnership purpose or a purpose
reasonably related to protecting such Partner’s interest in the Partnership. A Limited Partner may
disclose confidential Partnership information to its officers, directors, employees, representatives
and agents (including without limitation attorneys, consultants, accountants and bankers) so long
as such persons are bound by comparable confidentiality obligations to such Limited Partner, and
a Limited Partner that is a fund of funds (i) may provide confidential information to its partners
and other equity holders so long as such persons are bound by comparable confidentiality
obligations to such Limited Partner and (ii) may provide aggregate fund-level information about
the Partnership to prospective investors of it and its affiliates, provided that no identifying
information with respect to individual portfolio companies is provided to such prospective
investors. In addition, a Limited Partner may make any disclosure that is required by law,
regulation or legal, regulatory or self-regulatory process. There is no limitation on disclosure of
the tax treatment or tax structure of the Partnership or any transaction that is the subject of this
Agreement.
(c) To the extent permitted by applicable law, and notwithstanding the
provisions of Sections 11.2, 11.3 and 11.4, the General Partner may, in its sole and absolute
discretion, keep confidential from any Limited Partner information to the extent the General
Partner reasonably determines that: (i) disclosure of such information to such Limited Partner
could reasonably be anticipated to have a material adverse effect upon the Partnership, a Partner
or a Portfolio Company due to an actual or likely conflict of business interests between such
Limited Partner and one or more other parties or an actual or likely imposition of additional
statutory or regulatory constraints upon the Partnership, a Partner or a Portfolio Company; or (ii)
the Limited Partner cannot or will not adequately protect against the improper disclosure of
confidential information and the disclosure of such information to a non-Partner could
reasonably be anticipated to have a material adverse effect upon the Partnership, a Partner or a
Portfolio Company. The foregoing provisions of this Section 8.6(c) shall not apply to permit the
General Partner to keep confidential from a Limited Partner: (x) any information that such
Limited Partner requires to comply with applicable law or a domestic national securities
exchange rule; (y) such Limited Partner’s Capital Account balance; or (z) for a period exceeding
twelve (12) months, any specific item of summary balance sheet-type information with regard to
the Partnership or a Portfolio Company.
(d) The Limited Partners: (i) acknowledge that the General Partner is
expected to acquire confidential third party information (e.g., through Portfolio Company
directorships held by members of the General Partner) that, pursuant to related fiduciary,
contractual, legal or similar obligations, cannot be disclosed to the Partnership or the Limited
Partners; and (ii) agree that neither the General Partner nor its members shall be in breach of any
duty under this Agreement or the Delaware Act in consequence of acquiring, holding or failing
to disclose such information to the Partnership or the Limited Partners so long as such
obligations were undertaken in good faith.
314346824.12 15
(e) The Limited Partners acknowledge that each of Schedule A to this
Agreement exists in two forms: (i) a Schedule A, on which each Limited Partner’s name and
contact information is represented by an assigned number; and (ii) a complete Schedule A listing
information relating to all Partners. Except as otherwise determined by the General Partner, to
the fullest extent permitted by law, the complete Schedule A referred to in the preceding clause
(ii) shall be viewed solely by the General Partner. The Limited Partners specifically
acknowledge and agree that the purpose of this approach is to maximize the confidential
treatment of the name and contact information of the Limited Partners vis-a-vis each other and
third parties. To the maximum extent permitted by applicable law, each Limited Partner hereby
irrevocably waives any rights such Limited Partner, as the case may be, might otherwise have to
view the name and contact information of any other Limited Partner. In the event that any issue
arising under this Agreement turns upon information set forth on Schedule A any Limited
Partner, as the case may be, may request that, at the Limited Partner’s expense, the Partnership’s
attorneys or accountants confirm that such issue was properly addressed or resolved in
accordance with the terms of this Agreement, but to the fullest extent permitted by law, shall not
thereby be entitled to view or otherwise gain access to the name or contact information of any
other Limited Partner. At the request of a Limited Partner, as the case may be, the General
Partner shall notify such Limited Partner of the assigned number representing such Limited
Partner’s name and contact information on the Schedule A or B, as applicable, referred to in
clause (i) of this paragraph.
(f) Notwithstanding any provision of this Agreement to the contrary, in order
to preserve the confidentiality of information disseminated by the General Partner or the
Partnership under this Agreement, including quarterly and annual reports (other than the IRS
Forms 1065, Schedule K-1s), information provided to the Board of Advisors (or any Board of
Advisors observers), and information provided at the Partnership’s informational meetings, and
assuming that a Limited Partner is entitled to receive such information pursuant to this
Agreement, the General Partner may (i) provide to such Limited Partner access to such
information only on the website of US Capital Partners Inc. in password protected, non-
downloadable, nonprintable format for a reasonably limited period of time (e.g., until such
information is no longer current), and (ii) require such Limited Partner to return any copies of
information provided to it by the General Partner or the Partnership, and such Limited Partner
hereby agrees that, upon reasonable request by the General Partner, it shall (and shall cause its
Affiliates and representatives to) promptly return (or certify in writing to the Partnership the
destruction thereof) all copies (whether paper or electronic) of all materials containing such
requested information. Each Partner agrees to cooperate with such procedures and restrictions as
may be developed by the General Partner from time to time in connection with the disclosure of
non-public information concerning the General Partner and the Partnership, including
information concerning the Partnership’s portfolio companies, as determined by the General
Partner to be reasonably necessary and advisable to maintain and promote compliance with legal
and other regulatory matters applicable to the General Partner, the Partnership, the Limited
Partners and the Portfolio Companies, including securities laws and regulations. The obligations
and undertakings of each Limited Partner under this Section 8.6 shall be continuing and shall
survive termination of the Partnership.
(g) The Partnership shall be entitled to enforce the obligations of each Limited
Partner under this Section 8.6 to maintain the confidentiality of the financial statements of the
314346824.12 16
Partnership, Portfolio Company reports, and other information provided by the Partnership or the
General Partner to such Limited Partner. The remedies provided for in this Section 8.6 are in
addition to and not in limitation of any other right or remedy of the Partnership provided by law
or equity, this Agreement, or any other agreement entered into by or among any one or more of
the Partners and the Partnership. In the event of any legal proceedings relating to a breach of this
Section 8.6 by a Limited Partner, such Limited Partner shall pay all costs and expenses incurred
by the Partnership, including attorneys’ fees, in the event that there is a court determination or a
determination in connection with an arbitration or other proceeding pursuant to Section 15.5 to
the effect that such Limited Partner has breached this Section 8.6. Each Limited Partner hereby
(i) agrees that the remedy at law for damages resulting from its default under this Section 8.6 is
inadequate because the substantial value that the Partnership derives from information
concerning the Partnership and its Portfolio Company investments requires that such information
be kept confidential, and (ii) consents to the institution of an action for specific performance of
its obligations to keep confidential the Partnership information in the event of such a breach of
this Section 8.6. Each Limited Partner further agrees that any actions taken by the General
Partner under this Section 8.6 shall expressly supersede any duties the General Partner may
otherwise have to such breaching Limited Partner under this Agreement, the Act or otherwise.
8.7 Disclosures. Consistent with each Limited Partner’s representations and
covenants set forth in Section 9.1, such Limited Partner shall furnish to the Partnership upon
request any information with respect to such Limited Partner or the direct and indirect beneficial
owners thereof as determined by the General Partner to be necessary or convenient for the
formation, operation, dissolution, winding-up or termination of the Partnership or in order for the
Partnership or the General Partner to comply with applicable laws or regulations or to minimize
or eliminate any material adverse on the Partnership, its Partners or direct or indirect beneficial
owners. Each Limited Partner further agrees that if it is unable to provide such information and
such inability causes a material adverse effect on the Partnership or any of its Partners or direct
or indirect beneficial owners, the General Partner may take such steps as it deems necessary in
its reasonable judgment, including transferring such Limited Partner’s interest in the Partnership
to a separate limited partnership having substantially identical terms to this Agreement, to
minimize or eliminate any such adverse effects on the Partnership and its Partners or direct or
indirect beneficial owners. The Partnership and the General Partner shall refrain from disclosing
any confidential information furnished by a Limited Partner except as may be necessary or
required for the Partnership to comply with applicable law, including, but not limited to, those
statutes and laws set forth in Section 9.1(h), or to minimize or eliminate any material adverse
effect on the Partnership, its Partners or direct or indirect beneficial owners.
8.8 Board of Advisors. A board of advisors, consisting of at least two (2) individuals
who shall be (i) Limited Partners, or their representatives and/or (ii) thought leaders or industry
specialists (“Board of Advisors”), will be appointed by the General Partner as soon as
practicable after the Initial Closing. The Board of Advisors will provide such advice and counsel
as is requested by the General Partner in connection with the Partnership, guidelines on ethical
principles, potential conflicts of interest and other Partnership matters presented to the Board of
Advisors by the General Partner from time to time. However, as provided in Section 8.1, the
General Partner will retain ultimate responsibility for managing all affairs of the Partnership,
including making asset valuations and all investment decisions. No member of the Board of
Advisors shall be an Affiliate of the General Partner. Rules governing the internal operation of
314346824.12 17
the Board of Advisors shall provide, among other things, that: (i) any two members of the Board
of Advisors may call a meeting of the Board of Advisors; (ii) a majority of its members shall
constitute a quorum, (iii) decisions of a majority of its members shall be decisions of the Board
of Advisors; (iv) each member of the Board of Advisors shall have one vote; (v) actions may be
taken in writing without a meeting signed by all of the members of the Board of Advisors, and
(vi) meetings may be held by telephone or web-conference. Any member of the Board of
Advisors may resign upon receipt of written notice from such member to the General Partner and
shall be deemed removed if the Limited Partners that the member represents requests such
removal in writing to the General Partner or is in default of its obligations to make a contribution
under this Partnership Agreement. The General Partner may also remove a member of the Board
of Advisors in its sole and absolute discretion. If any member of the Board of Advisors resigns
or is removed, the General Partner may appoint a replacement for such member.
Notwithstanding anything to the contrary contained in this Agreement, a member of the Board of
Advisors shall not constitute a general partner of the Partnership. Notwithstanding anything to
the contrary contained in this Agreement, none of the actions taken by the Board of Advisors,
any member of the Board of Advisors or the Limited Partners hereunder shall constitute
participation in the control of the business of the Partnership within the meaning of the Delaware
Act.
8.9 Transfer of Portfolio Investments. At any time during the term of the
Partnership, the Partnership may transfer ownership of Portfolio Securities (at a price equal to
the cost of such securities) to one or more Parallel Vehicles as may be necessary to achieve a
percentage of ownership with respect to such Portfolio Securities among the Partnership and the
Parallel Vehicles as is desired by the General Partner. The General Partner may, in its sole and
absolute discretion, cause the Partnership to make any such transfer. Subject to applicable law,
under no circumstances shall the General Partner be deemed in breach of any duty to the
Partnership (fiduciary or otherwise) by virtue of causing the Partnership to transfer Portfolio
Securities to one or more Parallel Vehicles in the manner authorized in this Section 8.9. The
Limited Partners hereby waive all rights to receive any and all distributions and allocations made
with respect to investments in Portfolio Securities that are transferred by the Partnership to a
Parallel Vehicle pursuant to this Section 8.10.
SECTION 9. LIMITED PARTNER REPRESENTATIONS AND COVENANTS;
TRANSFER OF PARTNERSHIP INTERESTS.
9.1 Representations and Covenants of the Limited Partners.
This Agreement is made with each of the Limited Partners in reliance upon each Limited
Partner’s representation to the Partnership, which by executing this Agreement each Limited
Partner hereby confirms, the following:
(a) Limited Partner has the full power and authority to execute and deliver
this Agreement via power of attorney given to the General Partner and to act as a Limited Partner
hereunder; this Agreement has been authorized by all necessary actions by it; and this Agreement
is a legal, valid and binding obligation of it, enforceable against it according to its terms;
314346824.12 18
(b) Limited Partner’s interest in the Partnership is to be acquired for
investment, and not with a view to the sale or distribution of any part thereof, and that it has no
present intention of selling, granting participation in, or otherwise distributing the same, and each
Limited Partner understands that its interest in the Partnership has not been registered under the
Securities Act and that any transfer or other disposition of the interest may not be made without
registration under the Securities Act or pursuant to an applicable exemption therefrom. Limited
Partner further represents that it does not have any contract, undertaking, agreement, or
arrangement with any Person to sell, transfer, or grant participation to such Person, or to any
third person, with respect to its interest in the Partnership. Limited Partner is an “accredited
investor” as such term is defined in the Securities Act and a “qualified client” as such term is
defined in the Investment Advisers Act of 1940;
(c) Limited Partner acknowledges and agrees that its investment in the
Partnership is a speculative investment and involves a high degree of risk of loss of such entire
investment;
(d) Limited Partner has reviewed and understands the import of Section 15.13
of this Agreement in its entirety, and agrees that, except as specifically required by law, Limited
Partner shall have no actionable claim or claims against the General Partner, any of its members,
the Adviser, the Fund Administrator, or any respective Affiliate or attorney of any of the
foregoing, with respect to or arising out of any information, statement or projection respecting
the Partnership, whether written or oral, and including, but not limited to, any such information,
statement or projection made or provided in the Memorandum, which is not fully expressed in
this Agreement (or in any subscription agreement or side letter, as applicable, to which Limited
Partner is a party);
(e) Limited Partner acknowledges that the Partnership is relying on
Section 3(c)(1) of the 1940 Act as the basis for its exemption from regulation as an “Investment
Company” under said statute, and, consequently, Limited Partner shall promptly notify the
General Partner of any change in the structure of, or other event relating to, such Limited Partner
that affects how the interests are held or any change in the status of a Limited Partner as a
“qualified client” as such term is used in the Investment Advisers Act of 1940, as amended..
(f) Limited Partner represents that such Partner has such knowledge and
experience in financial and business matters as to be capable of evaluating the merits and risks of
an investment in the Partnership and is able to bear the economic risk of that investment. Limited
Partner represents that such Partner has had an opportunity to ask questions of and receive
answers from the General Partner in order to obtain such additional information as such Partner
has deemed necessary to make an informed investment decision with respect to a purchase of an
interest in the Partnership and, unless otherwise disclosed in writing to the General Partner
(which such writing shall constitute a representation by such Limited Partner hereunder), that
such Partner is an accredited investor, as that term is defined in Regulation D promulgated by the
Securities and Exchange Commission. Limited Partner represents that such Partner is not subject
to a “Bad Actor” disqualification, as such term is used in Rule 506(d) of Regulation D
promulgated by the Securities and Exchange Commission. Limited Partner covenants to
immediately provide written notice to the General Partner in the event such Limited Partner is
charged with, or convicted of, any felony or misdemeanor or is the potential target of, or
314346824.12 19
becomes subject to, any order, judgment, decree or other condition set forth in Rule 506(d) of
Regulation D promulgated by the SEC. Limited Partner covenants to provide such information to
the General Partner as the General Partner may request in order to comply with the disclosure
obligations set forth in Rule 506(e) of Regulation D promulgated by the Securities and Exchange
Commission;
(g) Limited Partner acknowledges and understands that the Partnership will
seek to comply with all applicable laws concerning money laundering and similar activities to
which the Partnership may be or become subject as a credit fund. In furtherance of such efforts,
Limited Partner hereby represents and agrees that, to the best of such Limited Partner’s
knowledge based upon appropriate diligence and investigation: (i) none of the cash or property
that is paid or contributed to the Partnership by such Limited Partner shall be derived from, or
related to, any activity that is deemed criminal under United States law; and (ii) no contribution
or payment to the Partnership by such Limited Partner shall (to the extent that such matters are
within the control of such Limited Partner) cause the Partnership or the General Partner to be in
violation of the United States Bank Secrecy Act, the United States Money Laundering Control
Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001. Limited Partner shall promptly notify the General Partner if any of the
foregoing shall cease to be true and accurate with respect to such Limited Partner;
(h) Limited Partner hereby agrees to provide to the General Partner any
additional information regarding such Limited Partner deemed necessary or convenient by the
General Partner to ensure compliance with all applicable laws concerning money laundering and
similar illicit activities. Limited Partner understands and agrees that the Partnership or the
General Partner may release confidential information about such Limited Partner and, if
applicable, any underlying beneficial owners, to proper authorities if the General Partner
determines that it is in the best interests of the Partnership or its Affiliates in light of relevant
rules and regulations under the laws set forth above;
(i) Limited Partner understands and agrees that, if at any time it is discovered
that any of the foregoing representations are incorrect, or if otherwise required by applicable law
or regulation related to money laundering and similar activities, the General Partner may
undertake appropriate actions to ensure compliance with applicable law or regulation, including
segregation or redemption of such Limited Partner’s investment in the Partnership, cessation of
further distributions to such Limited Partner, refusal of future capital contributions by such
Limited Partner, and other similar acts. In the event that the General Partner takes any of the
foregoing acts, Limited Partner agrees that the General Partner may manage the remaining
portion of such Limited Partner’s investment in the Partnership separate and apart from the
Partnership’s assets, including selling or otherwise disposing of such assets and reinvesting the
proceeds therefrom. The rights and obligations of the General Partner under this Section 9.1(i)
shall expressly supersede any duties that the General Partner may have to such Limited Partner
under the Act or otherwise; and
(j) In addition to any remedies at law or in equity, Limited Partner severally
agrees to indemnify and hold harmless the Partnership, the Adviser, the Fund Administrator, the
General Partner and their respective Affiliates and each other Limited Partner from and against
any and all losses, liabilities, damages, penalties, costs, fees and expenses (including legal fees
314346824.12 20
and disbursements) that may result, directly or indirectly, from any acts taken by the General
Partner in accordance with the preceding paragraph.
9.2 Transfer by Limited Partner.
(a) No Limited Partner shall sell, assign, pledge, mortgage or otherwise
dispose of or transfer its interest (whether voluntarily, involuntarily, by operation of law or
otherwise) in the Partnership or the Partnership’s capital assets or property without the prior
written consent of the General Partner, which consent may be withheld or granted in its sole and
absolute discretion, and without compliance with Section 9.3(b) below. The Partnership may
redeem any interest of any Limited Partner acquired by any Person, or in any transaction, in
violation of applicable law, as determined by the General Partner in its sole and absolute
discretion. No transfer of a limited partner interest will be effective other than on the first day of
a Partnership fiscal year, unless the General Partner determines otherwise in its sole and absolute
discretion. The General Partner may condition such consent on receipt of an opinion of counsel
reasonably acceptable to it and its counsel that such transfer or disposition would not:
(i) result in any of the Partnership’s assets being considered, in the
opinion of counsel for the Partnership, as “plan assets” within the meaning of ERISA or any
regulations proposed or promulgated thereunder;
(ii) result in the termination of the Partnership’s tax year under
Section 708(b)(1)(B) of the Code;
(iii) result in violation of the Securities Act or any comparable
provision under state law;
(iv) require the Partnership to register as an investment company under
the Investment Company Act of 1940, as amended;
(v) result in any Limited Partner who is not a “qualified client” within
the meaning of the Investment Advisers Act of 1940, as amended, holding an interest in the
Partnership;
(vi) require the Partnership, the General Partner, the Adviser or any
member of the General Partner to register as an investment adviser under the 1940 Act;
(vii) result in a termination of the Partnership’s status as a partnership
for United States federal income tax purposes;
(viii) result in a violation of any law, rule or regulation by the Limited
Partner, the Partnership, the General Partner, the Fund Administrator, the Adviser or any
member of the General Partner;
(ix) cause the Partnership to be deemed to be a “publicly-traded
partnership” as such term is defined in Section 7704(b) of the Code or would make the
Partnership ineligible for “safe harbor” treatment under Section 7704 of the Code and the
Treasury Regulations promulgated thereunder; or
314346824.12 21
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US Capital Global Credit Income Fund – Investor Pack - 30 Oct 19
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