exhibit 57 - madofftrustee · pg 2 of 59. confidential ofeiilung memorandum gabriel capital, l.p....

EXHIBIT 57

09-01182-smb Doc 293-57 Filed 11/25/15 Entered 11/25/15 12:57:22 Exhibit 57 Pg 1 of 59

GABRIEL CAPITAL, L.?.

A Delaware LiznitedPartnership

CONFIDENTLAL OFFERING MEMORANDUM

March 200G

General Partner:450 ParkAvenue

32nd FLoorNew York, New York 10022

ANY REPRODUCTION OR DISTRIBUTION 0F TRIS CONFIDENTIAL OFFERINGMEMOBAt4D UM, IN WHOLE OR IN PART, OR TRE DISCLOSURE OF ANY OP ITSCONTENTS, MAY VIOLATE APPLICABLE SECIJRThDS LAWS AND LSrRoamrEn WITHOUT TIlE EX1ThESS PRIOR WBzIJITEN CONSENT 01? THECENEIt4L PAIRTN R. NOTW-IPHSTMWING ANYI'IHNG ro TIlE CONTIM!«REREIN, EACH INVESTOR (AN) EACH EMPLOYEE, REPRESENTATIVE, OROTHER AGENT OF SUCH INVESTOR) MAY DISCLOSE TO ANY AND ALLPERSONS, WITHOUT LIMITATION OF ANY KIND, TRE TAX TREATMENT AN!)TAX STRUCFURE 0F (I) TRE PAk174ER&HP AN) (U) ANY OF PISTRANSACTIONS, AND ALL MATERIALS OF ANY KIN)) (INCLUDING OPINIONSOR OTHER TAX ANALYSES) THAT ABE PROVIDED TO TRE INVESTORRELATJNGTO STiCH TAX TREATMENT AN) TAX STRUCTURE.

The inférmation contained herein is confidential and is furnished forliiformalional purposes only. This Confidential Offering Memorandum supersedes allearlier disclosure concerning the Partnership.

9990139.8

CONFIDENTI2½L

EXHIBIT

,'972rc-//0-79-77 -4 J

GCC - SEC 0000874

SECSAZ0000874


CONFIDENTIAL OFEIilUNG MEMORANDUM

GABRIEL CAPITAL, L.P.

450 Park Avenue32nd Floor

New York, New York 10022

Gabriel Capital, LA'., a flelaware limited partnership formed on January 1, 1991(the "Partnership'"), was organized to operate as a private investment partnership for the bcncfitof U.S. lavable investors. The Partnership's investment objective is to provide limited partnerswith a total return on their investment consisting of capital appreciation and income by investingin a diverse portfolio of securities. Generally, the Partnership will invest and trade in U.S. andnon-U.S., marketable and non-marketable, equity and debt securities and options, as welt asother evidences of ownership interest or indebtedness, including receivership certificates, aridpromissoly notes and payables to trade creditors of distressed companies or companies inChapter II banlciuptcy proceedings, and commodities contracts, futures contracta (relating tostock indices, options on stock indices, commodities andoptions on commodities) and (onwardcontracts. The Partnership will invest in the securities of corporations believed, to befundamentally undervalued. The Partnership will also make indirect investments with third-party managers; including investments through managed accounts and investments in mutualfunds, private investment partnerships, closed-end funds and other pooled investment vehicles(including special purpose vehicles), which engage in similar investment strategies as thePartnership (collectively, "Other TnvStunent Entitith"). The Partnership expects to invest inprivate and testricted securities. The Partnership may utilize leverage when deemed appropriateby the Generai Partner (as dcfmcd bclow), including to enhance the Partnership's returns andmeet withdrawals that would otherwise result in the premature liquidation of investments.There can be no assurance that the Partnership's Investment objective will be achieved.(See "Investment Program.")

- J. Ezra Merkin serves as the geretal partner of the Partnership (the "GeneralPartner"). The General Partner has ultimate responsibility for the management, operations andinvestment decisions made on behalf of the Partnership. Gabriel Capital Corporation, aDelaware corporation (the "Management Company"), provides administrative and managerialservices to the Partnership. All of the outstanding capital stock of the Management Company isowned or controlled by L Ezra Merkin.

This Confidential Offering Memorandum relates to au offering of Class B limitedpartner interests in the Partnership (the "Interests") to certain investors that, if accepted, wiltbecome limited partners cf the Partnership (each, a "Limited Farther" or 'Class B LimitedPartner"). The Partnership has issued Class A interests (the "Class A Interests") to investors(each, a "Class A Limited Paitnef', and together with the Class B Limited Partners rind theGeneral Partner, the "Partners"). The Partnership may oftbr Interests to prospective new LimitedPartners as of the beginning of each quarter (or at such other times as the General Partner in itssolo discretion may allow).

9990439.8

CONFIDENTIAL GCC - SEC 0000875

SECSAZ0000875


Investors in the Partnership must be "accredited investors" as defined in Rule 501under the Securities Act of 1933, as amended, "qualified purchasers" as such term is defined inSection 2(a)(51) of the Investment Company Act of 1940, as amended, (the" Company Act"),and must meet other suitability requirements. Interests may not be purchased by nonresidentaliens, foreign corporations. foreign partnerships, foreign trusts or foreign estates, all as defusedin the Internal Revenue Code of 1986, as amended (the "Code"), or by entities that are tax-exempt Such investors may be eligible to invest in Ariel Fund Limited, a Cayman Islandsexempted company that maintains a similar investment program as that of the Partnership TheGeneral Partner, in its soie discretion, may decline to admit a prospective investor for any reasonor for no reason, even if it satisfies the Partnership's suitability requirements.

Interests in the Partnership are suitable only for sophisticated investors (i) that donot require immediate liquidity for their irivestuients, (ii) for which an investment in thePartnership does not constitute a complete investment program and (iii) that fully understand andare willing to assume the inks involved in the Partnership's investment progranL ThePartnership's investment practices, by their nature, may be considered to involve a substantialdegree of rist (See "Investment Program' and "Certain Risk Factors").

Prospective investors should carefully read this Confidential OfferingMemorandum. The contents of this Confidential Offering Memorandum, however, should notbe considered legal or tax advice, and each prospective investor should consult its own counseland advisers as to all matters concerning an investment in the Partnership.

There will be no public offering of the Interests. No offer to sell (or solicitationof an offer to buy) will be made in any jurisdiction in which such offer or solicitation would beunlnw lid.

This Confidential Offering Memorandum bas been prepared solely for theinformation of the person to whom it has been delivered on behalf of the Partnership and maynot be reproduced or used for any other purpose. The dissemination, distribution, reproductionor othcruse of all or any portion of this ConfidentialOfferirig Memorandunjor the divulgence oCany of its contents other than to the prospective investor's financial, tax or legal advisors, withoutthe prior written approval of the General Partner, is prohibited Any person thnt receives thisConfidential Offering Memorandum and does not purchase a Interest is requested to promptlyreturn this Confidential Offering Memorandum to the General PartneL Notwithstandinganything herein to the contrary, each investor (nn& each employee, representative, or other agentof such investor) may disclose to any and all persons, without limitation of any kind, the taxtreatment and tax structure of (i) the Partnership and (ii) any transactions described herein, andall materials of any kind (including opinions or other tax analyses) that are provided to theinvestor relating to suçh tax frentment and tax structure. Each person accepling this ConfidentialOffering Memorandum agrees to return it to the General Partner promptly upon request ThisConfidential Offering Memorandum is accurate as ofita date, and no representation or wanantyis made as to its continued accuracy after such dato

The Partnership will not be registered as an investment coulpany under theCompany Act and, therefore, will not be required to adhere to certain operational restrictions and

9990439S

CONFIDENTIM. GCC - SEC 0000875

SECSAZ000087G


requirements under the Company Act. The Genen! Patiner is not registered as an investmentadviser under the Jnvestment Advisers Act of 1940, as amended.

WHILE THE PARTNERSHIP MAY TRADE COMMODITY FUTURESANDIOR COMMODrrY OPTIONS CONTRACTS, TRE GENERAL PARTNER IS EXEMPTFROM REGISTRATION WITH THE COMMODITY FUTURES TRADING COMMISSION("cFrC') AS A COMMODITY POOL OPERATOR Ç'CPO") PURSUANT TO CFTC RULE4.13(a)(4). THEREFORE, UNLIKE A ItEGISItRED CPO, THE GENERAL PARTNER ISNOT REQUIREI) TO DELIVER A CFTC DISCLOSURE DOCUMENT TO PROSPECTIVELIMiTED PARTNERS, NOR IS TIE REQUIRED TO PROVIDE LIMITED PARTNERS WITHCERTIFIED ANNUAL REPORTS THAT SATISFY TRE REQUIREMENTS OP CFTCRULES APPLICABLE TORJ3GISIbRED CPOs.

THE GENERAL PARThER QUALIFIES FOR THE EXEMPTION UNDERCFTC RULE 4.13(a)(4) ON TI-lE BASIS THAT. AMONG OTHER .THJNGS (1).EACHLIMITED PARTNER IS EITHER. (A) A NATURAL PERSON WHO IS A "QUALIFIEDELIGIBLE PERSON" AS DEFINED IN CFTC RULE 4.7(a)(2) OR (B) A NON-NATURALPERSON THAT IS EITHER AN "ACCREDITED INVESTOR" AS DEFINED UNDERSECUPrFmS AND EXCHANGE COMMISSION RULES OR A "QUALIFIED ELIGIBLEPERSON AS DEFINED UNDER CFTC RULE 4.7; AND (II) INTERESTS IN THEPARTNERSHIP AlOE EXEMYr PROM REGISTRATION UNÏ)ER THE SECURrrIES ACTOF 1933 AND OFFERED AND SOLD WITHOUT MARKETING TO THE PUBLIC IN THEUNiTED STATES.

NO OFFERING LITERATURE OR ADVERTISING IN WHATEVER FORMWILL BE EMPLOYED IN THE OFFERING OF THE INTERESTS EXCEPT FOR TEnSCONFIDENTIAL OFFERING MEMORANDUM, STATEMENTS CONTAINED HEREINAND wRrrrEN MATERIALS SPECIFICALLY APPROVED BY THE GENERALPARTNER. NO PERSON RAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONOR GIVE ANY INFORMATION WITH RESPECT TO THE INTERESTS, EXCEPT FOR TUEINFORMATION CONTAINED HEREIN.

THE INTERESTS ¡lAVE NOT BEEN FILED WITH OR. APPROVED ORDISAPPROVED BY THE SECURiTIES AM) EXCHANGE COMMISSION OR ANYOTHER GOVERNMENTAL AGENCY OR . REGULATORY AUTHORITY OR ANYNATIONAL SECURITIES EXCHANGE. NO SUCH AGENCY, AUTIIOIUTY OREXCHANGE HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THISCONFIDENTIAL OFFERING MEMORA}4DUM OR THE MERITS OF AN INVESThIENTIN THE PARTNERSHIP INTERESTS OFFERED BElWE?. ANY REPRESENTATION TOTHE CONTRARY IS UNLAWFUL

99904J92

CONFIDENTIAL . GCC - SEC 0000877

SECSAZ0000877


EACH PROSPECTIVE INVESTOR IS IN ITED TO MEET WiTH TITEGENERAL PARTNER TO DISCUSS WITH, ASK QUESTIONS OF, ATh1D RECEIVEANSWERS FROM, THE GENERAL PARTNER CONCERNING THE TERMS ÀN]c0NTbLrIONS OF THIS OFFERING OF THE INTERESTS, AND TO OBTAIN ANYADDITIONAL INFORMATION, TO THE EXtENT THE PARTNERSHIP POSSESSESSUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OREXPENSE, NECESSARY TO VERIFY TIlE INFORMATION CONTAINED HEREIN.

THESE sECuRrrms ARE SUBJECT TO RESTRICTIONS ONtRANsmIABILIn AND RESALE AND MAY NOT BE TRANSFEIUED OR RESOLDEXCEPT AS PERMITTED UNDER TITE SECURITIES ACT OF 1933, AS AMENDED,PURSUANT It) REGISTRATION OR EXEMPTION TREREPRONL INVESTORS SHOULDBE AWARE THAT THEY MAY BE REQUIRED TO BEAR TITlE FINANCIAL RISKS OFTHIS INVESTMENr FOR AN INDEFINITE PERIOD OF TIME.

* * *

IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELYUPON THEIR OWN EXAMINATION OF THE PARTNERSHII' AN]) THE TERMS OF THEOFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.

SECSAZ0000878

999e439.z

CONPIDENTIM. GCC - SEC.0000878


99904 39. g

C0NFIDENTIa . CCC - SEC 0000879

TABLE 01? CONTENTS

SECSAZ0000879

SUMMARY 0F TERMS

THE PARTNERSHIP

INVESTMENT PROGRAM 14

THE GENERAL PARTNER AND THE MANAGEMENT COMPANY 16

THE INTERESTS 16

SALES CHARGES 17

FISCAL YEAR 17

SPECIAL rNVESTMENT SUB-ACCOUNTS 17

ALLOCATIONS OF GAINS AND LOSSES; INCENTIVE ALLOCATION..............- ...........18

MANAGEMENT FEE; EXPENSES IS

CERTAIN RJSKFACI'ORS 19

CONFLICFS OF INTEREST . 30

BROKERAGE COMMISSIONS 31

OUTLINE OF PARTNERSHIP AGREEMENT 32

ANTI-MONEY LAUNDERING ÌtEGULATIONS 50

LIMITATIONS ON TRANSFERABILITY; SIJITABILFY REQUIREMENTS 50

COUNSEL 51

AUDITOR; REPORTS 51

SUBSCRIPTION FOR INTERESTS 51

ADDITIONAL INFORMATION 52


GABRIEL CAPITAL, L.?,

SUMMARY OF TERMS

The following is a summary of thè principal ternis of the Partnership (as definedbelow). The following summary is qualified in its entirety by the more detailed information setforth in this Confidential Offering Memorandum and by the ternis and conditions of (lie LimitedPartnership Agreement of the Partnership, as the same may be amended from tithe to time. Thissumnniary should be read in ceunction with such detailed info nuation.

TRE PARTNERSBTh Gabriel Capitg LP., ù Delaware tiniited partnershipformed on January 1, 1991 (the "Partnership"), wasorganized to operate as a private investment partnershipfor the benefit of 118. taxable investors. (See fl'hePartnership.'1)

Ariel Fund Limited, a Cayman Islands exemptedcompany organized for the benefit of U.S. tax-exemptand non-U.S. investors, follows an investment programsubstantially similar to that of the Partnership (the'Offshore Fund"). The Offshore Fund and thePartnership will invest on a side-by-side basis, unlessdifferences in the investments of the Offshore Fund or theU-S. Partnership are deemed to be in the best interest ofthe respective fund's investors.

ThVESTMENT PROGRAM: The Partnership's investment objective is to providelimited partners with a total return on their investmeñtconsisting of capital appreciation and income byinvesting in a diverac portfolio ofsecurities. Generally,the Partnership will invest and trade in U.5 and non-U.S., marketable and non-marketable; equity and debtsecurities and options, as welt as other evidences ofownership interest or indebtedness, includingreceivership certificates, and promissory notes andpayables to trade creditors of distressed companies orcompanies in Chapter 11 bankruptcy proceedings, andcommodities contracts, futures contracts (relating tostock indices, options on stock indices, commodities andoptions on commodities) and forward contract& ThePartnership wilt invest in the securities of corporationsbelieved to be fundamentally undervalued. ThePartnership will also make indirect investments withthird-party managers, inclñding investments throughmanaged accounts and investments in nmtual - funds,private investment partnerships, closed-end funds andother pooled investment vehicles (including special

99904392

-CONFIDENTIAL - CCC - SEC 0000880

SEC SAZO 000880


purpose vehicles), which engage in similar investmentstrategies as the Partnership (collectiveLy, "OtherInvestment Entities"). The Partnership expects to investin private and restricted securities. The Partnership mayutilize leverage when deemed appmpriate by theGeneral Partner (as defined below), including toenhance the Partnership's returns and meet withdrawalsthat would otherwise result in the premature liquidationof investments. There can be no assurance that thePartnership's investment objective wifl be achieved.(See "JtÑestment Program.")

When the Partnership engages in investments throughOther Investment Entities, fees, including performance-based Ices, may be payable by the Partnership, inaddition to the fees payable to the General Partnerdiscussed below. 'n such cases, the General Partner willretain overall investment responsibility for the portfolioof the Partnership (although riot the investmentdecisions of any independent money managersmanaging Other Investment Entities). Sucharrangements are subject to periodic review by theGeneral Partner and are terminable at reasonableintervals in the. General Partner's discretion. ThePartnership may withdraw from or invest in differentinvestment fluids anti terminate or enter into newinvestment advisory agreements without prior notice to,or consent of, the Limited Partners (as defmed below).(See 'Certain Risk Factors - independent MoneyManagers.')

From time to time, the General Partner may, in his solediscretion, acquire assets or securities that the GeneralPartner believes lack a readily ascertainable marketvalue or otherwise lack sufficient liquidity. Certain ofthese investments (not exceeding 40% of the net assetvaine of each Limited Partner's capital accounts,calculated at the time such investments are designated,and with such investments valued at cost) may bedesignated special investments (each a SpecialInvestment") to be put into separate special investmentsub-accomits ("Special investment Sub-Accounts'). inaddition, existing investments may be designatedSpecial Investments and will be valued at their carryvaIne when so designated. interests in a SpecialJavestment Sub-Account are allocated pro rata tothose investors that are Partners (defined below) atthe time n Special Investment is made (or

99504)92 2


SECSAZ0000B81


TilE GENERAL PARTNER;MANAGEMENT COMPANY:

THE ÌNTERESTS

99504392

designated). (See Special Investment Sub-Accounts;Allocation of Gains and Losses and IncentiveAllocation.")

The General Partner will not permit more than the greaterof 50% of the Partnership's capital and 25% of thePartnershijis total assets (on a cost basis, givingconsideration to hedging tecbniqùes utilized) to beinvested in a single investment Moreover, it will notpermit more than 10% of the Partnerships capital to beplaced at risk in a single mvesthenL The General Partnerwill have the discretion to deteirnine how much is at riskfor purposes of this test

The Partnership's investment program is speculativeand may entail substantial risks: Since market risksare inhercnt in all investments to varying degrees,there can be no assurance that the Partnership'sinvestment objectives will be achieved. In fact, certaininvestment practices described above can, in somecircumstances, substantially increase the adverseimpact on the Partnership's investment portfolios.(Se "Certain Risk Factors')

J. Baa Merlcin will serve as the general partner of thePartnership (the "General Partner"). The Geñeral Partnerhas ultimate responsibility fot the management,operations and investment decisions made on behalf ofthe Partnership.

Gabriel Capital Corporation, a Delaware corporation(the "Managemcnt Company"), provides administrativeand managerial services to the Partnership. All of theoutstanding capital stock of the Management Companyis owned or controlled by J. Ezra Merkin.

This Confidential Offering Memorandum relates to anoffering of Class B limited partner interests in thePartnership (the h1Jnterestst) to certain investors that, ifaccepted, will become limitád partners of the Partnership(each a "Limited Partner" or a "Class B LimitedPartner"). The Partnership has issued Class A interests(the "Class A Tnterests") to investors (each, a "Class ALimitaI Partner", and together with the Class B LimitedParturs and the General Partner, the 'Partners"). Class AInterests have different redemption rights and lessexposure to Special Investments than the Limited Partner

3

SECSAZ0000S82

CONFIDENTThL CCC - SEC 0000882


Interests.

The General Patiner may issue other classes of interestsin the future that differ in terms of, among other things,ñ&lts, powers and duties, including rigbts, powers andduties senior to existing classes of Limited Parthers TheGeneral Partner may establish new cices of interests,and letennine the terms of such classes, without approvalof the existing Limited Partners. (See "The Interests.')

SPECIAL INVFSTMENT SUB- The Fartiaership will establish a Special Investment Sub-ACCOUNTS Account for each investment that the General Partner

deems a Special Investment. Only persons that arePartners at the time such Special Investment Sub-Account is established shall participate in such SpecialInvestment Sub-Account and their respective Intereststhcrcin shall be determined in accordance with theirrespective partnership percentages at th time suchSpecial Investment Sub-Account is established. Anysecurity position' in a Special Investment Sub-Accountshalt tint be considered to be a part of a Partner's capitalaccount, except to the extent the investment or theprorPeds of such SpeciaL Investment Sub-Account arereallocated to a Partner's capital accounL Upon a sale,distribution to Partners or other disposition which shallconstitute a "realization" of all or a portion of a SpecialInvestment held in a Special Investment Sub-Account(including a detennination by the General Partner, in hissole discretion, that such special investment should nolonger be maintained in a Special Investment Sub-Account), the net proceeds of such investment will beallocated to the capital accounts of the Partnersparticipating in such Special Investment Sub-Account inproportiort to such Partners' participating percentages insuch Special Investment Sub-Account

In the event the Partnership makes an investment thatthe General Partner determines is a follow-upinvestment to a Special Investment held in a SppcialInvestment Sub-Account (each a 'Follow UpInvestment'), the participating Partners thafl share insuch Follow-Up Investment in proportion to theirparticipating percentage interest in the related SpecialInvestment Sub-Accotmt provided, however, that theGeneral Partner, in his reasonable discretion, maypermit additional Limited Partners to participate in suchFollow-up Investment; provided further, however, thatif a Limited Partner shall have withdrawn from the

99%439.s 4

CONFIDEIQTTPL GCC - SEC 0000883

S ECSAZOO 00883


Partnership, the General Partner shall equitably adjustthe participating percentage interests of the remainingparticipating Partners to reflect such Limited Pates'swithdrawal and non-participation in the Follow-UpInvestment In its discretion, the General Partner neednot designate as a "Follow-Up Investment" an additionalinvestment in the same or similar opportunity as theinvestment for which a Special Investment Sub-Accounthâs been established. Such investment may bedesignated as a new Special Investment (5cc "SpecialInvestment Sub Accounts.")

MINIMUM SUBSCRIPTION: The Partnership may offer. Interests to new LimitedPartners as of the beginning of each quaites (or at suchother times as the General Partner in its sole discretionma allow).

The minimum initial subscription is $1,000,000 for anInterest in the Partnership, subject to the discretion of theGeneral Partner to accept lesser amounts.

ADDITIONAL CAPITAL Limited Partners of the Partnership may make additionalCONTRIBUTIONS: capital contributions in amounts of at least $250,000 with

the consent of the General Partner and subject to hisdiscretion to accept other amounts. Each capitalcontribution of a Limited Pas-ther will be credited to suchLimited Partner's capital account.

SALESCILMIGE& There are no sales charges payable tothe General Partneror the Partnership in connection with the offering ofInterests. (Soc "Sales Charges.")

FISCAL YEAR: The fiscal year of the PartnerShip will end onDecember31 of each catendarycar.

ALLOCATION OFGAJNSANI) Partnership loss for each accounting period will beLOSSES AND INCENTIVE allocated among the Partners in proportion to the balanceALLOCATION: in their respective capital accounts at the start of such

period. At the end of each accounting period, eachPartiel s capital account will be increased proportionatelyto reflect Partnership income for each accounting period(including any increase reflecting such Partner's share ofcash or value of securities or proceeds transferred from aSpecial Iñvestment Sub-Account to the Partner's capitalaccount @ased upon its pro rata interest in such SpecialInvestment Sub-Account) and 4eceased by the cash orvalue of securities transferS from such Partner's capital

- account to a Special Jnvestnient Sub-Account). Income


SECSAZ0000884


and loss for this purpose will include unrealizedappreciation and depreciation on investments (other thanunrealized appreciation or depreciation in a SpecialInvestment Sub-Account).

Each Limited Partner's share of the Partnership's netincome in excess. of the Management Fee (definedbelow) for the accounting periods to date during thatyear (including any income or loss realized oninvestments previously held in Special Investment Sub-Accounts) will be allocated 20% to the General Partner(or to a designee as he shall direct) and 80% to suchLimited Partner (the "Incentive Allocation"). Similarallocations will be made with respect to a LimitedPartner's capital account at the tirite such LimitedFarther withdraws capital from the Partnership. There isne "high watej mark' concept in the calculation ofJnccntive Allocation. At his discretion, the GeneralPartner may waive the allocations described above withrespect to any particular Limited Partner.

Whenever income or loss is realized (or deemed realized)in a Special Investment Sub-Account, such income orloss will be allocated to all Partners having an interest insuch account pro rafa in proportion to their interest insuch account, and then transferred to such Partner'sregular capital account at the end of the accountingperiod. Notwithstanding the foregoing, if a LimitedPartner withdraws all or subslnntiall' all of its capitalaccount (becoming n "Withdrawn Limited Partner').before the realization (as described herein) of that portionof his capital allocated to a Special Investment Sub-Account, incòme realized or deemed realized subsequentto withdrawal will be allocated 20% to the GeneralPartner (or to a designee as it shall direct) and 80% tosuch Withdrawn Limited Partner.

MAÑACEMENT FEE; On the last business day of each fiscal year of theOPERATING AND oThER Partnership and upon dissolution, an amouirt equal to 1%EXPENSES: . (prorated for periods of less than a year) of each Limited

Partner's capital account balance at the beginning of Sichyear plus such Partner's contributed capital during suchyear Çmclriding all amounts allocated; to a SpecialInvestment Sub-Account) will be charged against -auchLimitai Partner's capital account and paid io the GeneralPartner as a management fee (the "Management Fee").At his discretion, the General Partner may waive the feesdescribed above with respect toy particular Limited

9990439.8 6

CONF IDENT IPL GCC - SEC 0000885

SECSAZ00008B5


WITHDRAWALS:

9990439.8

Partner.

The Partnership. shall (i) pay, or cause to be paid, allcosts, fees, operating expenses and other expenses of thePartnersh'p (including the costs, fees and expenses ofattorneys, accountantS or other professionals and thecompensation of ali personnel providing services to thePartnership, including, in the discretion of the GeneralPartner, the General Partner) incurred in organizing thePartnership and in pursuing and conducting, orotherwise related to, the activities of the Partnership,and (ii) reimburse the General Partner for any out-of-pocket costs, fees and expenses incurred by him inconnection therewith The amount of any costs, feesand expenses incurred in connection with the purchase,sale or carrying of any security, including, but notlimited to, brokerage and other transaction costs andmargin interest expenses will be paid by the Partnership.Notwithstanding the foregoing, any investment expenserelating specifically to a Special Investment Sub-Account will be charged against the capital accounts ofthe Partners participating in such Special InvestmentSub-Account in . proportion to their rcspectiveparticipating percentage interests therein.

In addition, the Partnership 5 responsible for certainexpenses of the General Partner, including, but notlimited to, rent and salaries of personnel. Historically,such expenses have not exceeded J% of the Partnership'snet assets, however, there can be no assurance that thiswill continuo to be tuso in the future.

If any of the above expenses are incun-ed jointly for theaccount of the Partnership lud any other investment findsor trading accounts sponsored or managed by the GeneralPartner or bis affiliates, such expenses will be allocated tothe Partnership and such other funds or accounts in amanner as the General Partner considers fair andreasonable. (See "Management Fee; Expenses";"Brokerage Commissions"; "Auditors"; and FinancialReports,")

A Clacc B Limited Partner may withdraw all or part ofsuch Limited Partner's capital account korn thePartnership with respect to capital contributions madeon or after February 1, 2006 at the end of the calendarquarter after the two year anniversary of the date suchInterests were purchased (the Wirst Withdrawal Date"),

7

SECSAZ0000886



SPECIAL INVESTMENT sim-ACCOUNT WITHDRAWAL

9990439S

and, thereafler, on each axiniversaiy of tIre FirstWithdrawal Date upon 45 days prior written notice tothe General Partner.

A Class A Limited Partner may withdraw all or part ofsuck Limited Partuef s capital account from thePartnership on June 30 or December 31 of any fiscalyear upon 45 days prior written notice to the GeneralPartner.

Each date as of which a Limited Partner withdraws allora portion of its capital account or withdraws from thePartriexuhip is herein refeired to as a "Withdnwal »ate."

Excluding amounts allocated to Special Investment Sub-Accounts, the Withdrawing Partner will receive theamount of such Limited Partner's capital account (lessreserves determined by the General Partner forcontingent liabilities) within 90 days after withdrawal.All amounts remaining unpaid (less reserves) will beginto bear interest at a rate equal to a specified broker's callrate for the period beginning 30 days after the effectivedate of such withdrawal and ending 90 day after theeffective date of such withdrawal.

A distribution in respect of a wiihdrawal may be madein cash or in kind, as determined by the General Partnerin its discretion. In-kind distributions will be made toWithdrawing Limited Partners on a pro rata basis.

Limited Partners may not otherwise make withdrawals,and the Partnership does not plan to make pro ra/adistributions to Partners on an ongoing basis.

Notwithstanding the foregoing, no withdrawal may bemade by a Limited Partner from any portion of itscapital account that is allocated to a Special InvestmentSub-Account If a portion of a Withdrawn LimitedPartner' s capital account has been allocated to a SpecialInvestment Sub-Account, then, unless otherwisedetermined by the General Partner, the amottdistributed to such Withdrawn Limited Partner will notinclude any interest of such Partner in such SpecialInvestment Sub-Account. Such Partner will retain itsinterest inn any Special Inveshnent Sub-Account until therealization or deemed realization of the Specialhvetment relating to such Special Investment Sub-Account Income realized or deemed realized

g

SECSAZ00008B7

CONFIDENTIAL CCC - SEC 0000887


subsequent to withdrawal will be allocated 20% to theGeneral Partner (or to a designee as it shall direct) and80% to such Withdrawn Limited Partner. My tossrealized subsequent to such withdrawal shall beflocated to the Withdrawn Limited Patiner. Upon the

realization of a Special Investment of a WithdrawnLimited Patiner which is held in a Special InvestmentSub-Account, the proceeds allocable to that WithdrawnLimited Farther, after reduction for the IncentiveAllocation, if any, will be paid to the WithdrawnLimited Partner.

lii addition, if after giving eftèct to a withdrawal, aLimited Partner would be completely withdrawn from thePartnership except for its interest in one or more SpecialÏnyestinent Sub-Accounts, all or a portion of the proceedswith respect to such withdrawal may be reserved or heldback to pay for the Management Fee expected to beearned over the life of the Special Investments. Upon therealization or deemed tealization of the applicable SpecialInvestments, any unused reserve or hold back shall bepaid to such Limited Panner.

To the extent, the amount reserved or held back to payManagement Fees (as described above) does not coverManagement Fees that would otherwise be payable overthe life of the Special Investment, then such unpaidManagement Fees may be paid out of profits, if any,earned in respect of such Special Investment for theperiod beginning from the tinte such shortfall begins toaccrue until realization or deemed realization. "AccruedJnterest" is the amount of interest earned on any amountheld back that, at the tinte of calculation, has not beenapplied to the Management Fees in respect of anySpecial Investment Sub-Account of a Limited Partnerthat bas withdrawn all or substantially all of its capitalaccount.

COMPULSORY The General Partner may, in its sole discretion, terminateWITHDRAWAL; SUSPENSION the Interest of any Limited Partner, in whole or in part,OF WIThDRAWAL BIGHTS: upon at least thirty days prior written notice.

The General Partner, by written notice to any LimitedParther, tray suspend the withdrawal rights of suchLimited Panner if the General Partneç reasonably deemsit nece's'ary to do so to cothply with anti-moneylaundering laws and regulations applicable to thePartnership, the Genera! Partner or any of the

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CONFIDENTIAt - .. - GCC - SEC 0000888

SECSAZ0000B88


DISSOLUTION:

RESTRICTIONS ONTRANSFER:

Partnership's other service providers. (See "Anti-MonyLaundering Regulations" and "Outline of PartnershipAgreement")

The Partnership will dissolve upon the fest to occur ofthe following'. (i) a detennination by the General Partnerthat the Partnership should be dissolved or (ii) the death,bankruptcy, retirement or irsanity of the General Partnerwhich prevents him from devoting substantially his entiretime, skill and attention to the Partnership and other findsand managed accounts for a period of 90 days; (ii»December 31, 2015; or (iv) any averE causing thedissolution of the Partnership under the laws of the Stateof D ei aware.

No Limited Partner or transferee thereof will, withoutthe prior written consent of the General Partner, whichmay be withheld in his sole discretion, create, or sufferthe creation cf, a security interest ici such LimitedPartner's Jaterest. Except for sales, transfers,assignments or other dispositions (i) by last will andtestament, (ii) by operation of law, or (iii) to an affiliateof a Limited Partner, without the prior written consentof the General Panner, which may be withheld in hissciÉe discretion, no Limited Partner chaR sell, transfer,assign, or in. any manner dispose of such LimitedPartner's Interest, in whole or in part, nor enter into anyagreement as the result of which any person shallbecome interested with such Limited Partner therein.(Sec "Limitations on Transferability; SuitahilityRequirements.")

CERTAIN RISK FACTORS: There can heno assurance that thefl investment objectiveof the Partnership win be achieved. Investments inilliquid securities and the use of short sales, options,leverage, futures and other derivative instruments maycreate special risks and substantially increase the impactof advtirsa price movements on the Partnership'sportfolio. The Incentive Allocation to the GenetalPartnet may create an incentive for the General Partnerto cause the Partnership, to make investments that areriskier than it would otherwise -make. Moreover, aninvestment in the Partnership provides limited liquiditysince the luterests are not freely transferable, and thePartners will have limited withdrawal iights. (See"Certain Risk Factors.")

9990439.8 10

COFIDENTI2L CCC - SEC 0000889

SECSAZ0000889


LEVERAGE: The Parthership Iras the power to borrow and may do sowhen deemed appxopriice by the General Partner,including to enhance the Partnership's retaras and meetwithdrawals that would otherwise result in theprematura liquidation of investments. The use ofleverage can, in certain circumstances, substantiallyincrease the losses to which the Partnership's investmentportfolios may be subject. (See Certain Risk Factors.")

BROKERAGE COMMISSIONS: Portfolio transactions for the Partnership will beallocated to brokers on the basis of best executiön and inconsideration of a broker's ability to effect thetransactions, its facilities, reliability and financialresponsibility and the provision or payment by thebroker of the costs of re erch and research-relatedservices which áre of benefit to the Partnership, theGeneral Partner or related funds and accounts.Accordingly, the commission rates (or dealer markupsand markdowns arising in connection with riskIestprincipal transactions) charged to the Partnership bybrokers in the foregoing circunstances may be higherthan those charged by other brokers who may not offersuch seryiccs. The General Partner bas flot entered into,and does not expect to enter into, any written soft dollararrangements. -

Morgan Stanley & Co., Inc. (the 'Prime Broker")currently serves as the principal prime broker for thePartnership, and clears (generally on the basis ofpayment against delivery) the Partnership's securitiestransactions that are effected through other brokeragefirms. The Partnership is not conunitted to continue itsrelationship with the Prime Broker for any minimumperiod and the General Partner may select other oradditional brokers to act as prime broken for thePartnership. (See "Brokerage Commissions.")

È2ONFLICrS OF INTEREST: The General Partner and his affiliates will provide.investment management services to managed accountsami other investment partnerships or Thuds, some ofwhich have similar investment objectives to those of thePartnership. Such activities may raise conflicts ofinterest. However, the General Partner or his affiliate;as applicable, will undertake to doso in a manner that isconsistent with their respective fiduciary duties to thePartnership. (See "Conflicts oflnterest")

REGULATORY MATFER& The Partnership is not registered as an investment

9950439.2 Il

GCC - sEc 0000890

SECSAZ000089O


SUITAI3ILIn:

TAXATION:

9990439.8

company and, therefore, is not required to adhere tocertain operational restrictions and requirements underthe Conpany Act

The Partnership relies on the exclusion provided inSection 3(c)(7) of the U.S. Investment Company Act of1940, as amended, which permits private investmentcompanies to sell their interests, on a private placementbasis, to an unlimited number of "qualified purchasers',as defined in Section 2(a)(5I) of the Company Act.

The General Farmer will claim an exemption underCommodity Futures Trading Commission ("CFTC")Rule 4.13(a)(4) from registration with the CHe as acommodity pool operator and, accordingly, is notsubject to certain regulatory requirements with respectta the Partnership that would otherwise be applicableabsent such an exemption.

The General Partner is not registered as an investmentadviser under the Investment Advisers Act of 1940, asamended. (See "The General farine?' and "limitationson Transferability; Suitability Requirements]')

Investors in the Partnership must be "accreditedinvestors" as defined in Rule 501 under the Securities Adtof 1933, as amended, "qimlified purchasers" as such termis defined in Section 2(a)(5l) of the Company Att andmust meet other suitability requirements. Interests maynot be purchased by nonresident aliens, foreigncorporations, fbmign partnerships, foreign trusts orforeign estates, ail as deílued in the Internal RevenueCode of 1986, as amended (the "Code'), or by entitiesthat are tax-exempt Such investors may be eligible toinvest in the Offshòre Fund which has a substantiallysimilar investment program to that of the Partnership.

The General Partner, in its sole discretion, may declineto admit a prospective investor for any other reason orfar no reason, even if it satisfies the Partnership'ssuitability requirements. (See "Limitations onTransferability; Suitability Requirements?)

The Partnership operates as n partnership and not as anassociation or a publicly traded partnership taxable as acorporation for Federal tax puxposes. Accordingly, thePartnership should not be subjecilo Federal incoinetax,and each Limited Partner will be required to report on

12

SECSAZ000089I

CONFTDENTIPJL GCC SEC 0000891


LEGAL COUNSEL'

SUBSCRIPTJON FORINTEREST:

its own annual tax return such Limited Partner'sdisthbutive share of the Partnership's taxable income orloss. (See 'Tax Aspect&")

ERISA MU) OThER TAX- Tax-exempt entities subject to the EmploymentEXEMPT ENTITIES; Retirenrent Income Security Act ci 1974, as amended,

and other tax-exempt entities may purchase shares in theOffshore Fund, but wiLl not be offered Interests in thePartnership.

AUDITORS: BDO Seiciman, LLP serves as the Partnership's auditor.The Partneiship will provide to the Limited Partnersunaudited financial statements within 35 days after theend of each calendar quarter (other than the last) arid willfinnish to them annual audited financial statements within90 days aftcr year end, and tax infonnation as soonthereafter as practicable. Certain Limited Partners mayhave access to certain infonnation regarding thePartnership that may not be available to other LimitedPartners. Such Limited Partners may make investmentdecisions with respect to their mvestineat in thePartnership based on such information.

Schulte Roth & Zabel LLP, 919 Third Avenu; NewYorlç New York 10022, acts as counsel to the Partnersbij.in connection with this offering oflnteres& Sthulte-Roth& Zabet LU' also acts as Wanne! to the General Partnerand his affiliates. In connection with the Partncrshipoffering of Interests and subsequent advice to thePartnership, the Generel Partner and his affiliates, SchulteRoth & Zabcl LU' wilt not be representing the LimitedPartners of the Partnership. No independent counsel hasbeen retained to represent the Limited Partners of thePartnership.

Persons interested in subscribing for Interests will befurnished with, and will be required to compLete andreturn to the General Pastier, subscription documents andother certain documents.

SECSAZ0000892

9990439.8 13

CONPIDENTIAL CCC SEC 0000892


THE PARTNERSHIP

Gabriel Cipital, ER, a Delaware limited partnership formed on January 1, 1991(the 'Partnership"), was organized to operate as a private investment partnership for the benefitof U.S. taxable investors.

Ariel Fund Limited, a Cayman Islands exempted company organized for thebenefit of U.S. tax-exempt and non-U.S. investors, follows an investment pfognm substantiallysùailar to that of the Partnership (the "Offshore Fund"). The Offshore Fund and the Partnershipwill invest on a side-by-side basis, unless differences in the investments of the OtThhore Fund orthe U.& Partnership are deemed to be in the best interest of the respective fund's investors.

INWSTMENT PROGRAM

The Partnership's investment objective is to provide limited partners with a totalreturn on their investment consisting of capital appreciation and income by investing in a diverseportfolio of securities. Generally, the Partnership will invest and trade in US; and non-U.S.,marketable and non-marketable, equity and debt securities and options, as well as otherevidences of ownership interest or indebtedness, including receivership certiffcates, andpromissozy notes and payables to trade creditors of distressed companies or companies inChapter lI bankruptcy proceedings, and commodities contracts, fliturea contracts (relating tostock indices, ¿ptions on stock indines, commodities and options on commodities) and forwardcontracts. The Partnership will invest in the securities of corporations believed to befundamentally undervalued. The Partnership will also make indirect investments with third-party manAgers, including investments through managed accounts and investments in mutualfùnds, private investment partnerships, closed-end funds and other pooled investment vehicles(including special purpose vehicles), which ingago in similar investment strategies as the.Partnership (collectively, "Other Investment Entities"). The Partnership expects to invest inprivate and restricted securities. The Partnership may tmtiliz.e leverage when deemed appropriateby the General Panner (as defined below), including to enhance the Partnership's returns andmeet withdrawals that would otherwise musult in the premature liquidation of investments.There can he no assurance that the Partnership's investment objective will be achieyed.

When the Partnership engages in investments through Other Investment Entities,fees, including performance-based fees, may be payable by the Partnership, in addition to thefees payable to the General Partner discussed below. In such cases, the General Partner willretain òvemall investment responsibility for the portfolio of the Partnership (although not theinvestment decisions of any independent money managers managing Other Investment Entities).Such arrangements are subject to periodic review by the GeneS Partner and are terminahte atreasonable intervals in the General Partnefs discretion. The Partnership may withdraw fions orinvest in different investment finds and terminate or enter into new investment advisoryagreements without prior noticc to, or consent of, tIte Limited Partners. (See "Certain RiskFactois - Independent Money Managers").

From tinte to time, the Generai Partner may, in his sole discretion, acsuire assetsr securities that the General Panner believes lack n readily ascertainable market value or

otherwise lack sufficient liruidity. Certain of these investments (not exceeding 40% of the netasset value of each Limited Pattuef s capital accounts, calculated at the time such investments are

99504392 14

CONP±DENTflL . GÖC - SEC 0000893

SECSAZ0000893


designated, and with such investments valued at cost) may be designated special investments(each a 'Special investment") to be put into separate special investment sub-accounts ("Specialinvestment Sub-Accounts"). In addition, existing investments may be designated SpecialInvestments and will be valued at their cany value when so designatet Interests in a SpecialInvestment Sub-Account are allocated pro rata to those investors that are Partners (definedbelow) at the time a Special investment is made (or designated).

The General Partner will not permit more than the greater of 50% of thePartnership's capital and 25% of the Partnership's total assets (on n cost basis, giving considerationto hedging techniques utilized) to be invested in a single investment. Moreover, it will not permitmore than ¡0% of the Partnership's capital to be placed at risk in a single investment. The GeneralPartner will have the discretion to determine how much is at risk for purposes of this test.

The General Panner intends, to the extent cirraimstances permit, to adopt aselective approach in, evaluating potential investment situations, generally concentrating onrelatively fewer transactions he can follow more closely. 'The General Partner expects toprimarily engage in distressed and bankruptcy investing (including private equity investments)asid risk and other arbitrage transactioñs (including capital structurè arbitrage transactions). TheGeneral Partner expects to frequently use hedging devices, and wilt engage in short sales. Therecan be no assurance that any of the hoped-for benefits of the foregoing approach will be realized.Moreover, the General Partner reserväs the right to deviate from the foregoing approach to theextent he deems appropriate. To the extent that the Partnership trades in commodities andfutures and related options, the Partnership will incur additional risks. Because of the lowmargin deposits normàlly required in futures trading; the samé risks as those resulting fromleverage described belowwil be particularly present In addition, due to market and regulatoryfactors, commodities and finuras and related options may be less liquid than other types nf'investments.

The General Partner reserves the right to alter or modifS' some or all of thePartnerships investment strategies in light of available investment 'opportunities to takeadvantage of changing market conditions, where the General Partner, in his sole discretion,concludes that such alterations or modifications are consistent with the goal of maiimizingreturns to investors, subject to what the General Partner considers an acceptable level of risk.

The Partnership will execute its trades through unaffihiated brokers, who may be-selected on a basis other than that which will necessarily result in the lowest cost for each trade.Clearing, settlement and custodial services will be provided by one or more unafliliatedbrokerage firms.

* * *

The descriptions contained herein of specific strategies that the Partnershipmay engage In should not be understood as in any way limiting the Partnership'sinvestment activities. The Partnership may engage in investment strategies that, are notdescribed herein, but that General Partner considers appropriate.

The Partnership's investment program. is speculative and may entailsubstantial risks. Since market risks are inherent in all investments to varying degrees,

9990439.8 15

CONPIDEN'flAL . . SUC - SBC 0000894

SECSAZ0000894


there can be no assurancé that the Partnership's investment objectives will be achieved. In-fact, certain investment practices described above can, in some circumstances,substantially increase the adverse impact on the Partnership's investment portfolios. (See"Certain Risk Factors").

TUt GENERAL PARTNER AN!) THE MANAGEMYNT COMÌANY

L Ezra Meilcin will serve as the general partner of the Partnership (the "GeneralPartner"). The General Partner has ultimate responsibitity for the management, operations andinvesLment decisions made on behalf of the Partnership

Mr. Merldn is currently general partner of Ascot Partners, LI'. and is involved inmanaging several oiThhore fùnds, including Miel Fund Limited. Mr. Merkin was formerly theGeneral Partner of Mel Capital, L.?. from Jazmary 1, 1989 until December 31, 1991. Prior tothat, Mr. Merkin sewed as a Managing Partner of Gotham Capital, L.?., an investmentpartnership, from 1985 to 1988. Mr. Merit was associated with Halcyon Investments from1982 to 1985 and with the law firm of Milbank, Tweed, Hadley & MeCloy from 1979 to 1982.Mr. Merkin graduated from Columbia College magna cure laude and is a member of Phi BetaKappa. He is an honors graduate of Harvard Law SchooL Mr. Merkin currently serves achairman of the investment committee of two private endowment finds.

Gabriel Capital Corporation a Delaware corporation (the "ManagemeritCompany"), provides administrative and managerial services to .the Partnership. All of theoutstanding capital stock of the Management Company is owned or controlled by J. Ezra -Merkin.

TillE INTERESTS

This Confidential Offering Memorandum relates to an offering of Class B limitedpartner interests in the Partnership (the "Interests") to certain investors that, itT accepted, willbecome limited partners of the Partnership (each a "Limited Partnee' or a "Class B LimitedPartnc?'). The Partnership has issued Class A interests (the "Class A Interests") to investors (each,a "Class A Limited Partiier", and together with the Class B Limited Partners and the GeneralPartner, the "Partners"). Class A Interests have different redemption rights and lcs exposure toSpecial Investments than the Limited Partner Interests.

The minimum initial subscription is $1,000,000 for an Interest ih the Partnership,subject to the discretion of the General Partner to accept lesser amounts. Limited Partners of thePartnership may make additional capital contributions in amounts of at least $250,000 with thecQnsent of the General Partner and subject to his discretion to accept other amounts. Eachcapital contribution of a Limited Partner will be credited to such Limited Partner's capitalaccount

The General Partner may issue other classes of interests in the future that differ internis of, among other things, Tights, powers and duties, including rights, powers and dutiessenior to existing classes of Limited Partners. The General Partner may establish new classes ofinterests, and determine the terms of such classes, without approval of the existing LimitedPartners.

9990439.8 16

CONFIDENTIAL - - - - CCC SEC 0000895

SECSAZ0000C95


SALES CHARGES

There are no sales charges payable to the General Partner, or the Partnership inconnection with the offering of Interests.

FISCAL YEAR

The fiscal year of the Partnership will enden December31 of each calendar year.

SPECIAL JNVESTMENT SUB-ACCOUNTS

The Partnership will establish a Special Investment Sub-Account for eachinvestment that the General Partner deems a Special Investment. Only persons that are Partnersat the time such Special Investment Sub-Account is established shalt participate in such SpecialInvestment Sub-Account and their respective interests therein shall be determined in accordancewith their respective partnership percentages at the time such Special Investment Sub-Accòunt isestablished. Any security position in a Special Investment Sub-Account shall not be consideredto be a part of a Partner's capital account, except to the extent the investment or the proceeds ofsuch Special investment Sub-Account are reallocated to a Partner's capital account Upon a sale,distribution to Partners or other disposition which shall constitute a "realization" of all or. aportion of a Special Investment held in a Special Investment Sub-Account (including adetermination by the General Partner, in his sole discretion, that such special investment shouldno longer be maintained in a Special Investment Sub-Account), the net proceeds of suchinvestment will be allocated to the capital accounts of the Partners participating in such SpecialInvestment Sub-Account in proportion to such Partners' participating percentages in such Specialinvestment Sub-Account

In the event the Partnership makes an investment that the General Partnerdetermines is a follow-up investment to a Special Investment heLd in a Special investment Sub-Account (each a "Follow-Up Investment"), the participating Partners shall share in such Follow-Up Investment in proportion to their participating percentage intcrest im the related SpecialInvestment Sub-Account; provided, however, that the General Partner, in his reasonablediscretion, may permit additional Limited Partners to participate in such Follow-up Investnaentprovided further, however, that if a Limited Partner shall have withdrawn from the Partnership,the General Partner shall equitably adjust the participating percentage interests of the remainingparticipating Partners to reflect such Limited Partner's withdrawal and non-participatién in theFollo*-Up Investment. In its discretion, the General Partner need not designate as a "Follow-UpInvestment" an additional investment in the same or similar opportunity as the investment forwhich a Special Thvstment Sub-Account has been established. Such investment amy bedesignated as a new Special Investment.

Special Investments will generally be carried at cost (or, in the case of assetspreviously acquired, at canying value upon designation). Other as'cts and liabilities fbr whichno such market prices are available will be assigned such value as the General Parther mayreasonably determine. All other- assets and liabilities of the Partnership (except goodwill) will beassigned suçh'value as the General Partner may reasonably determine.

99904392 17

COÑFIDENTThL CCC - SEC 0000896

SECSAZ0000896


On the last business day of each fiscal year of the Partnership and upondissolution, an amount equal to 1% @mrated for periods of less than a year) of each LimitedPartner's capital account. balance at the beginning of such year plus such Partner's contributedcapital during such year (including all amounts allocated to a Special Investment Sub-Account)will be charged against sudi Limited Pather' s capital account and paid to the General Partner asa manageaient fcc (the "Manàgement Fee"). At his discretion, the General Partner may waivethe fees described above with respect to any particular Limited Partner.

Partnerslup Expenses

The Partnership shall (i) pay, or cause to be paid, all, costs, fees, operatingexpenses and other expenses of the Partnership (including the costs, fees and expenses of

0439.5 18

CONPIDENTTI½L CCC - SEC 0000897

ALLOCATIONS OF GAINS AND LOSSES; INCENTIVE ALLOCATION

Partnership toss for each accounting period will be ajlocaterl among the Partnersin proportion to the balance in their respective capital accounts at the start of such periot At theend of each accounting period, each Partner's capital account will be increased proportionately torefléct Partnership income for each accounting period (including any increase reflecting suchPartner's share of cash or value of securities or proceeds trnnsfcrrcd from a Special JnvcstnientSub-Account to the Partner's capital account (based upon its pm rata interest in such SpecialInvestment Sub-Account) and decreased by the cash or value of securities transferred from suchPartner's capital account to a Special Investment Sub-Account). Income and loss for thispurpose will include unrealized appreciation and depreciation on investments (other thanunrealized appreciation or depreciation in a Special Investment Sub-Account).

Each Limited Partner's share of the Partnership's net income in excess of theManagcment Pea (defmed below) for the accounting periods to date during that year (including anyincome or loss realized on investments previously held in Special Investment Sub-Accounts) willbe allocated 20% to the Genen! Partner (or to a designee as he shall direct) and 80% to suchLimited Partner (the "Incentive Allocation"). Simi lar allocations will be made with respect to aLimited Partner's, capital account at the time such Limited Partner withdraws capital from thePartnership. There is no "high water mark" concept in the calculation of Incentive Allccntion. Athis discretion,'the General Partner may waive the allocations described above with respect to anyparticular Limited Partner.

Whenever income or loss is realized (or deemed realized) in a Special InvestmentSub-Account, such income or loss will be allocated to all Partners having an interest in suchaccount pro rata in proportion to their interest in such account, and then transferred to suchPartner's regular capital account at the end of the accounting period. Notwithstanding theforegoing, ifa Limited Partner withdraws all or substantially all of its capital account (becominga "Withdnv,,n Limited Panner") before the realization (as described herein) of that portion of hiscapital allocated to a Special Investment Sub-Account, income realized or deemed realizedsubsequent to withdrawal will be allocated 20% to the General Partner (or to a designee as itshalt direct) and 80% to such Withdrawn Limitcd Partner.

MANAGEMENT FEE; EXPENSES

Management Fee

SECSAZ0000SB7


attorneys, accountants or other professionals and the cornpiisation of all personnel providingservices to the Partnership, including, in the discretion of the General Partner, the GeneralPanner) incurred in organizing the Partnership and in pursuing and conducting, or otherwiserelated to, the activities of the Partnership, and (ii) reimburse the General ?artner for any out-of-pocket costs, fees and expenses incurred by hirn in connection therewith. The amount of anycosts, fees and expenses incurred in connection with the purchase, sale or carxying of anysecurity, including, but not limited to. brokerage and other lxnnsactiaii costs and margin interestexpenses will be paid by the Partnership. Notwithstanding the foregding, any investmentexpense relating specifically to a Special Investment Sub-Account will be charged against thecapital accounts of (be Partners participating in such Special Investment Sub-Account inproportion to their respective participating percentage interests therein.

In addition, the Partnership is responsible fòr ceitain expenses of the Genen!Partner, including, hut not limited to, rent and salaries of personnel. Historically, such expenseshave not exceeded 1% of the Partnership's net assets, however, there can be noassurance that thiswill continue to be true in the future.

If any of the above expenses are incurred jointly for the account of the Parincrslúpand any other investment finds or trading accounts sponsored or managed by the GeneralPartner or his affihiates such expenses will be allocated to the Partnership and such other findsor accounts in a maimer as the Genen! Partner considers bir and reasonable.

CERTAIN RISK FACTORS

PARTICIPATION BY INVESTORS IN THE PARTNERSHIP SHOULD BECONSIDERED A HIGH RISK INVESTMENT. THE FOLLOWING SPECIALCONSIDERATIONS AND RISKS TOGETHER WITH OTHER MA]TERS SET FORTHELSEWHERE IN THIS CONFIDENTIAL OffERING MEMOEMIDUM SHOULD BECONSIDERED CAREFULLY, BUT ARE NOT INTENDED TO BE AN EXHAU$TWELISTING OF ALL POTENTIAL RISKS ASSOCIATED wriji AN INVESTMENT IN THEPARTNERSHIP.

The Nature of Transactions Tnvolvinp Reorganizations. The Partnership-willpurchase securities and other inatniments at a discount to their expected value uponconsummation of an announced or anticipated reorganization. Such purchases may be ruade atprices which arc only slightly below such expected value but are substantially in excess of themarket price of the securities or other instruments prior to tbe announcement of thereorganization. In addition, if the Partnership determines that the offer price for a securitywhichis the subject of a tender offer is likely tobe increased, either by the original bidder or by anotherparty, the Partnership máy purchase securities above the offer price; such purchases are subjectto a hig$ degree of risk. As a result, if the reorganization is not consummated or is delayed, thevalue of such securities or other instnirnents may decline signiflcanUy and the. Partnership maysell them at n loss. In addition, if the ultimate value of the cash and/or securities distributed uponconsummation of the reorganization is less than expected, the Partnership may -realize a loss.The potential for loss may be increased by the Partnership's use of borrowings to purebasesecurities or other instruments.

CONPIDENTThL GCC - SEC 0000898

SEC SAZO 000898

99904 39.t 19


No proposed reorganization is certain to ke consummated. There are severalfactors which may result in the termination of a reorganization. These include opposition by themanagement or shareholders of the company or companies involved in the reorganization;opposition by regulatory agencies whose approval may be required; litigation; a material adversechange in the business of the company or companies involved in the reorganization or thesecurities markets generally; passage of legislation F governmental entities restricting certaintypes of reorganizations; and other circumstances, including, but not limited to, the failure tomeet certain conditions customarily specified in acquisition agreeménta These bictors may alsocause significant delays, during which the Partnership's capital will be committed and interestcharges on any iliade borrowed to finance the Partnership's investments may be incurred.

The Partnership may also make certain speculativo purchases and sales ofsecurities. Such purchases and sales may include securities which the General Partner believesto be undervalued or overvalued, as the case may be, or where other companies in the same or arelated industry have been the subject of reorganizations. If the Partnership purchases securitiesin anticipation of a reorganization, and a reorganization does not in fact occur, the Partnershipmay sell the securities at a material loss. Further, when securities are purchased in anticipationof a reorganization, a substantial period of time may elapse between the Partnership's purchaseof the securities and the reorganization. During this period, a portion of the Partnership's capitalwould be committed to the securities purchased, and the Partnership may finance such purchaseswith borrowed binds on which it will bave to pay interest.

The General Partner will attempt to assess risk in determining the nature andextent of the investment the Fund will make in specific securities. However, many risks cannotbe quantified.

- Won-marketable Obligations. Non-marketable obligations include promissorynotes and other evidences of ownership or indebtedness, as well as jayables to trade creditors ofdistressed companies and companies in Chapter 11 bankniptcy proceedings. These securitiesand instruments ordinarily remain unpaid unless and until the company reorganizes and/oremerges from Chapter 11. There can be zio assurance that a reorganization plan favorable to theclass of securities held by the Partnership will be adopted or that the subject company might noteventually be liquidated rather than reorganized. These obligations may be highly speculativeand may have to be held for an extended period of lime. The ultimate value realized uponredemption of such obligations depends upon the recapitatization or reorganization plan adoptedin Chapter 11. There can be no assurance that the cash artdfor securities, if any, ultimatelyreceived in redemption of the obligations will equal the Partnership's cost In a Chapter ilproceeding, there can be considerable delay in reaching accord on a restructuring plan ncòeptableto t-bankrupt company's lenders, bondholders and other creditors and then getting that planapproved by the bankruptcy court, and during this period a portion of the Partnership's capitalwould be invested in the non-marketable obligations purchased, and the Partnershili may financesuch purchases with borrowed funds on which it will have to pay interest. Furthermore, there isa risk that the Chapter il reorganization will be unsuccessful and that the obligations willbecome worthless.

- Arbitrage Transactions. The Partnership may purchase securities at prices oftenonly slightly below the anticipated value tobe paid or exchanged for such securities in a merger,exchange offer or cash tender offer which the Partnership determines is probable and99O4393 20


SECSAZ0000899


substantially above the prices at which such securities traded immediately prior to announcementof the merger, exchange offer or cash tender offer, If the proposed transaction appears likely notto be consummated or in fact is not consummated or is delayed, the market price of the securityto be tendered or exchanged may be expected to decline sharply, which would result in a loss tothe Partnership. Moreover, where a security to be issued in a merger or exchange offer has beensold short as a hedge in the expectation that the short position will be covered by delivery ofsuch.security when issued, failure of the merger or exchange offer tobo consiunarated may fortean arbitrageur to cover his short position in theniarket at a higher price than his short sale, with aresulting loss

The consummation of mergers and tender and exchange offers can be preventedor delayed by a variety of factors, the likelihood of occurrence of which caribe very difficult toevaluate. A tender or exchange offer by one company for the securities of another will often beopposed by the management or shareholders of the target company on the grounds that theconsideration offered is inadequate or for a variety of other reasons. Even where a merger ortender or exchange offer has been agreed upon by (he management of the two companiesinvolved, its consummation may be prevented or delayed by intervention of a governmentregulatory agency; a shareholder's suit to enjoin the proposed transaction; in the ease of amerger, the failure of the shareholders of the company to be acquired, and, where nccessmy, theacquiring company, to approve the merger, market conditions resulting in material changes insecurities prices; and a variety of other circumstances. In case of a tender or exchange offermade for less than alL outstanding sccurities of an issue with the provision that, if a greater

- number is tendered, securities will be accepted pro rata, a tendering arbitrageur may havereturned to him, and be forced to sell at a loss, a portion of the securities tendered.

- Other Transactions. The Partnership may also make certain purchases ofsecurities as to which no extraordinary corporate transaction has been announced. Suchpurchases may include securities which the General Partner believes to be undervalued, or wheren significant position in the securities of the particular company has been taken by one or moreother persons or where other companies in the saine or a related industry have been the subjectof acquisition attempts. If the Partnership purchases securities in anticipation of an acquisitionnttcmpt or reorganization, and an acquisition attempt or reorganization does not in fact occur, thePartnership may sell the securitiesat a substantial loss. Eurther, when securities are purchased iiianticipation of an acquisition attempt or reorganization, a substantial period of time may clapsebetween the Partnership's purchase of the securities and the acquisition attempt rreorganization. During this period, a portion of the Partnership's capital would be committed tothe securities purchased, and the Partnership may finance inch purchases with borrowed fundson which it will have to páy interest

- Proxy Contests. The Partnership may invest in securities of a company wlñch isthe subject of a proxy contest in the expeetation.that new management will be able to improvethe company's performance or effect a sale or liquidation of its assets so that the price of thesubje& company's securities will increase to a price above that paid for the securities by thePartnership. If the incumbent mauagcmcnt of the subject company is not defeated or if newmanagement is unable to improve the company's performance or sell or liquidate the company,the market price of the securities of the subject company will typically fall to a price below thatpaid for the securities by the Partnership, causing the Partnership to suffer a loss. In addition,

99904391 21

CONFIDflTIAL GCC SEC 0000900

SECSAZ0000900


even upon the successffil completion of a proxy contest, the market price of the securities of thesubject company may not rise to a price above that paid for the securities by the Partnership.

Options Transactions. The Partncrship.may engage from time to time in varioustypes of options transactions, including hedging and arbitrage in options on securities. Thisactivity is designed to reduce the risks attendant in short-selling apd in taking long positions incertain transactions and may involve stock options on a registered option exchange andoffsetting transactions in the underlying stock, or ofläetting transactions in one or more optionsforstock, The Partnsrship also may take positions in options on stock of cotnpanies which mayin the judgment of the General Partner,. be potential acquisition candidates in merger, exchangeoffer or cash tender offer transactions, if the potentiaL acquisition candidate does not become thesubject oEa merger, exchange offer or cash tender offer, the Partnership may suffer a loss.

When the Partnership purchases an option, it must pay the price of the option andtransaction charges to the broker effecting the transactiom If the option is exercised by thePartnership, the total cost of exercising the option may be more than the brokerage costs whichwould have been payable had the underlying security been purchased directly. If the optionexpires, the Partnership will lose the cost of the option. The ability to trade in or exerciseoptions may be restricted in the event that trading in the underlying issue becomes restricted.Options trading may also be illiquid with respect ta contracts with extended expirations.

In certain transactions the Partnership may flot be "hedged" against marketfluctuations or, in liquidation situations, the hedge may not accurately value thç assets of thecompany being liquidatet This can result in losses, even if the proposed transaction isconsummatet

Futures Contracts. The value of futures depends upon the pñcç of the- instruments, such as commodities, underlying thesm The prices of fritures are highly volatile,antI price movements of fritures contracts can be influenced by, among other things, interestrates, changing supply and demand relationships, trade, fiscal, monetary and exchange controlprograms and policies of governments,, and national ami international political and economicevents and policies. In addition, investments in futures are also subject to the risk pf the failureof any of the exchanges ora which the Partnership's positions trade or of its clearinghouses orcounterparties.

Futures positions may be ilLiquid because certain commodity exchanges limitfluctuations in certain futures contract prices during a single thy by regulations referred to as"daily price fluctuation limits" or "daily limits." Under such daily limits, during a single tradingday no trades maybe executed at prices beyond the daily Limits. Once the price of a particular'fiatiares contract has increased or decreased by an amount equal to the daily limit, positions inthat contract, can neither be taken nor liquidated toeless traders are willing te effect trades at orwithin the limit. This could prevent the Partnership from promptly liquidating unthvorablepositions and subject the Partnership to substantial losses or from entering into desired trades. Incxtriordinaiy circumstances, a futures exchange or the CFTC could suspend trading in aparticular futures contract, or order liquidation or settlement of all open positions in suchcontract.

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Forward Trading. Forward contracts and options thereon, unlike fbturescontracts, are not traded on exchanges and are not standardized; rather, banks and dealers act asprincipals in these markets, negotiating each transaction on an individual basis; Forward and"cash" trading is substantiaLly unregulated; there is no limitation on daily price movements andspeculative position limits are not applicable. The principals who deal in the forward marketsare not required to continue, to make markets in the currencies or commodities they trade, andthese markets can experience periods of illiquidity, sometimes of significant duration. Therehave been periods daring which certain participants in these markets have refused to quote pricesfor certain currencies or commodities or have quoted prices with an unusually wide spreadbetween the price at which they were prepared to buy and that at which they were prepared tosell. Disruptions cari occur in forward markets due to unusually high trading velum; politicalintervention or other factors. The imposition of controls by governmental authorities might alsolimit such forward (and futures) trading to less than that which the General Partner wouldotherwise reconunend, to the possible detriment of the Partnership. Market illiquidity ordisruption could result in significant losses to the Partnership.

Participation in Unfriendly Transactions. The Partnership may seek to initiateacquisition or restructuring tÑnsactions or proxy fights against the wishes of the subjectcompany's management, or may actively participate in transactions of this sort initiated byothers. Such transactions typically become embmiled in litigation, and participants therein maybe found to have violated any of the many laws and regulatiâns applicable thereto. This could'impose substantial cost and expense (incLuding litigation expense) on the Partnership, andsubject it to various legal remedies such as injunctions against future participation in thesetransactions, disgorgernent of gains, loss of voting tights or forced disposition of the investmentParticipation in such transactions may also require the Partnership to make significant disclosureconcerning its operations.

Short Selling. Short selling involves selling securities which are not owned bythe short seller and borrowing them for deliveiy to the purchaser, with an obligation to replacethe borrowed securities at a later date. Short selling allows the investor to profit from a declinein market price to the extent such decline cxceeds the transaction cOsts and' the costs ofborrowing the securities. The extent to which.the Partnership engages in short sales wiLL dependupon the General Partner's investment strategy and opportunities. A short sale creates the risk ofa theoretically unlimited loss, in that the price of the underlying security could theoreticallyincrease without limit, thus increasing the cost to the Partnership of buying those securitics tocover the short position.' There can be no assurance that the Partnership will be able to maintainthe ability to borrow 'securities sold short. In such cases, the Partnerhsip can he Thought in" (i. e.,forced to repurchase securities in the open market to return to the lender). There also can be noässurance that the securities necessary to cover a short position will be available for purchase ator near prices quoted in the market Purchasing securities to close out a short position can itselfcause the price of the securities to rise fürther, thereby' exacerbating the loss.

Market Risk and Lack of Diversification. Substantial risks are involved in theacquisition or disposition of securities. Securities and their issuers are affected by, among otherthings: changing supply and demand; federal, state and governmcntal laws, regulations andenforcement activities; trade, fiscal and monetary programs and policies; and national andinternational political and economic 'developments. The concentration of assets in particulartypes of investments could subject the assets of the Partnership to increased volatility. The

23


SECSAZ0000SO2


Partnership's investment plan does not constitute a balanced investment plan. The securities inwhich the Partnership may invest may be regarded as of high risk Such securities are subject toa number of risk factors, including market volatility, creditworthiness of the issuer, liquidity ofthe secondary trading market, and availability of market quotations.

Leveragd. The Partnership's anticipated use of short-term margin borrowings,investment in derivative securities and the use of repurchase, agreements creata certain risks tothe Partnership. The use of leverage may increase the Partnership's risk of less of capital orsecurities, as a relatively small price movement in an instrument may result in immediate andsubstantial loss. For example, should the securities pledged to.brokers to secure the Partnership'smargin accounts decline in value, the Partnership could be subject to a "margin call," pursuant towhich the Partnership must either deposit additional fluids with the broker or suffer mandatotyliquidation of the pledged securities to compensate for the' decline in value. In the event of asudden, precipitous drop in value of the Partnership's assets occasioned by a market "crash" suchas the one that took place in October 1987, the Partnership might not be able to liquidate assetsquickly enough to pay off its margin debl Consequently, fluctuations in the value of thePartnership's portfolio will have a significant effect in relation to the Partnership's capitalAlthough currently the Partnership utilizes leverage from time to time, as investmentopportunities change (e.g., arbitrage opportunities increase) the amount of borrowings which thePartnership may havc outstanding at any time may be large in relation to its capital. In addition,the level of interest rates generally, and the rates at which the Partnership eon borrow inparticular, will be an expense of the Partnership and therefore affect the operating results of thePartnership.

Derivatives. Derivative securities, in addition to being highly volatile andspeculative, may be internally leveraged such that each percentage change ia Interest rates willhave a multiple effect on the derivative security. Certain positions therefore may be subject towide and sudden fluctuations in market value, with a resuiting fluctuation in the amount ofprofits and losses. Certain transactions in derivatives may expose the Partnership to potentiallosse that exceed the amount originally invested by the Parinership. Repurchase agreements arestructured so that the Partnership sells securities to another party, usually a bank or othersecurities finn, and agrees to repurchase them at an agreed upon price and datt A repurchaseagreement is the equivalent ofborrowing money and pledging securities as collateral.

Risks of Litieation. Investing in distressed securities can be a contentious andadversarial process. Different investor groups may have qualitatively different, and frequentlyconflicting, interests. The Partnership's investment activities may include activities that arehostile in nature and will subject it to the risks of becoming involved in litigation by third-parties. This risk thay be greater where the Partnership exercises control or significant influenceover a company's direction. The expense of defending against claims against the Partnership b3third-parties and paying any amounts pursuant to settlements or judgments would be borne bythe Partnership and would reduce nct assets. The General Partner will hé indemnified by thePartnership in connection with such litigation, subject to certain conditions.

Lending of Portfolio Securities. The Partnership may from time. to time lendsecurities from its portfolio to brokers, dealers and financial institutions such as banks and trustcompanies. The borrower may fail to return the securities involved in such transactions,

9990439.8 24

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particularly it' such borrower is in. financial distress, in which event the Partnership may incur aloss.

Portfolio Turnover. The Partnership currently does not have high portfolioturnover, however, to the extent certain strategies become a larger part of the Partnership'sinvestment strategy (e.g., arbitrage strategies), portfolio turnover may be high. Typically, highportfolio turnover results in corresponding'y high transaction costs, including brokeragecommission expenses.

Overall Investment Risk All securities investments risk the loss of capital. Thenature of the securities to be purchased and traded by the Partnership and the investmenttechniques and strategies io be employèd by it may increase stich risk. Moreover, theidentification of investment opportunities is. a difficult task, and there can be no assurance thatsuch opportunities will be successfully recognized by the Partnership. While the General Partnerwill devote his best efforts to the management of the Partnership's portfolio, there can be noassuñnce that the Partnership wilt not incur losses. Returns generated from the Partnership'sinvestments may not adequately compensate Limited Partners for the business and financial risksassumed. A Limited Partner should be aware that it may lose all or a substantial part of itsinvestment in the Partnership. Many unforeseeable events, including actions by variousgovernment agencies and domestic and international economic and political developments, maycause shaw market fluctuations that could adversely affect the Partnership's portfolio andperformance.

Liquidity of Investments. The Partnership may invest in unregistered securities ofpublicly held companies, securities of privately held companies and other illiquid securities.Such investments may he difficult to value. They may, by their nature, entait a prolongedinvestment horizon front the initial investment date to finaldisposition. lt may act be possible tosell sack securities on short notice and, if possible, such sales may require substantial discounts.Certain of these investments may be designated Special Investments (as defined herein).

Currency Exchange Exposure. The Partnership may invest a portion of its assetsin the securities of non-U.S. issuers. and other instruments denominated in non-U.S. currencies,the prices of which are determined with reference to currencies other than the U.S. dollar. ThePartnership, however, values its securities and other assets in U.S. dollars. The Partnership mayor may not seek to hedge its non-U.S. currency exposure by entering into currency hedgingtransactions, such as treasury locks, forward contracts and futures contracts. There can be noguarantee that instrûments suitable for hedging currency or market shifts will be available at thetime when the Partnership wishes to use them, or that hedging techniques-employed by thePartnership will be effective. Furthermore, certain currency. market risks may not be fillyhedged orhedgedatàlt.

To the extent unhedged, tire value of the Partnership's positions in non-U.S.investments will fluctuate with U.S. dollar exchange rates as well as the price changes of theinvestments in the various local markets and currencies, In such cases, an increase in the valueof the U.S. dollar compared to the other currencies in which the Partnership makes itsinvestments will reduce the effect of any increases and magni the effect of any decreases in theprices of the Partnershijfs securities in their local markets and may result in a loss ta the

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Partnership. Conversely, a decrease in the value of the U.S. dollar will have the opposite effecton the Partnership's non-U.S. dollar investments.

J1on-U.S. Investments. The Partnership may invest in flnancia instruments ofnon-U.S. corporations and governments. Investing in the financial instruments of companies(and, from time to time, governments) outside of the U.S. involves certain considerations notusually associated with investing in financial instruments of U.S. companies or the U.S.Government, including political and economic considerations, such as greater risks ofexpropriation, nationalization, confiscatosy taxation, imposition of withholding and oth taxeson interest, dividends, capital ¿ains and other income, limitations on the removal of assets andgeneral social, political and economic instability; the relativeLy small size of the securitiesmarkets in such countries and the low, volume of trading, resulting in potential lack of liquidityand in price volatility; the evolving and unsophisticated laws and regulations applicable to thesecurities and financial services industries of certain countries; fluctuations in the rate ofexchange between currencies and costs associated with currency conversion; and certaingovernment policies that way restrict the Partnership's investment opportunities. in addition,accounting and financial reporting standards that prevail outside of the U.S. generally are not ashigh as U.S. standards and, consequently, less information is typically available concerningcompanies located outside of the U.S. than for those located in the U.S. As a result, thePartnership may be unable to structure its transactions to achieve thc intended results or tomitigate all risks associated with. such markets. It may also be difficult to enforce thePartnership's rights in such markets. For example, fmancíal instruments traded on non-U.S.exchanges and the non-U.S. persons that trade these instruments are not subject to thejurisdiction of the Securities and Exchange Commission or Commodity Futures TradingCommission or the securities and commodities laws and regulations of the U.S. Accordingty.the protections accorded to. the Partnership undcr such laws and regulations are unavailable fortransactions on foreign exchanges and with foreign counterparties.

Counterparty Risk. Some of the markets ini which the Partnership may effecttransactions are "over-the-counter' or "interdealet" markets. The participants in such marketsare typically not subject to the sante credit evaluation and regulatory oversight as arc members of'exchange-based" markets. In addition, many of the protections afforded to participants onsome organized exchanges; such as the performance guarantee of an exchange clearinghouse,might not be available in connection with such "over-the-counter' transactions. This exposes thePartnership to the risk that a counterpanty will not settle a transaction in accordance with itsterms and conditions because of a dispute over the terms of the contract (whether or not hosa

fide) or because of a credit or liquidity problem, thus causing the 'Partnership to suffer a loss.Such "counterparty risk" is accentuated for contracts with longer maturities where events mayjntene to prevent settlement, or where the Partnership has concentrated its transactioñs with asingle or small group of counterparties. The General Partner is not restricted from draling withany particular countcrparty or from concentrating any or all of the Partnership's transactions withone counterparty. Moreover, the General Partner has no formal 'credit fimctioa which evaluatesthe creditworthiness of the Partnership's counterparties. The ability of the Pflership to transactbusiness with any one or number of counterparties, the lack of any meaningful 'and independentevaluation of such counterparties' financial capabilities andthc absence of a regulated market tofacili tate settlenrent.may increase the potential for losses by the Partnership.

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In addition, the counterparties with which the Partnership effects transactionsmay, from time to time, cease making markets or quoting prices in certain of the instrument& Insuch Stances, the Partnership may be unable to enter into a desired transaction in currencies, orto cuter into an offsetting transaction with respect to an open position, which might adverselyaffect its performance. Further, in contrast to exchange-traded instruments, forward, spot andoption contracts on currencies do not provide a trader with the right to offset itt obligationsthrough an equal and opposite transaction. For this reason, in entering into forward, spot oroptions contracts, the Partnership may be required, and must be able, to perforan its obligationswider the contract,

The Partnership

Limited Liquidity. An investment in the Partnership provides limited liquiditysince Jnterests in the Partnership are not freely transferable and the withdrawal rights of holdersof the Jnterests are restricteiL A Limited Partner may not withdraw any portion of its capitalaccount.that is allocated to a Special Investment Sub-Account, unless otherwise determined bythe General Partnèt A Limited Partner will retain its interest in any Special Investment Sub-Account until the realization or deemed realizatica of the Special Investment rèlating to suchSpecial Investment Sub-Account. Beenuse the Partnership may invest up to 40% or the net asietvalue of each Limited Partnefs capital accounts in Special Investments, n Limitéd Partner mayonly be able to withdraw a portion of its capital account(s) for an indefinito period of time.

Effect of Limited Partner Withdrawal. A significant withdrawal of capital fromthe Partncrship may cause a temporary imbalance in the Partnership'p portfolio which mayadversely affect the remaining Limited Partners.

Valuationof the Partnership's Assets. All securities, liabilities and other propertywill be assigned such values as the General Partner reasonably determines tobe their fair marketvalue aùd such values will be binding upon the Partners; provided that in the event n majority ininterest of the Class A Limited Partners does not agree with any such determination, suchdisagreement will be submitted for resolution to a firm of independent certified publicaccountants (other than the partnership's auditors) which will be mutually agreed upon by theGeneral Partner and the majority in interest of the Class A Limited Partners. Any determinationmade by such finn of independent certified public accountants will be final and binding upon theGeneral Partner and Class A Limited Partners.

Required WithdraWals, The General Partner may cause any Limited Partner towithdraw from the Partnership in whole or 'w part The withdrawal of suchLiniitcd Partner willbe effective as of the date specified in such notice, which date shall not be less than 3t] days afterthe date such notice is given, Such thandatory withdrawal may create adverse lax and/oreconomic consequences to the Limited Partner depending on the timing thereof in respect of thePartnership and the Limited Partner.

Layering of Fees. The Partnership may invest in Other kvestmeit Entities. Tothe extent the Partnership invests in such Other Investment Entities, Limited Partners may besubject to management fees, incentive fees or allocations and expenses at both the level of thePartnership and the level of the underlying Other Investment Entities.

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CONFIDENTThL GCC - SEC 0000906

SECSAZ0000GO6


Reports to Limited Partners. The Partnership may offer certain Limited Partnersadditional information and reporting that other Limited Partners may not receive, and suchinformation may affect a Limited Partner's decision to request a with&awal of its Interests.

Competition.. The securities industry generally, and the business of investing inreorganization related securities or instruments in particular, is extremely competitive, and isexpacted to remain so in the foreseeable fluture. M a result, the Partnership may under performfhnds with similar investment strategies, or the market in general.

Success Dependent on General Partner. The success of the Partnership dependsprimarily upon the General Partner. The death or incapacity of J. Ezra Merkin would result inthe dissolution Of the Partnership.

Incentive Allocation. The Incentive Allocation to the General Partner may createan incentive for the General Partner to cause the Partnership to make investments that ara riskieror more speculative than would be the case in the absence of the Incentive Allocation, Inaddition, because the Incentive Allocation is calculated on a basis that includes unreali7rdappreciation of the Partnership's assets, it may be greater [han if such allocation were basedsolely on realized gains. Thcre is no "high water mark" concept in the calculation of IncentiveAllocation.

In-Kind Distributions. A withdra*ing Limited Partner may, at the sole andabsolute discretion of the General Partner, receive property other than cash. Any investments4istributed in-kind may not be readily marketable or saleable and may have to be held by suchLimited Partner for an indefinite period of time.

Independent Money Managers. The General Partner may delegate investmentdiscretion for all or a portion of the Partnership's fluids to money managers, other than theGeneral Partner, or make investments with Other Investment Entities. Although the. GeneralPartner will exercise reasonable care in selecting such independent money managers or OtherInvestment Entities and will monitor the results of those money managers and Other InvestmentEntities, the General Partner may not have custody over the funds invested with the other moneymanagers or with Other Investmeat Entities. The risk of loss of the funds invested with othermoney managers or with Other Investment Entities may. not be insured by any insurancecompany, bonding company, governmental agency, or other entity and the General Partner is notliable for any such loss. Independent money managers and managers of Other InvestmentEntities selected by the General Pnrtner may receive compensation based on the performance ofIbeir investments as well as asset-based management fa"c Performance-based compensationusually is calculated on a basis which includes unrealized appreciation of the Partnership'sassets, and may be greater than if such compensation were based solely on realized gainc.Further, a particular independent money manager or manager of an Other Investment Entity mayreceive incentive compensation in respect of its portfolio for a period even though thePartnership's overall portfolio depreciated during such period. The independent moneymanagers and Other Investuñeut Entities will trade wholly independently of one another and mayat times hold econorruically offsetting positions.

Indemnification of the General Partner film Liability. The PartnershipAgreement provides that the General Partner will not be liable for, and will be iudenuaiüed by

9990439.5 28

CbÑFDENIL GCC - SEC 0000907

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the Partnership against, any act or omission if such act or omission is not the result of bad faith,gross negligence, recklessness, fraud or intentional misconduct Such indemnification, however,shall not relieve the General Partner or his legal representative of any liability, to the extent thatsuch liability may not be waived, modified or limited under applicable law (including, without

.lirnitation, liability under (1.8. federal securities laws which, under certain circumstances, imposeliability even on penons acting in good faith).

Other Activities, In addition to managing the Partnership, the General l'ai-tuer-will manage other thuds and managed accounts, which may have similar investment objectivesto the Partnership. The General Partner will allocate overhead expenses among the Partnershipand the managed accounts on a fair basis, as determined by the General Partneri These otheractivities will require a substantial amount of the General Partnefs time and effort

Statutory Regulations and Non-Registration. The t'mancinI services industrygenerally, and the activities of hedge finds and their managers, in particular, bave been subjectto intense and increasing regulatory scrutiny. Such scrutiny may increase the Partnership's andthe Management Company's exposure to potential liabilities and to legal, complianbe and otherrelated costs. Increased regulntory oversight can also impose adm'mistrative birdens on theManagement Company, including, without limitation, respoiding to investigations andimplementing new policies and procedures. Such burdens may divert the ManagementCompany's time, attention and resources from portfolio management activities.

Liability for Return of Distributions. Under Delaware law,-any Limited Partnerwho receives a distributioa from the Partnership shalt be liable to the Partnership for the amountof the distribution to the extent such amount was distributed at a time that the liabilities 6f thePartnership exceeded the fair value of its assets and-the Limited Partner knew of the state of thePartnership's financial condition at the time of such distributioa tinder Delaware law, a LimitedPartner that receives a distribution from the Partnàrsbip will have no liability for the amount ofthe distribution after the expiration of three years from the date of the distribution.

Tax and Other Risks. Although the General Partner believes that the Partnershipwill be treated as a partnership for federal income tax purposes, no ruling has been, or will be,obtained from the Internal Revcnue Service, to that effect and no opinion of counsel has been -sought. If the Partnership is taxed not as a partnership butas a coiporation it will, among otherthings, have to pay income tax on its earnings in the snme manner and at the same rates as a -corporation, and Partuert would be subject to au additional tax on earnings distributed, lithePartnership is treated as a Partnership for US. federal tax purposes, Partners will be taxed on thePartnership's taxable income whether or flot it is distributed. The General Partner does notintend to make distributions to the Limited Partners that reflect the taxable income of thePartnership and is not required to make any distributions except upon the withdrawal of capital.by a Partner pursuant to the Partnership Agreement Furthermore, a Limited Partner whowithdraws capital from the Partnership in accordance with the Partnership Agreement mayreceive the amount so withdrawn in kind. Accordingly, in either such event, a Limited Partnermay not receive sufficient liquid assets to pay income taxes attributable to his distributive shareof Partnership income. Thus, Limited Partners may have to rely upon resources independent oftheft' Interests to pay their obligations to the federal, slate and local tax authorities.

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CONFIDENTIAL - - GCC - SEC 0000908

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Factors Affectinp Investments. There are a number of factors which mayadversely affect the ability of the Partnership to pursue its investment strategy. There is alimited availability of debt fmancing for takeovers of highly leveraged companies. Mergers of acertain size require approvai of the US. Federal Trade Commission (the "FTC") or othergovernment agencies because of potential antitrust implications. It is possible at any time for theFTC or other governmental agency to more vigorously enforce the antitrust laws affectingmergerS. In addition, there are state laws aimed at curbing takeovers and courts have givenmanagement greater allthority to employ defensive measures in the face of hostile takeoverattempts where management believes doing so is irr the long-term interests of the company.Many companies generally have adopted various measures aimed at making takeovers moredifiltult and expensive. Similarly, changing economic conditions, accounting standards and taxand securities laws (among other Ñctors) may impair the profitability of the types of transactionsin which the Partnership intends to invest, adversely affecting its operations.

Terrorist Action. There is a risk of terrorist attacks on the United States andelsewhere causing significant loss of life and property damage and disruptions in global markets.Economic and diplomatic sanctions may be in place or imposed on certain states and militaryaction may be commenced. The impact of such events is unclear, but could have, a materialeffect ori general economic conditions and market liquidity.

PAST RESULTS MAY NOT BE R4DICATIVE OF FUTURE PERFORMANCE.NO ASSURANCE CAN BE MADE THAT FRONTS WILL BE ACEIEVBD OR '[fIATSUBSTANTIAL LOSSESIVILL NOT BE INCURRED.

The foregoing list of risk factors does not purport to be a completeenumeration or explanation of the risks involved io an investment in the Partnership.Prospective investors should read this entire Confidentìal Offering Memorandum andconsult with their own legal, tax and financial advisers before deciding to invest in thePartnership.

CONFLICTS 01? INTEREST

The General Partner and his affiliates will provide investment managementservices to managed accounts and other investment partnerships or fUnds, some of which mayhave similar investment objectives to those of the Partnership. The portfolio strategies theGeneral Partner and his affiliates may use for other investment thuds or accounts could conflictwith the transactions and strategies employed by the GeheràF Partner in managing thePartnership awl affect the prices and availability of the securities arid other financiaL instrumentsin which the Partnership invest

The General Partner has agra to devote substantially his entire time and effortduring normal business hours to the management of the Partnership and other investment entitiesmanaged by the Managing Partner, or their respective successors; provided, however, that theGeneral Partner may act, consistent, however, with the foregoing, as a director, officer oreniployec of any corporation (including any corporation in which the Partnership is invested), atrustee of any trust, an executor or administrator of any estate, a partner of any partnership(including a partnership in which the Partnership is invested) or an administrative official of anyother business entity, and may receive compensation and participate in profits in connection with

9990439.t 30

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any of the foregoing, and may trade in securities for his own account or for other accounts forinvestors including securities which are the samó or different from those traded in or held by thePartnership. The terms of the Partnership Agreement do not restrictthe General Partner or hisaffiliates from forming additional investment fùMs, front entering into other investment advisoryrelationships, or from engaging in other business activities, even though such activities may be incompetition with the Partnership and/'or may involve substantial time and resources of theGeneral Partner or his affiliates. In the event the General Partner or any of his affiliates decideto engage in such activities in the fixture, the General Partner or his affiliates, as applicable, willundertake to engage in such activities in a mannér that is consistent with their fiduciary duties, tothe Partnership. Nevertheless, these activities coul4 be viewed as creating a conflict of interestin that the time and effort ofthe General Partner and his affiliates will not be devoted exclusiveLyto the business of the Partnership but will be allocated between the business of the Partnershipand the management of the monies of other advisees of the General Partner and his affiliates.

When it is determined that i would be appropriate for the Partnership and nao ormore other fimtis and managed accounts managed of the General Partner or his affiliates toparticipatc in an investment opportunity, thc General Partner will seek to execute orders for all ofthe participating investment accounts, including the Partnership, on an equitable basis, takinginto account such factors as the relative amounts of capital available for new investments,relative exposure to short4erm market trends, end the investment programs and portfoliopositions of the Partnership and the affiliated entities for which participation is appropriate.Orders may be combined for all such accounts, and if any order is not filled at the same price,they may be allocated onanaverage price basis. Similarly, if an order on behalf of more thancae acount cannot be filLy executed under prevailing market conditions, securities may beallocated athong the different accounts on a basis that the General Partncr considers cquitnblc.

The General Partner may share office space with third-party money managers. Ifthe managers were to acquire inside information with respect to certain securities, thePartnership will bc precluded from purchasing securities to which such inside inrorraation relatesor be precluded from selling securities held by the Partnership that. were purchased before theinside information was acquired.

Subje&' to internal compliance policies and approval procedures, the GeneralPartner and his cmployccs as well as members and employees of his affiliates, may engage, fromtime to time, in personal trading of securities and other instrumentE, including securities andinstruments in which the Partnerships may invest. Any such trading will be either effected afterthe Partnerships have effected their transactions.

BRO}RAGE COMMISSIONS

Portfolio transactions for the Partnership will be allocated to brokers on the basisof best execution and in consideration of a broker's ability to effect the transactions, its facilities,reliability and financial responsibility and the provision or payment by the broker of the costs ofresearch and research-related services which are of benefit to the Partnership, the GeneralPartner or related finds and accounts. Accordingly, the commission rates (or dealer markupsand markdowns arising in connection with riskiess principal transactions) charged to thePartnership by brokers in the foregoing circumstances maybe higher than those charged by other

99904392 31


SECSAZ0000G1 O


broken who may not offer such services. The General Partner has not entered into, and does notexpect to enter into, any written soft dollar arrangements.

Investors in the Partnership may incLude Thnd of fluids affiliated with brokers or,possibly, brokerage firms themselves. The fact that any such investor has invested in thePartnership will not be taken into consideration in selecting brokers (including prime brokers).

The Partnerships securities transactions can be expected to generate a substantialamount of brokerage commissions and other compensation, all of which the Partnership, not theGeneral Partner or the Management Company, will be obligated to pay. The General Partnerwill have complete discretion in deciding what brokers and dealen the Partnership will use andin negotiating the rates of compensation the Partnership will pay.

Morgan Stanley & Co., Inc. (the "Prime Broke?') currently serves a the principalprime broker for the Partnership, and clean (generally on the basis of payment against delivery)the Partnership's securities transactions that are effected through other brokerage firms. ThePartnership is not committed to continue its relationship with the Prime Broker for any minimumperiod and the General Partner may select other or additional brokers to act as prime brokers forthe Partnership.

From time to time, brokers (including the Prime Broker) may assist théPartnership in raising additional fluids from investors, and representatives of the General Partnermay speak at conferences and programs sponsored by the Prime Broker for investors interestedin investing in hedge fluids. Through such "capital introduction" events, prospective investors inthe Partnership and the Offshore Fund have the opportunity to meet with the General Partner.Neither the General Partner nor the Partnership compensates the Prime Broker for organizingsuch events or forany investments ultimately made by prospective investors attending suchevents. However, such events and other services (including, without limitation, capitalintroduction services) provided by the Prime Broker may influence the General Partner indeciding whether to use such prime broker in connection with brokerage, financing and otheractivities of the Partnership. However, the General Partner will not commit to a broker toallocate a particular amount of brokerage in any such situation.

OUTLINE OF PARTNERSHIP AGREEMENT

The following outline summarizes the material provisions of each LimitedPartnership Agreement of the Partnership (the "Partnership Agreement") that are not discussedelsewhere in this Confidential Offering Memorandum. This outline is only a summary and is notdefinitive, and each prospective Limited Partner should carefully read the Partnership Agreementin its entirety.

Limited Liability. No Limited Partner will be bound by or be liable for therepayment; satisfactioñ or discharge of any debts, liabilities or obligations of the Partnershipacept to the extent of (i) such Partner's capital account, and (ii) as may otherwise be required byapplicable law.

Term. The Partnership will continue indefinitely upon the first to occur of theféllowibg (i) a determination by the General Partner that the Partnership should be dissolved or

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(ii) the death, bankruptcy, retirement or insanity of the General Partner which prevents him fromdevoting substantially his entire time, skill and attention to the Partnership and other fluids andmanaged accounts for a period of 90 days; (iii) December 31, 2015; or (iv) any event causing thedissolution o! the Partnership under the laws of the State of Delaware. Upon dissolution of thePartnership, im further business will be donc in the Partnership's name except completion of anyincomplete transactions and the taking of such action as shall be necessary for the winding up ofthe affairs of the Partnership and the distribution of its assets.

Management. The management of the Partnership will be vested exclusively inthe General Partner. Except as authorized by the General Partner, the Limited Partners wjtL haveno part in the management of the Partnership and will have no authority or right to act on behalfof the Partnership in connection with any matter. The General Panner and his affiliates mayengage in any other business venture, and neither the Partnership nor any Limited Partner willhave any rights in or to such ventures or the income or profits derived therefrom.

Capital Accounts. Each Partner will have a capital account equal initially to theamount of cash or the value of property contributed by him. The General Partner may permitadditional capital contributions and may admit new Limited Partners. The General Partner willnot be personally liable for the return of capital contributions, and no interest will be payablethereon.

Withdrawals of Capital; A Class B Limited Partner may withdraw ali ór part ofsuch Limited Partner's capital account from the Partnership with respect to capital contributionsmade on or after February 1,2006 at the end of the calendar quarter after the two yearanniversary of the date such Interests were purchased (the 'First Withdrawal Date"); and,thereafter, Qn each anniversary of the First Withdrawal Date upon 45- days prior written notice tothe General Partnet

A Class A Limited Partner may withdraw all or part of such Limited Partner'scapital account from the Partnership on June30 or December31 of any fiscal year upon 45 daysprior written notice ro the General -Partner.

Each date as cf which a Limited Partner withdraws alt or a portion of its capitalaccount or withdraws from the Partnership is herein referred to as a "Withdrawal Data"

Excluding amounts allocated to Special Investment Sub-Accounts, theWithdrawing Partner will receive the ámount of such Limited Partner's cápital account (lessreserves determined by the General Partner for contingent liabilities) within 90 days aficewithdrawal. All amounts remaining unpaid (less reserves) will bégin to hear interest at a rateequal to a specified broker's call rate for the period beginning 30 days after the effective date ofsuch withdrawal and ending 90 days after tire effective dale of such withdrawaL

A distribution in respect of a withdrawal may be made in cash or in kind, asdetermined by the Generai Partner in its discretion. In-kind distributions wilt be ¿nade toWithdrawing Limited Partners on apro rata basis

Limited Partners may not otherwise make withdrawals, and the Partnership doesnot plan to make pro rata distributions to Partners on an on going basis.

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Special Investment Sub-Account WithdrawaL Notwithstanding the foregoing, nowithdrawal may be made by a Limited Partner from any portion of its capital account that isallocated to a Special Investment Sub-Account Ifa portion of a Withdrawn Limited Partner'scapital account has been allocated to a Special Investment Suh-Aeconnt, then, unless otherwisedetermined by the General Partner, the amount distributed to such Withdrawn Limited Partnerwill not include any interest of such Partner in such Special Investnfent Sub-Account SuchPartner will retain its interest in any Special Investment Sub-Account until the realization ordeemed realizationof the Special Investment relating to such Spedal Investment Sub-Account,Income realized or deeme« realized subsequent to withdrawal will be allocated 20% to theGeneral Partner (or to a designee as it shall direct) and 80% to such Withdrawn Limited Partner.Any loss realized subsequent to sucIa withdrawal shall be allocated to the Withdrawn LimitedPartner. Upon the realization of a Special Investment of a Withdrawn Limited Partner which isheld in a Special Investment Sub-Accoun; the proceeds allocable to that Withdrawn LimitedPartner, after reduction for the Incentive Allocation, if any, will be paid to the WithdrawnLimited Partner-

In addition, if after giving effect to a withdrawal, a Limited l'aimer would becompletely withdrawn from the Partnership except for its interest in one or thorn SpecialInvestment Sub-Accounts, all or a portion of thé proceeds with respect to such withdrawal may bereserved or held back to pay for the Management Fee expected to be earned over the life of theSpecial Investments. Upon the rualization or deemed realization of the applicable Specialhwestmeuts, any unused reserve or hold back shall be paid to such Limited Partner.

To the extent, the amount reserved or held back to pay Management Fees (asdescribed above) does not cover Management Fees that would otherwise be payable over the life offlic Special Investment, then such unpaid Management Fees may be paid out of profits, if any,eamed in respect of such Special Investment for the periodbeginning fiom the tizne such shortfallbegins to accrue until realization or deemed realization. "Accrued Interest" is the amount ofinterest earned on any amount held back that, at the time of calculation, has not been applied to theManageaient Fees in respect of any Special Investment Sub-Account of a Limited Partner that haswithdrawn all or substantially all of its capital account

Reriuired Withdrawals. The General Partner may, in its sole discretion, terminatethe Interest of any Limited Partner, in whole or in part, upon at least thirty days prior writtennotice.

Suspension of Withdrawal Rights. The General Pasmer, by written notice to anyLimited Partner, may suspend the withdrawal rights of such Limited Partncr if the GeneralPartner reasonably deems it necessaiyto do so to comply with anti-moneylauridering laws andregi.ilations app hcable to the Partnership, Ihn Generai Partner or any of the Partnership's otherservice providers; (8cc "Anti-Money Laundering Regulations" and "Outline of PartnershipAgreement").

General l'artneLWithdrawals. The General Partner may withdraw amounts fromthe Partnership at any time, provided that the General Paxtnèr will at all times maintain asufficient capital investment in the Partnership so that the General Partner will, in the aggregate,be entitled to receive at least 1% of Partnership income, loss, taxable income, taxable loss anddistributions of the Partnership.

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Withdrawal, Death Bankruptcy or Adiudicated Jncompetence Etc. of a LimitedPartner. Jn the event of the death, bankruptcy or adjudicated incompetency of a Limited Partner,the Interest of such Limited Partner shaLl continue until the later of (a) the first to occur of thelast day of the fiscal year- of the Partnership in which such event takes pLace (the "Year ofDetermination") or the earlier termination of the Partnership, and (2) the day 60 days after thedate of. stich Limited Partner's death, bankruptcy or incompetency. If the Partnership iscontinued after the.expiration of the Year of Detennination, such Limited Partner will be deemedto have withdrawn from the Partnership (except as to any Interest in a Special Investment Sub-Account) as of the inter of the last day of the Year of Determination and 60 days after the date ofsuch Partner's death, bankruptcy or incompetency.

Types of Securities in which the Partnership Mas? Invest The Partnership mayinvest in and trade equity securities (including res tiicted equity securities), equity options, equityrelated convertible securities, interest-bearing or interest rate sensitive marketable securities(including those issued or guaranteed by the United States Government or agencies orinstrumentalities of the United States Government), bonds, trade creditor claims and otherevidences of ownership interest, currency and commodities contracts, options, futures andforward contracts with respect to any of the foregoing, and any othâr instruments which aretraded in normal.channels of trading for securities and commodities and to engage in transactionsin connection with mergers, consolidations, acquisitions, transfers of assets, tender offers,exchange offdrs, recapitalirations, proxy fights, liquidations, bankruptcies or other similartransactions. The foregoing investments may be made directly or indirectly through mutualfluids or other pooled. investment vehicles, notwithstanding that fees (including performance-based fees) may be payable to the investment manager of such funds or vehicles by thePartnership.

Valuation of Partnership Assets and Liabilitiès. All securities, liabilities andother property will be-assigned such-values as the General Partner reasonably determines to betheir fair market value and such values will he binding upon the Partners; provided that in theevent a majority in interest of the Class A Limited Panner does not agree with any suchdetemiinatiori, such disagreement will be submitter! for resolution to a firm of independentcertified public accountants (other than the partnership's auditors) which will be mutually agreedupon by the General Partner and the majority in interest of the Class A Limited Partners. Anydetermination made by such finn of independent certified public accountants will be final andbinding upon the General Partner and Class A Limited Partners. No value will be attributable tothe goodwill, if any, of th business and for the firm naine of the Partnership. The costs ofretaining such accountants will be paid by the Partnership.

Assienabiity of Interests. No Limited Partner or transferee thereof will, withoutthe prior written consent of the General Partner, which may be withheld in his sole discretion,create, or suffer the creation of, a security interest in such Limited Partner's Interest Except forsales, transfers, assignments or other dispositions (i) by last 'vill and testament, (ii) by operationof law, or (iii) to an affiliate of a Limited Panner, without the prior written consent of theGeneral Patiner, which may be withheld in his sole discretion, no Limiter! Partner will sell,transfer, assign, or in any manner dispose of such Limited Partner's Interest, in whole or in part,nor enter into any agreement as the result of which any person becomes interested with suchLimited Partner thereim In no event will a Limited Partner's interest in the Partnership, or anypart- thereof, be assigned or transferred to any Person unless the tríìnsferee executes

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documentation reasonably satisfactory to the General Partner pursuant to which the transfereeagrees to be bound by the Partnership Agreemént and the General Partner is satisfied that suchassignment or transfer (i) is not in violation of any applicable federal or state securities jaws,(ii) will not result in the Partnership being considered to have tenninated within the meaning ofSection 708 of the Code, (iii) will flot result in any Genen! PartaS being required to registerunder the investment Advisers Act of 1940, as amended, and (iv) will flot result in thePartnership being required to register tinder the Company Act and (y) wilt not canse thePartnership to be treated as a publicly traded partnership taxable as a corporation for U.S. foderaiincome tax purposes. in connection with the preceding sentence, the General Partner wilt havethe right, to require a legal opinion of counsel satisfactory to him. Unless the foregoingconditions are met, no attempted assignment or transtèr of a Limited Partner's interest in thePartnership, or part thereof, will be valid or binding on the Partnership. All expenses incurred inconnectionwith any transfer pursuant to the foregoing provisions will be paid by the transferringLimited Partner. Notwithstanding any other provision of the Partnership Agreement to thecontrary, no unit of Partnership Interest mny,bc subdivided for resale into units smaller than aunit the initial oflbring price of which would havebeen at least $20,000.

Admission of New Partners. The General Partner may admit one or moreadditional Limited Partners at any time in its sola and absolute discretion. The GeneraL Partnermay do all things appropriate or convenient in connection with the admission of any additionalLimited Partner. Additional Limited Partners wilt be required to execute an agreement pursuantto which it becomes bound by the terms of the Partnership Agreement. The General Partner mayalso admit one or more additional general partners at any time in its sole and absolute discredn.

Amendments to The Partnership Anreement The Partnership Agreement may notbe amended except by a writing executed by the General Partners and by a majority in interest ofthe Limited Partners; provided, however that (a) without the consent of all the Partners, no suchamendment will chang the Partnership to a general partnership, reduce the liabilities,obligations or responsibftities of the General Partners or increase the liabilities, obligations orresponsibilities of the Limited Partners, nnd (b) without !he consent of 'each Partner affectedthereby, no such amendment will reduce the capital account of any Partner or alter or moditS' hisinterest in Partnership income, distributions or Partnership Losses; and provided furtherhnweyçç, that the General Partner may amend the Partnership Agreement without the consent ofany of the other Partners to reflect changes validly made in the membership of the Partnership; toreflect changes in the capital accounts of the Partners resulting from operation of the PartnershipAgreçment and, subject to other provisos of-the Partnership Agreement, to reflect the creation ofadditional classes of Limited Partners. Notwithstanding any of the foregoing provisions, thePartnership Agreement will be amended from time to time in each Sd every mânñer to complywith the then existing requirements of the Code, the Treasury Regulations and the rulings of theInternal Revenue Service affecting the status of the Limited partnership as a partnership forfederal income tax purposes, and no amendment will be proposed which will diredtly orindirectly affect or jeopardize the then status of thc limited partnership as a partnership forfederal income tax purposes.

Reports to Partners. The Partnership will prnvide to the Partners unauditedfinancial statements within 35 days after the end of each calendar quarter (other than the last)and will furnish to them annual audited Imancial statements within 90 days after year end, andtax information as soon thereafier as practicable.

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Exculpation. The Partnership Agreement pmvides that the General Partner willnot be liable, responsible or accountable in damages or otherwise to the Partnership or to anyLimited Partner, successor, assignee or transferee except by reason of acts or omissions due toba faith, gross negligence, recklessness, fraud or intentional misconduct, or by reason of actionstaken in the knowledge that such actions were not within the stated purposes and powers of thePartnership.

Indemnification. The Partnership Agreement provides that the Partnership willindemni', defend and hold tite General Partner and, if expressly directed by the (3enethl Partner,the Partnership's agents, employees, advisors and consultants, lianuless from and against anyloss, liability, damage, cost or expense, including reasonable attorneys' fees, in defense of aydemands, claims or lawsuits against the General Partner or such other persons, in or as a result ofor relating to his capacity, actions or omissions as General Partner or as an agent, employce,advisor, br consultant, concerning the business, or activities undertaken on behalf, of thePartnership; including, without limitation, any demands, claims or lawsuits initiated by a LimitedPanner or resulting from or relating to the offer and sale of the Interests, provided that, the acts oromissions of such General Partner or other person are not the result of bad faith, grossnegligence, recklessness, fraud or intentional misconduct, or such a lesser standard of conduct asunder applicable law prevents indemnification hereunder, or were taken in the knowledge thatsuch actions were not within the stated purposes and powers of the Partnership;

The General Partner, and any other indemnified person, will be entitled toreceive, upon application therefor,,advances to cover the costs of defending any claim or actionagainst him; provided that such advances will be repaid to the Partnership if the General Partneror other person violated any of the standards set forth in the preceding paragrah. Ail rights ofthe General Partner and others o indemnification will survive the dissolution of the Partnershipand the death, retirement, removal, dissolution, adjudicated incompetency or insolvency of eitherthe General Partner or an agent, employce, or advisor, or others, pravided tbat notice of apotential claim for indemnification hereunder is made by or on behalf of the person seeking suchindemnification prior to the time distribution ja liquidation of the property of the Partnership ismade. -

If the Partnership is made a party to any claim, dispute or litigation or otherwiseincurs any loss, liability, damage, cost or expense (i) as a result of or in connection with theGeneral Partner's obligations or liabilities unrelated to the Partnership business, or(a) by reasonof his bad faith, gross negligence, recklessness, flaud or intentional misconduct, or by reason ofactions taken in the knowledge that such actions were not within the stated purposes and powersof the Partnership, th6 General Partner will indemnif' and reimburse the Partnership for all loss,liability, damage, cost and expense incuned, including reasonable attorneys' fees.

TAX ASPECTS

CIRCULAR 230 NOTICE. THE FOLLOWJNG NOTICE IS BASED ON (LS.ThEASURY REGULATIONS GOVERNING PRACTICE BEFORE lUt U.S.INTERNAL REVENUE SERVIC& (1) ANY U.S. FEDERAL TAX ADVICECONTANEI) HEREIN, INCLUDING ANY OPINION OF COUNSEL REFERRED TOIIEREIN, IS NOT INTENDED OR WRITrEN TO BE USE», AND CANNOT BE USEDBY ANY TAXPAYER FOR rtH PURPOSE 01? AVOIDING U.S. FEDERAL TAX

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PENALTIES THAT MAY BE IMPOSED ON TUE TAXPAYER; (Z) ANY SUCHADVICE I WRITTEN TO SUPPORT TILE PROMOTION OR tS{ARKETJNG OF THETRANSACTIONS DESCRIBED BEttELN (OR IN ANY SUCH OPINION OFCOUNSEL); AND (3) EACH TAXPAYER SHOULD SEEK ADVICE BASED ON TRETAXPAYER'S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAXADVISOR

The folldwin is a summary of certain aspects of thc income taxation of thePartnership and its Limited Partners which should be considered by. a prospective LimitedPartner. The Partnership has not sought a ruling from the Internal Revenue Service (the"Service") or any other Federal, state or local agency with respect to any of the tax issuesaffecting the Partnership, nor has it obtained an opinion of counsel with respect to any tax issues.

This summaly of certain aspects of the Federal income tax treatment of thePartnership is based upon the Internal Revenue Code cl 1986, as amended (the «Cede"), judicialdecisions, Treasury Regulations (the "Regulations') and rulings in existence on the date hereof,all, of which are subject to change. This summary does not discuss the impact of variousproposals to amend the Code which could change ceitairt of the tax consequeñces of aninvestment in the Partnership. This summary also dt not discuss all of the tax consequencesthat may be relevant to a particular investor or to certain investors subject to special treatmentunder the Federal income tax laws, such as insurance companies.

EACH PROSPECrIVE LIIIrED I'ARThER SHOULI) CONSULT WITH risOWN TAX ADVISER IN ORDER FULLY TO UNDERSTAND TItE FEDERAL, STATE,LOCAL MID FOREIGN INCOME TAX CONSFQHBNCES OF AN INVESTMENT IN THEPARTF4ERSHW.

Tax Treatment of Partnership Operations -

Classification of the Partnership. The Partnership operates as a partnershii forFederal tax purposes that is not a publicly traded partnership taxable as a corporation. If it weredetermined that the Partnership should be taxable as a corporation for Federal tax purposes (as aresult of changes in the Code, the Regulations or judicial interpretations thereof, a materialadverse change in facts, or otherwise), the taxable income of the Partnership would be subject tocorporate income tax when recognized by the Partnership; distributions of suchincome, otherthan in certain redemptions. of Interests, would be treated as dividend income when received bythe Partners to the extent of the cunent or accumulated earnings and profits of the Partnership;and Partners would not be entitled to-report profits or losses realized by the Partnership.

UÑLESS OTHERWISE INDICATED, REFERENCES JN THE FOLLOWINGDISCUSSION OF THE TAX CONSEQUENCES OF PARTNERSHIP INVESTMENTS,ACTIVITIES, INCOME, GAIN AND LOSS, INCLUDE THE DIRECT INVESTMENTS,ACTIVITIES, INCOME, GAIN A41) LOSS OF THE PARTNERSHIP, AND THOSEINDIRECTLY ATTRIBUTABLE TO THE ?ARThERSIIIP AS A RESULt OF IT BEINGANINVESTOR IN OThER IÑVESIMENT ENTITIES.

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As a partnership, the Partnership is not itself subject to Federal income taX. ThePartnership files an annual partnership information return with the Service which reports theresults of operations. Each Patiner is required to report separately on its incarne tax return itsdistributive share of the Partnership's net long-terni capital gain or loss, net short-terni capitalgain or loss and al! other items of ordinary income or loss. Each Partner is (axed on itsdistributive share of the Partnership's taxable income and gain regardless of whether it hasreceived or will receive a distribution horn the Partnership.

Allocation of Profits aM Losses. Under the Partnership Agreement thePartnership's net tapital appreciation or net capital depreciation for each accounting period isallocated among the Partners and to their capital accounts without regard to the amount ofincome or loss actually recognized by the Partnership for Federal income tax purposes. ThePartnership Agreement provides that items of income, deduction, gain, loss or credit actuallyrecognized by the Partnership for each fiscal year generally are to be allocated for income taxpurposes among the Partners pursuant to the principles of Regulations issued under Sections704Q,) and 704(c) of the Code.

Under the Partnership Agreement, the General Partner lias the discretion toallocate income, gains, losses, deductions and credits to take into account the differencesbetween income for tax purposes and for Partnership book purposes. There can be no assurancethat, if the General Partner makes such a special allocation, the Service will accept suchallocation. If such allocation is successfiully challenged by the Service, the Partnership's gainsallocable to the Partners would be increased.

Tàx Elections: Returns: Tax Audits. The Code generally provides for optionaladjustments to the basis of partnership property upon distributions of partnership property to apartner and transfers of partnership interests (including by reason of death) provided that apartnership election has been made pursuant to Section 754. Under the Partnership Agreement,the General Partner, in its sole discretion, may cause the Partnership to make or refrain frommaking such an election. Any such election, once made, cannot be revoked without the Service's'consent. The actual effect of any such election may depthd upon whether any Other InvestmentEntities also snake such an election. As a result of the complexity and added expense of thetaxaccounting required to implement such an election, the General Panner presently does not intendto make such election.

The General Partner decides how to report the partnership items on thePaxtnersbip's tax returns, and all Partners are required under the Code to treat the itemsconsistently on their own returns, unless they file a statement with the Service disclosing theinconsistency. Given the uncertainty and complexity of the, tax laws, it is possible that theService may not agree with the manner in which the Partnership's items have been reported. Inthe event the incarne taj returns of the Partnership are audited by the Service, the tax treatmentof the Partnership's income and deductions generally is determined at the limited partnershiplevel in a single proceeding rather than by individual audits of the Partners. The GeneralPartner, designated as the "Tax Matters Partner", has considerable authority to make decisionsaffecting the tax treatment and procedural rights of all Partners. In addition, the Tax MattersPartner has the authority to bind certain Partners to settlement agreements and the right on behalf

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of all Partners to extend the statute of limitations relating to the Partners' tax liabilities withrespect to Partnership items.

Mandatory Basis Adjustmcnt. Under new legislation, the Partnership isgenerally required to adjust its tax basis in its assets in respect of all Partners in cases ofpartnership distributions that result in a "substantial basis reduction' (je., in excess of $250,000)in respect of tite partnership's property. The Partnership is also required to adjust its tax basis inits assets in respect of a transferee, in the case of a sale or exchange of an interest, ora transferupon death, when there exists a "substantial built-in loss" (je., in excess of $250,000) in respectof partnership property immediately after the transfer. For this reason, the Partnership willrequire (i) S Paxtncr who receives a distribution from the Partnership in connectioa with acomplete withdrawal, (ii) a transferee of an Interest (including a transferee in case of death) and(iii) any other Partner in appropriate circumstances to provide the Partnership with informationregarding its adjusted tax basis in its Interest.

Tax Consequences to a Withdrawing Limited Partner

A Limited Partner receiving a cash liquidating distribution from the Partnership,in connection with a complete withdrawal from the Partnership, generally will recognize capitalgain or loss to the extent of the difference between the proceeds reccisred by such LimitedPartner and sucE. Limited Partner's adjusted tax basis in its partaership interest. Such capital gainor loss will be short-term, Long-term, or some combination of both, dependiag upon the tüning ofthe Limited Partner's contributions to the Partnership. However, a withdrawing Limited Pannerwill recognize ordinary income to the extent such Limited Partner's allocable share of thePartnership's "unrealized receivables" exceeds the Limited Partner's basis in such unrealizedreceivables (as determined pursuant to the Regulations). For these. purposes, accrued butuntaxed market discount, if any, on securities held by the Partnership will be treated as anunrealized receivable, with respect to which a withdrawing Limited Partner woùld recognizeordinary income. A Limited Partner receiving n cash nonliquidafmg distribution will recognizeincome in a eimilar manner only to the extent that the amount of the distribution exc%eds suchLimited Partie? s adjusted tax basis in its partnersh interest

Distributions of Property. A partner's receipt of a distribution of property from apartnership is generally not taxable. However, under Section 731 of the Cod; a distributionconsisting of marketable securities generally i5 treated as a distribution of cash (rather thanproperty) unless the distributing partnership is an "investment partnership" within the meaning ofSection 731(c)(3)(C)(i) and the recipient is an "eligible partner" within the meaning of Section731(c)(3)(C)(iii). The Partnership will determine at the appropriate time whether it qualifies asan "investment partnership." Assuming it so qealifies, if a Lted Partner is an "eligiblepartner", which ter!n should include a Limited Panner whose contributions to the Partnershipconsisted solely of cash, the rule treating a distribution of property as a distribution of cashwould not apply.

Tax Treatment ofPartnership Investments

In GeneraL The Partnership expects to act as a trader, and not as a dealer, withrespect to its securities transactions. A trader is a person who buys and sells securities for its

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own accóunt A dealer, on the other hand, is a person who purchasds securities for tesale tocustomers rather than for investment or speculatien. The Partnership has taken the position thatits securities trading activity constitutes a frade or business for Federal income tax ptrposes.However, there can be no assurance that the Service will agree that the Partnerships securitiesactivities will constitute trading rather than investing.

Generally, the gains and losses realized by a trader on the sale of securities arecapital gains and losses. Capital gains and losses recognized by the Partnership may be long-term or short-terni depending, in general, upon the length nf time the Partnership maintains apanicular investment position and, in some cases; upon the nature of the transaction. Propertyheld for more than one year generally will be eligible for long-tern capital gain or losstreatment. The application of cèrtain Mes relating to short sales, to so-called "straddle" and"wash sale" transactions and to Section 1256 Contracts (defmed below) may erve to alter thetreatment of the Partnership's securities positions!

The Partnership may also realize ordinary income and losses with respect to itstransactions. The Partnership may hold debt obligations with "original issue discount" Tn suchcase the Partnership would be required to include amounts in taxable income on a current basiseven though receipt of such amounts may occur in n subsequent year.

The maximum ordinary income tax rate for individuals is 35%2 and, in gcneral,the maximum individual income tax rate for "Qualified Dividends' and long-term capital gainsis j5%4 (unless the taxpayer elects to be taxed at ordinary rates - see "Limitation onDeductibility of Interest and Short Sale Expenses' below), although in all cases the actual ratesmay be higher due to the phase out of certain tax deductions, exemptions and credits. Theexcess of capital losses over capital gains may be offset against the ordinary income of anindividual taxpayer, subject to an annual deduction limitation of $3,000. Capital losses of anindividual taxpayer may generally be carried forward to succeeding tax years to offset capitalgains and then ordinary income (subject to the $3,000 annual limitation), for corporatetaxpayers, the maximum income tax rate is 35%. Cäpital losses nf a corporate taxpayer may beofAet only against capital gains, but unused capital lossès may be carried back three yeats(subject to certain limitations) and carried forward five years.

There are a number of uncertainties in the Vedersi income tax law relating to debtrestructuring. In general, a "significant modification" of a debt obligation acquired by the

Generally, in the absence of egulations resuisiag it, the Partnership will not treat positions held throughdifferent investment advisory agreements or Other Investment Entitics as ofTheuing positidrts forpurposcs ofthe stsaddlc mica,

This rate is scheduled to increase to 39.6% in ZOLL.

A "Qualified Dividend' is generally a.dividend ibm certain domesthicorporations, and from certain frrcicorporations that aro either eligible for the bcaotlts of a comprehensive income tax treaty with the United Statesor are readily adable on an established secmities madretin the United States. Shares mustbe held for certainholding periods in order fora dividend therenn to be a Qual Wed Dividend.

The maxiumm individual joug-tain capital gains tax rate is 20% for sales orcxchangr.s on or after January 1,2009. The 15% maximum individual tax ratc on Qualified Dividends is scheduled ta expire on December31,2008.

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- Partnership at a discount may be treated as a taxable event to the Partnership, with the resultinggain or loss measured by the difference between the principal amount of the debt aller themodification and the Partnership's tax basis in such debt before the modification.. However,other than for certain "safe harbor" modifications specified in Treasury Regulations, thedetermination of whether a modification is "significant" is based on all of the facts andcircumstances. Therefore, it is possible that the Service could take the position that therestructuring of a debt obligation acquired by the Partnership at a discount amounts to a"significant modification" that should be treated as a taxable event even if the Partnership did notso treat the restructuring on its tax return.

Section 1256 Contracts. In the case of Section 1256 Contracts, the Codegenerally applies a 'mark-to-market" system of taxing unreali7ed gains and tosses on suchcontracts and otherwise provides for special rules of taxation. A Section 1256 Contract includescertain regulated fixtures contracts and certain other contracts. Under these mIes, Section 1256Contracts held by the Partnership at the end of each taxable year of the Partnership are treatedfor Federal income tax purposes as if they were sold by the Partnership for their fair marketvalue on the last business day of such taxable year. The net gain or loss, if any, resulting fromsuch deemed sales (known as 'marldng to market'), together with any gain or loss resulting fromactual sales of Section 1256 Contracts, must be taken into account by the Partnership incomputing its taxable income for Ñuch year Ifa Section 1256 Contract held by the Partnershipat the end of a taxable year is sold in the following year, the amount of any gaia or loss realizedpn such sale wilt be adjusted to reflect the gain or loss previously taken into account under the"markt,, market" rules.

With ocrtain exceptions, capital gains and losses from such Section 1256Contracts generally are characterized as short-terni capital gains or losses to the extent of 40%thereof and as long-terni capital gains or losses to the extent of 60% thereof. If in individualtaxpayer incuis a net capital loss for a year, the portion thereof, if any, which consists of a netloss on Section 1256 Contracts may, at the election of the taxpayer, be cañied back three years.Losses so carried back may be deducted only against net capital gain to the extent that such gaiaincludes gains on Section 1256 Contracts. A Section 1256 Contract does not include any"securities fixtures contract" or any option on such a contract, other than a "dealer securitiesfutures contract" (See "Cet-tain Securities Futures Contracts').

Certain Securities Futures Contracts. Generally, a securities fixtures contract is a -contract of sale for future delivery of a single security or a narrow-based security index. Anygain or loss from the sale or exchange of a securities fistures contract (other than a "dealersecurities fixtures contract") is treated as gain or loss from the sale or exchange of property thathas the same character as: the property to which the contract relates has (or would have) in thehands of lEe taxpayer. lithe underly'ingsecurity would be a capital asset in the thxpaye?s hands,then gain or loss from the sale or exchange of the securities fixtures contract would be capitalgain or loss. Capital gain or loss from the sale or exchange of a securities Astures contract to sellpnperty (io, the short sido of a securities futures contract) generally will be short term capitalgain or loss.

A "dealer securities hitures contract" is treated as a Section 1256 Contract A"dealer-securities futures contract" is a securities futures contract, or an option to enter into such

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a contract, that (1) is entered into bya dealer (or, in the esse oían option, is purchased or grantedby the dealer) in the nonna! course àf its trade or business activity of dealing in the contracts and(2) is traded ana qualified board of frade or exchang&

Mixed Straddle Election. The Code allows a taxpayer to elect to offset gains andlosses from positions which are part of a "mixed straddle." A 'mixed straddle' is any straddle inwhich one or more butnot all positions axe Section 1256 Contracts. Pursuant to TemporaryRegulations, the Parinciship (and any Other Investment Entities) may be eligible to elect toestablish one or mom mixed straddle accounts for certain ofita mixed straddle trading positions.The mixed straddle account rules requirea daily "marking to market' of all open positions in theaccount and a daily netting of gains and tosses from positions in the account. At the end of ataxable year, the annual net gains or tosses from the mixed straddle account are recognized fortax purposes. The application of the Temporary Regulations mixed straddle account mies is notentirely clear. Therefore, there is no assurance that n mixed straddle account election by thePartnership 'will be accepted by the Service.

Possible "Mark-to-Market" Election. To the extent that the Partnership is directlyengaged in a trade or business as a trader in rsecurities,hI it may elect under Section 475 of theCode to "marie-to-market" the securities held in connection with such trade or business. Undersuch election, securities hetd by the l'artnership at the end of each taxable year will be truated asif they were soldby the Partnership for their fair market value oñ the last day of such taxable

- year, and gains or losses recognized thereon will be treated as ordinary income or loss.-Moreover, even if the Partnership determines that its securities activitiés will constitute tradingrather than investing, there can be no assurance that the Service will agree, in which esse thePartnership may not be able to mark-to-market its positions.

Short Sales. Gain or loss from a short sale of property is generally considered ascapital gain or loss to the extent the property used to close the short sale cbnstitnt a capitalasset in the Partnership's hands. Except with respect to certain situations where the propertyused to close a short sale has a long-term holding period on the date the short sale is entered into,gains on short sales generatly are short-term capital gains. A loss on a short sale will be treatedas a long-term capital loss if, on the date of the short sate, "substantially identical property" hasbeen held by the Partnership for mare than otie year. In addition, these rules may also terminatethe running of the holding period of "substantially identical property" held by the Partnership.

Gain or. loss on a short sale will generally not be realized until such time that theshort sale is closed. however, if the Partnership holds a short sale position with respect to stock,eeztain debt obtigauions or partnership interests that has appreciated in value and then icquitesproperty that is the saine as or substantially identical to the property sold short, the Partnerhipgenerally will recognize gain on the date it acquires such property as if the short sale wem closedon such date with such property. Similarly, if the Partnership holds an appreciated financialposition with respect to stock, certain debt obligations or partnership interests and then entersinto a short sale with respect to the same or substantially identical property, the Partnershipgenerally will recognize gain as if the appreciated financial positioa were sold at its fair marketvalue on the date it enters into the short sale. The subsequent holding period for any appreciatedfinancial position that is subject to these constructive sale mIes will be determined as if suchposition wem acquired on the date of the constructive sale.

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CONFIDENTIAL - . GCC SEC 0000922

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Effect of Straddle Rules on Limited Partners' Securities Positions. The Servicemay treat certain positions in securities held (directly or indirectly) by a Partner and its indirectinterest in similar securities held by Use Partnership as 'straddles" for Federal income taxpurposes. Investors should consult their tax advisors regarding the application of the "straddle"rules to their investment in the Partnership?

Limitation on Deductibility of rntercst and Short Sale Expenses. Fornoncorporate taxpayers, Section 163(d) of the Code limits the deduction for "investment interest"(1e, interest or short sale expenses for "indebtedness properly allocable to property held forinvestment"). Investment interest is not deductible in the current year to the extent that itexceeds the taxpayer's "net investment income, consisting of net gain and ordinary incomederived from investments in the current year less certain directly connected expenses (other thaninterest or short sale expenses). For this purpose, Qualified Dividends and long-term capitalgains are excluded (loes net investment income unless the taxpáyer elects to pay tax on suchamounts at ordinary income tax rates.

For, purposes of this provision, the Partnership's activities (other than certainactivities that are treated as "passive activities" under Section 469 of the Codé) wilt be treated asgiving rise to investment income for a Limited Partner, and the investment interest limitationwould apply to a noncorporate Limited Partner's share of the interest and short sale expensesattributable to the Partnership's operatiort In such caso a noucorporate Limited Partner wouldbe denied a deduction for all or part of that portion of its distributive share of the Partnership'sordinary losses attributable to interest and short sale expenses unless it had sufficient investmentincome from all sources including the Partnership. A Limited Partner that could not deductlosses currently as a result of the application of Section 163(d) wouldbe entitled to carry forwardthjch losses to future years, subject to thc same limitation. The investment interest limitationwould also apply to interest paid by a noncorporate Limited Partner on money borrowed tofinance its investhent in the Partnership. Potential investors axe advised to consult-with theirown tax advisers with respect to the application of the investment interest limitation in theirparticular tax situations.

For each taxable year, Section 1277 of the Code limits the deduction of theportion of any interest expense on indebtedness incurred by a taxpayer to purchase or caray asecurity with market discount which exceeds the amount of interest (including original issuediscount) ineludible irr the taxpayer's gross income for such taxable year with respect to suchsecurity ("Net Interest Expense"). In any taxable year in which the taxpayer has Net,InterestExpense with respect to a particular security, such Net Interest Expense is not deductible exceptto the extent that it exceeds the'amount of market discount which accrued on the security duringthe portion of the taxable year during which the taxpayer held the security. Net Interest Expensewhich cannot be deducted in a particular tañble year under the rules described above can becurried forward and deducted in the year in which the tax,ayer disposes of the seéurity.Alternatively, at the taxpayer's election, such Net Jnterest Expense can be carried forward and

The Partnership ali not generally be in a position to finnish to Partners information regarding the siniûpositions of the Other Investment Entities which would permit a Partner to detonaine whether lu transactions insecurities, which are also held by such Other Investment EnliliS, should be treated as offsetting positions forpurposes of the sitad die rules.

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deducted in a year prior to the disposition of the security, if any, in which the taxpayer has netinterest income from the security.

Section 1277 would apply to a Limited Partner' s share of the Partnership's NetJnterest Expense attributable to a security held by the Partnership with market discount In suchcase, a Limited Partner would be denied a current deduction for all or part of that portion of itsdistributive share of the Partnership's ordinary losses attributable to such Net Interest Expenseand such losses would be carried forward to future years, in each case as described above.Although no guidance has been issued regarding the manner in which an election to deductpreviously disallowed Net Interest Expense in a year prior to the year in which a bond isdisposed of should be made, it appears that such an election would be made by the Partnershiprather than by the Limited Patiner. Section 1277 would also apply to the portion of interest paidby a Limited Partner on money borrowed to finance its investment in the Partnership to theextent such interest was allqcable to securities held by the Partnership with market discount

Deductibility of Partnership Investment Expenditures and Certain OtherExpenditures. Investment expenses (e.g., investment advisory fees) of an individual, trust orstate are deductible only to the extent theyexcoed 2% of adjusted gross income.6 la additioku,

the Code farther restricts the ability of an individual with an adjusted gross income in excess of aspecified amount (for 2006, $150,500 or $75,250 for a married person filing a separate return) todeduct such investment expenses. Under such provision, them is a limitation on the dedutibilityof investment expenses in excess of 2% of adjusted gross income to the extent such excessexpenses (along with certain other itemized deductions) exceed the lesser of (i) 3% of the excessof the individual's adjusted gross income over the specified amount or (ii) 80% of the amount ofcerfain itemized deductions otherwise allowable for the iaxable year? Moreover, suchinvestment expenses are miscellaneous itemized deductions which are not deductible by anosicorporate taxpayer in calculating its alternative minimum toi liability.

Pursuant to Temporary Regulations issued by the Treasury Department, theselimitations on deductibility should not apply to a noncorporate Limited Partner's share of theexpenses of the Partnership to the extent the Partnership is engaged, as it expects to be, in a tradeor business within the meaning of the Coda These limitations will apply, however, to anonoorporate Limited Partner's share of the investment èxpenses of the Partnership (including theManagement Fee, payments made on certain derivative instruments (if any) and any fee payableto the manageas of Other Investment Entities), to the extent such expenses rire allocable to OtherInvestment Entities that are not in a trade or business within the meanilig of the Code. The

CONFIDENTThL . CCC -. SEC 000b924

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llowcvcr, Section 67(e) of the ade provides that, in the case of a eilst or an estate, such limitation does notapply to deductions or costs which are paid or incurred in ccnnection with the administration of the estate ortrust and would not have been incurred ilthcproperty were not held in such tust orestate. Thereis adiss&ment among three Fedeni Courts of Appeals on the question of whether the investment advisory feesincurred by a trustait exempt (under Section 67(e»f-omthe 2% of adjusted gruss income floor cadeductibility. Linthed Pannen that are inris or estates should &nsuh their tax advisors as io the applimbitityoftht.se cases to the investment expenses that are allocated to theta.

Under recently enacted legislation, the lauer limitation on itemized deductions bas been reduced starting incalendaryear200d,will befairthermeduced starting in 2008,andwill be completely eliminated in 2010.however, this legislation contains a "sunset" provision that will result in the limitatioo on itemized deductionsbeing restored in 2011.

599M392 45


Partnership intends to treat its expenses attributable to the Other Investment Entities that areengaged in trade or business within the meaning of the Code or to the trading activity of thePartnership as not being subject ta the foregoing limitations on deductibility, although there canbe no assurance that the Service may not treat such expenses as 'mvestrnent expenses which aresubject to the limitations.

The consequences of these limitations will vary depending upan the particular taxsithatioù of each taxpayer. Accordingly, noncorporate Limited Partners should consult theIr taxadvisers with respect to the application of these limitations.

A Limited Partner will not be allowed to deduct syndication expenses attributableto the acquisition of an Jnterest paid by such Limited Partner or the Partnership. Any suchamounts will be included in the Limited Partner's adjusted tax basis for its Jnterest.

Recently enacted legislation includes a provision (adding a new Section 470 ofthe Code) which may defer certain deductions of the Partnership to the extent any direct orindirect investors of the Partnership are tax exempt persons, non-U.S. persons, and any dometicgovernment organizations or instrumental ines thereof 1f applicable, this provision could havean adverse effect on taxable investors in the Parthership There is some uncertaintyregardingthe scope of the new provision and its applicability to the Partnership, which may be addressedin future guidance or legislation. Investors should consult their tax advisors regattling theconsequences of this new provision with respect to an investment in tite Partnership.

Application of Rules for Income and Losses fron- Passive Activities. The Coderestricts the deductibility of losses from a "passive activity" against certain income which is aoLderived from a passive activity. This restriction applies to individuals, personal servicecorporations and certain closely held corporations. Pursuant to Temporary Regulations issuedby the Treasury Department, income or loss from the Partnetship's securities investment andtrading activity generally will not constitute income or loss from a passive, activity. Therefore,passive losses from other sources generally could not be deducted against a Limited Partnet'sshare of such income and gain from the Partnership Income ¿r loss attributable, to certainactivities of the Partnership, including investments in partnerships engaged in certain trades orbusinesses, certain private claims or certain Ñndings of reorganization plans may constitutepassive activity income or loss.

A tplication of Basis and "At Risk" Limitations on Deductions. The amount ofany loss of the Partnership that a Limited Patiner is entitled to include in its income tax return islimited to its adjusted tax basis in its Interest as of the end of the Partnership's taxable year inwhich such loss occurred. Generally, a Limited Partner's adjusted tax basis for its Interest isepial to the amount paid for such Interest, increased by the sum of (i) its share of thePartnership's liabilities, as determined for Federal income tax purposes, and (ii) its distributiveshare of the Partnership's realized income and gains, and decreased (but not below zero) by thesum of (i) distributiòns (including decreases in its share of Partnership liabilities) made by thePartnership to stich Limited Partner and (ii) such Limited Partner's distributive share of thePartnership's realized losses and expenses.

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Similarly, a Limited Partner that is subject to the "at risk" limitations (generally,non-corporate taxpayers and closely held corporations) may not deduct losses of the Partnershipto the extent that they exceed the amount such Limited Partner has "at risk" with respect to itsInterest at the end of the year. The amount that a Limited Partner has "at risk" will generally bethe same as its adjusied basis as described above) except that it will generally not include anyamount attributable to liabilities of the Partnership or any amount borrowed by the LimitedPastier on a non-recourse basis.

Losses denied under the basis or "at risk' limitations are suspended and may becarried forward in subsequent taxable years, subject to these and other applicable limitations.

"Phantom Income Prom Partnership Investments. Pursuant to various "anti-deferral" provisions of the Code (the "Subpart F' and "passive foreign investment company"provisions), investments (if any) by the Partnership in certain foreign comontions may couse aLimited Partner to (i) recognize taxable income prior to the Partnership's receipt of distributableproceeds, (ii) pay an interest charge on receipts that are deemed as having been deferred or (iii)recognize ordinai1 income that, but for the "anti-deferral". provisions, would have been treated aslOng-term or short-term capital gain.

Foreirn Taxes

It is possible that certain dividends and interest directly or indirectly received bythe Partnership from sources within foreign countries will be subject to withholding taxesimposed by such countries, In addition, the Partnership or the Other Investment Entities mayalso be subject to capital gains taxes in some of the foreign countries where they purchase andseIt securities. Tax treaties between certain countries and the United States may reduce oreliminate such taxes. It is impossible to predict in advance the rate of foreign tax the Partnershipwill directly or indirectly pay since the amount of the Partnership's assets to be invested invarious countries is not lusown.

The Limited Partners will be informed by the Partnership as to their proportionateshare of the foreign taxes paid by the Partnership or the Other Investment Entities, which theywill be required to include in theft 'mcome The Limited Partners generally will be entitled toclaim either a credit (subject, however, to various limitations on fureigx tax credits) or, if th'itemize their deductions, a deduction (subject to the limitations generally applicable todeductions) for their share of such foreign taxes in computing their Federal income taxes.

Tax Shelter Reporting Requirements

The Regulations require the Partnership to complete and flle Form 8886("Reportable Transaâtion Disclosure Statement") with its tax return for any taxable year in whichthe Partnership participates in a "reportable transaction] Additionally, each Partner treated asparticipating in a reportable transaction of the Partnership is generally required to file Form 8886with its tax return. The Partnership and any such Partner, respectively, must also submit a copyof the completed form with the Service's Office of Tax Shelter Analysis. The Partnershipintends to notify the Partners that it believes Qased on information available to the Partnership)aie required to report a transaction of the Partnership or the Other Investment Entities, and

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SECSAZ0000S26


intends to provide such Limited Partners with any available information nedded to complete andsubmit Form 8886 with respect to the transactions ofthe Partnership and the Other InvestmentEntities. In certain situations, there may also be a requirement that a list be maintained ofpersons participating in such reportable transactions, which couki be made available to theService at its request

A Partne?s recognition of a loss upon its disposition of an interest in thePartnership could also constitute a "reportable transaction" for such Partner requiring suchPartner to file Forni 8886.

Under new legislation, a significant penalty is imposed on taxpayers whoparticipate in a "reportable transaction" and fail to make the required disclosure. The penalty isgenerally $10,000 for natural persons and $50,000 for other penons (increased to $100,000 and$200,000, respectively, if the reportable transaction is a listed" transaction). Investors shouldconsult with their övm advisors concerning the application of these reporting obligations to theirspecific situations.

State and Leoni Taxation

In addition to the Federal income tax consequences described aboye, prospectiveinvestors should consider potential state and local tax consequences of an investment in thePartnership. State and local laws often differ from Federal income tax laws with respect to thetreatment of specific items of income, gain, los; deduction and credit. A Partner's distributiveshare of the taxable income or loss of the Partnership generally will be required to be included indetermining its reportable income for state and local tax purposes in the jurisdiction in which itis a resident A partnership in which the Partnership acquires an interest may conduct businessin a jurisdiction which will subject to tax a Partne?s ha of the partnership's income from thatbusiness and may cause Partners to file tax returns in those jurisdictions. Prospective investorsshould consult their tax advisers with respect to the availability oía credit for such tarin thejurisdiction in which that Partner is a resident.

One or more states nay impose reporting requirements on the Partnership and/orits Partners in a manner similar to that described above in "Tax Shelter RepprtingRequirements." Investors should consult with their own advisors as to the applicability of suchrules injurisdictions which may require or impose a filing requirement.

The Partnership should not be subject to the New York City unincorporatedbusiness tax, which is not imposed on a partnership which purchases and sells securities for its'own account." (This exemption may not be applicable to the extent a partnership in which thePartnership invests, directly or through an Other Investment Entity, conrjucts a business in NewYork City.) By reason of a sirnilar"own accounce exemption, it is also expected that anonresident individual Partner should not be subject to New York State personal income tax withrespect to bis share of income br gain realized directly by the Partnership.

Individual Limited Partners who are residents of New York State and New YorkCity should be aware That the New York State and New York City personal income tax lawslimit the deductibility of itemized deductions and interest expense for individual taxpayers at

9990439.5 48

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certain income levels. However, as described above, the Partnership expects to be in a trade orbusiness within the meaning of the Code Accordingly, although there can be no assurance, theforegoing limitations should not apply to a Limited Partner's share of arty of the Partnership'sexpenses.

For purposes of the New York State corporate franchise tax and the New YorkCity general corporation tax, a corporation generally is treated as doing business in New YorkState and New York City, respectively, and is spbject to such corporate taxes as a result of theownership of a partnership interest in a partnership which does business in New York State andNew York City, respectively? Each of the New York State and New York City corporate taxesare imposed, in part, on the corporation's taxable income or capital allocable to the relevantjurisdiction by application of the appropriate allocation percentages. Moreover, a non-New Yorkcorporation which does business in New York State may be subject to a NS York State licensefee. A corporation which is subject to New York State corporate flanchisotax solely as à resultof being a timited partner in a New York partnership way, under certain circumstances, elect tocompute its New York State corporate &ancbise tax by taking into account only its distributiveshare of such partnership's laconic and loss. There is currently no similar provison in effect forpurposes of the New York City general corporation tax.

Regulations under both the New York State corporate franchise tax and NewYork City general corporation tax, however, provide an exception to this general rule in the caseof a "portfolio investment partnership," which is defmed, generally, as a partnership which meetsthe gross income requirements of Section 85I(b)(2) of the Code. -New York State (but nOt NewYork City) has adopted regulations that also include income and gains from commoditytransactions desciibed in Section 864Q»(2)(ß)(iii) as qualifying gross income for this purpose.The qualification of the Partnership as a "portfolio investment partnership" with respect to itsinvestments through advisory accounts and Other investment Entities must be determined on anannual basis and, with respect to a taxable year, the Partnership and/or one or moie OtherInvestment Entitiès may not qualir as portfolio investment-partnerships. Thercfore, a corporatelimited partner may be treated as doing business in New York State and New York City as aresult of its interest in the Partnership or its indirect interest in nonquali'ing Other InvestmentEntities.

New York State has enacted legislation that imposes a quarterly witltholdingobligation on certain partnerships with respect to partners that are individual non-New Yorkresidents or corporations (other than "S" corporations). Accordingly, the Partnership may berequired to withhold on the distributive shares of New York sodrce partnership income allocableto such partners to the extent such income is not derived from trading in securities for thePartnership's or the Other Investment Entities' own account.

Each prospective Partner should consult its tax adviser with regard to the NewYork State and New York City tax consequences of an investment in the Partnership.

s New York State (but not Ne York City) generally exempts fi-ora corporate franchise rax a non-New Yorkcorporation which (i) does not actually or cooslructively oua a 1% or grca Lcr lirthft paxineiship interest in apariucrabip doing business in New York and fu) has a tax basis in such limited partnership interest not greaterthanSi million.

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ANTI-MONEY LAUNDERING RWULATIONS

As pad of the Partnership's responsibility for the prevention of money laundering,the Arlminictrator. the Genen! Partner and his affiliates may require a detailed verification of nLimitéd Partner's identity, any beneficial owner vnderlying the account and the source of thepayment-

The Canent Partner or the Administrator reserves the right to request suchinformation as is necessary to veri' the identity of a subscriber and the imderlying beneficialowner of a subscriber's ora Limited Partner's Interest irr the Partnership. In the event of delay orfailure by the subscriber or Lirnitèd Partner to produce any information required for veriflcationpurposes, the Genen! Partner may refuse to accept a subscription or may cause the withdrawalof any such Limited Partner from the Partnership. The General Partner, by written notice to anyLimited Partner, may. suspend the withdrawal rights of such Limited Partner if the CeneraiPanner reasonably deems it necessaiy to do so to comply with anti-money launderingregulations applicable to the Partnership, the General Partner or any of the Partnership's otherservice providers.

Each subscriber and Limited Partner will be required to make suchrepresentations to the Partnership as the Partnership, the Generai Partner and the Administratorwill require fri connection with such anti-money laundering programs, including, withoutlimitation, representations to the Partnership that such subscriber or Limited Partner is not nprohibited country, territory, individual or entity Usted on the U.S. Depaaneut of Treasury's0111cc of Foreign Assets Control ('OFAC") website and that it is not directly or indirectlyaffiliated with, any country, territory, individual or entity named on an OFAC list or prohibitedby any OFAC sanctions programs. Such Limited Partner will also represent to the Partnershipthat amounts contributed by it to the Partnership were not directly or indirectly derived fromactivities that may contravene Federal, state or international laws and regulations,including anti-money laundering laws and regulations.

LIMITATIC)NS ON TRANSFERABILITY; SUflAIIILITY RISO OJREWEENTS

Each purchaser of an Interest must bear the economic risk of the investment foron extended period of time (subject to a limited right to withdraw capital from the Partnership orto transfer or assign Interests in the Partnership) because the Interests have not been registeredunder the Securities Act of 1933, as amended (the "Securities Act"), and, therefore, cannot be soldunless they are subsequently registered under the Securities Act or an exemption frum schregistration is available. It is not contemplated that any such registration will ever be effected, orthat certain exemptions provided by mies promulgated under the Securities Act (such as Rule144) will ever he available. The foregoing restrictions on transferability must be regarded assubstantial.

Fach purchaser of an Interest is required to represent that the Interest is beingacquired for its own account, for investment and not with a view to resale or distribution.. TheInterests are suitable investments ably for sophisticated investors for whom an investmeñt in thePartnership doc not constitute a complete investment program and who Thlly understand, arewilling to assume and who have the fmancial resources necessary to withstand, the risksinvolved in the Partnership's specialized investment program and to bear the potential loss oftheir entire investment in the Interests

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Investors in the Partnership must Fe 'accredited investors" as defined in Rute 501under the Securities Act, 'qualified purchasers" as mich tenu is defined in Section 2(a)(51) of theCompany Act and must meet other suitability requirements.

Each prospective purchaser is urged to consult with its own advisors to determinethe suitability of an investment in the Interests, and the relationship of-such an investment to thepurchases's overall investment program and fmancial and tax position.. Each purchaser of anInterest is required to further represent that, after all necessary advice and analysis, itsinvestment in an Interest is suitable and appropriate in light cl' the foregoing considerations.Prior to any subscription of Interesis, each prospective purchaser must represent in writing, bycompleting and signing the subscription documents, that it meets the suitability standardsreferred to in this Confidential Offering Memorandum. The General Partner has the right toreject a subscription for any reason or for no reason. -

Interests may not be purchased by nonresident aliens, foreigncorporations,foreign Partnership, foreign trusts or foreign estates, all as defined in the Internal Revenue Codeof 1986, as amended or by U.S. tax-exempt investcrs. Foreign invèslors and U.S. tax-exemptinvestors may be eligible to invest - in the Offshore Fund that has a substantially similarinvestment program to that of the Partnership.

COUNSEL

- Schulte Roth &Zabel LLP, 919 Third Avenue, New York, New York 10022, actsas counsel to the Partnership in connection with thisoffering of Interests. Schulte Roth & Zabet

- LLP also acts as counsel to the General Partner and his affiliates. In connection with thePartnership's offering of Interests and subsequent advice to the Partnership1 the General Partnerand his affiliates, Schulte Roth & Zabel LLP wilt not be representing the Limited Partners of thePartnership. No independent counsel has been retained to represent the Limited Partners of thePartnership. -

AUDITOR; PEPORTS -

EDO Seidnian, LLP serves as the Partnerships auditor. The Partnership willprovide to the Limited Partners unaudited financial statements within 35 days after the end ofeach calendar ctuarter (other than the last) and wilt ihmieh to them annual audited ünancialstatements within 90 days after year end, and tax information as soon thereafter as practicable.Certain Limited Partners may havé access to certain infonnation regarding the Partnership thatmay not be available to other Limited Partners. Such Limited Partners may make investmentdecisions with respect to their investment in the Partnership base& on ruch informatiom

SUBSCRIPTION FOR INThIThSTS

- Persons interested in subscribing for Interests will he furnished with, and *ill berequired to complete and return to the General Partner, subscription documents and other certaindocuments.

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AIThITIONAL DOEØEMATION

Representatives of the General Partner are available for a discussion of the termsand conditions of this offering and will provide any additional information, to the extent theypossess it or can acquire it without unreasonable effort or expense, necessaw to verify theinformation contained in this Confidential Offering Memorandum.

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exhibit 57 - madofftrustee · pg 2 of 59. confidential ofeiilung memorandum gabriel capital, l.p....

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