U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10

AMENDMENT NO 1

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

 

UC ASSET LP

(Exact Name of Registrant as Specified in its charter)

 

Delaware   024-10802   30-0912782

(State or other jurisdiction of

incorporation or organization)

  (Commission File Number)  

(IRS Employer

Identification No.)

 

2299 Perimeter Park Drive, Suite 120

Atlanta, Georgia 30341

(Address of principal executive offices)

 

Registrant’s telephone number: (470) 475-1035

Registrant’s fax number:

 

Copies to:

Richard W. Jones, Esq.

Jones & Haley, P.C.

750 Hammond Drive

Building 12, Suite 100

Atlanta, Georgia 30328

(770) 804-0500

www.corplaw.net

 

Securities to be registered under Section 12(b) of the Act:  None

 

Securities to be registered under Section 12(g) of the Act: Common Units

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Non-accelerated filer ☐

Emerging growth company ☐

Accelerated filer ☐

Smaller reporting company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
Item 1. Business 1
     
Item 1A. Risk Factors 5
     
Item 2. Financial Information 11
     
Item 3. Properties 20
     
Item 4. Security Ownership of Certain Beneficial Owners and Management 22
     
Item 5. Directors and Executive Officers 22
     
Item 6. Executive Compensation 23
     
Item 7. Certain Relationships and Related Transactions and Director Independence 23
     
Item 8 Legal Proceedings 24
     
Item 9. Market Price of Dividends on the Registrant’s Common Equity and Related Stockholder Matters 24
     
Item 10. Recent Sales of Unregistered Securities 24
     
Item 11. Description of Registrant’s Securities to be Registered 25
     
Item 12. Indemnification of Directors and Officers 29
     
Item 13. Financial Statements and Supplementary Data 29
     
Item 14. Changes in and Disagreements with Accounting and Financial Disclosures 29
     
Item 15. Financial Statements and Exhibits F-1
     
  Signatures 31

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This document contains forward-looking statements. All statements other than statements of historical facts contained in this document, including statements regarding our future results of operations and financial position, business strategy, and likelihood of success and other plans and objectives of management for future operations, and future results of current and anticipated products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “aim,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this document are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this document and are subject to a number of risks, uncertainties and assumptions described under the sections in this document titled “Risk Factors” and elsewhere in this document. Forward-looking statements are subject to inherent risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, new risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties that we may face. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

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INFORMATION REQUIRED IN REGISTRATION STATEMENT

 

This Amendment No 1 to the Registration Statement on Form 10 (“Amendment No 1”) incorporates by reference information contained in the Registration Statement on Form 10 filed to the Security Exchange Commission on September 18, 2020 (“Registration Statement”). The information in or incorporated in this Amendment No 1 is current as of the effective date of the Registration Statement.

 

Item 1. Business.

 

General development of business.

 

UC Asset LP is a limited partnership formed on February 01, 2016 under the laws of the State of Delaware. We invest in real estate for development and redevelopment in the Atlanta and Dallas areas. Our principal office address is 2299 Perimeter Park Drive, Suite 120, Atlanta, GA 30341.

 

Our partnership is managed by our general partner, UCF Asset LLC under the terms of our partnership’s Limited Partnership Agreement. Except for limited conditions defined in our limited partnership agreement, UCF Asset LLC acting as general partner has authority to exercise full management of our partnership. Limited partners are passive investors and have limited power over our partnership and our general partner.

 

General Partner

 

UCF Asset LLC is a limited liability company formed on January 26, 2016 under the law of the State of Georgia. The principal office of our general partner is the same to that of our partnership.

 

The individuals who, directly or indirectly, own and control our general partner are “Larry” Xianghong Wu with an 80% interest and Gregory Bankston with a 20% interest. Gregory Bankston is the managing member of our general partner.

 

UCF Asset LLC does not conduct any business activities other than management of our partnership.

 

The general partner may be removed, upon consent of the limited partners representing at least sixty-six and two-thirds percent (66 2/3%) of the outstanding common units voting as a single class, where (i) the general partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment, or (ii) the general partner materially and willfully breaches our limited partnership agreement.

 

The general partner may, at any time, assign all or a portion of its partnership interest to any affiliate and, in the general partner’s sole discretion, admit the affiliate as an additional or substitute general partner.

 

The general partner is paid an annual management fee, in four payments made quarterly, at 2.0% of net asset under management of the partnership.

 

Business Operations

 

Before January 2020, our operations primarily consist of our ownership interests in Atlanta Landsight LLC, a Georgia limited liability company, and UCF Development LLC, a Texas limited liability company. Our partnership owns 100% of Atlanta Landsight LLC and 100% of UCF Development LLC.

 

Through Atlanta Landsight LLC, we invested in properties in the Atlanta metropolitan area for residential redevelopment. This strategy involves acquiring a property, renovating or remodeling it, and placing it back on the market for sale, or renting it out for continuous rental income. Occasionally, we also invested in residential properties in other metropolitan area.

 

Through UCF Development LLC, we have acquired land located in Farmersville, Texas in the Dallas metropolitan area. We intend to develop the land by subdividing it into lots and then either selling the lots or building high-end residential homes on the lots.

 

In January 2020, Atlanta Landsight LLC acquired all assets held by UCF Development LLC for a nominal price of $1.00. After the acquisition, UCF Development LLC became dormant, and will be dissolved before the end of its fiscal year.

 

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After January 2020, we have announced a number of new strategies to expand our business operations, through Atlanta Landsight LLC, to invest in commercial real estate in Atlanta and other metropolitan areas. As of June 30, 2020, we have decreased our holdings in residential property, but we have not made any investments in commercial real estate, due to the uncertainty of economic prospects under the COVID-19 pandemic. Over time, we expect that commercial properties will account for the majority of our portfolio.

 

Through the parent company, UC Asset LP, we invest in private debts and other non-property opportunities, to the extent that the revenue drawn from those debts and other opportunities will not exceed ten percent (10%) of total revenue of the Partnership. As of June 30, 2020, UC Asset LP held debt investment of approximately $750,000 in total.

 

Narrative description of business.

 

By and of the date of June 30, 2020, our partnership’s investments primarily consist of ownership interests in residential properties for redevelopment in the Atlanta metropolitan area and land for development in the Dallas metropolitan area.

 

Residential Investment and Redevelopment in Metropolitan Atlanta

 

We acquire and redevelop residential real estate properties in metropolitan Atlanta, mostly in suburban regions north of downtown Atlanta, known as Brookhaven, Dunwoody and Marietta, and in downtown Atlanta. Atlanta is the ninth largest metropolitan area in the United States.

 

Our properties in metropolitan Atlanta are acquired and owned through our subsidiary, Atlanta Landsight LLC, which is a Georgia limited liability company.

 

Upon acquisition of a property, we usually make improvements intended to increase its value before putting it back on the market for sale. Depending on the condition of a property, the improvements may be renovation, remodeling, or a complete tear-down and rebuild of the residential home. After improvements, we may sell the completed project immediately if we believe the submarket has reached its short-term peak; or, we may rent it out for a period, usually12 months, if we believe that the submarket has potential of appreciation in the coming year.

 

We may resell a property without improvement if the value appreciation has generated a satisfying ROI, or if there are any reasonable business considerations.

 

Renovation

 

Renovating a property usually includes optimizing spaces, fixing or replacing water, power and HVAC equipment, installing new flooring, upgrading the kitchen and bathrooms, installing new appliances, and/or painting of interior and exterior walls. Renovation can be a relatively low-cost method to improve the value of a property.

 

For the fiscal year of 2018, we completed 3 residential renovation projects in the Atlanta metropolitan area. All three properties were sold.

 

For the fiscal year of 2019, we completed 7 residential renovation projects in the Atlanta metropolitan area. Three properties were sold, and three were rented out, and one property was still listed for sale as of December 31, 2019. This property was ultimately sold in the first quarter of 2020.

 

For the first half of 2020, we completed one residential renovation project in the Atlanta metropolitan area. As of June 30, 2020, the property had been listed for sale. It was sold in early August 2020. We also terminated the lease of one of the rental properties, and listed it for sale in May 2020. That property went under contract in June 2020 and was sold in early August 2020.

 

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Remodeling

 

A remodeled property may include many of the renovations described above, but it can also include changes to the structure, usually by adding more space and altering floor plans. Remodeling will usually cost more than renovation but less than rebuilding, and its return on investment (“ROI”) will usually be higher than renovation but lower than rebuilding.

 

For the fiscal years of 2018, 2019 and the first half of 2020, we did not have any remodeling projects. Our last remodeling project was completed in 2017.

 

Rebuilding

 

If the condition of a property is in such poor shape that it would not be cost effective to repair it, it may be a candidate to tear down and rebuild. When choosing properties to rebuild, we prefer those in a neighborhood where other active rebuilding projects have taken place and completed rebuilt properties have been sold.

 

For the fiscal year of 2018, we completed one rebuilding projects in the Atlanta metropolitan area, which was listed for sale in December 2018 and it was sold in the first quarter of 2019.

 

For the fiscal year of 2019, we completed two rebuilding projects in the Atlanta metropolitan area. One of them was sold, and the other one was rented out in June, 2020.

 

For the first half year of 2020, we completed the most work of one rebuilding project and will list it for sale soon.

 

* * *

 

As of June 30, 2020, we owned ten residential properties in metro Atlanta and one residential property in Greensboro, North Carolina.

 

Of these ten properties, we have completed redevelopment of five and they are rented out or will be rented out on annual contracts. Monthly revenue on these rental properties (excluding the one that has not been rented out) is approximately $15,000. The net market value of those five properties was assessed at approximately $3.5 million in total, as of June 30, 2019.

 

Two properties have gone under contract for a total price of approximately $1 million.

 

The redevelopment of one property is close to completion, and will be listed soon at approximately $1.3 million.

 

Two properties are currently held and will probably be redeveloped in the coming months. Those properties have a total net market value of approximately $390,000.

 

As of June 30, 2020, the fair market value of our residential properties was obtained by appraisals conducted by a related party. However, the methods used by the management, as well as the results, have been reviewed and approved by an independent and licensed third party. – i.e. Brandon Atkins from Keller Williams (Atlanta Perimeter office).

 

Farmland Investment and Development in Metropolitan Dallas

 

In September 2016, we purchased 76% of a 72.53-acre farmland located within the township of Farmersville, Texas, in Collin County, located in the northeast quadrant of the Dallas Metropolitan Area. In February 2018, we purchased the remaining 24% of this property and we now own 100% of this land through our investment, Atlanta Landsight LLC.

 

The purchase price in September, 2016 for the Farmersville property was $805,216. The total historical cost for us on this property (including commissions, taxes, consulting fees etc.) is approximately $860,000, as of June 30, 2020.

 

The value of our Farmersville, TX property is solely based on the valuation by independent and licensed third parties. The most up-to-date appraisal report valued the property at $1,088,000.00 as of December 19, 2019. This report was provided by Michelle Godwin from Valuright Appraisal, Inc.

 

Our goal is to develop the Farmersville property into a high-end residential community of approximately 40 to 45 high-end residential homes. We have hired a local engineering company to work on concept plans of development. By June 30, 2020, two variants of conceptual plans were created, reviewed and revised. Based on those conceptual plans, the property will be developed into 43-44 lots of a minimum of one acre.

 

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The Farmersville property is not currently zoned for residential use. Rezoning the property to residential use requires the submission of a formal application to the City of Farmersville. We have not yet started that application process. On November 15, 2018, our representatives had a meeting with the City Manager, the Assistant to the City Manager, and the City’s consulting engineer. The meeting addressed issues regarding the property, including the necessity off-site easements for the water line extension to the property.  It is possible that our company will get pro rata reimbursement for the water line extension as other developments tie into it. The meeting also addressed the prospect of annexing our property into the City and zoning it for estate lots. However, no follow-up meetings have occurred since then.

 

As of the date of June 30, 2020, we projected the total development cost for the Farmersville property may range between $12 million to $22 million. We currently do not have the necessary capital to develop this land.

 

At this time, our strategy on this property is to hold it and see if we may be able to raise enough capital to develop it. We may also rent it out to a third party for cultivation in order to generate cash. We don’t exclude the possibility of liquidating it.

 

Debt Investments

 

We have made a limited number of debt investments from time to time in high-yield promissory notes or private loans to related and unrelated third parties. As of June 30, 2020, we have made $750,000 of debt investments, which accounts for less than 10% of our net equity.

 

Status of Publicly Announced New Services

 

In May 2020, we announced that we were offering a pandemic mortgage debt relief program for businesses experiencing financial emergencies due to the COVID-19 pandemic. This program aims at acquiring equities in commercial properties which are suffering from the impact of Covid-19 pandemic.

 

Commercial properties in the metro Atlanta area are facing substantial losses due to the Corona virus pandemic. This creates an unprecedented challenge for mall owners and other landlords. Socially driven businesses, such as restaurants, lounges and clubs, also have experienced a record-breaking economic loss.

 

A property owner could face dilemma if the property cannot generate enough cash to remain current on mortgage payments. Many loan companies are offering a grace period, but that may not be enough to save some businesses. An owner may have to liquidate the property to cover the mortgage, which may result in him/her losing part of even all of his/her equity in the property.

 

As a company based on the principle of supporting and improving communities, UC Asset is offering property owners in this situation an opportunity to partner with us to save their equity positions. The basic concept is for UC Asset to acquire part or all of a property, by taking responsibility for the payment of part or all of the remaining mortgage balance. Under this arrangement, UC Asset can leverage its cash to buy income-producing properties at a good price. Presumably, those properties will regain their capacity to produce cash income, when the economic impact of the Covid-19 pandemic begins to dissipate.

 

Competitive Position in the Industry and Methods of Competition

 

UC Asset is structured as a Master Limited Partnership (MLP) rather than a real estate investment trust (REIT) in order to focus on long-term value growth. The Partnership is among one of the very few real estate MLPs trading on US public markets, and the only one on OTCQX. This unique legal structure empowers UC Asset to take a longer-term approach to real estate investments, because MLPs do not have to constantly make cash distributions as REITs are required to do.

 

According to a research report released by Zack Small Cap Research on April 20, 2020, MLPs are best suited to long-term investors without the need for regular cash distributions. A link to this research report can be found as below:

 

https://scr.zacks.com/News/Press-Releases/Press-Release-Details/2020/UCASU-Thinking-Past-Uncertainty-to-Invest-for-the-Future/default.aspx

 

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Number of Employees

 

As of June 30, 2020, the Partnership has two full time employees, who are the two members of our General Partner, UCF Asset LLC. The Partnership has five part time employees, including a project manager, an accountant, an investor relation director, and two Audit Committee members.

 

Reports to Security Holders

 

Currently, our partnership is required by security laws to file Form 1-K, Form 1-SA as annual and semi-annual reports, with the Securities and Exchange Commission (SEC). We also voluntarily file quarterly reports as Form 1-U with the SEC. Once this registration statement goes effective the Partnership will be filing regular reports under the Security Act of 1934 – 10-K’s and 10-Q’s --on the EDGAR platform.

 

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The address of that site is http://www.sec.gov. where our reports can be found at https://www.sec.gov/cgi-bin/browse-edgar?company’uc+asset

 

Item 1A. Risk Factors.

 

Investing in our common units involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Offering Circular before deciding whether to invest in our common units. The occurrence of any of the events or developments described below could harm our financial condition, results of operations, business, and prospects. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may harm our business, financial conditions, result of operations, and prospects.

 

General Risks Related to our Partnership

 

We have a limited operating history.

 

We were formed in February 2016 and have a limited operating history. As a result, there is only a limited period on which to base an assumption that our business operations will prove to be successful. Our future operating results will depend on many factors, including our ability to raise adequate working capital, availability of properties for investment, and our ability to develop and redevelop properties.

 

We are significantly dependent on our general partner and its managing member and member of majority interest.

 

Our business plan is significantly dependent upon the abilities and continued participation of Gregory C. Bankston and “Larry” Xianghong Wu, the managing member and member of majority interest respectively of our general partner. It would be difficult to replace either of them at this stage of our partnership. The loss by or unavailability of their services would have an adverse effect on our business, operations, and prospects. There can be no assurance that we would be able to locate or employ personnel to replace Mr. Bankston or Mr. Wu should their services be discontinued. In the event that we are unable to locate or employ personnel to replace either of them, we may be required to cease pursuing our business, which could result in a loss on your investment.

 

Our general partner has broad discretion to manage our partnership and you will have limited ability to exercise control over the direction of our partnership.

 

UCF Asset LLC, our general partner, has the power to make operational decisions without input by the limited partners. Such decisions may pertain to the scope of development, the selection of personnel, and whether to enter into material transactions with related parties. You will be unable to evaluate the economic merit of property investments before we make them and will be entirely relying on the ability of UCF Asset LLC, our general partner, to select our investments. Our general partner will have broad discretion in developing or redeveloping properties, and may not have the opportunity in advance to review which properties have been acquired, redeveloped, or sold.

 

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Removal of the General Partner

 

The General Partner may not be removed for cause unless such removal is approved by written consent of the Limited Partners owning 66 2/3% of the Units.  This could greatly reduce the ability of the limited partners to remove the general partner.

 

You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a limited partner.

 

Our general partner determines our major policies, including our policies regarding financing, growth and debt capitalization. Our general partner may amend or revise these and other policies without a vote of the limited partners. Our general partner’s broad discretion in setting policies and our limited partners’ inability to exert control over those policies increases the uncertainty and risks you face as a limited partner.

 

Our ability to make distributions to our limited partners is subject to fluctuations in our financial performance, operating results and capital improvement requirements.

 

We do not currently have an established policy on paying distribution to our limited partners. In the event of downturns in our operating results, unanticipated capital improvements to our properties, or other factors, we may be unable to declare or pay distributions. The timing and amount of distributions are the sole discretion of our general partner who will consider, among other factors, our financial performance, any debt service obligations, and our taxable income and capital expenditure requirements. We cannot assure you that we will generate sufficient cash in order to fund distributions.

 

The failure of our properties to appreciate in value would most likely preclude our limited partners from realizing a return on their ownership.

 

There is no assurance that our real estate investments will appreciate in value or will ever be sold at a profit. The marketability and value of the properties will depend upon many factors beyond the control of our management. There is no assurance that there will be a ready market for the properties, since investments in real property are generally non-liquid. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by it, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

 

Risks Related to our Operations

 

Real estate investments are illiquid.

 

Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties or investments in our portfolio in response to changing economic, financial and investment conditions may be limited. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. We may be unable to realize our investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy.

 

The profitability of acquisitions and redevelopment is uncertain.

 

We intend to acquire properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management’s time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the estimates of the costs of improvements to develop or redevelop a property or the prospects for sale of a property may prove inaccurate.

 

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Our properties may not be diversified.

 

Our properties currently are centered in the Atlanta and Dallas metropolitan areas. Our potential profitability and our ability to diversify our investments may be limited, both geographically and by type of properties purchased. Our properties may not be well diversified, and their economic performance could be affected by changes in local economic conditions. Our performance is therefore linked to economic conditions in the regions in which we will acquire properties and in the market for real estate generally. Therefore, to the extent that there are adverse economic conditions in the regions in which our properties are located and in the market for real estate, such conditions could result in a reduction of our income and cash to return capital and thus affect the amount of distributions we can make to you.

 

We may not have control over costs arising from redevelopment of properties.

 

We intend to retain general contractors to perform the actual physical redevelopment on our properties. As a result, we will be subject to risks in connection with a contractor’s ability to control costs, the timing of completion of redevelopment, and a contractor’s ability to build in conformity with plans and specification.

 

Inventory or available properties might not be sufficient to achieve our investment goals.

 

We may not be successful in identifying suitable properties that meet our acquisition criteria, or in consummating acquisitions or investments on satisfactory terms. Failures in identifying or consummating acquisitions would impair the pursuit of our business plan.

 

Our request to rezone the Farmersville property to residential use may not be approved or may be delayed, which will significantly affect our investment strategy and could lead to losses.

 

The Farmersville property is currently zoned for commercial use. Rezoning the property to residential use requires the submission of a formal application to the City of Farmersville. We have not yet started the formal application, which may take a considerable amount of time to process. If our application is not approved or is delayed, we may be unable to develop the Farmersville property or develop it within our expected budget or timeframe.

 

The consideration paid for our target acquisition may exceed fair market value, which may harm our financial condition and operating results.

 

The consideration that we pay for a property will be based upon numerous factors, and the acquisition may be purchased in a negotiated transaction rather than through a competitive bidding process. We cannot assure anyone that we will be able to negotiate the best purchase price or that the purchase price that we pay for a property will be the best possible price, that we will be able to generate an acceptable return on such acquisitions, or that the location or other relevant economic and financial data of any properties that we acquire will meet acceptable risk profiles.

 

We may not make a profit if we sell a property.

 

The prices that we can obtain when we determine to sell a property will depend on many factors that are presently unknown, including the operating history, tax treatment of real estate investments, demographic trends in the area, and available financing. We may not realize any significant appreciation on our investment in a property.

 

We might obtain lines of credit and other borrowings, which increases our risk of loss due to potential foreclosure.

 

We may obtain lines of credit or other financing that may be secured by our properties. As with any liability, there is a risk that we may be unable to repay our obligations from the sale of our assets. Therefore, when borrowing and securing such borrowing with our assets, we risk losing such assets in the event we are unable to repay such obligations or meet such demands.

 

We may suffer losses that are not covered by insurance.

 

The geographic areas in which we acquire, and own properties may be at risk for damage to property due to certain weather-related and environmental events, including such things as severe thunderstorms, hurricanes, flooding, and tornadoes. To the extent possible, the general partner may but is not required to attempt to acquire insurance against fire or environmental hazards. However, such insurance may not be available in all areas, nor are all hazards insurable. In addition, an insurance company may deny coverage for certain claims or determine that the value of the claim is less than the cost to restore the property, resulting in further losses in income to our partnership.

 

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Investment Company Risks

 

Investors will not receive the benefit of the regulations provided to real estate investment trusts or investment companies.

 

We are not a real estate investment trust and enjoy a broader range of permissible activities. Under the Investment Company Act of 1940 (referred to as the “1940 Act”), an “investment company” is defined as an issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. We intend to operate in such manner as not to be classified as an “investment company” within the meaning of the 1940 Act as we intend on primarily holding real estate. The management and the investment practices and policies of ours are not supervised or regulated by any federal or state authority. As a result, investors will be exposed to certain risks that would not be present if we were subjected to a more restrictive regulatory situation.

 

The exemption from the Investment Company Act of 1940 may restrict our operating flexibility.

 

We do not believe that at any time we will be deemed an “investment company” under the 1940 Act as we do not intend on trading or selling securities. Rather, we intend to hold and manage real estate. However, if at any time we may be deemed an “investment company,” we believe we will be afforded an exemption under Section 3(c)(5)(C) of the 1940 Act. Section 3(c)(5)(C) of the 1940 Act excludes from regulation as an “investment company” any entity that is primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate”. To qualify for this exemption, we must ensure our asset composition meets certain criteria. Maintaining this exemption may adversely impact our ability to acquire or hold investments, to engage in future business activities that we believe could be profitable, or could require us to dispose of investments that we might prefer to retain. If we are required to register as an “investment company” under the 1940 Act, then the additional expenses and operational requirements associated with such registration may materially and adversely impact our financial condition and results of operations in future periods.

 

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted.

 

If we are ever deemed to be an investment company under the 1940 Act, we may be subject to certain restrictions including:

 

  restrictions on the nature of our investments; and
  restrictions on the issuance of securities.

 

In addition, we may have imposed upon us certain burdensome requirements, including:

 

  registration as an investment company;
  adoption of a specific form of corporate structure; and
  reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations.

 

Federal Income Tax Risks

 

The Internal Revenue Service may challenge our characterization of material tax aspects of your investment in our common units.

 

You are urged to consult with your own tax advisor with respect to the federal, state, local, and foreign tax considerations of an investment in our partnership. We do not intend to seek any rulings from the Internal Revenue Service regarding any of the tax issues impacting our partnership. Accordingly, we cannot assure you that the tax conclusions discussed in this offering, if contested, would be sustained by the Internal Revenue Service or any court.

 

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You may realize taxable income without cash distributions, and you may have to use funds from other sources to fund tax liabilities.

 

As a limited partner, you will be required to report your allocable share of our taxable income on your personal income tax return regardless of whether you have received any cash distributions from us. It is possible that your common units will be allocated taxable income in excess of your cash distributions. We cannot assure you that funds will be available for distribution in any year. As a result, you may have to use funds from other sources to pay your tax liability.

 

You may not be able to benefit from any tax losses that are allocated to your common units.

 

Common units in our partnership may be allocated their share of tax losses should any arise. Section 469 of the Internal Revenue Code limits the allowance of deductions for losses attributable to passive activities, which are defined generally as activities in which the taxpayer does not materially participate. Any tax losses allocated to investors will be characterized as passive losses, and, accordingly, the deductibility of such losses will be subject to these limitations. Losses from passive activities are generally deductible only to the extent of a taxpayer’s income or gains from passive activities and will not be allowed as an offset against other income, including salary or other compensation for personal services, active business income or “portfolio income”, which includes non-business income derived from dividends, interest, royalties, annuities and gains from the sale of property held for investment. Accordingly, you may receive no benefit from your share of tax losses unless you are concurrently being allocated passive income from other sources.

 

We may be audited which could subject you to additional tax, interest, and penalties.

 

Our federal income tax returns may be audited by the Internal Revenue Service. Any audit of our partnership could result in an audit of your tax return. The results of any such audit may require adjustments of items unrelated to your investment, in addition to adjustments to items related to our partnership. In the event of any such audit or adjustments, you might incur attorneys’ fees, court costs, and other expenses in contesting deficiencies asserted by the Internal Revenue Service. You may also be liable for interest on any underpayment and penalties from the date your tax was originally due. The tax treatment of all partnership items will generally be determined at the partnership level in a single proceeding rather than in separate proceedings with each partner, and our general partner is primarily responsible for contesting federal income tax adjustments proposed by the Internal Revenue Service. In such a contest, our general partner may choose to extend the statute of limitations as to all partners and, in certain circumstances, may bind the partners to a settlement with the Internal Revenue Service. Further, our general partner may cause us to take advantage of simplified flow-through reporting of partnership items. If so, adjustments to partnership items would continue to be determined at the partnership level however, and any such adjustments would be accounted for in the year they take effect, rather than in the year to which such adjustments relate. Our general partner will have the discretion in such circumstances either to pass along any such adjustments to the partners or to bear such adjustments at the partnership level.

 

Legislative or regulatory action could adversely affect investors.

 

We cannot assure you that legislative, judicial, or administrative changes in the federal income laws will not adversely affect you as a limited partner. Any such changes could have an adverse effect on an investment in our partnership or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in our partnership and the status of legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our common units.

 

Risks Related to our Common Units

 

An investment in our common units may be illiquid.

 

Our common units are currently traded on OTCQX, but there is no assurance that you will be able to sell your common units on OTCQX at your desired price. You may never be able to liquidate your investment or otherwise dispose of your common units at your desired price. Our partnership does not currently have a redemption program and there is no assurance that our partnership will ever redeem or “buy back” your common units.

 

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A sale of a substantial number of common units may cause the price of our common units to decline.

 

If our limited partners sell, or the market perceives that our limited partners intend to sell for various reasons, substantial amounts of our common units in a public market, the market price of our common units could fall. Sales of a substantial number of our common units may make it more difficult for us to sell securities in the future at a time and price that we deem reasonable or appropriate.

 

Regulatory changes by Chinese government.

 

A majority of the common units are owned by Chinese citizens who purchased our common units using funds in accounts outside of mainland of China (“offshore accounts”) that are not currently subject to any laws and/or regulations mandated by the Chinese government. These offshore accounts may be located in but not limited to the U.S., Canada, United Kingdom, Hong Kong and Macau. If the Chinese government implements new laws and/or regulations to extend its jurisdiction to offshore accounts owned by Chinese citizens, we may be unable to successfully raise capital in future offerings.

 

If relations between the United States and China worsen, investors may be unwilling to hold or buy our common units and the market price of our common units may decrease.

 

A significant number of our common units are and will be owned by Chinese individuals. At various times during recent years, the U.S. and China have had significant disagreements over political and economic issues. Controversies may arise in the future between these two countries. Any political or trade controversies between the U.S. and China, whether or not directly related to our business, could reduce the price of our common units.

 

The COVID-19 pandemic could have negative effects on our business.

 

On March 11, 2020 the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containments and mitigation measures worldwide. The Partnership is monitoring this closely, and although operations have not been materially affected by the coronavirus outbreak to date, the ultimate severity of the outbreak is uncertain. Operations of the Partnership are ongoing as the delivery of electricity to customers is considered as essential business. Further the uncertain nature of its spread globally may impact our business operations resulting from quarantines of employees, customers, and third-party service providers. At this time, the Company is unable to estimate the impact of this event on its operations.

 

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Item 2. Financial Information.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

 

Management is currently unaware of any trends or conditions other than those mentioned in this management’s discussion and analysis that could have a material adverse effect on the Company’s current financial position, future results of operations, or liquidity. However, investors should also be aware of factors that could have a negative impact on the Company’s prospects and the consistency of progress in the areas of revenue generation, liquidity, and generation of capital resources. These may include: (i) variations in revenue, (ii) possible inability to attract investors for its equity securities or otherwise raise adequate funds from any source should the Company seek to do so, (iii) increased governmental regulation or significant changes in such regulations, (iv) increased competition, (v) unfavorable outcomes to litigation to which the Company may become a party in the future, and (vi) a very competitive and rapidly changing real estate environment.

 

The risks identified here are not all inclusive. New risk factors emerge from time to time and it is not possible for management to predict all of such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.

 

Overview

 

We are a limited partnership engaged in the redevelopment and development of real estate properties in metropolitan Atlanta, GA and Dallas, TX. Our general partner is UCF Asset LLC.

 

Since its incorporation, the Company has grown its net equity from $2.25 million as of the date of March 01, 2016, to $8.76 million as of December 31, 2019.

 

Net equity per common unit has grown from $1.156/per unit as of March 01, 2016, to $1.557/per unit as of December 31, 2019, after a $0.050 dividend distribution in the year of 2018. The following table shows the change of net equity per share during this period:

 

Period end   Net Equity per Unit pre-dilution     After Potential Dilution/Anti-dilution*     Dividend Distributed per Unit  
Inception, March 1, 2016 - unaudited   $ 1.156       N/A          
December 31, 2016   $ 1.332       N/A          
December 31, 2017   $ 1.560       N/A          
December 31, 2018   $ 1.482       N/A     $ 0.050  
December 31, 2019   $ 1.557       N/A          
June 30, 2020 - Unaudited   $ 1.307     $ 1.317          

 

Table I: Net equity per share of UC Asset LP, between March 01, 2016 to June 30, 2020.

 

* Based on the assumption that all preferred units/convertible notes were converted into maximum possible number of common units. Currently there are 166,667 preferred units issued and they could possibly be converted at $1.60/unit into a maximum number of 187,500 common units.

 

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On January 02, 2020, our units began to be quoted on the OTCQX, the Best Market of OTC markets.

 

Legal Structure of our Company

 

The business is structured as a publicly traded limited partnership (Master Limited Partnership or MLP) rather than a real estate investment trust (REIT) in order to appeal to investors looking for long-term growth. It combines the tax benefits of a private partnership with the liquidity of a publicly traded company. The majority of MLPs are organized in natural resources sectors of the economy, and only a very limited number invest in real estate. The Master Limited Partnership Association counted a total number of 82 MLPs trading on US national exchanges, and only four of them are in the real estate sector. As a matter of fact, we are the only real estate MLP quoted on OTCQX.

 

Liquidity and Capital Resources

 

Capital Resources

 

Since our inception, we have funded our operations primarily through the issuance of limited partner interests to raise capital. Prior to our initial public offering (IPO) in 2018, we conducted three private placements of limited partner interests in March 2016, October 2016, and April 2017. We have raised a total of $6,900,000 from these private placements. Prior to our public offering, there were 42 limited partners in our partnership.

 

Initial Public Offering

 

In January 2018, we made our first public filing of our Offering Circular with the SEC pursuant to the requirements of Regulation A plus. This original Offering Circular intended to raise capital of a minimum of $6 million and a maximum of $12 million. However, it was beyond Management’s reasonable expectation that economic ties between the U.S. and China would experience a fast downturn in the first quarter of 2018, as the so-called “trade war” between the U.S. and China erupted. The demand for our IPO substantially decreased, and we changed our Offering Circular in April 2018, to decrease the size of our IPO to a minimum of $3 million and maximum of $6 million.

 

On June 13, 2018, our Offering Circular was qualified by the SEC. However, in the following months, the tension of trade disputes between the U.S. and China kept rising. During this period, a series of negative comments spread by a third party (against whom we have filed a charge of defamation in a Chinese court and won the court decision in September 2019), might also have decreased the demand to our offering. By August 2018, it was clear that we would not be able to raise a minimum of $3 million. We made another change to our Offering Circular and reduced the fundraising target to a minimum of $1.43 million and a maximum of $2.85 million.

 

Our IPO was closed on October 12, 2018. The gross amount of raised capital was $1.45 million. We had a total of 80 limited partners after the IPO.

 

Issuance of Series A Preferred Units

 

On March 02, 2020, the Company closed a private placement, under which the company issued 166,667 shares of Series A Preferred Units to raise capital of $300,000, at a price of $1.80/unit, from a domestic investor.

 

The Series A Preferred Units were sold with premium, in the sense that the price for the preferred shares to be converted into common units is considerably higher than the current net equity per unit of the Partnership. The issuance of Series A Preferred Units, therefore, will likely increase the Partnership’s net equity per unit.

 

The Series A Preferred Units may be converted into common units at the holder’s option, after 12 months from the initial issuance date. The conversion price may range between $1.60 - $1.80 per unit, depending on the trading price of common units at the time of conversion.

 

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Debt financing

 

Atlanta Landsight, our subsidiary, has a construction loan facility of $490,000 from a local bank. As of June 30, 2020, we have drawn $386,000 from this loan facility.

 

Material terms of this loan include the follows:

Lender: The Citizens Bank of Georgia.

Principal: Dawn-down Line of Credit of $490,000.

Duration: 18 months. Borrower will pay in one payment all outstanding principal and unpaid accrued interests on December 15, 2020.

Interest and Interest rate: Borrower will pay monthly any unpaid accrued interests. Interest rate is variable which is 1.000 percentage point over the Index rate. The Index is 5.500% per annum at the beginning of the term.

Security: the loan is secured by the property under construction.

 

Full text of the loan agreement is included in this registration statement as Exhibit 4.1.

 

After adjustment of our investment and operating plan, we believe our available capital, including net proceeds from our IPO, construction loan allowance from the local bank, together with our existing cash and cash equivalents, will be sufficient to fund our operating plan through at least the next twelve months. However, our operating plan may change due to many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. Further, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. There is no assurance that the Company, either through itself or through any of its investees, will be able to obtain such funds on terms that are acceptable to us.

 

Additional financing may result in dilution to limited partners, imposition of debt covenants and repayment obligations or other restrictions that may affect our business.

 

Anti-dilution Clause

 

Section 4.01(a) of our Limited Partnership Agreement contains an anti-dilution clause which offers protection to the interests of current investors when additional units or derivative units of our Company will be offered for the purpose of additional financing. The referenced clause reads as follows:

 

…. provided that i) any Common Units shall not be offered at a price lower than the book value per Common Unit based on the last audited financial statement immediately preceding the offering of such Common Unit; and ii) any Units or Derivative Units, if convertible into Common Units, the conversion price shall not be set or calculated at a price lower than the book value per Common Unit based on the last audited financial statement immediately preceding the date when such Units or Derivative Units were issued. The foregoing conditions i) and ii) may be waived for any offering if the general partner has received the approval of a Unit Majority prior to such offering.”

 

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Cash Flows

 

The following table shows a summary of cash flows for the periods set forth below:

 

    Year Ended
December 31,
2018
    Year Ended
December 31,
2019
 
Net cash used in operating activities   $ (343,334 )   $ (396,752 )
Net cash (used in) provided by investing activities   $ (715,629 )   $ 303,991  
Net cash provided by financing activities   $ 1,015,627     $ 48,271  
Cash at beginning of period   $ 178,689     $ 135,353  
Cash at end of period   $ 135,353     $ 90,863  

 

    Half Year Ended
June 30,
2020
    Half Year Ended
June 30,
2019
 
Net cash used in operating activities   $ (232,308 )   $ (203,682 )
Net cash provided by investing activities   $ 31,500     $ 314,114  
Net cash provided by financing activities   $ 300,000     $ 48,271  
Cash at beginning of period   $ 90,863     $ 135,353  
Cash at end of period   $ 190,055     $ 294,056  

 

Net Cash Used in Operating Activities

 

For the year ended December 31, 2018, net cash used in operating activities was primarily the result of $23,053 in prepaid assets and $100,902 in accrued expenses, increased by $25,592 in net unrealized loss on our investments in Atlanta Landsight LLC and UCF Development LLC.

 

For the year ended December 31, 2019, net cash used in operating activities was primarily the result of management fees and professional fees.

 

For the half year ended June 30, 2020, net cash used in operating activities was primarily the result of management fees and professional fees.

 

Net Cash Used in Investing Activities

 

For the year ended December 31, 2018, net cash used in investing activities was primarily the result of $1.9 million in investments in Atlanta Landsight LLC and UCF Development LLC, reduced by $1.2 million in repayments due to those portfolio properties.

 

For the year ended December 31, 2019, net cash provided by investing activities was primarily the result of $1.9 million in investments in Atlanta Landsight LLC and UCF Development LLC and $0.4 million in new loans to related parties, reduced by $2.6 million in repayments due to those portfolio properties.

 

For the half year ended June 30, 2019, net cash provided by investing activities was primarily the result of $0.6 million in investments in Atlanta Landsight LLC; $0.4 million in new loans to related parties; $0.05 million in new loans to third parties, reduced by $1.3 million in repayments due to those portfolio properties and the repayment of the $0.05 million in new loans to third parties.

 

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For the half year ended June 30, 2020, net cash provided by investing activities was primarily the result of $0.5 million in investments in Atlanta Landsight LLC and $0.4 million in new loans to third parties, reduced by $0.9 million in repayments due to those portfolio properties.

 

Net Cash Provided by Financing Activities

 

For the year ended December 31, 2018, net cash provided by financing activities was primarily due to net proceeds of $1.1 million in contributions by limited partners in an IPO in closed in October 2018.

 

For the year ended December 31, 2019, net cash provided by financing activities was solely due to a refund of back-up withholding from the U.S. Internal Revenue Service on behalf of our limited partners.

 

For the half year ended June 30, 2019, net cash provided by financing activities was due to the proceeds from a refund of back-up withholding from the U.S. Internal Revenue Service on behalf of our limited partners.

 

For the half year ended June 30, 2020, net cash provided by financing activities was due to the proceeds from the sale of the Series A Preferred Units.

 

Commitments and Contingencies

 

We pay quarterly management fees to our general partner, UCF Asset LLC. Management fees are calculated at 2.0% of assets under management as of the last day of our preceding fiscal year. Management fees for the periods ended December 31, 2018 and 2019 were $155,221 and $164,488, respectively. Management fees for the half year ended June 30, 2019 and 2020 were $86,487 and $90,475, respectively.

 

In addition, we lease space from an unaffiliated third party at 2299 Perimeter Park Drive, Suite 120 in Atlanta. Rent was paid monthly at $2,035 through November 1, 2019, and increased to $2,096 for the next twelve months. Pursuant to the terms of the lease, we have provided a deposit of $2,189 to the landlord. 

 

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Off Balance-sheet Arrangements

 

The Partnership doesn’t have any off balance-sheet arrangements.

 

Results of Operations

 

Year Ended December 31, 2018

 

During the year ended December 31, 2018, we invested an additional $1,866,982 into our portfolio investments:

 

  $1,666,982 into Atlanta Landsight LLC
  $200,000 into UCF Development LLC

 

We received a return of investment of $1,193,492 during this period from Atlanta Landsight LLC.

 

Our unrealized losses during this period from our portfolio investments totaled $25,292:

 

  $79,239 loss from Atlanta Landsight LLC
  $53,647 gain from UCF Development LLC

 

Atlanta Landsight LLC purchased four properties and sold three properties during this period. Atlanta Landsight LLC had $108,869 of realized gain and $57,286 of unrealized gains. We recorded this gain as a combined unrealized loss of $79,239 for the period. UCF Development LLC had $188,108 unrealized loss during this period. In addition, our unrealized gains during this period included accrued but unpaid interest.

 

Our operational expenses were $241,089 during this period, consisting principally of management fees paid to our general partner, and professional fees.

 

During the year ended December 31, 2018, we recorded a net decrease in net equity of $261,487.

 

Year Ended December 31, 2019

 

During the year ended December 31, 2019, we invested an additional $2,331,009 into our portfolio investments:

 

  $1,881,009 into Atlanta Landsight LLC
  $50,000 into UCF Development LLC
  $400,000 into debt investments

 

We received a return of investment of $2,635,000 from our subsidiaries during this period:

 

  $2,635,000.00 was received from Atlanta Landsight LLC

 

Our unrealized gain during this period from our portfolio investments totaled $744,001:

 

  $636,001 gain from Atlanta Landsight LLC
  $108,000 gain from UCF Development LLC
  $0 from debt investment

 

Atlanta Landsight LLC purchased three properties and sold five properties during this period. Atlanta Landsight LLC had $41,138 of realized loss and $677,139 of unrealized gains. We recorded this gain as a combined unrealized gain of $636,001 for the period. UCF Development LLC had $108,000 unrealized gain during this period. In addition, our unrealized gains during this period included accrued but unpaid interest. 

 

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Our operational expenses were $382,808 during this period, consisting principally of management fees paid to our general partner, and professional fees.

 

During the year ended December 31, 2019, we recorded an increase in net equity of $373,884.

 

Half Year Ended June 30, 2019

 

During the half year ended June 30, 2019, we invested an additional $620,886 into our portfolio investments:

 

  $520,886 into Atlanta Landsight LLC
  $50,000 into UCF Development LLC
  $50,000 into debt investments

 

We received a return of investment of $1,335,000 from our investees during this period:

 

  $1,285,000 was received from Atlanta Landsight LLC
  $0 was received from UCF Development LLC
  $50,000 was received from debt investments

 

Our unrealized gain during this period from our portfolio investments totaled $193,309:

 

  $193,309 gain from Atlanta Landsight LLC
  $0 gain from UCF Development LLC

 

Atlanta Landsight LLC purchased one property and sold two properties during this period. Atlanta Landsight LLC had $100,517 of realized gain and $92,791 of unrealized gains. We recorded this net gain as a combined unrealized gain of $193,301 for the period. UCF Development LLC had no realized or unrealized gains/losses during the period.

 

Our operational expenses were $211,769 during this period, consisting principally of management fees paid to our general partner, and professional fees.

 

During the half year ended June 30, 2019, we recorded a decrease in net equity of $13,698.

 

Half Year Ended June 30, 2020

 

During the half year ended June 30, 2020, we invested an additional $1,607,350 into our portfolio investments:

 

  $1,607,350 into Atlanta Landsight LLC
  $0 into UCF Development LLC (became dormant)
  $0 into debt investments

 

We received a return of investment of $896,052.14 from our investees during this period:

 

  $884,000.00 was received from Atlanta Landsight LLC
  $12,052.14 was received from UCF Development LLC (became dormant)

 

Our unrealized loss during this period from our portfolio investments totaled $1,139,739:

 

  $1,139,739  from Atlanta Landsight LLC
  $0 gain from UCF Development LLC (became dormant)
  $0 gain from debt investment

 

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Atlanta Landsight LLC purchased one property and sold two properties during this period. Atlanta Landsight LLC had $472,608 of realized loss and $661,131 of unrealized loss. We recorded this net loss as a combined unrealized loss of $1,139,739 for the period. UCF Development LLC was dissolved and all its gains and losses were absorbed by Atlanta Landsight LLC during this period. In addition, our unrealized gains during this period included accrued but unpaid interest amounting to $26,752 on our loan portfolio.

 

Our operational expenses were $226,532 during this period, consisting principally of management fees paid to our general partner, and professional fees.

 

During the half year ended June 30, 2020, we recorded a decrease in net equity of $1,390,915.

 

Trend information

 

The following discussion covers some significant trends affecting our business, in our industry, or to the macro economy, since the last fiscal year, which had impacts on our operations. It also covers known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our operation for the current fiscal year of 2020.

 

Public trading of our common units and its impact on our business operation

 

On October 31, 2019, we qualified to be quoted on OTC markets. On January 02, 2020, our common units began being quoted on the OTCQX, the Best Market of OTC Markets.

 

We believe that clearance by FINRA and the quoting of our units on OTCQX will have significant impact on our business operations in the year of 2020 and the years to follow. First of all, we now have the option of raising capital via PIPE deals (private placement of public equity) to meet our operational needs. If we are able to raise funds via pipe deals, as to which there is no assurance, this will provide available capital which has not been available as a funding source to the Partnership during the past two years.

 

Secondly, we believe it will enable us to acquire properties by issuing new units, possibly preferred units and/or restricted units, instead of cash for all or part of the acquisition cost. This will reduce our cash outflow, and the capital saved can be used on renovation/remodeling/rebuilding of the acquired properties.

 

Impact of COVID-19 on national and local real estate markets

 

COVID-19 pandemic has had a huge impact on real estate markets. In the two metropolitan areas where we conduct our business, the City of Atlanta had been under lock-down since March 17, 2020 followed by a lockdown of the whole state of Georgia since April 01, 2020 and the State of Texas had been under lockdown since March 19, 2020. These lockdown orders placed most businesses on halt and is expected to hurt the economy and, eventually, the real estate market.

 

Commercial properties in Atlanta were impacted immediately. According to a report released April 20 by Atlanta consulting firm, Bleakly Advisory Group, the corona virus pandemic may push retail vacancy across metro Atlanta to 40%, creating an unprecedented challenge for mall owners and other landlords. Socially driven businesses, such as restaurants, lounges and clubs, also have experienced record-breaking economic losses. We believe this in turn will hurt the landlords of commercial properties that lease properties to those businesses.

 

Generally, residential real estate prices have remained at the same level. But the number of sales of residential properties have decreased. The reason, according to data of several independent sources, was that supply dropped even faster than demand. This led to a temporary balance of supply and demand at the same price level.

 

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We believe that this balance is not sustainable, because economic impact of COVID-19 is not temporary and hence the buyers will not return soon. We have observed the trend of market adjustment in the last few weeks before the end of first half of year 2020.

 

However, the impact of Covid-19 may help our business in a relative sense. On April 30, 2020, a research report issued by Zacks Small-cap Research (https://finance.yahoo.com/news/ucasu-thinking-past-uncertainty-invest-090000970.html) praised our company, concluding that “UC Asset combines an experienced management team with an attractive investment track record, backed by a stable base of long-term investors, and it is well positioned to both manage through the slowdown and leverage opportunities on the other side.”

 

Our Strategy to Counter against and Benefit from the Impact of COVID-19

 

On April 20, 2020, we closed two transactions liquidating two properties to cash buyers, at prices substantially lower than their current book values. The Partnership made this decision based on management’s best-effort projection of real estate market in US generally and in Atlanta specifically, under the impact of the pandemic of COVID-19.

 

Management believes that it served the best interest of the Partnership and its shareholders to liquidate these properties now, because 1) the Partnership had entered into a drought of sales due to COVID-19 pandemic and its cash reserves had decreased to a risky level; 2) management believes that the real estate market will enter into a bearish period due to COVID-19 pandemic, and the Partnership may not be able to liquidate those properties at better prices in foreseeable future; 3) the Partnership has other investments and investment opportunities that are believed to be more promising than those liquidated properties; and 4) the Partnership has formulated a business plan to capitalize opportunities in a projected bearish real estate market, and it needs cash to execute on its business plan.

 

As further measures to counter the impact of the pandemic, the Company, through its investee, made some properties available for rent to generate cash flow. We also rented out one additional property in the first quarter. By and as of the end of first half of 2020, we had four properties generating stable monthly rental incomes.

 

We have also launched a new business strategy to acquire income-producing properties which have temporary difficulties generating income and paying their mortgage. We named this new strategy “Pandemic Mortgage Bailout Program”.

 

In June 2020, we closed the first transaction under the program. This transaction involves a rental property with a market value of $850k. The current owner was earning a profit from the property prior to the pandemic, but has not collected rent for 5 months. The outstanding mortgage is slightly over $400k. UC Asset, through its Atlanta Landsight investee, will step in to absorb the remaining mortgage balance and make a cash payment to reimburse the initial down payment of the current owner. In return we will have the right to acquire the property at $1 when the mortgage is paid off. Overall, we have acquired rights to the property using minimal cash and at a cost far below that which we may have paid a few months ago.

 

We are looking to close more deals under our Pandemic Mortgage Bailout Program.

 

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Item 3. Properties.

 

The following table provides information of general character of our principal physical properties, grouped under 4 categories on basis of the various investment strategies we have applied in acquiring them. All the properties are owned indirectly by the Partnership through its investee Atlanta Landsight LLC. Atlanta Landsight LLC owns each of the properties in fee simple and there is no debt on the properties, except for a construction loan of $386,000 (as of June 30, 2020) at a local bank.

 

Business Purpose   Numbers of Properties   Locations   Total Fair Market Value     Total Monthly Rent  
Residential for Sale or Sold   2   Atlanta, GA   $ 915,000       --  
Residential for Rent   3   Atlanta, GA &
Greensboro, NC
  $ 2,322,350     $ 12,100  
Residential under Development   4   Atlanta, GA   $ 2,362,450       --  
Farmland   1   Dallas, TX   $ 1,088,000       --  
TOTAL           $ 6,687,800     $ 12,100  

 

The fair market value of our residential properties is determined by our management utilizing a related party. However, the methods used by the management, as well as the results, have been reviewed and approved by an independent and licensed third party (Brandon Atkins from Keller Williams, Atlanta Perimeter office). The fair market value of our farmland property is solely based on the valuation by an independent and licensed third party(Michelle Godwin from Valuright Appraisal, Inc.)

 

COVID-19 Disclosure

 

To the knowledge of our management, we do not see and/or foresee any other specific impacts of COVID-19 on our properties that are material enough to require disclosure, besides those we have already disclosed and discussed in the section Trending Information of Item 2 in this filing. Specifically, all of our leases have been fully paid, and none of our tenants have made any rent relief requests.

 

We will keep monitoring the development of COVID-19 pandemic and will disclose in timely manner any specific and material impacts of COVID-19 on our properties, including but not limited to if any of our lease will not be fully paid, or if any of our tenants may make any rent relief requests, in our future filings.

 

More Detailed Discussion of Our Properties Listed in Above Table

 

By and as of June 30, 2020, our principal physical properties include 9 residential properties and 1 piece of farmland. With one exception, all of our residential properties are located in metropolitan Atlanta, GA, mostly in growing suburban areas surrounding downtown Atlanta. Out of the 8 properties in metropolitan Atlanta, 6 are detached single-family houses, 1 is lot zoned for detached house, and 1 is small multi-family property. We also own a detached single-family house in Greensboro, NC.

 

Two of our detached single-family houses were either already sold under contract or going to be sold, by June 30, 2020. Both sales will be closed in August 2020. Net proceeds from those two sales will be approximately $915,000.

 

Three of our detached single-family houses are currented rented out, including two in northern suburban area of Atlanta, and one in north-western suburban area of Greensboro. The Atlanta properties are on 12-month lease with option to annual renew. The Greenboro property lease expires on June 20, 2021, and it includes a lease-buy term giving the tenant an option to buy the property at $500,000 before the date of expiration, which is July 21, 2021. The total value of fair market value of these three properties is approximately $2.32 million, and the monthly rent income generated from these three properties add up to $12,100. Annual gross rent income equals approximately 6.2% of the total fair market value.

 

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Four properties are residential under development. According to our business plan as of June 30, 2020: 1) one multiple-family property in an underdeveloped community in southern suburban Atlanta may be torn down and rebuilt into multiple-family property for sale or for rent; 2) one lot in a growing community in southern suburban Atlanta may be developed into a single house for sale or for rent; and 3) two detached single-family properties in northern suburban Atlanta may be renovated for sale or for rent. Fair market value of these properties adds up to approximately $2.36 million.

 

In September 2016, we purchased 76% of a 72.53-acre farmland located within the township of Farmersville, Texas, in Collin County, located in the northeast quadrant of the Dallas Metropolitan Area. In February 2018, we purchased the remaining 24% of this property and we now own 100% of this land through our investment, Atlanta Landsight LLC.

 

The purchase price in September, 2016 for the Farmersville property was $805,216. The total historical cost for us on this property (including commissions, taxes, consulting fees etc.) is approximately $860,000, as of June 30, 2020.

 

The value of our Farmersville, TX property is solely based on the valuation by independent and licensed third parties. The most up-to-date appraisal report valued the property at $1,088,000.00 as of December 19, 2019. This report was provided by Michelle Godwin from Valuright Appraisal, Inc.

 

Our goal is to develop the Farmersville property into a high-end residential community of approximately 40 to 45 high-end residential homes. We have hired a local engineering company to work on concept plans of development. By June 30, 2020, two variants of conceptual plans were created, reviewed and revised. Based on those conceptual plans, the property will be developed into 43-44 lots of a minimum of one acre.

 

Our farmland property is a 72 acre farmland located in Farmersville, TX, nearby downtown Dallas. We may rezone this property and develop it into 42 to 44 residential single-family houses. However, the total development cost may range between $12 million to $22 million. We currently do not have the necessary capital to develop this land. As of June 30, 2020, our strategy on this property is to hold it and see if we may be able to raise enough capital to develop it, but don’t exclude the possibility of liquidating it. On September 9, 2020, the Company announces that it has entered into an LOI to sell this property for $1.3 million.

 

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Item 4. Security Ownership of Certain Beneficial Owners and Management.

 

As of and by the date we filed our registration statement, which was September 18, 2020, there were no person to our knowledge beneficially owns more than 10% of our common units. Neither the managing member nor the member of majority interest of our general partner beneficially owns any of our common units. The general partner is entitled to 20% of all distribution to be made by the Partnership after the common unit holders receive a return equal to the Partnership audited book value See “Distribution”.

 

On October 07, 2020, our founder and member of majority interest of our general partner, “Larry” Xianghong Wu, acquired via a private deal 172,953 of common units of our company. This transaction is disclosed in Form 4 filed on October 14, 2020.

 

As of the by the date of filing of this amendment, the security ownership of certain beneficial owners and management of our company is listed as below:

 

Beneficial Owner   Title   Security   Amount     Percentage of Same Type of Securities  
Xianghong Wu   Majority Owner of General Partner   Common Units     172,953       3.07 %

 

Item 5. Directors and Executive Officers.

 

The operation of our partnership is managed by our general partner. We do not have any directors, officers, or significant employees. The following are key manager of our general partner and their respective ages and positions as of July 1, 2020. As the member of majority interest of our general partner, Dr. Wu contributes his time and services to our general partner as an owner rather than an employee.

 

Name   Position   Age   Since
Gregory Bankston   Managing Member   47   formation in January 2016
“Larry” Xianghong Wu   Member of Majority Interest   50   formation in January 2016

 

Mr. Gregory Bankston has served as managing member of UCF Asset LLC since its formation in January 2016. Between 2013 and 2016, he founded and operated Real Estate Butlers. Prior to then, he was a co-owner of Bankston Brokers, formerly known as Bankston Realty, since 2010. Mr. Bankston is a member of Atlanta Board of Realtors, the Georgia Association of Realtors, and the National Association of Realtors.

 

Dr. “Larry” Xianghong Wu has been the member of majority interest of UCF Asset LLC since its formation in January 2016. Between 2012 and 2016, he was the founder and chief executive officer of Shanghai Heqing Asset Management LP, a limited partnership based in Shanghai, China, focused on Chinese investments in the U.S., particularly real estate. Between 2011 and 2012, he was chief executive officer of EHE Capital, a Chinese PE fund managing a portfolio of approximately $1 billion from 2011. Prior to then, he worked at Cisco Systems, Inc. between 2009 and 2011 as a vice president in charge of Cisco’s strategic business transformation in China. Dr. Wu has served as policy advisor and counselor to the Chinese government and officials. He also served as a Board Member of Finance and Investment of the Capital Club in China from 2009 to 2013. 

  

The general partner may be removed, upon consent of the limited partners representing at least sixty-six and two-thirds percent (66 2/3%) of the outstanding common units voting as a single class, where (i) the general partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment, or (ii) the general partner materially and willfully breaches our limited partnership agreement.

 

The general partner may, at any time, assign all or a portion of its partnership interest to any affiliate and, in the general partner’s sole discretion, admit the affiliate as an additional or substitute general partner.

 

Audit Committee

 

Our Company is a limited partnership and is not required to set up a board of directors. However, we are still required by the rule of OTCQX to set up an Audit Committee.

 

In February 2019, the Company resolved to establish an Audit Committee. Starting from July 01, 2019, we have admitted two Audit Committee members who both are independent. Herein the meaning of “independent” follows the guidelines published by OTC Market Group Inc.

 

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The two members are:

 

Harris Miller is a prominent American politician, businessman, and lobbyist. Miller served as president of the Information Technology Association of America and the World Information Technology and Services Alliance (WITSA) for 12 years. He ran for US Senate in 2006 and lost to Jim Webb in the Commonwealth of Virginia. Mr. Miller received a political science master’s degree from Yale University in 1975.

 

For a detailed biography of Harris Miller, please see: https://en.wikipedia.org/wiki/Harris_Miller

 

Li Zheng is currently president of Techtop Industries Inc., an electric motor manufacturer based in Atlanta, GA, which Li co-founded in 2008 with extended family members. Before founding and operating Techtop, Li worked as an environmental engineer, and spent 10 years on academic research and consulting for various water resources and sustainable development projects in the western United States, Northern China, Tibet Plateau, and the mountainous regions of Nepal and India. Li has also been serving as a board member of non-profit Atlanta Young Singers since 2015. Li obtained his Ph.D. degree in Water Resources Engineering from the University of Notre Dame in 1997.

 

Item 6. Executive Compensation.

 

The operation of our partnership is managed by our general partner, UCF Asset LLC. Our partnership does not have any directors or officers who receive compensation other than the Audit Committee members.

 

We pay management fees quarterly to our general partner. Management fees are calculated at 2.0% of assets under management as of the last day of our preceding fiscal year. The fee is paid quarterly. Management fees for the periods ended December 31, 2018 and 2019 was $155,221 and $164,488, respectively. Management fees for the half year ended June 30, 2020 were $90,575.28. In addition, the General Partner will receive approximately 20% of all distributions the Partnership makes above a “hurdle rate”. See “Distributions”.

 

We also pay our Audit Committee members $7,000 each annually.

 

In addition to the management fee, we reimburse the general partner for standard expenses it may incur in managing the Partnership in accordance with our limited partnership agreement. These reimbursable expenses include: organizational expenses; fees for accountants, attorneys, auditors, and other professionals; expenses associated with partnership taxation reporting; operational expenses including insurance, valuation reports, and real estate brokerage commissions; and government filing fees and costs.

 

Item 7. Certain Relationships and Related Transactions, and Director Independence.

 

We utilize the real estate brokerage services of Liz Bankston of Bankston Brokers to acquire and sell properties in the Atlanta area. Mrs. Bankston is the wife of Gregory Bankston, the managing member of our general partner. Our working relationship with Liz Bankston is not exclusive, and we have worked with other brokers from time to time. In 2019, we paid Mrs. Bankston approximately $31,152 as commissions for acting as broker in connection with five real estate transactions. We believe the sales commissions paid to Mrs. Bankston are at or less than the standard market rate.

 

In June 2019, we advanced $100,000 to our general partner. This advance carries a 0.25% monthly interest rate and maturity date of June 10, 2021 or upon the LP having raised an additional $20,000,000 in capital. This advancement was made to empower the general partner to carry on the business plan of converting the Company into a Qualified Opportunity Zone. However, the plausibility of such conversion has considerably dropped since the advance. Since then, $50,000 of the advancement, plus interest of $1,500, has been paid back by the general partner prior to its due date. The rest of the loan will be paid back using a payment schedule, through which the principal amount will carry a 1% quarterly interest rate. The general partner will pay 10% of its management fee back to the Partnership quarterly, until all the principal and accumulated interests are paid off.

 

In April 2019, we loaned $300,000 to a third party, which then acquired a 10% economic interest in our general partner. This note carried a 5.6% annual interest rate in 2019, 8% annual interest rate for 2020 and 10% annual interest rate for 2021 and a maturity date of March 31, 2021, in a single lump sum. In March 2020, in consideration of the COVID-19 pandemic, we reached an agreement with this third party to keep the introductory rate of 5.6% for the year of 2020.

 

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Item 8. Legal Proceedings.

 

To our knowledge there are no material pending legal proceedings against the Company at this time.

 

Item 9. Market Price of and Dividends on Our Common Units and Related Stockholder Matters.

 

Starting from the date of January 02, 2020, our common units have been quoted on OTCQX under the symbol UCASU. OTCQX quotations, as over-the-counter market quotations, reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The high and low common unit sales per unit were as follows:

 

    First     Second     Third     Fourth        
    Quarter     Quarter     Quarter     Quarter     Full Year  
2020                                                      
High   $ 2.20     $ 2.36     $ --     $ --     $ --  
Low   $ 1.88     $ 0.215     $ --     $ --     $ --  
2019                                        
High   $ n/a     $ n/a     $ n/a     $ n/a     $ n/a  
Low   $       $       $       $       $    
2018                                        
High   $ n/a     $ n/a     $ n/a     $ n/a     $ n/a  
Low                                        

 

As of and by the date of January 02, 2020, we have 80 holders of our common units.

 

We paid a $0.05/unit dividend to our common unit holders for the fiscal year of 2018. We may pay dividend to our common unit holders in the future, at the sole discretion of our general partner, on basis of their judgment on our business matters.

 

As of June 30, 2020, there were no securities of our partnership authorized for issuance under equity compensation plans.

 

Item 10. Recent Sales of Unregistered Securities.

 

On March 2, 2020 we sold 166,667 Series A preferred units to one purchaser for a total consideration of $300,000. These units were sold on a private basis, no underwriter was involved with the sales and no commissions were paid in connection with such sales.

 

The Series A units were sold to an “accredited investor.” The Series A units issued by the Partnership are deemed “restricted securities” within the meaning of that term as defined in Rule 144 of the Securities Act and have been issued pursuant to the “private placement” exemption under Section 4(2) of the Securities Act. This transaction did not involve a public offering of securities. Investors who purchased securities in the private placement had access to information on the Partnership necessary to make an informed decision. The Partnership has been informed that the purchaser is able to bear the economic risk of this investment, they are aware that the securities were not registered under the Securities Act, and they have been notified that the securities cannot be re-offered or re-sold unless the securities are registered or are qualified for sale pursuant to an exemption from registration.

 

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Neither the Partnership nor any person acting on its behalf offered or sold the securities by means of any form of general solicitation or general advertising.

 

The purchaser represented in writing that he acquired the securities for his own accounts and not with the view to, or for resale in connection with any distribution. A legend was placed on the certificate issued stating that the securities are restricted, they have not been registered under the Securities Act and they cannot be sold or otherwise transferred without an effective registration or an exemption therefrom.

 

Item 11. Description of Registrant’s Securities to be Registered.

 

General

 

The following is a summary of the rights of our common units, key provisions of our limited partnership agreement, and certain tax consequences of our partnership and being a limited partner.

 

Common Units

 

Common units represent limited partner interests in our partnership. The holders of common units are entitled to participate in partnership distributions and exercise the rights or privileges available to limited partners under our limited partnership agreement. For a description of the rights and privileges of limited partners under our limited partnership agreement, including voting rights, please read “Limited Partnership Agreement” below.

 

Transfer Agent

 

As of the date of this registration statement our transfer agent is Island Stock Transfer.

 

Limited Partnership Agreement

 

Our limited partnership agreement, as amended from time to time, is the governing instrument establishing the terms and conditions pursuant to which our partnership will conduct business. Our limited partnership agreement also establishes the rights and obligations between and among the limited partners and our general partner, as well as other important terms and provisions relating to our partnership.

 

The following is a summary of our limited partnership agreement. A copy of our limited partnership agreement is included as an exhibit to the offering statement of which this Offering Circular forms a part. This summary is qualified by reference to the exhibit containing our complete limited partnership agreement.

 

Profits and Losses

 

Losses for any fiscal year shall be allocated among the limited partners in proportion to their capital account balances, until the balance of each capital account equals zero. Thereafter, all losses shall be allocated in accordance with each limited partner’s respective percentage interest in our partnership. Profits will first be allocated pro rata to the limited partners in accordance with the amount of losses previously allocated if such previous losses were not offset by profits. Thereafter, profits shall be allocated in accordance with actual distributions as described below. The General Partner participates in the profits of the Partnership at a rate of 20% above a 10% annualized return to the Limited Partners: increasing to 40% of the profits above an 18% annualized return to the Limited Partners.

 

Distributions

 

Except as provided elsewhere in our limited partnership agreement, net cash flow of the Partnership with respect to each disposed portfolio investment shall be distributed to the partners at the discretion of the general partner, in the following order:

 

  (i) First, 100% to the limited partners in proportion to their respective percentage interests, calculated at the time of such distribution, until the limited partners have received an aggregate amount equal to the annual rate of return (non-compounding) of the audited book value for the fiscal year immediately preceding such distribution.
  (ii) Second, 100% to our general partner until the cumulative distribution to our general partner pursuant to this clause (ii) equals twenty percent (20%) of the total amounts distributed pursuant to clause (i) and this clause (ii), in each case, attributable to such portfolio investment (including any capital contributions used to fund fees and expenses with respect to such portfolio investment) and all other portfolio investments that have been previously disposed of (and not previously recouped) in the same fiscal year.
  (iii) Third, 80% to the limited partners in proportion to their respective percentage interests and 20% to our general partner.

  

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Voting Rights

 

The limited partners will have no right to participate in the management of our partnership and will have limited voting rights. Limited partners shall have the right to vote only on the following matters:

 

Removal of General Partner for Cause

 

The limited partners, by an affirmative vote of limited partners representing more than 66 2/3% of the outstanding units, shall have the right to remove our general partner where (i) our general partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment; or (ii) our general partner has willfully and materially breached our limited partnership agreement. An action for removal also provides for the election of a substitute general partner by the limited partners.

 

Amendment of Limited Partnership Agreement

 

Our limited partnership agreement may be amended or modified by the limited partners representing at least a majority of the outstanding units; provided, however, that our limited partnership agreement may be amended by our general partner without the consent of the limited partners (i) in any manner that does not materially adversely affect the limited partners, individually or collectively, (ii) to effect any changes required by any governmental body or agency, or (iii) to comply with any applicable laws or regulations; provided further, that there shall be no amendment that (i) would materially reduce the rights, or increase the obligations, of a limited partner unless the amendment (A) is consented to by such limited partner or (B) by its terms applies to all limited partners; or (ii) (A) increases a limited partner’s capital commitment or (B) imposes personal liability upon a limited partner for any debts or obligations of our partnership unless, in each case, the amendment is consented to by such limited partner.

 

Consent of Limited Partners

 

In any circumstances requiring the approval or consent of the limited partners, a failure to respond in the time specified by our general partner, which time shall not be less than 15 days, shall constitute a vote and consent to approve the proposed action.

 

Annual Meetings

 

Our general partner shall specify the time and place of each annual meeting of the partners. Special meetings may be called only by our general partner or by the limited partners representing at least a majority of the outstanding units. Notice of such meetings shall be provided not less than ten (10) calendar days nor more than sixty (60) calendar days before the date of the meeting, to each record holder entitled to vote at such meeting.

 

List of Limited Partners Entitled to Vote

 

A complete list of limited partners entitled to vote at any meeting of the partners shall be open to the examination of any limited partner, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days before the meeting, at the principal place of business of our partnership.

 

Tax Information Returns to Limited Partners

 

Our partnership shall use commercially reasonable efforts to provide to each limited partner and, to the extent necessary, each former limited partner, Internal Revenue Service Schedule K-1 with respect to such fiscal year by April 15th of the calendar year immediately following the end of each fiscal year.

  

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No Right to Repurchase or Redemption of Units.

 

Our limited partnership agreement does not provide for the repurchase or redemption of units.

 

Death, Disability, Incompetency or Bankruptcy of a Limited Partner

 

In the event of the death, disability, incapacity or adjudicated incompetency of a limited partner or if a limited partner becomes bankrupt, his, her or its rights as a limited partner to share in our partnership’s distributions and allocations and to assign his, her or its interest or cause the substitution of a substituted limited partner will transfer to his, her or its personal representative, administrator, guardian, conservator, trustee in bankruptcy or other legal representative.

 

Limits on General Partner’s Liability

 

Our general partner shall be fully protected and indemnified by our partnership against all liabilities and losses suffered by our general partner (including attorneys’ fees, costs of investigation, fines, judgments and amounts paid in settlement, actually and reasonably incurred by our general partner in connection with such action, suit or proceeding) by virtue of its status as general partner with respect to any acts or omissions, except for gross negligence, criminal misconduct, or willful misconduct.

 

Other Activities of General Partner

 

Our general partner shall devote such time as reasonably necessary to manage our partnership’s business affairs. Subject to the other express provisions of our limited partnership agreement, our general partner, at any time and from time to time may engage in and possess interests in other business ventures of any and every type and description, independently or with others, including ventures in competition with our partnership, with no obligation to offer to our partnership or any limited partner the right to participate therein,

 

Dissolution of the Partnership

 

Our partnership shall be dissolved upon the first to occur of the following events: (i) an election to dissolve our partnership by our general partner that is approved by limited partners representing at least a majority of the outstanding units, (ii) the sale, exchange, or other disposition of all or substantially all of partnership assets, (iii) our partnership ceasing to have any limited partners, or (iv) the entry of a decree of a judicial dissolution of our partnership.

 

Power of Attorney

 

By becoming a party to our limited partnership agreement, each limited partner will appoint our general partner as his, her or its attorney-in-fact and empower and authorize our general partner to make, execute, acknowledge, publish and file on behalf of such limited partner in all necessary or appropriate places, such documents as may be necessary or appropriate to carry out the intent and purposes of our limited partnership agreement.

 

Accounting Records and Reports

 

Our partnership may engage an independent accountant or accounting firm, in the discretion of our general partner, to act as the accountant for our partnership and to audit our partnership’s books and accounts as of the end of each fiscal year. As soon as practicable after the end of such fiscal year, our general partner shall provide to each limited partner a balance sheet and an income statement of our partnership as of the end of and for such fiscal year. Upon inquiry, limited partners may be given access to additional information at the general partner’s discretion. Additional information made available to any limited partner will be made available to each other limited partner making a similar request; provided, that no information is confidential or proprietary as to a limited partner.

 

Tax Matters

 

Our general partner is designated as the Tax Matters Partner, who is authorized and required to represent our partnership in connection with all tax audits, examinations and investigations of the affairs of our partnership by any federal, state or local tax authorities, including any resulting administrative and judicial proceedings. Our general partner shall keep all partners reasonably informed of the progress of any tax audit, examination or investigation.

 

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Undertakings

 

Our partnership undertakes to send to each limited partner at least on an annual basis a detailed statement of any transactions with the general partner or its affiliates, and of fees, commissions, compensation and other benefits paid, or accrued to the general partner or its affiliate for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed.

 

Taxation

 

The following is a summary of certain relevant federal income tax considerations resulting from an investment in our partnership, but does not purport to cover all of the potential tax considerations applicable to any specific purchaser. Prospective investors are urged to consult with and rely upon their own tax advisors for advice on these and other tax matters with specific reference to their own tax situation and potential changes in applicable law.

 

Taxation of Undistributed Fund Income

 

Under the laws pertaining to federal income taxation of limited partnerships, no federal income tax is paid by our partnership as an entity. Each individual limited partner reports on the limited partner’s federal income tax return the distributive share of partnership income, gains, losses, deductions and credits, whether or not any actual distribution is made to the limited partner during a taxable year. Each individual limited partner may deduct the limited partner’s distributive share of partnership losses, if any, to the extent of the tax basis of the limited partner’s interests at the end of the year in which the losses occurred. The characterization of an item of profit or loss will usually be the same for the limited partner as it was for our partnership. Since individual limited partners will be required to include partnership income in their personal income without regard to whether there are distributions of partnership income, limited partners may become liable for federal and state income taxes on partnership income even though they have received no cash distributions from our partnership with which to pay such taxes.

 

Tax Returns

 

We will provide limited partners sufficient information from our partnership’s informational tax return for limited partners to prepare their individual federal, state, and local tax returns. Our informational tax returns will be prepared by certified public accountants selected by our general partner.

 

Series A Preferred Units

 

Preferred Dividends

 

The holders of the Series A preferred units will receive an annual dividend of $0.09 per unit. The preferred units shall not be entitled to share in any other dividends that are distributed to any other class of units.

 

Voting Rights

 

The Series A preferred units shall be entitled to no voting rights.

 

Ranking

 

The Series A preferred units shall be senior to the common units with respect to dividends, distributions and payments on liquidation.

 

Redemption at the option of the holder

 

The Series A preferred units shall be redeemed at the option of the holder for $.50 per share at any time the common units fall below $.50 per share on the common units’ trading platform, consecutively for a minimum of 20 straight trading days.

 

Conversion

 

After 12 months from the initial issuance the holders of the Series A preferred units shall be entitled to convert them to common units, based on a formula tied to the current trading price of the common units.

 

Limitation on Sale Price

 

This Series A preferred units shall not be offered, and any conversion units shall not be set lower than the book value per common unit based on the last audited financial statement.

 

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Item 12. Indemnification of Directors and Officers.

 

Section 3.06 of our current Limited Partnership Agreement provides indemnification to our covered persons, to the fullest extent permitted by law. Covered persons including our General Partner, its affiliates, or their respective members, partners, officers, directors, employees, shareholders, agents, and managers of each of them. This indemnification is provided against any and all claims, demands, damages, liabilities, costs, expenses, including legal fees, losses, suits, proceedings, and actions, whether judicial, administrative, investigative, or otherwise, of whatever nature, known or unknown, liquidated or unliquidated, that may accrue to or be incurred by any covered person, or in which any covered person may become involved, as a party or otherwise, or with which any covered person may be threatened, relating to or arising out of the investment or other activities of our partnership, or activities undertaken in connection with the partnership, or otherwise relating to or arising out of our Limited Partnership Agreement, including amounts paid in satisfaction of judgments, in compromise or as fines or penalties, and counsel fees and expenses incurred in connection with the preparation for or defense or disposition of any investigation, action, suit, arbitration, or other proceeding, whether civil or criminal (all of such Claims, amounts and expenses covered by this Section 3.05(d) are referred to collectively as “Damages”), except to the extent that such Damages arose from disabling conduct to which such covered person has pleaded guilty or nolo contendere, or it shall have been determined by a court of competent jurisdiction in a final judgment that such Damages arose from a disabling conduct of such covered person.

 

Notwithstanding the foregoing, a covered person will only be eligible for indemnification for claims relating to or arising out of transactions or covered actions that took place during the time such Covered Person was a shareholder, officer, director, employee, agent, partner, member, or manager of any of the General Partner or any of its affiliates. The satisfaction of any indemnification and any saving harmless shall be from and limited to partnership assets, and no partner shall have any personal liability on account thereof.

 

Expenses incurred by a covered person in defense or settlement of any claim that may be subject to a right of indemnification hereunder shall be advanced by the Partnership, in the sole discretion of the General Partner, prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the covered person to repay the amount advanced to the extent that it shall be determined ultimately by a court having appropriate jurisdiction in the decision that is not subject to appeal, that such covered person is not entitled to be indemnified hereunder.

  

In the event any covered person becomes involved in any capacity in any action, proceeding, or investigation brought by or against any person in connection with any matter arising out of or in connection with the Partnership’s business or affairs and to which such covered person may have a right to indemnification hereunder, the Partnership will periodically reimburse such covered person for its legal and other expenses (including the cost of any investigation, preparation, defense, or settlement thereof) incurred in connection therewith prior to the final disposition thereof, provided, that such covered person shall promptly repay to the partnership the amount of any such reimbursed expenses paid to it if it shall ultimately be determined, by a court having appropriate jurisdiction in the decision that is not subject to appeal, that such covered person is not entitled to be indemnified by the partnership in connection with such action, proceeding, or investigation as a result of disabling conduct.

 

Any covered person entitled to indemnification from the Partnership hereunder shall obtain the written consent of the General Partner prior to entering into any compromise or settlement which would result in an obligation of the Partnership to indemnify such Person if such covered person is other than the General Partner. Additionally, if liabilities arise out of the conduct of the affairs of the Partnership and any other person for which the person entitled to indemnification from the Partnership hereunder was then acting in a similar capacity, the amount of the indemnification provided by the Partnership shall be limited to the Partnership’s proportionate share thereof as determined in good faith by the General Partner in light of its fiduciary duties to the Partnership and the shareholders.

 

Item 13. Financial Statements and Supplementary Data.

 

Financial statements and applicable supplementary data required by this Form are included herein as a separate section of this Form 10 beginning on page F-1 and are incorporated in this Item 13 by reference.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

There have been no changes in certifying accountants and there have been no disagreements with accountants in the two most recent fiscal years or any subsequent interim period.

 

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Item 15. Financial Statements and Exhibits.

 

(a) Index to Financial Statements

 

1.1 Financial Statements of 2 years by December 31, 2019

 

INDEX TO FINANCIAL STATEMENTS

 

Balance Sheets F-2
   
Statements of Changes in Net Assets F-3
   
Statement of PartnersCapital F-4
   
Statements of Cash Flows F-5
   
Notes to Financial Statements F-6
   
Supplemental Information:  
   
Summary of Investments F-14

 

F-1

 

 

UC ASSET, LP

Balance Sheets

December 31,

 

    2019     2018  
ASSETS            
Portfolio investments (Note 3)   $ 8,667,749     $ 8,227,738  
Property and equipment and other assets, net     51,422       34,047  
Cash and cash equivalents     90,863       135,353  
Total Assets   $ 8,810,034     $ 8,397,138  
                 
LIABILITIES AND PARTNERSCAPITAL                
Accrued expenses   $ 52,507     $ 45,098  
Partners’ capital, 5,635,306 units issued and outstanding     8,757,527       8,352,040  
Total Liabilities and PartnersCapital   $ 8,810,034     $ 8,397,138  

 

The accompanying notes are an integral part of the financial statements

 

F-2

 

 

UC ASSET, LP

Statements of Changes in Net Assets

Year ended December 31,

 

    2019     2018  
             
INCOME            
Interest income   $ 12,670     $ 5,194  
Interest income, related parties     21       -  
Total income     12,691       5,194  
                 
OPERATING EXPENSES                
Management fees     169,560       155,221  
Professional fees and other expenses     211,729       83,645  
Depreciation     1,519       2,223  
Total operating expenses     382,808       241,089  
Net investment loss before unrealized gains (losses)     (370,117 )     (235,895 )
                 
GAINS/LOSSES FROM INVESTMENTS                
Net realized and unrealized gains (losses) from investments:                
Net unrealized gains (loss) on portfolio investments     744,001       (25,592 )
Net realized and unrealized gains (losses)     744,001       (25,592 )
Net increase (decrease) in net assets from operations   $ 373,884     $ (261,487 )
Net increase in net assets per unit   $ 0.07     $ (0.05 )
Weighted average units outstanding     5,635,306       5,000,111  

 

The accompanying notes are an integral part of the financial statements

 

F-3

 

 

UC ASSET, LP

Statement of PartnersCapital

 

    Limited
Partners
Units
    Limited
Partners
Amount
    General
Partner
    General
Partner
Advances
   

Total

Partners

Equity

 
                               
BALANCE, January 1, 2018     4,872,654     $ 7,743,762     $            -     $ (141,210 )   $ 7,602,552  
                                         
Contributions     762,652       1,106,128       -       -       1,106,128  
Distributions     -       (236,363 )     -       -       (236,363 )
Repayments of advances to general partner     -       -       -       141,210       141,210  
Net change in net assets from operations     -       (261,487 )     -       -       (261,487 )
                                         
BALANCE, December 31, 2018     5,635,306       8,352,040       -       -       8,352,040  
                                         
Return of limited partner tax distributions     -       48,271       -       -       48,271  
Distributions     -       (16,668 )     -       -       (16,668 )
Net change in net assets from operations     -       373,884       -       -       373,884  
                                         
BALANCE, December 31, 2019     5,635,306     $ 8,757,527     $ -     $ -     $ 8,757,527  

 

The accompanying notes are an integral part of the financial statements

 

F-4

 

 

UC ASSET, LP

Statements of Cash Flows

Year ended December 31,

 

    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net increase (decrease) in net assets from operations   $ 373,884     $ (261,487 )
Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities:                
Net unrealized (gains) losses on portfolio investments     (744,001 )     25,592  
Amortization of prepaid expense and deferred rent     -       15,560  
Depreciation and amortization     1,519       2,223  
Changes in working capital items                
Accrued interest receivable     (4,200 )     -  
Deposits     (1,345 )     (1,267 )
Prepaid expense     (30,018 )     (18,401 )
Accrued expenses     7,409       (100,902 )
Net cash used in operating activities     (396,752 )     (338,682 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Investments in portfolio partnerships     (1,931,009 )     (1,866,982 )
Investments in portfolio loans     (50,000 )     -  
Investments in portfolio loans, related party     (100,000 )     -  
Investments in portfolio loans     (300,000 )     -  
Repayment of investments in portfolio partnerships     2,635,000       1,151,353  
Repayments of portfolio loans     50,000       -  
Net cash provided by (used in) investing activities     303,991       (715,629 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Contributions from partners     -       1,106,128  
Distributions to limited partners     -       (236,363 )
Return of limited partner tax distributions     48,271       -  
Repayment of advances to general partner     -       141,210  
                 
Net cash provided in financing activities     48,271       1,010,975  
                 
Net decrease in cash and cash equivalents     (44,490 )     (43,336 )
                 
CASH and cash equivalents, beginning of period     135,353       178,689  
                 
CASH and cash equivalents, end of period   $ 90,863     $ 135,353  
                 
Non-Cash Financing Activities:                
None   $ -     $ -  

 

F-5

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

 

UC Asset, LP (the “Partnership”) is a Delaware Limited Partnership formed for the purpose of making capital investments in limited liability companies with a focus on growth-equity investments and real estate. The Partnership was formed on February 1, 2016.

 

The Partnership is managed by its General Partner, UCF Asset LLC.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Basis of accounting

 

The Partnership prepares its financial statements on the accrual basis in accordance with accounting principles generally accepted in the United States. Purchases and sales of investments are recorded upon the closing of the transaction. Investments are recorded at fair value with unrealized gains and losses reflected in the statement of changes in net assets.

 

(b) Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities at the date of the financial statements and report amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

(c) Fair value measurements

 

The Partnership records and carries its investments at fair value, defined as the price the Partnership would receive to sell the asset in an orderly transaction with a market participant at the balance sheet date. In the absence of active markets for the identical assets, such measurements involve the development of assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the balance sheet date.

 

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect managements market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model derived valuations whose inputs are observable or whose significant value drivers are observable

 

Level 3: Significant inputs to the valuation model are unobservable

 

F-6

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

(c) Fair value measurements, continued

 

The General Partner maintains policies and procedures to value instruments using the best and most relevant data available. In addition, The General partner reviews valuations, including independent price validation for certain instruments. Further, in other instances, independent pricing vendors are obtained to assist in valuing certain instruments.

 

(d) Cash and equivalents

 

The Partnership considers all highly liquid debt instruments with original maturities of three (3) months or less to be cash equivalents.

 

(e) Investments

 

The Partnerships core activity is to make investments in real estate limited liability companies. Excess funds are held in financial institutions.

 

Investments in short term loans are recorded at fair value, which are their stated amount due to their short-term maturity and modest interest rates. Portfolio investments are recorded at their estimated fair value, as determined in good faith by the General Partner of the Partnership. Unrealized gains and losses are recognized in earnings.

 

The estimated fair value of investments in limited liability companies as determined by the General Partner was $8,267,749 and $8,227,738 representing 94.41% and 98.52% of partners’ capital at December 31, 2019 and December 31, 2018, whose values have been estimated by the General Partner in the absence of readily ascertainable market values. Due to the inherent uncertainty of valuation, the General Partner’s determination of values may differ significantly from values that would have been realized had a ready market for the investments existed, and the differences could be material. See Note 3.

 

(f) Federal Income taxes

 

As a limited partnership, the Partnership is not a taxpaying entity for federal or state income tax purposes; accordingly, a provision for income taxes has not been recorded in the accompanying financial statements. Partnership income or losses are reflected in the partners’ individual or corporate tax returns in accordance with their ownership percentages.

 

As defined by Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes, no provision or liability for materially uncertain tax positions was deemed necessary by management. Therefore, no provision or liability for uncertain tax positions has been included in these financial statements. Generally, the Partnerships tax returns remain open for three years for federal income tax examination.

 

(g) Income

 

Interest income from portfolio investments is recorded as interest as accrued.

 

F-7

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

(h) Recent Accounting Pronouncements

 

Partnership management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

(a) Cash and Cash Equivalents

 

The fair value of financial instruments that are short-term and that have little or no risk are considered to have a fair value equal to book value.

 

(b) Unsecured Loan Investments

 

The fair value of short-term unsecured loans are considered to have a fair value equal to book value due to the short-term nature and market rate of interest commensurate with the level of credit risk. At December 31, 2019 and 2018, there were $400,000 and no short-term loans, respectively.

 

(c) Portfolio Investments

 

The portfolio investments consist of member equity interests which are not publicly traded. The General Partner (AGP@) uses the investee entity’s real estate valuation reports as a basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. Portfolio investments priced by reference to valuation reports are included in Level 3. The GP conducts internal reviews of pricing to ensure reasonableness of valuations used. Based on the information available, management believes that the fair values provided are representative of prices that would be received to sell the individual assets at the measurement date (exit prices).

 

The fair values of the investee entity’s assets are determined in part by placing reliance on third-party valuations of the properties and/or third party approved internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. The third-party valuations and internally developed analyses are significantly impacted by the local market economy, market supply and demand, competitive conditions and prices on comparable properties, adjusted for anticipated date of sale, location, property size, and other factors. Each property is unique and is analyzed in the context of the particular market where the property is located. In order to establish the significant assumptions for a particular property, the GP analyzes historical trends, including trends achieved by the GP’s operations, if applicable, and current trends in the market and economy impacting the property. These methods use unobservable inputs to develop fair value for the GP’s properties. Due to the volume and variance of unobservable inputs, resulting from the uniqueness of each of the GP’s properties, the GP does not use a standard range of unobservable inputs with respect to its evaluation of properties.

 

F-8

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

 

(c) Portfolio Investments, continued

 

Changes in economic factors, consumer demand and market conditions, among other things, could materially impact estimates used in the third-party valuations and/or internally prepared analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized by the investee segment from disposition of these assets.

 

The following tables present the fair values of assets and liabilities measured on a recurring basis:

 

At December 31, 2019         Fair Value Measurement at Reporting Date Using  
    Fair Value    

Quoted Prices in

Active Markets for

Identical

Assets/
Liabilities

(Level 1)

   

Significant

Other

Observable

Inputs (Level 2)

   

Significant

Unobservable

Inputs
(Level 3)

 
Atlanta Landsight, LLC   $ 7,120,630     $            -     $            -     $ 7,120,630  
UCF Development, LLC     1,142,118       -       -       1,142,118  
Short term loans     405,001       -       -       405,001  
                                 
Total Assets   $ 8,667,749     $ -     $ -     $ 8,667,749  
                                 
At December 31, 2018

        Fair Value Measurement at Reporting Date Using  
    Fair Value    

Quoted Prices in

Active Markets for

Identical

Assets/
Liabilities
(Level 1)

   

Significant

Other

Observable

Inputs
(Level 2)

Significant

Unobservable

Inputs
(Level 3)

 
Atlanta Landsight, LLC   $ 7,238,620     $         -     $ -     $ 7,238,620  
UCF Development, LLC     989,118       -       -       989,118  
Short term loans     -       -       -       -  
                                 
Total Assets   $ 8,227,738     $ -     $ -     $ 8,227,738  

 

The fair value measurements are subjective in nature, involve uncertainties and matters of significant judgment; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments.

 

F-9

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

 

(c) Portfolio Investments, continued

 

There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Partnership.

 

Generally, the fair value of the Atlanta investee’s properties is not sensitive to changes in unobservable inputs since generally the properties are held for less than six months. Generally, such changes in unobservable inputs take longer than six months to have an appreciable effect of more than 1 to 2% on these properties fair value. The Dallas investee’s property is more sensitive to changes in unobservable inputs because this property was acquired with a longer time horizon due to the nature of its size and undeveloped status. However, the Dallas investee is very cognizant of changes in the unobservable inputs that affect the fair value of this property and intends to consider any and all such changes as it develops it plan for the development of this property.

 

The following table presents the changes in Level 3 instruments measured on a recurring basis:

 

Year Ended December 31, 2019   Portfolio Investments  
January 1, 2019   $ 8,227,738  
Total gains or losses (realized/unrealized):        
Included in earnings     752,492  
Included in other comprehensive income     -  
Purchases, issuance and settlements     (312,481 )
Transfers in/out of Level 3     -  
         
December 31, 2019   $ 8,667,749  

 

Year Ended December 31, 2018   Portfolio Investments  
January 1, 2018   $ 7,532,507  
Total gains or losses (realized/unrealized):        
Included in earnings     (25,592 )
Included in other comprehensive income     -  
Purchases, issuance and settlements     720,823  
Transfers in/out of Level 3     -  
         
December 31, 2018   $ 8,227,738  

 

F-10

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 4 - CONCENTRATIONS OF CREDIT RISK

 

a) Cash

 

Funds held by the Partnership are guaranteed by the Federal Deposit Insurance Corporation (AFDIC@) up to $250,000. The Partnership’s cash balance was not in excess of FDIC insured limits at December 31, 2019 and 2018.

 

NOTE 5 - CAPITAL

 

The Partnerships capital structure consists of one General Partner and 80 limited partners. The Partnerships total net contributed capital is $7,777,540 at December 31, 2019. The limited partner units issued and outstanding are 5,635,306 at December 31, 2019 and 2018.

 

a) Distributions

 

Distributions from the Partnership are made to partners in accordance with the Partnerships limited partnership agreement.

 

During 2018, the Partnership made distributions of $23,704 on behalf of the partners in the form of backup withholding to the U.S. Internal Revenue Service in the amount of $17,000 for 2018,

 

During 2018, the Partnership made distributions to the partners in the form of 2017 profit distributions in the amount of $219,363.

 

During 2018, the Partnership made distributions on behalf of the partners in the form of payments of $16,638 to a law firm for the preparation and submission of Rule 144 and 4(a)(1) legal opinions to allow for the removal of the restrictive legends on the partnership units issued prior to the completion of the Form 1-A offering.

 

During 2019, the partnership was refunded $48,271 of the previously distributed backup withholding from the U.S. Internal Revenue Service.

 

b) Allocations of Profits and Losses

 

The net profit of the Partnership is allocated to the Limited Partners in proportion to each partner’s respective capital contribution on all liquidated portfolio investments made by the Partnership. Losses are allocated to all partners in proportion to each partner’s respective capital contribution, provided that, to the extent profits had been previously allocated in a manner other than in proportion to capital contributions, losses are allocated in the reverse order as such profits were previously allocated.

 

The GP participates in the profits of the Partnership at a rate of 20% above a 10% annualized return to the Limited Partners. Beginning January 1, 2020, the GP participates in the profits of the Partnership at a rate of 20% above an 8% annualized return to the Limited Partners.

 

F-11

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 6 - MANAGEMENT FEES - RELATED PARTY

 

The Partnership pays annual management fees to UCF Asset LLC. Management fees are calculated at 2.0% of assets under management on the first day of the fiscal year, payable quarterly. Management fees were $169,590 and $155,221 for the years ended December 31, 2019 and 2018, respectively.

 

NOTE 7 - SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED PORTFOLIO INVESTMENTS

 

December 31, 2019   Atlanta Landsight, LLC     UCF Development, LLC  
             
Current assets   $ 5,117,858     $ 12,051  
                 
Noncurrent assets   $ 633,663     $ 816,482  
                 
Current liabilities   $ 5,652,155     $ -  
                 
Noncurrent liabilities   $ -     $ -  
                 
Gross revenues   $ 2,928,062     $ -  
                 
Gross profit   $ 43,512     $ -  
                 
Loss from continuing operations   $ (42,941 )   $ (47,068 )
                 
Net loss   $ (42,941 )   $ (47,068 )

 

December 31, 2018   Atlanta Landsight, LLC     UCF Development, LLC  
             
Current assets   $ 6,025,775     $ 9,119  
                 
Noncurrent assets   $ 424,748     $ 816,482  
                 
Current liabilities   $ 6,307,066     $ -  
                 
Noncurrent liabilities   $ -     $ -  
                 
Gross revenues   $ 1,780,833     $ -  
                 
Gross profit   $ 53,596     $ -  
                 
Loss from continuing operations   $ (24,939 )   $ (8,302 )
                 
Net loss   $ (24,939 )   $ (8,302 )

 

F-12

 

 

UC ASSET, LP

NOTES TO FINANCIAL STATEMENTS

 

NOTE 8 - SUBSEQUENT EVENTS

 

a) Capital

 

In March 2020, the Partnership issued 166,667 units of Series A Preferred Units in exchange for $300,000 in cash, or $1.80 per unit.

 

The Preferred Units carry the following rights and privileges:

 

1 - Each Series A Preferred Unit shall receive a dividend of $0.09 (9 cents), capped by the net increase in net assets, (after audit completion), for that year. The difference between the net increase in net assets and $0.09 for any given year does not accrue to the next year. The stated dividends begin accruing on investment date on an actual/365 basis and ends upon conversion, redemption or cancellation.

 

2 - The Series A Preferred Units carry no voting rights.

 

3 - The Series A Preferred Units are senior to the common units for payment of dividends, distributions or liquidation.

 

4 - If at any time after 12 months subsequent to investment date the common units closing price falls under $0.50 per unit for a minimum of 20 consecutive trading days the holder, at their option, can redeem the units at a redemption price of $0.50 per unit.

 

5 - Any time after 12 months subsequent to investment date the Holder, at their option, can elect to convert their Series A Preferred Units into common units under the following rate: $1.80/conversion price. The conversion price is $1.80 when the lowest common unit price during the preceding 5 trading days is $1.80 or greater; the lowest closing price when the lowest common unit price during the preceding 5 trading days is between $1.80 and $1.60; $1.60 the lowest common unit price during the preceding 5 trading days is at or below $1.60.

 

F-13

 

 

UC ASSET, LP

SUPPLEMENTAL INFORMATION

Summary of Investments

December 31, 2019

 

Company Name

 

Industry

  Cumulative
Investment
    Exchanges
(1)
   

Cumulative

Amount

Realized
(2)

   

Cumulative

Amount

Unrealized
(3)

   

Carrying

Value
(4)

 
A   Atlanta Landsight, LLC   Real Estate Re-development   $ 13,094,851     $ (7,642,097 )   $

-

    $ 1,667,876     $ 7,120,630  
B   UCF Development, LLC   Real Estate Development     949,905       (45,000 )     -       237,213       1,142,118  
C   Short-term loans with accrued interest   Various     600,000       (214,137 )     19,138       -       405,001  
                                                 
    Balance at December 31, 2019       $ 14,644,756     $ (7,901,234 )   $ 19,138     $ 1,905,089     $ 8,667,749  

 

A - Comprised of a 100% membership interest. The carrying amount is based on the general partner’s estimate.

B - Comprised of a 100% membership interest. The carrying amount is based on the general partner’s estimate.

C - Comprised of two long-term unsecured loans, one for $300,000 with quarterly interest at 1.4%, due in April 2021, with an unrelated party and the second for $100,000 with monthly interest at 0.375%, due in June 2021, with a related party.

 

(1) Reflects return of capital.

(2) Reflects actual gain or loss from the sale, exchange or disposition of securities.

(3) Estimated unrealized gain (loss).

(4) Estimated fair value. 

 

F-14

 

 

UC ASSET, LP

SUPPLEMENTAL INFORMATION

Summary of Investments

December 31, 2018

 

Company Name

 

Industry

 

Cumulative

Investment

   

Exchanges

(1)

   

Cumulative

Amount

Realized

(2)

   

Cumulative

Amount

Unrealized

(3)

   

Carrying

Value
(4)

 
A   Atlanta Landsight, LLC   Real Estate Re-development   $ 11,213,842     $ (5,007,097 )   $

-

    $ 1,031,875     $ 7,238,620  
B   UCF Development, ,LLC   Real Estate Development     904,905       (45,000 )     -       129,213       989,118  
C   Short-term loans with accrued interest   Various     200,000       (214,137 )     14,037       -       -  
                                                 
    Balance at December 31, 2018       $ 12,318,747     $ (5,266,234 )   $ 14,037     $ 1,161,088     $ 8,227,738  

 

A - Comprised of a 100% membership interest. The carrying amount is based on the general partner’s estimate.

B - Comprised of a 100% membership interest. The carrying amount is based on the general partner’s estimate.

C - Comprised of two short-term unsecured loans, with monthly interest at 1%, repaid at maturity in March 2018.

 

(1) Reflects return of capital.

(2) Reflects actual gain or loss from the sale, exchange or disposition of securities.

(3) Estimated unrealized gain (loss).

(4) Estimated fair value.

 

F-15

 

 

1.1a: Report of Independent Registered Public Accounting Firm on Financial Statements of 2 years by December 31, 2019

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Partners

UC Asset, LP

Atlanta, Georgia

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of UC Asset, LP (the “Partnership”) at December 31, 2019 and 2018, and the related statements of changes in net assets, partners’ equity, and cash flows for the year ended December 31, 2019 and 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2019 and 2018, and the results of its operations and its cash flows for the years ended December 31, 2019 and 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Emphasis-of-a-matter

 

As discussed in Note 2, the financial statements include investments valued at approximately $8,668,000 and $8,228,000 at December 31, 2019 and 2018, representing approximately 99.0% and 98.5% of partners’ capital, respectively, whose values have been estimated by the General Partner in the absence of readily ascertainable market values. We have reviewed the procedures used by the General Partner in arriving at its estimate of value of such investments and have inspected underlying documentation, and, in the circumstances, we believe the procedures are reasonable and the documentation appropriate. However, because of the inherent uncertainty of valuation, the estimated values may differ significantly from the values that would have been used had a ready market for these investments existed, and the differences could be material. Our opinion is not modified with respect to that matter.

 

Basis for Opinion

 

These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Daszkal Bolton LLP

 

Daszkal Bolton LLP

 

March 30, 2020

Fort Lauderdale, Florida

 

We have served as the Partnership’s auditor since 2017 

 

 

F-16

 

 

Report of Independent Registered Public Accounting Firm on Supplemental Information

 

To the Board of Directors and Partners

UC Asset, LP

Atlanta, Georgia

 

We have audited the financial statements of UC Asset, LP (the “Partnership”) at and for the years ended December 31, 2019 and 2018, and our report thereon dated March 30, 2020, which expressed an unqualified opinion on those financial statements, appears on page 1.

 

The summary of investments at December 31, 2019 and 2018 contained in the supplemental schedules has been subjected to audit procedures performed in conjunction with the audit of UC Asset LP’s financial statements. The summary of investments at December 31, 2019 and 2018 is supplemental information and is the responsibility of UC Asset LP’s management. Our audit procedures included determining whether the summary of investments reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the summary of investments. In our opinion, the summary of investments is fairly stated, in all material respects, in relation to the financial statements as a whole.

 

/s/ Daszkal Bolton LLP

 

Daszkal Bolton LLP

 

March 30, 2020

Fort Lauderdale, Florida

 

F-17

 

 

1.2 Financial Statements of 6 months by June 30, 2020

 

INDEX TO CONDENSED FINANCIAL STATEMENTS of 6 months by June 30, 2020

 

Condensed Balance Sheets F-19
   
Condensed Statements of Changes in Net Assets F-20
   
Condensed Statement of Partners’ Capital F-21
   
Condensed Statements of Cash Flows F-22
   
Notes to Condensed Financial Statements F-23
   
Supplemental Information:  
   
Summary of Investments F-31

 

F-18

 

 

UC ASSET, LP

Condensed Balance Sheets

 

    June 30,
2020
    December 31,
2019
 
ASSETS   (unaudited)        
Portfolio investments (Note 3)   $ 7,480,992     $ 8,667,749  
Property and equipment and other assets, net     45,504       51,422  
Cash and cash equivalents     190,055       90,863  
Total Assets   $ 7,716,551     $ 8,810,034  
                 
LIABILITIES AND PARTNERS CAPITAL                
Accrued and other expenses   $ 49,939     $ 52,507  
PartnersCapital:                
Series A preferred units, 166,667 and 0 issued and
outstanding at June 30, 2020 and December 31, 2019
    300,000       -  
Partners’ capital, 5,635,306 units issued and outstanding
at June 30, 2020 and December 31, 2019
    7,366,612       8,757,527  
Total Liabilities and PartnersCapital   $ 7,716,551     $ 8,810,034  

 

F-19

 

 

UC ASSET, LP

Condensed Statements of Changes in Net Assets

Three and Six months ended June 30,

(unaudited)

 

    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
    2020     2019     2020     2019  
INCOME                        
Interest income   $ 1,025     $ 540     $ 9,725     $ 540  
Interest income, related parties     13,500       4,222       13,500       4,222  
                                 
Total income     14,525       4,762       23,225       4,762  
                                 
OPERATING EXPENSES                                
Management fees     45,287       44,729       92,214       86,487  
Professional fees and other expenses     68,396       48,407       133,997       124,626  
Depreciation     64       100       321       656  
                                 
Total operating expenses     113,747       93,236       226,532       211,769  
                                 
Net investment loss before realized and unrealized gains/(losses)     (99,222 )     (88,474 )     (203,307 )     (207,007 )
                                 
GAINS/(LOSSES) FROM INVESTMENTS                                
Net realized and unrealized gains (losses) from investments:                                
Net realized gains (losses) on portfolio investments     (47,869 )     -       (47,869 )     -  
Net unrealized gains (losses) on portfolio investments     (243,936 )     470,353       (1,139,739 )     193,309  
Net realized and unrealized gains (losses)     (291,805 )     470,353       (1,187,608 )     193,309  
                                 
Net investment loss   $ (391,027 )   $ 381,879     $ (1,390,915 )   $ (13,698 )
                                 
Net (decrease) increase in net assets from operations   $ (391,027 )   $ 381,879     $ (1,390,915 )   $ (13,698 )
                                 
Net (decrease) increase in net assets per unit   $ (0.07 )   $ 0.07     $ (0.25 )   $ 0.00  
Weighted average units     5,635,306       5,635,306       5,635,306       5,635,306  

 

The accompanying notes are an integral part of the condensed financial statements

 

F-20

 

 

UC ASSET, LP

Condensed Statement of PartnersCapital

For the three and six months ended June 30, 2020

(unaudited)

 

    Limited
Partners
Common
Units
    Limited
Partners
Preferred A
Units
    Limited
Partners
Common
Units
Amount
    Limited
Partners
Preferred A
Units
Amount
    General
Partner
    Total
Partners’
Equity
 
BALANCE, December 31, 2019     5,635,306       -     $ 8,757,527     $ -     $  -     $ 8,757,527  
Issuance of Preferred Series A units             166,667       -       300,000               300,000  
Net change in net assets from operations     -       -       (999,888 )     -       -       (999,888 )
BALANCE, March 31, 2020     5,635,306       166,667       7,757,639       300,000       -       8,057,639  
Net change in net assets from operations     -       -       (391,027 )     -       -       (391,027 )
BALANCE, June 30, 2020     5,635,306       166,667     $ 7,366,612     $ 300,000     $ -     $ 7,666,612  

 

 

UC ASSET, LP

Condensed Statement of PartnersCapital

For the three and six months ended June 30, 2019

(unaudited)

 

    Limited
Partners
Common
Units
    Limited
Partners
Preferred A
Units
    Limited
Partners
Common
Units
Amount
    Limited
Partners
Preferred A
Units
Amount
    General
Partner
    Total
Partners
Equity
 
                                     
BALANCE, December 31, 2018     5,635,306        -     $ 8,352,040     $  -     $  -     $ 8,352,040  
Return of limited partner tax distributions     -       -       30,960       -       -       30,960  
Net change in net assets from operations     -       -       (395,577 )     -       -       (395,577 )
BALANCE, March 31, 2019     5,635,306       -       7,987,423       -       -       7,987,423  
Net change in net assets from operations     -       -       381,789       -       -       381,789  
BALANCE, June 30, 2019     5,635,306       -     $ 8,369,212     $ -     $ -     $ 8,369,212  

 

The accompanying notes are an integral part of the condensed financial statements

 

F-21

 

 

UC ASSET, LP

Condensed Statements of Cash Flows

Six months ended June 30,

(unaudited)

 

    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net decrease in net assets from operations   $ (1,390,915 )   $ (13,698 )
Adjustments to reconcile net decrease in net assets from operations to net cash used in operating activities:                
Net realized losses on portfolio investments     47,869       -  
Net unrealized losses (gains) on portfolio investments     1,139,739       (193,309 )
Amortization of prepaid expense     10,750       8,000  
Depreciation and amortization     321       656  
Changes in working capital items                
Increase in accrued interest - third party loans     (9,052 )     -  
Increase in accrued interest - related party loans     (13,500 )     (22 )
Deposits and other assets     (14,952 )     (7,218 )
Accrued and other expenses     (2,568 )     1,909  
Net cash used in operating activities     (232,308 )     (203,682 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Investments in portfolio partnerships     (504,000 )     (570,886 )
Investments in portfolio loans     (400,000 )     (50,000 )
Investment in related party loans     -       (400,000 )
Repayment of investments in portfolio partnerships     885,500       1,285,000  
Repayments of portfolio loans     50,000       50,000  
Net cash provided by investing activities     31,500       314,114  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Cash received for Preferred A units     300,000       -  
Refund of distributions to partners     -       48,271  
Net cash provided by financing activities     300,000       48,271  
Net increase in cash and cash equivalents     99,192       158,703  
CASH and cash equivalents, beginning of period     90,863       135,353  
CASH and cash equivalents, end of period   $ 190,055     $ 294,056  

 

The accompanying notes are an integral part of the condensed financial statements

 

F-22

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Information as to the six months ended June 30, 2020 is unaudited)

 

NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS

 

UC Asset, LP (the Partnership) is a Delaware Limited Partnership formed for the purpose of making capital investments in limited liability companies with a focus on growth-equity investments and real estate. The Partnership was formed on February 1, 2016.

 

The Partnership is managed by its General Partner, UCF Asset LLC.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

(a) Basis of accounting

 

The Partnership prepares its financial statements on the accrual basis in accordance with accounting principles generally accepted in the United States. Purchases and sales of investments are recorded upon the closing of the transaction. Investments are recorded at fair value with unrealized gains and losses reflected in the statement of changes in net assets.

 

The accompanying unaudited condensed interim financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America (“U.S.”) as promulgated by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In our opinion, the accompanying unaudited interim financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

(b) Use of estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclose contingent assets and liabilities at the date of the financial statements and report amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

(c) Fair value measurements

 

The Partnership records and carries its investments at fair value, defined as the price the Partnership would receive to sell the asset in an orderly transaction with a market participant at the balance sheet date. In the absence of active markets for the identical assets, such measurements involve the development of assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the balance sheet date.

 

F-23

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

(c) Fair value measurements, continued

 

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect managements market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model derived valuations whose inputs are observable or whose significant value drivers are observable

 

Level 3: Significant inputs to the valuation model are unobservable

 

The General Partner maintains policies and procedures to value instruments using the best and most relevant data available. In addition, The General partner reviews valuations, including independent price validation for certain instruments. Further, in other instances, independent pricing vendors are obtained to assist in valuing certain instruments.

 

(d) Cash and equivalents

 

The Partnership considers all highly liquid debt instruments with original maturities of three (3) months or less to be cash equivalents.

 

(e) Investments

 

The Partnerships core activity is to make investments in real estate limited liability companies. Excess funds are held in financial institutions.

 

Investments in short term loans are recorded at fair value, which are their stated amount due to their short-term maturity and modest interest rates. Portfolio investments are recorded at their estimated fair value, as determined in good faith by the General Partner of the Partnership. Unrealized gains and losses are recognized in earnings.

 

The estimated fair value of investments in limited liability companies as determined by the General Partner, (AGP@), was $6,704,240 and $8,267,749 representing 87.49% and 94.41% of partnerscapital at June 30, 2020 and December 31, 2019, respectively, whose values have been estimated by the General Partner in the absence of readily ascertainable market values. Due to the inherent uncertainty of valuation, the General Partners determination of values may differ significantly from values that would have been realized had a ready market for the investments existed, and the differences could be material. See Note 3.

 

F-24

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued

 

(f) Federal Income taxes

 

As a limited partnership, the Partnership is not a taxpaying entity for federal or state income tax purposes; accordingly, a provision for income taxes has not been recorded in the accompanying financial statements. Partnership income or losses are reflected in the partnersindividual or corporate tax returns in accordance with their ownership percentages.

 

As defined by Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes, no provision or liability for materially uncertain tax positions was deemed necessary by management. Therefore, no provision or liability for uncertain tax positions has been included in these financial statements. Generally, the Partnerships tax returns remain open for three years for federal income tax examination.

 

(g) Income

 

Interest income from portfolio investments is recorded as interest is accrued.

 

(h) Recent Accounting Pronouncements

 

Partnership management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS

 

(a) Cash and Cash Equivalents

 

The fair value of financial instruments that are short-term and that have little or no risk are considered to have a fair value equal to book value.

 

(b) Unsecured Loan Investments

 

The fair value of short-term unsecured loans is considered to have a fair value equal to book value due to the short-term nature and market rate of interest commensurate with the level of credit risk.

 

(c) Portfolio Investments

 

The portfolio investments consist of member equity interests which are not publicly traded. The GP uses the investee entitys real estate valuation reports as a basis for valuation when there is limited, or no, relevant market activity for a specific instrument or for other instruments that share similar characteristics. Portfolio investments priced by reference to valuation reports are included in Level 3. The GP conducts internal reviews of pricing to ensure reasonableness of valuations used. Based on the information available, management believes that the fair values provided are representative of prices that would be received to sell the individual assets at the measurement date (exit prices).

 

F-25

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

 

(c) Portfolio Investments, continued

 

The fair values of the investee entitys assets are determined in part by placing reliance on third-party valuations of the properties and/or third party approved internally prepared analyses of recent offers or prices on comparable properties in the proximate vicinity. The third-party valuations and internally developed analyses are significantly impacted by the local market economy, market supply and demand, competitive conditions and prices on comparable properties, adjusted for anticipated date of sale, location, property size, and other factors.

 

Each property is unique and is analyzed in the context of the particular market where the property is located. In order to establish the significant assumptions for a particular property, the GP analyzes historical trends, including trends achieved by the GP’s operations, if applicable, and current trends in the market and economy impacting the property. These methods use unobservable inputs to develop fair value for the GPs properties. Due to the volume and variance of unobservable inputs, resulting from the uniqueness of each of the GP’s properties, the GP does not use a standard range of unobservable inputs with respect to its evaluation of properties.

 

Changes in economic factors, consumer demand and market conditions, among other things, could materially impact estimates used in the third-party valuations and/or internally prepared analyses of recent offers or prices on comparable properties. Thus, estimates can differ significantly from the amounts ultimately realized by the investee segment from disposition of these assets.

 

The following tables present the fair values of assets and liabilities measured on a recurring basis:

 

          Fair Value Measurement at
Reporting Date Using
 
At June 30, 2020   Fair Value     Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
    Significant
Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
Atlanta Landsight, LLC   $ 6,704,240     $                 -     $            -     $ 6,704,240  
UCF Development, LLC     -       -       -       -  
Short term loans     776,752       -       -       776,752  
Total Assets   $ 7,480,992     $ -     $ -     $ 7,480,992  

 

F-26

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

 

(c) Portfolio Investments, continued

 

          Fair Value Measurement at
Reporting Date Using
 
At December 31, 2019   Fair Value     Quoted Prices in
Active Markets for
Identical
Assets/Liabilities
(Level 1)
    Significant Other
Observable
Inputs
(Level 2)
    Significant
Unobservable
Inputs
(Level 3)
 
 
Atlanta Landsight, LLC   $ 7,120,630     $           -     $        -     $ 7,120,630  
UCF Development, LLC     1,142,118       -       -       1,142,118  
Short term loans     405,001       -       -       405,001  
Total Assets   $ 8,667,749     $ -     $ -     $ 8,667,749  

 

The fair value measurements are subjective in nature, involve uncertainties and matters of significant judgment; therefore, the results cannot be determined with precision, substantiated by comparison to independent markets and may not be realized in an actual sale or immediate settlement of the instruments.

 

There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results. For all of these reasons, the aggregation of the fair value calculations presented herein do not represent, and should not be construed to represent, the underlying value of the Partnership.

 

Generally, the fair value of the Atlanta investees properties is not sensitive to changes in unobservable inputs since generally the properties are held for less than six months. Generally, such changes in unobservable inputs take longer than six months to have an appreciable effect of more than 1 to 2% on these properties fair value. The Dallas investees property is more sensitive to changes in unobservable inputs because this property was acquired with a longer time horizon due to the nature of its size and undeveloped status. However, the Dallas investee is very cognizant of changes in the unobservable inputs that affect the fair value of this property and intends to consider any and all such changes as it develops it plan for the development of this property.

 

F-27

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS, continued

 

(c) Portfolio Investments, continued

 

The following tables present the changes in Level 3 instruments measured on a recurring basis:

 

Six Months Ended June 30, 2020   Portfolio Investments  
January 1, 2020   $ 8,667,749  
Total gains or losses (realized/unrealized):        
Included in earnings     (737,388 )
Included in other comprehensive income     -  
Purchases, issuance and settlements     (449,369 )
Transfers in/out of Level 3     -  
June 30, 2020   $ 7,480,992  

 

Year Ended December 31, 2019   Portfolio Investments  
January 1, 2019   $ 8,227,738  
Total gains or losses (realized/unrealized):        
Included in earnings     752,492  
Included in other comprehensive income     -  
Purchases, issuance and settlements     (312,481 )
Transfers in/out of Level 3     -  
December 31, 2019   $ 8,667,749  

 

NOTE 4 - CONCENTRATIONS OF CREDIT RISK

 

a) Cash

 

Funds held by the Partnership are guaranteed by the Federal Deposit Insurance Corporation (AFDIC@) up to $250,000. The Partnerships cash balance (inclusive of restricted cash) was not in excess of FDIC insured limits at June 30, 2020 and December 31, 2019, respectively.

 

F-28

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 5 B CAPITAL

 

The Partnerships capital structure consists of one General Partner and 81 limited partners. The Partnerships total contributed capital was $8,077,540 and $7,777,540 at June 30, 2020 and December 31, 2019, respectively. The limited partner common units are 5,635,306 at June 30, 2020 and December 31, 2019. The limited partner preferred Series A units are 166,667 and 0 at June 30, 2020 and December 31, 2019, respectively.

 

The Preferred Units carry the following rights and privileges:

- annual dividend of $0.09 per unit, not to exceed the audited annual net increase to net assets from operations

- carry no voting rights

- preference for dividends and in liquidation

- 12 months post issuance, redeemable at $0.50 per unit, if the market price of the common units falls below $0.50 per unit for 20 consecutive trading days

- 12 months post issuance, convertible into common units on a variable conversion ratio 1.0:1.0 (if the lowest closing price of the common units is $1.80 or more for the 5 trading days prior to conversion), up to 1.125:1.0 (if the lowest closing price of the common units is $1.60 or less for the 5 trading days prior to conversion)

- conversion and redemption price shall not be lower than the book value per common unit based on the last audited book value per unit

 

In the first quarter 2020 the partnership issued 166,667 Series A preferred units in exchange for $300,000 in cash.

 

a) Distributions

 

Distributions from the Partnership are made to partners in accordance with the Partnerships limited partnership agreement.

 

During 2019, the partnership was refunded $48,271 of the previously distributed backup withholding from the U.S. Internal Revenue Service.

 

b) Allocations of Profits and Losses

 

The net profit of the Partnership is allocated to the Limited Partners in proportion to each partners respective capital contribution on all liquidated portfolio investments made by the Partnership. Losses are allocated to all partners in proportion to each partners respective capital contribution, provided that, to the extent profits had been previously allocated in a manner other than in proportion to capital contributions, losses are allocated in the reverse order as such profits were previously allocated. The Preferred Units have a preference for dividends and in liquidation.

 

The GP participates in the profits of the Partnership at a rate of 20% above a 10% annualized return to the Limited Partners: increasing to 40% of the profits above an 18% annualized return to the Limited Partners.

 

F-29

 

 

UC ASSET, LP

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

NOTE 6 - RELATED PARTY

 

a) Management Fees

 

The Partnership pays annual management fees to UCF Asset LLC. Management fees are calculated at 2.0% of assets under management on the first day of the fiscal year, payable quarterly. Management fees were $92,214 and $86,487 for the six months ended June 30, 2020 and 2019, respectively.

 

NOTE 7 - SUMMARIZED FINANCIAL INFORMATION OF UNCONSOLIDATED PORTFOLIO INVESTMENTS

 

June 30, 2020   Atlanta Landsight, LLC     UCF Development, LLC  
             
Current assets   $ 3,693,526     $ -  
Noncurrent assets   $ 2,567,701     $ -  
Current liabilities   $ 6,613,505     $ -  
Noncurrent liabilities   $ -     $ -  
Gross revenues   $ 913,099     $ -  
Gross profit   $ (428,962 )   $ -  
Income (loss) from continuing operations   $ (459,419 )   $ (802 )
Net income (loss)   $ (456,785 )   $ (802 )

 

December 31, 2019   Atlanta Landsight, LLC     UCF Development, LLC  
             
Current assets   $ 5,117,858     $ 12,051  
Noncurrent assets   $ 633,663     $ 816,482  
Current liabilities   $ 5,652,155     $ -  
Noncurrent liabilities   $ -     $ -  
Gross revenues   $ 2,928,062     $ -  
Gross profit   $ 43,512     $ -  
Loss from continuing operations   $ (42,941 )   $ (47,068 )
Net loss   $ (42,941 )   $ (47,068 )

 

F-30

 

 

UC ASSET, LP

SUPPLEMENTAL INFORMATION

Summary of Investments

June 30, 2020

 

Company Name   Industry   Cumulative
Investment
    Exchanges (1)     Cumulative
Amount
Realized (2)
    Cumulative
Amount
Unrealized (3)
    Carrying
Value (4)
 
A Atlanta Landsight, LLC   Real Estate Re-development     $ 14,702,201     $ (8,526,097 )   $ -     $ 528,136     $ 6,704,240  
B UCF Development, LLC   Real Estate Development       954,908       (1,192,121 )     237,213       -       -  
C Short-term loans with accrued interest   Various     1,050,000       (300,000 )     -       26,752       776,752  
  Balance at March 31, 2020       $ 16,707,109     $ (10,018,218 )   $ 237,213     $ 554,888     $ 7,480,992  

 

A - Comprised of a 100% membership interest. The carrying amount is based on the general partners estimate.

B - Comprised of a 100% membership interest. The carrying amount is based on the general partners estimate.

C - Comprised of three unsecured loans, $100,000 due June 10, 2021, of which $50,000 was repaid in June 2020; $300,000 due March 31, 2022; $400,000 due March 4, 2023.

 

(1) Reflects return of capital.

(2) Reflects actual gain or loss from the sale, exchange or disposition of securities.

(3) Estimated unrealized gain (loss).

(4) Estimated fair value.

 

F-31

 

 

UC ASSET, LP

SUPPLEMENTAL INFORMATION

Summary of Investments

December 31, 2019

 

Company Name   Industry   Cumulative
Investment
    Exchanges (1)     Cumulative
Amount
Realized (2)
    Cumulative
Amount
Unrealized (3)
    Carrying
Value (4)
 
A Atlanta Landsight, LLC   Real Estate Re-development   $ 13,094,851     $ (7,642,097 )   $ -     $ 1,667,876     $ 7,120,630  
B UCF Development, LLC   Real Estate Development     949,905       (45,000 )     -       237,213       1,142,118  
C Short-term loans with accrued interest   Various     600,000       (214,137 )     19,138       -       405,001  
  Balance at December 31, 2019       $ 14,644,756     $ (7,901,234 )   $ 19,138     $ 1,905,089     $ 8,667,749  

 

A - Comprised of a 100% membership interest. The carrying amount is based on the general partners estimate.

B - Comprised of a 75% membership interest and a loan of approximately $35,600. The carrying amount is based on the general partners estimate.

C - Comprised of two short-term unsecured loans, with monthly interest at 1.4%, which have been repaid except for $100,000 due June 10, 2021; $300,000 due March 31, 2022.

 

(1) Reflects return of capital.

(2) Reflects actual gain or loss from the sale, exchange or disposition of securities.

(3) Estimated unrealized gain (loss).

(4) Estimated fair value.

 

F-32

 

 

(b) Index to Exhibits

 

  3.1   Certificate of Limited Partnership of UC Asset
      Filed previously with our Form 1A on February 12, 2018.
       
  3.2   Limited Partnership Agreement
       
  3.3   Certificate of Designation of Series A Preferred Units
      Filed previously with our Form 1U on June 9, 2020
       
  4.1   Construction Loan Promissory Note

 

30

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  UC ASSET, LP (Registrant)
     
  UC Asset, LLC (General Partner)
Date:  November 04, 2020    
     
  By: /s/ Gregory Bankston
    Gregory Bankston, Manager
     
  And
     
  By: /s/ Xianghong Wu
    Xianghong Wu, Majority Voting Rights Owner

 

 

31

 

Exhibit 3.2

 

LIMITED PARTNERSHIP AGREEMENT

 

SIXTH AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT

 

OF

 

UC Asset LP

 

This Sixth Amended and Restated Limited Partnership Agreement (the “Agreement”) is made and entered into as of the 1st day of September, 2020 (the “Effective Daet”) by and among UCF Asset LLC, a Georgia limited liability company, as the general partner (the “General Partner”), together with any other Persons who become Partners in the Partnership or parties hereto as provided herein (each a “Limited Partner” and collectively the “Limited Partners”), which parties hereby continue UC Asset LP, a Delaware limited partnership (the “Partnership”), pursuant to the Delaware Revised Uniform Limited Partnership Act, 6 Del. C. § 17-101, et seq., as in effect as of the Certificate Filing Date, and as thereafter amended from time to time, or any successor statute (the “Act”), as follows.

 

Starting from the Effective Date of this Agreement, the Limited Partnership Agreement of the Partnership (the “Limited Partnership Agreement”) shall be this Agreement. Unless otherwise stated or the context otherwise requires, this Agreement shall have the meaning as set forth herein for all business narratives by the Partners of the Partnership.

 

W I T N E S S E T H:

 

WHEREAS, the Partnership was formed pursuant to a Certificate of Limited Partnership, dated February 1, 2016, and filed in the office of the Secretary of State of the State of Delaware on February 1, 2016; and

 

WHEREAS, the General Partner and the Limited Partners have set forth their respective rights and obligations with respect to the Partnership pursuant to, and in accordance with the terms and conditions of, the original limited partnership agreement dated as of February 10, 2016 (the “Original LPA”); and

 

WHEREAS, by and under the terms of Section 9.03 of the Original LPA, the General Partner, with the consent of a Majority in Interest (as defined in the Original LPA) of the Limited Partners, amended and restated the Original LPA as of April 1, 2017 (the “First Amended and Restated LPA”), and the amendments made as such are legally binding to all Limited Partners; and

 

WHEREAS, by and under the terms of Section 9.03 of the First Amended and Restated LPA, the General Partner, with the consent of a Majority in Interest (as defined in the First Amended and Restated LPA) of the Limited Partners, amended the First Amended and Restated LPA as of October 10, 2017, and the amendment made as such are legally binding to all Limited Partners; and

 

WHEREAS, by and under the terms of Section 9.03 of the First Amended and Restated LPA, the General Partner, with the consent of a Majority in Interest (as defined in the First Amended and Restated LPA) of the Limited Partners, further amended the First Amended and Restated LPA as of January 1, 2018 (the “Second Amended and Restated LPA”), and the amendments made as such are legally binding to all Limited Partners; and

 

WHEREAS, by and under the terms of Section 9.03 of the Second Amended and Restated LPA, as amended, the General Partner, with the consent of a Unit Majority (as defined in the Second Amended and Restated LPA) of the Limited Partners, further amended the Second Amended and Restated LPA as of May 2, 2018 (the “Third Amended and Restated LPA”), and the amendments made as such are legally binding to all Limited Partners; and

 

 

 

 

WHEREAS, by and under the terms of Section 9.03 of the Third Amended and Restated LPA, as amended, the General Partner, with the consent of a Unit Majority (as defined in the Second Amended and Restated LPA) of the Limited Partners, further amended the Third Amended and Restated LPA as of September 7, 2018 (the “Fourth Amended and Restated LPA”), and the amendments made as such are legally binding to all Limited Partners; and

 

WHEREAS, by and under the terms of Section 9.03 of the Fourth Amended and Restated LPA, the General Partner, further amended and restated the Fourth Amended and Restated LPA as of March 1, 2019 (the “Fifth Amended and Restated LPA”), and the amendments made as such are legally binding to all Limited Partners; and

 

WHEREAS, by and under the terms of Section 9.03 of the Fourth Amended and Restated LPA, the General Partner, desires to amend and restate the Fifth Amended and Restated LPA by adding a subsection(d) into Section 7.02, in order to comply with applicable laws and regulations; and

 

WHEREAS, the Partners desire to continue the Partnership as a limited partnership and to pursue the purposes as described in Section 2.09 of this Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises, agreements, and covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Third Amended and Restated LPA is hereby amended and restated in its entirety to read as follows:

 

ARTICLE I
DEFINITIONS

 

For purposes of this Agreement, unless the context otherwise requires, the following terms have the following meanings:

 

1940 Act” shall mean the U.S. Investment Company Act of 1940, as amended.

 

Act” has the meaning set forth in the preamble.

 

Acquiring Partner” has the meaning set forth in Section 4.07(f).

 

Advisers Act” shall mean the U.S. Investment Advisers Act of 1940, as amended.

 

Adjusted Book Value” has the meaning set forth in Section 8.01.

 

Adjusted Book Value Date” has the meaning set forth in Section 8.01.

 

Adjusted Capital Account Deficit” shall mean, with respect to any Partner, the deficit balance, if any, in such Partner’s Capital Account as of the end of the relevant Allocation Period, after giving effect to the following adjustments:

 

(a)  credit to such Capital Account any amounts that such Partner is obligated to restore or is deemed to be obligated to restore pursuant to the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and

 

(b)  debit to such Capital Account the items described in paragraphs (4), (5) and (6) of Regulations Section 1.704-1(b)(2)(ii)(d).

 

The foregoing definition of Adjusted Capital Account Deficit is intended to comply with Regulations Section 1.704-1(b)(2)(ii)(d) to the extent relevant thereto and is to be interpreted consistently therewith.

 

Affiliate” shall mean, with respect to any Person, any other Person who, directly or indirectly (including through one or more intermediaries), controls, is controlled by, or is under common control with, such Person. For purposes of this definition, when used with respect to any specified Person, shall mean the power, direct or indirect, to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities or partnership or other ownership interests, by contract or otherwise; and the terms “controlling” and “controlled” shall have correlative meanings.

 

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Agreement” shall mean this Fourth Amended and Restated Limited Partnership Agreement, together with any and all extensions, renewals, modifications, substitutions and amendments hereof.

 

Allocation Period” shall mean (a) the period commencing on February 10, 2016 and ending on December 31, 2016, (b) any subsequent period commencing on January 1 and ending on the following December 31, or (c) any portion of the period described in clause (a) or (b) for which the Partnership is required to allocate Net Profits, Net Losses, and other items of Partnership income, gain, loss or deduction pursuant to ARTICLE IV.

 

Annual Rate of Return Percentage” shall mean an annual rate of return of ten percent (10%), which shall decrease to an annual rate of return of eight percent (8%) upon the earlier of (i) January 1, 2020 and (ii) the first day of the Fiscal Year immediately following the last day of the Fiscal Year on which the Partnership had an audited Net Asset Value of at least $20,000,000 as of such date.

 

Assumed Income Tax Rate” shall mean the highest effective marginal combined federal, state and local income tax rate for an Allocation Period prescribed for any individual resident in metropolitan Atlanta, Georgia and its suburban areas, (taking into account the character of income (i.e., ordinary vs. capital gains) and, after taking into account limitations imposed under the alternative minimum tax, the deductibility of state and local income taxes for federal income tax purposes and the rates applicable to income of the relevant character), or such other jurisdiction as determined in the sole discretion of the General Partner.

 

Audit Committee” has the meaning set forth in Section 3.08.

 

Audit Committee Majority” has the meaning set forth in Section 3.08(a).

 

Audited Book Value” shall mean the book value of the Partnership’s Portfolio Investments as audited by an independent accounting firm.

 

Audited Net Income” shall mean the net income of the Partnership for an accounting period as audited by an independent accounting firm.

 

Bankruptcy” shall mean, with respect to a Person, (a) any proceeding that is commenced against such Person as a “debtor” for any relief under bankruptcy or insolvency laws, or laws relating to the relief of debtors, reorganizations, arrangements, compositions, or extensions and such proceeding is not dismissed within ninety (90) days after such proceeding has commenced, or (b) any proceeding commenced by such Person for relief under bankruptcy or insolvency laws or laws relating to the relief of debtors, reorganizations, arrangements, compositions, or extensions.

  

Bipartisan Budget Act” means the U.S. Bipartisan Budget Act of 2015.

 

Business Day” shall mean any day on which commercial banks are open for business in metropolitan Atlanta, Georgia and its suburban areas.

 

Capital Account” shall mean the capital account established and maintained for each Partner pursuant to Section 4.05.

 

Capital Contribution” shall mean, with respect to each Partner, the aggregate amount of cash and the initial Gross Asset Value of any property (net of liabilities assumed or taken subject to by the Partnership, without duplication) contributed by or in the name of such Partner pursuant to Section 4.01(b) in connection with the issuance of Units or otherwise.

 

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Carried Interest” has the meaning set forth in Section 4.07(c)(iii).

 

Certificate” shall mean (i) a certificate in such form as may be adopted by the General Partner, issued by the Partnership evidencing ownership of one or more Common Units or (ii) a certificate, in such form as may be adopted by the General Partner, issued by the Partnership evidencing ownership of one or more other Partnership Securities.

 

Certificate of Limited Partnership” means the Certificate of Limited Partnership of the Partnership, dated as of February 1, 2016, and filed in the Office of the Secretary of State of the State of Delaware on February 1, 2016, as amended and restated from time to time.

 

Certificate Filing Date” shall mean the date on which the Certificate of Limited Partnership was filed in the Office of the Secretary of State of the State of Delaware.

 

Claims” has the meaning set forth in Section 3.06(a).

 

Clawback Amount” has the meaning set forth in Section 6.05.

 

Code” shall mean the U.S. Internal Revenue Code of 1986, as amended from time to time.

 

Commission” means the United States Securities and Exchange Commission.

 

Common Unit” shall mean a Partnership Security representing a fractional part of the Partnership Interests of all Limited Partners with the relative rights, powers, and duties as specified in this Agreement.

 

Confidential Information” has the meaning set forth in Section 7.04(a).

 

Covered Actions” has the meaning set forth in Section 3.06(a).

 

Covered Persons” has the meaning set forth in Section 3.05(b).

 

Damages” has the meaning set forth in Section 3.06(a).

  

Depreciation” shall mean, for each Allocation Period or other period, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such period for federal income tax purposes, except that if the Gross Asset Value of an asset differs from its adjusted tax basis for federal income tax purposes at the beginning of such period, then Depreciation means an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for such period bears to such beginning adjusted tax basis; provided, however, that if the adjusted tax basis for federal income tax purposes of an asset at the beginning of such period is zero, then Depreciation is to be determined with reference to such beginning Gross Asset Value using any reasonable method determined by the General Partner.

 

Derivative Units” shall mean any options, rights, warrants, appreciation rights, tracking, profit or phantom interests or other derivative securities relating to, convertible into or exchangeable for Common Units.

 

DGCL” means the General Corporation Law of the State of Delaware, 8 Del. C. Section 101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.

 

Disabling Conduct” has the meaning specified in Section 3.05(b).

 

Disabling Event” shall mean an event where the General Partner ceases to be the general partner of the Partnership upon the happening of any of the following:

 

(a)  the General Partner: (i) makes an assignment for the benefit of creditors; (ii) files a voluntary petition in Bankruptcy; (iii) is adjudged as bankrupt or insolvent, or has entered against it an order for relief in any Bankruptcy or insolvency proceeding; (iv) files a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation; or (v) seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the General Partner or of all, or any substantial part, of its assets;

 

- 4-

 

 

(b)  (i) one hundred twenty (120) days after the commencement of any proceeding against the General Partner seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation, and the proceeding has not been dismissed; or (ii) if within ninety (90) days after the appointment, without the General Partner’s consent or acquiescence, of a trustee, receiver, or liquidator of the General Partner or of all or any substantial part of its properties, the appointment is not vacated or stayed, or (iii) within ninety (90) days after the expiration of any such stay, the appointment is not vacated;

 

(c)  the dissolution and commencement of winding up of the General Partner; or

 

(d)  the General Partner is removed pursuant to Section 3.07.

 

Disparage” shall mean, with respect to any Person, negative comments regarding its business model, business practices, investment decisions, Affiliates, equityholders, personnel, agents, integrity, fairness, satisfaction of obligations, or overall performance.

 

DOL Regulation” shall mean 29 C.F.R. § 2510.3-101, as amended from time to time, or any successor regulation thereto.

 

Effective Date” shall be the date of the Qualification Date.

 

Event of Dissolution” has the meaning set forth in Section 6.01

 

Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended from time to time.

 

FATCA” has the meaning set forth in Section 7.03(d).

 

First Amended and Restated LPA” has the meaning set forth in the preamble.

 

Fiscal Quarter” shall mean periods beginning on January l, April 1, July 1, and October 1, and ending on March 31, June 30, September 30, and December 31, respectively. The Partnership’s last Fiscal Quarter shall end on the date the Partnership terminates pursuant to the provisions of this Agreement.

 

Fiscal Year” has the meaning set forth in Section 2.07(a).

 

FOIA” has the meaning set forth in Section 7.04(b).

 

GAAP” shall mean generally accepted accounting principles in the U.S., consistently applied.

 

General Partner” shall mean UCF Asset LLC or any Person who is designated as the “general partner” (as defined by Section 17-101 of the Act) of the Partnership in accordance with this Agreement and the Act.

 

Gross Asset Value” shall mean with respect to any asset, the adjusted tax basis of the asset for federal income tax purposes, except as follows:

 

(a)  the initial Gross Asset Value of any asset contributed by a Partner to the Partnership shall be the gross fair market value of such asset;

 

(b)  the Gross Asset Values of the Partnership Assets shall be adjusted to equal their respective gross fair market values (taking Section 7701(g) of the Code into account), as reasonably determined by the General Partner as of the following times: (i) the acquisition of an additional Unit by a new or existing Partner in exchange for a more than de minimis Capital Contribution; (ii) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership Assets as consideration for a Unit; (iii) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and (iv) the issuance of a Unit in exchange for services rendered or to be rendered; provided, that an adjustment described in clause (i), (ii), and (iv) of this paragraph shall be made only if the General Partner reasonably determines that such adjustment is necessary to reflect the relative economic interests of the Partners in the Partnership;

 

- 5-

 

 

(c)  the Gross Asset Value of any Partnership Asset distributed to any Partner shall be adjusted to equal the gross fair market value (taking Section 7701(g) of the Code into account) of such Partnership Asset on the date of distribution as reasonably determined by the General Partner;

 

(d)  the Gross Asset Values of the Partnership Assets shall be increased (or decreased) to reflect any adjustments to the adjusted tax basis of such Partnership Assets pursuant to Section 734(b) or 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (f) of the definition of “Net Profits” and “Net Losses” or Section 4.06(c)(vii); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subparagraph (d) to the extent that an adjustment pursuant to subparagraph (b) is required in connection with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d); and 

 

(e)  If the Gross Asset Value of an asset has been determined or adjusted pursuant to subparagraph (a), (b), (c) or (d), such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Profits and Net Losses.

 

Incompetency” shall mean a situation where a Person is deemed incompetent if such Person is adjudged incompetent by a decree of a court of competent jurisdiction. A Person shall also be deemed incompetent if such Person is convicted of a crime of moral turpitude or that would cast reasonable doubt on such Person’s ability to discharge faithfully his or her duties as a managing member of the General Partner.

 

Initial Offering” shall mean the initial offering and sale of Common Units to the public, as described in the Offering Statement.

 

Insanity” shall mean a situation where a Person is deemed insane if such Person is adjudged insane by a decree of a court of competent jurisdiction.

 

Interests” shall mean, collectively, the Units owned by each Partner and representing the respective proportionate interest attendant to the Partnership Interests.

 

Licensor” has the meaning set forth in Section 9.11.

 

Limited Partners” has the meaning set forth in the preamble.

 

Limited Partnership Agreement” has the meaning set forth in the preamble.

 

Management Fee” has the meaning set forth in Section 8.01.

 

Marks” has the meaning set forth in Section 9.11.

 

National Securities Exchange” means an exchange registered with the Commission under Section 6(a) of the Exchange Act.

 

Net Asset Value” has the meaning set forth in Section 4.08(d).

 

Net Profits” and “Net Losses” shall mean, for each Allocation Period or other period, an amount equal to the Partnership’s taxable income or loss, respectively, for such Allocation Period or other period determined in accordance with Section 703(a) of the Code (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Section 703(a)(1) of the Code shall be included in taxable income or loss), with the following adjustments (without duplication):

 

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(a)  any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Profits or Net Losses shall be included;

 

(b)  any expenditures of the Partnership described in Section 705(a)(2)(B) of the Code (including expenditures treated as such pursuant to Regulations Section 1.704-1(b)(2)(iv)(i)), and not otherwise taken into account in computing Net Profits or Net Losses, shall be subtracted; 

 

(c)  in the event the Gross Asset Value of any Partnership Asset is adjusted pursuant to subparagraphs (b), (c) or (d) of the definition of “Gross Asset Value,” the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the Gross Asset Value of such Partnership Asset) or an item of loss (if the adjustment decreases the Gross Asset Value of such Partnership Asset) from the disposition of such Partnership Asset and shall be taken into account for purposes of computing Net Profits or Net Losses;

 

(d)  gain or loss resulting from any disposition of any Partnership Asset with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the Partnership Asset disposed of, notwithstanding that the adjusted tax basis of such Partnership Asset differs from its Gross Asset Value;

 

(e)  in lieu of the depreciation, amortization and other cost recovery deductions taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Allocation Period or other period, computed in accordance with the definition thereof;

 

(f)  to the extent an adjustment to the adjusted tax basis of any Partnership Asset pursuant to Section 734(b) of the Code is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in complete liquidation of a Partner’s Units, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the tax basis of such Partnership Asset) or loss (if the adjustment decreases the tax basis of such Partnership Asset) from the disposition of such Partnership Asset and shall be taken into account for purposes of computing such Net Profits or Net Losses; and

 

(g)  notwithstanding any other provision of this definition, any items which are specially allocated under Section 4.06(c) shall not be taken into account in computing Net Profits or Net Losses.

 

The amounts of the items of Partnership income, gain, loss, or deduction available to be specially allocated pursuant to Section 4.06(c) shall be determined by applying rules analogous to those set forth in subparagraphs (a) through (f) above.

 

Nonrecourse Deductions” has the meaning assigned to the term “nonrecourse deductions” in Regulations Sections 1.704-2(b)(1) and 1.704-2(c).

 

Offering Statement” shall mean the Offering Statement on Form 1-A (File No. 024-10802) as it has been or as it may be amended or supplemented from time to time, filed by the Partnership with the Commission under the Securities Act to register the offering and sale of the Common Units in the Initial Offering.

 

Officer” shall mean any Person appointed by the General Partner to serve as an officer of the Partnership, having the titles, authority, and duties as determined by the General Partner in its sole discretion.

 

Organizational Expenses” shall mean all reasonable out-of-pocket costs and expenses incurred in connection with the organization of the Partnership and the offering of Units, including, without limitation, any related legal, accounting, consulting, and filing costs. 

 

Original LPA ” has the meaning set forth in the preamble.

 

Partners” shall mean the General Partner and the Limited Partners.

 

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Partner Nonrecourse Debt” has the meaning assigned to the term “partner nonrecourse debt” in Regulations Section 1.704-2(b)(4).

 

Partner Nonrecourse Debt Minimum Gain” shall mean that amount determined in accordance with the principles of Regulations Section 1.704-2(i)(3) pertaining to “partner nonrecourse debt minimum gain.”

 

Partner Nonrecourse Deductions” has the meaning assigned to the term “partner nonrecourse deductions” in Regulations Sections 1.704-2(i)(1) and 1.704-2(i)(2).

 

Partnership” has the meaning set forth in the preamble.

 

Partnership Assets” shall mean all of the Partnership’s assets including, without limitation, the Portfolio Investments, cash, properties, rights (contractual or otherwise), real property, personal property, tangible property, and intangible property.

 

Partnership Expenses” has the meaning set forth in Section 8.02(a).

 

Partnership Interest” shall mean an Interest owned by a Partner, including such Partner’s Capital Account and right (based on the type and class of Unit or Units held by such Partner), including (i) interest in the Partnership’s Net Profits and Net Losses; (ii) interest in gains, losses, deductions, and credits for tax purposes; (iii) interest in other assets; (iv) interest in liquidation proceeds; (v) voting, and (vi) any and all other benefits to which such Partner may be as provided in this Agreement or the Act.

 

Partnership Minimum Gain” has the meaning assigned the term “partnership minimum gain” in Regulations Section 1.704-2(b)(2) and 1.704-2(d).

 

Partnership Representative” means the “partnership representative” designated as such pursuant to Section 6223(a) of the Code (as of the effective date of the Bipartisan Budget Act).

 

Partnership Security” shall mean any class or series of equity or voting interest in the Partnership (but excluding any options, rights, warrants and appreciation rights relating to an equity or voting interest in the Partnership), including the Common Units.

 

Permanent Incapacity” shall mean a situation where a Person is deemed permanently incapacitated whenever he is determined by competent medical authority or authorities selected by the General Partner to be permanently incapable of carrying out his or her functions as a managing member of the General Partner.

 

Person” shall mean any individual, partnership, joint venture, corporation, limited liability company, unincorporated organization or association, trust (including the trustees thereof in their capacity as such), government (or agency or subdivision thereof), or other entity.

 

Portfolio Investments” shall mean the Partnership’s investments (i) in real estate properties in the metropolitan area of Atlanta, Georgia; (ii) in real estate properties in the metropolitan area of Dallas, Texas; (iii) in real estate properties in other regions as determined by the General Partner; (iv) in private or secondary market securities that yield fixed income; and (v) in other investments as agreed by the General Partner from time to time. 

 

Principal” shall mean any Person appointed as a principal of the General Partner.

 

Proceeding” has the meaning set forth in Section 3.06(a).

 

Qualification Date” shall mean the date the Offering Statement is initially qualified by the Commission.

 

Record Date” shall mean the date established by the Partnership for determining (a) the identity of the Record Holders entitled to notice of, or to vote at, any meeting of Partners or entitled to exercise rights in respect of any lawful action of Partners or (b) the identity of Record Holders entitled to receive any report or distribution or to participate in any offer.

 

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Record Holder” shall mean the Person in whose name a Common Unit is registered on the books of the Transfer Agent as of the opening of business on a particular Business Day, or with respect to other Partnership Securities, the Person in whose name any such other Partnership Security is registered on the books that the Partnership has caused to be kept as of the opening of business on such Business Day.

 

Regulations” shall mean the Income Tax Regulations, including Temporary Regulations, promulgated under the Code as amended (including corresponding provisions of successor regulations).

 

Regulatory Allocations” has the meaning set forth in Section 4.06(c)(ix).

 

Second Amended and Restated LPA” has the meaning set forth in the preamble.

 

Securities Act” shall mean the U.S. Securities Act of 1933, as amended from time to time.

 

Tax Matters Partner” has the same meaning as “tax matters partner” as defined in Section 6231(a)(7) of the Code(prior to the effective date of the Bipartisan Budget Act) .

 

Term” has the meaning set forth in Section 2.06.

 

Transfer” when used in this Agreement with respect to any Unit, shall mean a transaction by which the holder of such Unit assigns such Unit to another Person who is or becomes a Partner, and includes a sale, assignment, gift, exchange, or any other disposition by law or otherwise, including any transfer upon foreclosure of any pledge, encumbrance, hypothecation, or mortgage.

 

Transfer Agent” shall mean such bank, trust company, or other Person (including the Partnership or one of its Affiliates) as shall be appointed from time to time by the Partnership to act as registrar and transfer agent for the Common Units or as may be appointed to act as registrar and transfer agent for any other Partnership Securities; provided, however, that if no Transfer Agent is specifically designated for the Common Units or any other Partnership Securities, the Partnership shall act in such capacity.

 

Transferee” has the meaning set forth in Section 5.05(c).

  

Unit” shall mean a Partnership Security that is designated as “Unit” and shall include Common Units.

 

Unit Majority” shall mean, as of the Record Date, at least a majority of the Units, including Common Units, voting as a single class, that are issued by the Partnership and reflected as outstanding on the books and records of the Partnership.

 

U.S.” shall mean the United States of America.

  

ARTICLE II
GENERAL PROVISIONS

 

Section 2.01 Formation. The parties hereto hereby continue the limited partnership formed on the Certificate Filing Date pursuant to the Act. The General Partner is hereby designated as an authorized person, within the meaning of the Act, to execute, deliver, and file with the Secretary of State of the State of Delaware any amendments or restatements of the Certificate of Limited Partnership and any other certificates required or permitted to be filed with the Secretary of State of the State of Delaware (and any amendments or restatements thereof).

 

Section 2.02 Name. The name of the Partnership is “UC Asset LP”. The General Partner may make any variations in the Partnership’s name which the General Partner deems necessary or advisable; provided, however, that written notice of such name change shall be given to the Limited Partners within a reasonable period of time after the effectiveness of such change. The affairs of the Partnership shall be conducted under the Partnership’s name or such other name as the General Partner may determine.

 

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Section 2.03 Organizational Certificates and Other Filings. If requested by the General Partner, the Limited Partners shall promptly execute all certificates and other documents consistent with the terms of this Agreement necessary for the General Partner to accomplish all filing, recording, publishing, and other acts that may be required to comply with all requirements for (a) the formation and operation of a limited partnership under the laws of the State of Delaware and (b) the operation of the Partnership as a limited partnership, or a partnership in which the Limited Partners have limited liability, in all jurisdictions where the Partnership conducts or proposes to conduct business.

 

Section 2.04 Principal Place of Business. The principal place of business of the Partnership shall be located at 2299 Perimeter Park Drive, Suite 120, Atlanta, Georgia 30341 or at such other place or places as the General Partner may from time to time select; provided, that written notice of such selection is given to the Limited Partners within a reasonable period of time after the effectiveness of the change in such place.

 

Section 2.05 Registered Office and Registered Agent. The address of the Partnership’s registered office in the State of Delaware is c/o The Corporation Service Partnership, 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808. The name and address of the Partnership’s registered agent for service of process in the State of Delaware is The Corporation Service Partnership, 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808. The General Partner may at any time change the Partnership’s registered office and/or registered agent for service of process in the State of Delaware. 

 

Section 2.06 Term. The term of the Partnership (the “Term”) commenced on the Certificate Filing Date and shall continue perpetually until terminated as a result of the dissolution and winding up of the Partnership in accordance with Article VI.

 

Section 2.07 Fiscal Year; Names of Partners.

 

(a)  The fiscal year of the Partnership (the “Fiscal Year”) shall be the calendar year. The Partnership’s first Fiscal Year shall begin on the Certificate Filing Date and end on December 31 of the year in which the Certificate Filing Date occurs. Thereafter, the Partnership’s Fiscal Year shall commence on January 1 of each year and end on December 31 of such year or, if earlier, the date the Partnership terminates during such year pursuant to the provisions of this Agreement. For the avoidance of doubt, the General Partner, at any time, may elect a taxable year that is different from the Fiscal Year, if permitted by the Code and the applicable Regulations.

 

(b)  The names of all of the Partners and their status as a General Partner or a Limited Partner shall be maintained in the books and records of the Partnership.

 

Section 2.08 Liability of Limited Partners. Except to the extent provided under the Act, in no event shall any Limited Partner (or former Limited Partner) have any personal liability for the repayment and discharge of debts and obligations of the Partnership; provided, however, that the foregoing shall not limit any obligation or liability of any Limited Partner to the Partnership set forth in this Agreement or to the extent such obligation or liability is required by law and cannot be determined by agreement of the parties hereto. Notwithstanding any other provision of this Agreement, in no event shall any Limited Partner be obligated to make any Capital Contribution in excess of such Partner’s Capital Contribution, or have any liability for the repayment and discharge of the debts and obligations of the Partnership (apart from such Limited Partner’s Partnership Interest).

 

Section 2.09 Purpose. The purposes of the Partnership are to (i) operate as a public entity; (ii) invest, directly or indirectly, its capital in Portfolio Investments; (iii) identify, acquire, hold, manage, and dispose of such Portfolio Investments in accordance with the terms of this Agreement; and (iv) engage in any other activities which may be directly or indirectly related or incidental thereto. The Partnership shall have all power and authority to enter into, make, and perform all contracts and other undertakings and to engage in all activities and transactions and take any and all other actions necessary, appropriate, desirable, incidental, or convenient to or for the furtherance or accomplishment of the above purposes or of any other purpose permitted by the Act or the furtherance of any of the provisions herein set forth and to do every other act and thing incident thereto or connected therewith, including, without limitation, investing of funds of the Partnership pending their utilization or disbursement, and any and all of the other powers that may be exercised on behalf of the Partnership by the General Partner pursuant to this Agreement.

 

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Section 2.10 Conversion into a Corporation. In the event that it is no longer optimal or beneficial for the Partnership (as determined by the General Partner in its sole discretion) to operate as a partnership, the General Partner may, in its sole discretion, convert the Partnership into a corporation. At the time of such conversion, each Unit will be converted into shares of such corporation pursuant to a plan of conversion.

  

ARTICLE III
MANAGEMENT OF THE COMPANY

 

Section 3.01 Management. Except to the extent expressly set forth herein, the General Partner shall be vested with the complete control of the management and conduct of the business of the Partnership. The Limited Partners as such shall have no responsibility for the management of the Partnership and shall have no authority or right to act on behalf of the Partnership or to bind the Partnership in connection with any matter, it being understood that any Units held by the General Partner shall in no way limit or otherwise affect the General Partner’s power and authority as a general partner of the Partnership as set forth in this Agreement or in the Act.

 

Section 3.02 Powers of the General Partner. The General Partner shall have and exercise the power on behalf and in the name of the Partnership that a general partner in a limited partnership may have or exercise under the Act and is authorized and empowered to carry out any and all of the purposes of the Partnership and to perform (either itself or through any of its Affiliates) all acts and enter into and perform all contracts and other undertakings which it may deem necessary or advisable or incidental thereto, including, without limitation, the power to:

 

(a)  direct the formulation of investments and strategies for the Partnership in accordance with this Agreement and to engage any Person, including any Affiliate, for any purpose consistent with the Partnership’s objectives and which is deemed appropriate for the Partnership by the General Partner in its sole discretion;

 

(b)  (i) borrow monies from brokers, banks, and any other Person, including, without limitation, to (A) pay Partnership Expenses or Management Fees, (B) make distributions, (C) facilitate committing to or closing a proposed Portfolio Investment; (ii) raise monies or utilize any other forms of leverage including, without limitation, through the use of structured financial products; (iii) issue, accept, endorse, and execute promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or non-negotiable instruments and evidences of indebtedness; and (iv) grant or issue guarantees;

 

(c)  appoint and enter into a contract with any Person to do any and all acts and exercise all rights, powers, privileges, and other incidents of ownership or possession with respect to Partnership Assets, including, without limitation, the right to possess, lend, Transfer, and institute, settle, or compromise suits and administrative proceedings and other similar matters;

 

(d)  open, maintain, and close accounts with brokers, dealers, and custodians, which power shall include the authority to issue all instructions and authorizations to brokers, dealers, and custodians regarding Partnership Assets and money therein and to pay, or authorize the payment and reimbursement of, brokerage commissions;

 

(e)  open, maintain, and close bank accounts and draw checks or other orders for the payment of monies;

 

(f)  do any and all acts on behalf of the Partnership and exercise all rights of the Partnership with respect to its interest in any Person including, without limitation, participation in arrangements with creditors, the institution and settlement or compromise of suits and administrative proceedings, and other similar matters; 

 

(g)  organize one or more corporations or other entities formed to hold Portfolio Investments or Partnership Assets;

 

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(h)  make any and all elections for federal, state, local, and foreign tax purposes, including any election to adjust the tax basis of Partnership Assets pursuant to Section 754 of the Code; provided, that no election shall be made that would cause the Partnership to lose its status as a partnership for federal income tax purposes;

 

(i)  engage one or more custodians, attorneys, placement agents, independent accountants, prime brokers, administrators, consultants, and any other Persons that the General Partner deems necessary or advisable;

 

(j)  maintain, for the conduct of Partnership affairs, one or more offices, and in connection therewith, rent or acquire office space, engage personnel, whether part-time or full time, and do any other acts that the General Partner deems necessary or advisable in connection with the maintenance and administration of such office or offices;

 

(k)  enter into a servicing agreement with an entity or entities (including Limited Partners and their Affiliates) as the General Partner shall determine in its sole discretion, for the oversight of the Partnership’s financial records, preparation of reports to the Limited Partners, monitoring of payment of Partnership Expenses, and the performance of administrative and professional services in connection with the servicing and monitoring of the Portfolio Investments;

 

(l)  make, execute, deliver, record, and file all certificates, instruments, documents, reports, statements, or any amendment thereto, of any kind necessary or desirable to accomplish the business, purpose, and objectives of the Partnership, in each case as required by any applicable law, agreement, or its business judgment;

 

(m)  authorize any partner, director, officer, employee, or other agent of the General Partner or its Affiliates or agent or employee of the Partnership to act for and on behalf of the Partnership in all matters incidental to the foregoing and to do any other act that the General Partner deems necessary or advisable in connection with the management and administration of the Partnership; and

  

(n)  make, execute, sign, acknowledge, swear to, record, and file (i) this Agreement and any amendment to this Agreement; (ii) the Certificate of Limited Partnership and all amendments thereto required or permitted by law or the provisions of this Agreement; (iii) all certificates and other instruments deemed advisable by the General Partner to carry out the provisions of this Agreement and applicable law or to permit the Partnership to become or to continue as a limited partnership in the State of Delaware and all other jurisdictions in which the Partnership conducts or plans to conduct business; (iv) all instruments that the General Partner deems appropriate to reflect a change or modification of this Agreement or the Partnership in accordance with this Agreement, including, without limitation, the substitution of assignees as Limited Partners pursuant to Section 5.04 and amendments to this Agreement; (v) all conveyances and other instruments, certificates, or other documents deemed advisable by the General Partner to effect the winding up and termination of the Partnership (including, but not limited to, a certificate of cancellation); (vi) all fictitious or assumed name certificates or any other business certificate required or permitted to be filed on behalf of the Partnership; and (vii) all other instruments or documents which may be required or permitted by law to be filed on behalf of the Partnership.

 

Section 3.03 Reliance by Third Parties. Persons dealing with the Partnership are entitled to rely conclusively on a certificate of the General Partner to the effect that it is acting as the General Partner and on the power and authority of the General Partner set forth herein.

 

Section 3.04 Other Activities of the General Partner.

 

(a)  Subject to the requirements contained herein, the General Partner shall cause its personnel to devote such time as shall be reasonably necessary to conduct the business affairs of the Partnership.

 

(b)  Subject to the express provisions elsewhere herein, the parties hereto acknowledge that with respect to the General Partner and its Affiliates:

 

(i)  each of the General Partner and its Affiliates may act as manager, sponsor, or general partner (or the equivalent) for other Persons and may give advice, and take action, with respect to any such other Persons which may follow investment programs similar to those of the Partnership or differ from the advice given, or the timing or nature of action taken, with respect to the Partnership;

 

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(ii)  where there is a limited supply of an investment opportunity, the General Partner shall use its best efforts to allocate such investment opportunities among the General Partner’s clients;

 

(iii)  the General Partner, its Affiliates, and their respective members, partners, officers, directors, employees, shareholders, agents, and representatives thereof may engage in transactions or cause or advise other Persons to engage in transactions which may differ from or be identical to the transactions advised upon or engaged in by the General Partner for the Partnership’s account; and

 

(iv)  the General Partner shall not have any obligation to engage in any transaction for the Partnership’s account or to recommend any transaction to the Partnership which the General Partner, its Affiliates, and their respective members, partners, officers, directors, employees, shareholders, agents, and representatives thereof may engage in for their own accounts or the account of any other customer, except as otherwise required by applicable law.

 

(c)  The Limited Partners hereby agree that the General Partner may offer the right to participate, directly or indirectly, in investment opportunities of the Partnership to one or more Limited Partners or other private investors, groups, partnerships, or corporations whenever the General Partner so determines (and the Limited Partners agree that the General Partner shall have no liability attributable to or based upon such activities in the absence of intentional harm to the Partnership by the General Partner or a Partner thereof).

 

(d)  By reason of the activities of the General Partner and its Affiliates, the General Partner may acquire confidential information or be restricted from initiating transactions in certain Portfolio Investments. It is acknowledged and agreed that the General Partner shall not be free to divulge, or to act upon, any such confidential information with respect to the General Partner’s performance of its responsibilities under this Agreement and that, due to such a restriction, the General Partner may not initiate a transaction the General Partner otherwise may have initiated, and the Partnership may be frozen in an investment position that it otherwise might have liquidated or closed out.

 

(e)  The Limited Partners hereby acknowledge that the General Partner may be prohibited from taking action for the benefit of the Partnership: (i) due to confidential information acquired or obligations incurred in connection with an outside activity permitted to the General Partner, its Affiliates, equity holders, or other related Persons; (ii) in consequence of an equity holder, Affiliate, or other related Person of the General Partner serving as an officer or director with respect to a Portfolio Investment; or (iii) in connection with activities undertaken by an equity holder, Affiliate, or other related Person of the General Partner prior to the date first above written. No Person shall be liable to the Partnership or any Partner for any failure to act for the benefit of the Partnership in consequence of a prohibition described in the preceding sentence.

 

(f)  The Partners recognize that the differing financial, regulatory, tax, and other status and circumstances of the Partners may give rise to conflicts of interest among the Partners with regard to the timing of capital calls, selection of investments, disposition of assets, making of tax elections, or other Partnership matters. Except as otherwise specifically provided in this Agreement, the General Partner, when making decisions or taking action with respect to the Partnership or its business, shall not be required to take into consideration the separate status or circumstances of any Partner or group of Partners.

 

Section 3.05 Limitation of Liability.

 

(a)  The General Partner (and any former General Partner) shall only be liable for the repayment and discharge of all debts and obligations of the Partnership attributable to any Fiscal Year or portion thereof during which they are or were general partners of the Partnership to the extent provided in the Act and to the extent such debts and obligations (i) exceed the Partnership Assets or (ii) are not, by their terms or otherwise, either non-recourse as to the General Partner (or former General Partner) or limited either generally or specifically to Partnership Assets. Nothing in this Section 3.05 shall be interpreted to limit or deprive the General Partner (or former General Partner) from the benefit of the indemnities set forth in Section 3.06.

 

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(b)  To the fullest extent permitted by law, none of the General Partner, its Affiliates, or their respective members, partners, officers, directors, employees, shareholders, agents, and managers of each of them (collectively, the “Covered Persons”) shall be liable to the Partnership or any other Partner for any act or omission, including any mistake of fact or error in judgment, taken, suffered, or made by such Covered Person, relating to or arising out of the investment or other activities of the Partnership, or activities undertaken in connection with the Partnership, or otherwise relating to or arising out of this Agreement, except for (i) gross negligence, (ii) criminal misconduct, or (iii) willful misconduct (each, a “Disabling Conduct”). An individual Covered Person shall not have any personal liability to the Partnership or any other Partner by reason of any change in U.S. federal, state, or local income tax laws, or in interpretations thereof, as they apply to the Partnership or the Limited Partners, whether the change occurs through legislative, judicial, or administrative action.

 

(c)  Any Covered Person may consult with legal counsel, accountants, appraisers, engineers, and any other skilled Person selected by it, and any act or omission by such Covered Person on behalf of the Partnership or in furtherance of the business of the Partnership taken in good faith and in reliance on and in accordance with the advice of such Person shall be full justification for such act or omission, and such Covered Person shall be fully protected in so acting or omitting to act if such Person was selected with reasonable care.

  

(d)  To the fullest extent permitted by law and notwithstanding any other provision of this Agreement or in any agreement contemplated herein or applicable provisions of law or equity or otherwise, whenever in this Agreement a Person is permitted or required to make a decision or take an action (i) in its sole discretion or under a similar grant of authority or latitude, the Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall be entitled to decide or act for any reason or no reason and shall not be required to consider the interests of any other Person; or (ii) in its “good faith” or under another express standard, the Person shall act under such express standard and shall not be subject to any other or different standards imposed by this Agreement or any other agreement contemplated herein or by relevant provisions of law or in equity or otherwise; provided, that neither clause (i) nor clause (ii) eliminates the General Partner’s implied contractual covenant of good faith and fair dealing; provided, further, that, in making any such decision described in clause (i) or clause (ii), the General Partner shall act consistent with its fiduciary duties to the Limited Partners.

 

Section 3.06 Indemnification.

 

(a)  To the fullest extent permitted by law, the Partnership shall and hereby agrees to indemnify, hold harmless, and release (and each Partner does hereby release) each Covered Person from and against any and all claims, demands, damages, liabilities, costs, expenses, including legal fees, losses, suits, proceedings, and actions, whether judicial, administrative, investigative, or otherwise, of whatever nature, known or unknown, liquidated or unliquidated (“Claims”), that may accrue to or be incurred by any Covered Person, or in which any Covered Person may become involved, as a party or otherwise, or with which any Covered Person may be threatened, relating to or arising out of the investment or other activities of the Partnership, or activities undertaken in connection with the Partnership, or otherwise relating to or arising out of this Agreement (“Covered Actions”), including amounts paid in satisfaction of judgments, in compromise or as fines or penalties, and counsel fees and expenses incurred in connection with the preparation for or defense or disposition of any investigation, action, suit, arbitration, or other proceeding (a “Proceeding”), whether civil or criminal (all of such Claims, amounts and expenses covered by this Section 3.05(d) are referred to collectively as “Damages”), except to the extent that such Damages arose from Disabling Conduct to which such Covered Person has pleaded guilty or nolo contendere, or it shall have been determined by a court of competent jurisdiction in a final judgment that such Damages arose from a Disabling Conduct of such Covered Person. Notwithstanding the foregoing, a Covered Person will only be eligible for indemnification pursuant to this Section 3.06 for Claims relating to or arising out of transactions or Covered Actions that took place during the time such Covered Person was a shareholder, officer, director, employee, agent, partner, member, or manager of any of the General Partner or any of its Affiliates. The termination of any Proceeding by settlement shall not, of itself, create a presumption that any Damages relating to such settlement or otherwise relating to such Proceeding arose primarily from Disabling Conduct of any Covered Person. The satisfaction of any indemnification and any saving harmless pursuant to this Section 3.06(a), as and when appropriate under Section 3.06(c), shall be from and limited to Partnership Assets, and no Partner shall have any personal liability on account thereof except to the extent provided in Section 2.08.

 

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(b)  Expenses incurred by a Covered Person in defense or settlement of any claim that may be subject to a right of indemnification hereunder shall be advanced by the Partnership, in the sole discretion of the General Partner, prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the Covered Person to repay the amount advanced to the extent that it shall be determined ultimately by a court having appropriate jurisdiction in the decision that is not subject to appeal, that such Covered Person is not entitled to be indemnified hereunder. The right of any Covered Person to the indemnification provided herein shall be cumulative of, and in addition to, any and all rights to which such Covered Person may otherwise be entitled by contract or as a matter of law or equity or otherwise and shall extend to such Covered Person’s successors, assigns, and legal representatives.

  

(c)  In the event any Covered Person becomes involved in any capacity in any action, proceeding, or investigation brought by or against any Person (including a Limited Partner) in connection with any matter arising out of or in connection with the Partnership’s business or affairs (including a breach by any Limited Partner of this Agreement) and to which such Covered Person may have a right to indemnification hereunder, the Partnership will periodically reimburse such Covered Person for its legal and other expenses (including the cost of any investigation, preparation, defense, or settlement thereof) incurred in connection therewith prior to the final disposition thereof, provided, that such Covered Person shall promptly repay to the Partnership the amount of any such reimbursed expenses paid to it if it shall ultimately be determined, by a court having appropriate jurisdiction in the decision that is not subject to appeal, that such Covered Person is not entitled to be indemnified by the Partnership in connection with such action, proceeding, or investigation as a result of Disabling Conduct.

 

(d)  Any Covered Person entitled to indemnification from the Partnership hereunder shall obtain the written consent of the General Partner prior to entering into any compromise or settlement which would result in an obligation of the Partnership to indemnify such Person if such Covered Person is other than the General Partner. Additionally, if liabilities arise out of the conduct of the affairs of the Partnership and any other Person for which the Person entitled to indemnification from the Partnership hereunder was then acting in a similar capacity, the amount of the indemnification provided by the Partnership shall be limited to the Partnership’s proportionate share thereof as determined in good faith by the General Partner in light of its fiduciary duties to the Partnership and the Limited Partners.

 

(e)  Any Covered Person who is entitled to indemnification under this Section 3.06 shall be deemed to be a creditor of the Partnership and shall be entitled to enforce the obligations of Partners to return distributions pursuant to Section 2.08 following the termination of the Partnership.

 

Section 3.07 Removal of the General Partner. With the consent of the Limited Partners representing at least sixty-six and two-thirds percent (66 2⁄3%) of the outstanding Units, voting as a single class, the General Partner may be removed where (i) the General Partner has been convicted of fraud, embezzlement, or a similar felony by a court of competent jurisdiction in a final judgment; or (ii) the General Partner has willfully and materially breached this Agreement. Any such action for removal of the General Partner must also provide for the election of a substitute General Partner by the Limited Partners.

 

Section 3.08 Audit Committee. The General Partner may, in its sole discretion, establish an Audit Committee of the Partnership (the “Audit Committee”) provided that such composition, duties and responsibilities of the Audit Committee shall be in compliance with the rules, regulations and/or standards established by any National Securities Exchange or over-the-counter trading market on which the Common Units are listed for trading or an application for such trading has been submitted on behalf of the Partnership. 

 

(a)  The Audit Committee shall conduct its affairs in such manner and by such procedures as a majority of its voting members (an “Audit Committee Majority”) deems appropriate. Special meetings of the Audit Committee may be called at any time by the General Partner. All other actions taken by the Audit Committee shall be taken by an Audit Committee Majority. Meetings and voting may be conducted in person, by telephone conference, or by written consent. Notices to Audit Committee members shall be made pursuant to the procedures set forth in Section 9.06.

 

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(b)  The Audit Committee shall take no part in the control or management of the Partnership’s affairs, nor shall the Audit Committee have any power or authority to act for or on behalf of the Partnership except as specifically set forth herein. No member of the Audit Committee shall be liable to any Partner for any action taken, or omitted to be taken, in good faith by it in connection with his or her participation on the Audit Committee.

 

Section 3.09 Additional Committees. The General Partner may establish additional committees of the Partnership from time to time and determine, in its sole discretion, the composition, duties and responsibilities of such additional committee.

 

ARTICLE IV
ISSUANCE OF UNITS; CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS; ALLOCATIONS; AND DISTRIBUTIONS

 

Section 4.01 Units; Capital Contributions.

 

(a)  The Interests of the Partners shall be represented by Units, which, at the sole discretion of the General Partner, may be divided into one or more types, classes, or series of Units. The Partnership may issue Derivative Units at the sole discretion of the General Partner. No fractional Units shall be issued by the Partnership. Each type, class, or series of Units and Derivative Units shall have the privileges, preference, duties, liabilities, obligations, and rights, including voting rights, if any (which may be senior to existing type, class, or series of Units), as determined by the General Partner in its sole discretion, provided that i) any Common Units shall not be offered at a price lower than the book value per Common Unit based on the last audited financial statement immediately preceding the offering of such Common Unit; and ii) any Units or Derivative Units, if convertible into Common Units, the conversion price shall not be set or calculated at a price lower than the book value per Common Unit based on the last audited financial statement immediately preceding the date when such Units or Derivative Units were issued. The foregoing conditions i) and ii) may be waived for any offering if the General Partner has received the approval of a Unit Majority prior to such offering. The Partnership is currently offering only Common Units but may offer other types, classes, or series of Units in the future at the sole discretion of the General Partner. As of the Effective Date, the number of issued and outstanding Common Units are as set forth on the Schedule of Partners opposite each Partner’s name. Each holder of Common Units shall be entitled to one (1) vote for each Common Unit held. Except as expressly set forth herein, no Partner shall be entitled to any return of capital, interest, or compensation by reason of its investment in the Partnership or by reason of serving as a Partner.

 

(b)  Each Partner has contributed or shall contribute the amount set forth for such Partner on the books and records of the Partnership as its Capital Contribution. Such amount shall be credited to the Partners’ respective Capital Accounts upon the date of contribution. No Limited Partner shall be deemed admitted into the Partnership, unless such Limited Partner has fully funded such Limited Partner's Capital Contribution. 

 

Section 4.02 No Preemptive Rights. No Person shall have any preemptive, preferential or other similar right with respect to the issuance of any Partnership Security, whether unissued, or hereafter created.

 

Section 4.03 Splits and Combinations.

 

(a)  Subject to Section 4.03(d), the Partnership may make a pro rata dividend of Partnership Securities to all Record Holders or may effect a subdivision or combination of Partnership Securities so long as, after any such event, each Partner shall have the same Percentage Interest in the Partnership as before such event, and any amounts calculated on a per Unit basis or stated as a number of Units are proportionately adjusted retroactive to the date of formation of the Partnership.

 

(b)  Whenever such a dividend, subdivision, or combination of Partnership Securities is declared, the General Partner shall select a Record Date as of which the dividend, subdivision or combination shall be effective and shall send notice thereof at least twenty (20) days prior to such Record Date to each Record Holder as of a date not less than ten (10) days prior to the date of such notice. The General Partner also may cause a firm of independent public accountants selected by it to calculate the number of Partnership Securities to be held by each Record Holder after giving effect to such dividend, subdivision, or combination. The General Partner shall be entitled to rely on any certificate provided by such firm as conclusive evidence of the accuracy of such calculation.

 

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(c)  Promptly following any such dividend, subdivision, or combination, the Partnership may issue Certificates, or shall deliver other evidence of the issuance of uncertificated Partnership Securities, to the Record Holders of Partnership Securities as of the applicable Record Date representing the new number of Partnership Securities held by such Record Holders, or the General Partner may adopt such other procedures that it determines to be necessary or appropriate to reflect such changes. If any such combination results in a smaller total number of Partnership Securities outstanding, the Partnership shall require, as a condition to the delivery to a Record Holder of such new Certificate, or other evidence of the issuance of uncertificated Partnership Securities, the surrender of any Certificate held by such Record Holder, or the delivery of such other documentation as may be required to transfer uncertificated Partnership Securities, immediately prior to such Record Date.

 

(d)  The Partnership shall not issue fractional Units upon any dividend, subdivision, or combination of Units. If a dividend, subdivision, or combination of Units would result in the issuance of fractional Units but for the provisions of this Section 4.03(d), each fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit shall be rounded to the next higher Unit).

 

Section 4.04 Fully Paid and Non-Assessable Nature of Units. All Units issued pursuant to, and in accordance with the requirements of, this ARTICLE IV shall be validly issued, fully paid and non-assessable Units in the Partnership in accordance with the Act. 

 

Section 4.05 Capital Accounts.

 

(a)  The Partnership shall establish and maintain a separate Capital Account for each Partner in accordance with Regulations Section 1.704-1(b)(2)(iv) and in accordance with the following provisions:

 

(i)  As of the closing date of each round of offering, including the Initial Offering, the initial Capital Account balance attributable to the Common Units and/or Derivative Units issued to a newly admitted Partner shall equal the product of the offering price per Common Unit and/or per Derivative Unit, multiplied by the number of Common Units and/or Derivative Units issued to the Partner; and

 

(ii)  To each Partner’s Capital Account, there shall be credited (A) such Partner’s Capital Contributions, (B) such Partner’s allocable share of Net Profits, (C) any items in the nature of income or gain that are specially allocated to such Partner under Section 4.06(c), and (D) the amount of any liabilities of the Partnership that are assumed by such Partner (or liabilities that are secured by any Partnership Assets distributed to such Partner).

 

(iii)  To each Partner’s Capital Account, there shall be debited (A) the amount of cash and the Gross Asset Value of any Partnership Assets distributed to such Partner pursuant to any provision hereof (net of liabilities secured by such distributed Partnership Assets that such Partner is considered to assume or take subject to under Section 752 of the Code), (B) such Partner’s allocable share of Net Losses, (C) any items in the nature of expenses or losses that are specially allocated to such Partner under Section 4.06(c), and (D) the amount of any liabilities of such Partner that are assumed by the Partnership (or liabilities that are secured by any property contributed by such Partner to the Partnership).

 

(iv)  If any Unit is Transferred in accordance with the terms hereof, then the Transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Unit. In the case of a sale or exchange of a Unit at a time when an election under Section 754 of the Code is in effect, the Capital Account of the transferee Partner shall not be adjusted to reflect the adjustments to the adjusted tax basis of Partnership Assets required under Sections 754 and 743 of the Code, except as otherwise required or permitted by Regulations Section 1.704-1(b)(2)(iv)(m).

 

(v)  In determining the amount of any liability for purposes of Section 4.05(a)(i) and (ii), there shall be taken into account Section 752(c) of the Code, and any other applicable provisions of the Code.

 

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(b)  The foregoing provisions of this Section 4.05(b) and the other provisions hereof relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner determines that it is necessary to modify the manner in which any debits or credits are made to the Capital Accounts (including debits or credits relating to liabilities that are secured by contributed or distributed property or that are assumed by the Partnership or any Partners), the General Partner may make such modification, provided, that it will not have a material effect on the amounts distributed to any Person pursuant to Section 6.02 upon the dissolution of the Partnership. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of capital reflected on the Partnership’s balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b).

  

Section 4.06 Allocations of Net Profits and Net Losses.

 

(a)  General. After taking into account the special allocations set forth in Section 4.06(c), and subject to Section 4.06(b), the Net Profits and Net Losses for each Allocation Period shall be allocated among each of the Partners in the manner that will cause each of their Capital Accounts to proportionately equal, as closely as possible, the excess of (i) the amount that would be distributable to such Partner under Section 4.07(c) if the Partnership were dissolved, its affairs wound up and (A) all Partnership Assets were sold on the last day of the Allocation Period for cash equal to their respective Gross Asset Values (except Partnership Assets actually sold during such Allocation Period shall be treated as sold for the consideration received therefor), (B) all Partnership liabilities were satisfied (limited, with respect to each “partner nonrecourse liability” and “partner nonrecourse debt,” as defined in Regulations Section 1.704-2(b)(4), to the Gross Asset Value of the Partnership Assets securing such liabilities), and (C) the net assets were immediately distributed in accordance with Section 4.07(c) to the Partners over (ii) such Partner’s share (if any) of Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, computed immediately prior to the hypothetical sale of Partnership Assets. To the extent that the allocation provisions of this Section 4.06(a) would fail to produce such final Capital Account balances, such provisions shall be amended by the General Partner if and to the extent necessary to produce such result. The General Partner shall have the power to amend this Agreement without consent of the Limited Partners as it reasonably considers advisable to make the allocations and adjustment described in this Section 4.06(a).

 

(b)  Limitation on Loss Allocations. If any allocation of Net Losses would cause a Partner to have an Adjusted Capital Account Deficit, those Net Losses instead shall be allocated to the other Partners pro rata until their Capital Accounts have been reduced to zero, and any remaining Net Losses will be allocated to each Partner in accordance with its respective interest in the Partnership, as determined by the General Partner and subject to the requirements of the Code and the Regulations.

 

(c)  Special Allocations. The following allocations shall be made prior to the allocations set forth in Section 4.06(a) and in the following order and priority:

 

(i)  Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding any other provision of this Section 4.06, if there is a net decrease in Partnership Minimum Gain during any Allocation Period, each Partner shall be specially allocated items of Partnership income and gain for such Allocation Period (and, if necessary, subsequent Allocation Periods) in an amount equal to such Partner’s share of the net decrease in Partnership Minimum Gain, determined in accordance with Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 4.06(c)(i) is intended to comply with the minimum gain chargeback requirement in Regulations Section 1.704-2(f) and shall be interpreted consistently therewith.

 

(ii)  Partner Minimum Gain Chargeback. Except as otherwise provided in Regulations Section 1.704-2(i)(4), notwithstanding any other provision of this Section 4.06, if there is a net decrease in Partner Nonrecourse Debt Minimum Gain attributable to a Partner Nonrecourse Debt during any Allocation Period, each Partner that has a share of the Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such Allocation Period (and, if necessary, subsequent Allocation Periods) in an amount equal to such Partner’s share of the net decrease in Partner Nonrecourse Debt Minimum Gain, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Partner pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 4.06(c)(ii) is intended to comply with the minimum gain chargeback requirement in Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.

 

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(iii)  Qualified Income Offset. If a Partner unexpectedly receives any adjustments, allocations, or distributions described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), then items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Regulations, any Adjusted Capital Account Deficit of such Partner as quickly as possible, provided, that an allocation pursuant to this Section 4.06(c)(iii) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 4.05(b)(c)(iii) have been tentatively made as if this Section 4.06(c)(iii) were not in this Agreement. This Section 4.06(c)(iii) is intended to comply with the qualified income offset provisions in Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

 

(iv)  Gross Income Allocation. If a Partner has an Adjusted Capital Account Deficit at the end of any Allocation Period, then such Partner shall be specially allocated items of Partnership gross income and gain in the amount of such excess as quickly as possible, provided, that an allocation pursuant to this Section 4.06(c)(iv) shall be made only if and to the extent that such Partner would have an Adjusted Capital Account Deficit after all other allocations provided for in this Section 4.06 have been made as if Section 4.06(c)(iii) and this Section 4.06(c)(iv) were not in this Agreement.

 

(v)  Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions for any Allocation Period shall be allocated to the Partner that bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Regulations Section 1.704-2(i)(1).

 

(vi)  Nonrecourse Deductions. Nonrecourse Deductions for any Allocation Period shall be allocated to each Partner in accordance with each Partner’s interest in the Partnership, as determined by the General Partner and subject to the requirements of the Code and the Regulations.

 

(vii)  Section 754 Adjustments. To the extent that an adjustment to the adjusted tax basis of any Partnership Asset pursuant to Section 734(b) or 743(b) of the Code is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as the result of a distribution to a Partner in complete liquidation of its interest in the Partnership, the amount of such adjustment to Capital Accounts shall be treated as an item of gain (if the adjustment increases the tax basis of such Partnership Asset) or loss (if the adjustment decreases such tax basis), and such gain or loss shall be specially allocated (i) to the Partners in accordance with their interests in the Partnership, if Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or (ii) to the Partner to which such distribution was made, if Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies.

  

(viii)  Allocation of Management Fee. Notwithstanding anything to the contrary contained herein, the Partnership shall specially allocate the Management Fee to the Limited Partners to the extent such Limited Partners are charged the Management Fee.

 

(ix)  Curative Allocations. The allocations set forth above in Section 4.06(b) and Section 4.06(c)(i) through Section 4.06(c)(vii) (collectively, the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. The Partners intend that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other items of Partnership income, gain, loss or deduction pursuant to this Section 4.06(c)(ix). Therefore, notwithstanding any other provisions of this Section 4.06(b)(c)(ix) (other than the Regulatory Allocations), the General Partner shall make such offsetting special allocations of Partnership income, gain, loss, or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Partner’s Capital Account balance is, to the extent possible, equal to the Capital Account balance such Partner would have had if the Regulatory Allocations were not part of this Agreement and all Partnership items were allocated pursuant to this Section 4.06 without regard to the Regulatory Allocations.

 

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(d)  Other Allocation Rules.

 

(i)  Net Profits, Net Losses, and any other items of income, gain, loss, or deduction shall be allocated to the Partners pursuant to this Section 4.06(d) as of the last day of each Allocation Period; provided, that Net Profits, Net Losses, and such other items shall also be allocated at such times as the Gross Asset Values of Partnership Assets are adjusted pursuant to subparagraph (a) of the definition of Gross Asset Value.

 

(ii)  For purposes of determining the Net Profits, Net Losses, or any other items allocable to any period, Net Profits, Net Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the General Partner using any permissible method under Section 706 of the Code and the Regulations thereunder.

 

(iii)  The Partners acknowledge the income tax consequences of the allocations made by this Section 4.06 and shall report their respective shares of Partnership income and loss for income tax purposes in a manner consistent with this Section 4.06(d).

 

(e)  Tax Allocations; Code Section 704(c) Allocations.

 

(i)  Except as otherwise provided in this Section 4.06(e), each item of Partnership income, gain, loss, and deduction for federal income tax purposes shall be allocated among the Partners in the same manner as such items are allocated for book purposes under this Section 4.06(e), except that if such allocation is not permitted by the Code or other applicable law, then the Partnership’s subsequent income, gains, losses, deductions, and credits for federal income tax purposes will be allocated among the Partners so as to reflect as nearly as possible the allocation set forth herein in computing their respective Capital Accounts.

 

(ii)  In accordance with Section 704(c) of the Code and the Regulations thereunder, income, gain, loss, and deduction with respect to any property contributed to the capital of the Partnership shall, solely for tax purposes, be allocated among the Partners so as to take account of any variation between the adjusted tax basis of such property to the Partnership for federal income tax purposes and its initial Gross Asset Value using any allocation method permitted under Regulations Section 1.704-3, as determined by the General Partner. In the event the Gross Asset Value of any Partnership Assets is adjusted pursuant to subparagraph (a) of the definition of Gross Asset Value, subsequent allocations of income, gain, loss, and deduction with respect to such Partnership Assets shall take account of any variation between the adjusted tax basis of such Partnership Assets for federal income tax purposes and its Gross Asset Value in the same manner as under Section 704(c) of the Code and the Regulations thereunder. 

 

(iii)  Any elections or other decisions relating to the allocations described in this Section 4.06(e) shall be made by the General Partner, in any manner that reasonably reflects the purpose and intention hereof. Allocations pursuant to this Section 4.06(e) are solely for purposes of federal, state, and local income taxes and shall not affect, or in any way be taken into account in computing, any Partner’s Capital Account or share of Net Profits, Net Losses, other items, or distributions pursuant to any provision hereof.

 

Section 4.07 Distributions.

 

(a)  Except as otherwise expressly provided herein, no Partner shall have the right to receive any distribution or return of such Partner’s Capital Contribution. Distributions of Partnership Assets that are provided for in this ARTICLE IV or in ARTICLE VI shall be made only to Persons who, according to the books and records of the Partnership, were the holders of record of Units on the date determined by the General Partner as of which the Partners are entitled to any such distributions, or the assignees of such holders of record. Notwithstanding any other provision of this Agreement, neither the Partnership nor the General Partner, on behalf of the Partnership, shall make a distribution to a Partner on account of its Unit if such distribution would violate Section 17-607 of the Act or other applicable law.

 

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(b)  At the discretion of the General Partner, the Partnership shall distribute all positive Audited Net Income to Partners in accordance with Section 4.07(c), at least annually. Notwithstanding the foregoing, the General Partner will be entitled to withhold from any distribution amounts necessary to create, in its discretion, appropriate reserves for, without limitation, (i) expenses (including the Management Fee) and liabilities of the Partnership, (ii) any required tax withholdings with respect to any Limited Partner(s) (in accordance with Section 4.07(e)), (iii) investments in future Portfolio Investments; and/or (iv) as cash reserve of the Partnership.

 

(c)  Distributions of positive Audited Net Income, if any, for each Fiscal Year will initially be apportioned equally to each Common Unit on record as of the date when the Audited Net Income is booked in such Fiscal Year. Each Common Unit’s share of such Audited Net Income will then be distributed to the Limited Partner who owns such Common Unit and to the General Partner in the following order of priority:

 

(i)  Preferred Return. First, 100% to such Limited Partner, pro rata, until the aggregate distributions to all Limited Partners equal an amount representing the Annual Rate of Return Percentage (non-compounding) of the Audited Book Value of the Partnership for the Fiscal Year immediately preceding such distributions, with each Limited Partner’s share of such distributions to be calculated in accordance with such Limited Partner’s interest in the Partnership at the time of each such distribution.

  

(ii)  General Partner Catch-Up: Second, 100% to the General Partner until the cumulative distribution to the General Partner pursuant to this Section 4.07(c)(ii) equals twenty percent (20%) of the aggregate amount distributed pursuant to Section 4.07(c)(i) and this Section 4.07(c)(ii), in each case, attributable to such distribution and all other distributions that have been previously made in the same Fiscal Year.

 

(iii)  LP/GP Split. Third, eighty percent (80%) to such Limited Partner and twenty percent (20%) to the General Partner (the “Carried Interest”).

 

The General Partner may, in its sole discretion, waive or reduce the Carried Interest for Limited Partners that are, among other things, principals, employees, or Affiliates of the General Partner.

 

(d)  Tax Distributions to the General Partner. Notwithstanding anything to the contrary contained in this Section 4.07, and subject to the availability of cash, for each Fiscal Quarter, the Partnership may, in the sole discretion of the General Partner, make cash distributions to the General Partner in an amount intended to enable the General Partner (or any Person, including a Principal, whose tax liability is determined by reference, in whole or part, to the income of the General Partner) to discharge its cumulative United States federal, state and local income tax liabilities (including any obligation to pay estimated taxes) arising from the allocations made pursuant to Section 4.05(b) with respect to the Carried Interest. The amount, if any, distributable pursuant to this Section 4.07(d) with respect to a Fiscal Quarter shall equal (i)(x) the amount of taxable income allocable to the General Partner for such Fiscal Quarter with respect to the Carried Interest multiplied by (y) the Assumed Income Tax Rate over (ii) amounts distributed to the General Partner with respect to the Carried Interest and shall be considered an advance of the Carried Interest. The amount distributable to the General Partner pursuant to Section 4.07(c) shall be reduced by any amount distributed to the General Partner pursuant to this Section 4.07(d).

 

(e)  Withholding. Notwithstanding anything to the contrary herein, (i) each Partner hereby authorizes the Partnership to withhold and pay over, or otherwise pay, any withholding or other taxes payable by the Partnership (pursuant to the Code or any other provision of federal, state, local, or other law) with respect to such Partner or as a result of such Partner’s participation in the Partnership, including as a result of any distribution to such Partner and (ii) if and to the extent that the Partnership is required to withhold or pay any such taxes, such Partner will be deemed for all purposes hereof to have received a payment from the Partnership as of the time such withholding or other tax is required to be paid, which payment will be deemed to be a distribution to such Partner (or any successor to such Partner’s Unit) is then entitled to receive a distribution. If the aggregate of such payments to a Partner for any period exceeds the distributions that such Partner would have received for such period but for such withholding, the Partnership shall notify such Partner as to the amount of such excess and such Partner shall promptly contribute to the Partnership, and shall indemnify the Partnership for, such amount.

 

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(f)  In-Kind Distributions. Partnership Assets may be distributed to both the General Partner and the Limited Partners in lieu of cash in connection with the liquidation of the Partnership. Partnership Assets distributed in kind pursuant to this Section 4.07(f) shall be subject to such conditions and restrictions as the General Partner determines are legally required. Such restrictions shall apply equally to the Partnership Assets distributed to all Partners. In event that a Partnership Asset is non-dividable, any Partner, with the prior approval of the General Partner, may elect to pay the Partnership cash or cash equivalents to acquire such Partnership Asset (such Partner is referred to herein as the “Acquiring Partner”). The amount of such payment shall equal to the difference of the fair market value (determined by the General Partner in its sole discretion but shall be no less than the cost-based value of such Partnership Asset) of such Partnership Asset and the value of the Acquiring Partner’s pro rata share of such Partnership Asset. The Acquiring Partner may use cash distributions due to such Acquiring Partner from other Partnership Assets to offset the foregoing payment. If more than one Partner desire to purchase a same Partnership Asset pursuant to this Section 4.07(f), the General Partner shall, in its sole discretion, shall select which Partner to be the Acquiring Partner in accordance with the following order of preference: first, any General Partner; second, the Limited Partner holding the most Common Units; and third, any of the relevant Limited Partners. 

 

Section 4.08 Valuation of Partnership Assets.

 

(a)  The Partnership shall value Portfolio Investments at their fair value in accordance with GAAP.

 

(b)  Substantially all Portfolio Investments will have no readily determinable market price. The Partnership will value each Portfolio Investment without a readily available market quotation at fair value as determined in good faith by the General Partner. Inputs from independent third parties who are licensed to appraise property value may be used at the sole discretion of the General Partner.

 

(c)  Any Portfolio Investment that has permanently declined in value, as determined by the General Partner, shall be written down to its fair value, as of the date of the determination.

 

(d)  Following the determination of the fair value of each Portfolio Investment, the net asset value of the Partnership (the “Net Asset Value”) will be calculated in good faith by the Partnership at the end of each Second and Fourth Fiscal Quarter, or more frequently as determined by the General Partner. In determining the value of the Unit of any Partner, or in any accounting among the Partners or of any of them, no value shall be placed on the goodwill, going concern value, name, records, files, statistical data, or similar assets of the Partnership.

 

(e)  All good faith determinations by the General Partner of the fair value of any Portfolio Investment shall be, absent manifest error, final and binding for all purposes of this Agreement on the parties to this Agreement, their successors and assigns, and each Person that holds a direct or indirect beneficial interest in any of the foregoing.

 

Section 4.09 Liabilities; Reserves. Liabilities shall be determined in accordance with GAAP, applied on a consistent basis; provided, that the General Partner in its discretion may provide reserves for estimated accrued expenses, liabilities, and contingencies (including amounts determined by the General Partner to pay Management Fees as they accrue on the Capital Accounts of any Limited Partner). Such reserves shall be charged and accrued against the net Partnership Assets, in proportion to the respective Capital Account balances of each Partner, in any amounts that the General Partner deems necessary or prudent.

 

Section 4.10 Determination by the General Partner of Certain Matters. All matters concerning the valuation of Portfolio Investments and other Partnership Assets and accounting procedures not expressly provided for by the terms of this Agreement shall be determined by the General Partner, or its designee, in its sole discretion.

 

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ARTICLE V
ADMISSIONS

 

Section 5.01 Admissions. A Person shall be admitted as a Limited Partner and shall become bound by the terms of this Agreement if such Person purchases or otherwise lawfully acquires any Units and becomes the Record Holder of such Units in accordance with the provisions of Section 4.01. A Person may become a Record Holder without the consent or approval of any of the Limited Partners. A Person may not become a Limited Partner without acquiring any Units.

 

Section 5.02 Certificates.

 

(a)  Upon the Partnership’s issuance of Common Units to any Person, the Partnership may issue one or more Certificates in the name of such Person evidencing the number of such Common Units being so issued. In addition, upon the request of any Person owning any other Partnership Securities other than Common Units, the Partnership may issue to such Person one or more Certificates evidencing such other Partnership Securities. Certificates shall be executed on behalf of the Partnership by the General Partner or any Officer. No Common Unit Certificate shall be valid for any purpose until it has been countersigned by the Transfer Agent; provided, however, that, notwithstanding any provision to the contrary in this Section 5.02(a) or elsewhere in this Agreement, the Units may be certificated or uncertificated as provided in the Act; provided, further, that if the General Partner elects to issue Common Units in global form, the Certificates shall be valid upon receipt of a Certificate from the Transfer Agent certifying that the Common Units have been duly registered in accordance with the directions of the Partnership. Any or all of the signatures required on a Certificate may be by facsimile. If any Officer or Transfer Agent who shall have signed or whose facsimile signature shall have been placed upon any such Certificate shall have ceased to be such Officer or Transfer Agent before such Certificate is issued by the Partnership, such Certificate may nevertheless be issued by the Partnership with the same effect as if such Person were such Officer or Transfer Agent at the date of issue. Certificates shall be consecutively numbered and shall be entered on the books and records of the Transfer Agent as they are issued and shall exhibit the holder’s name and number and type of Partnership Securities represented thereby.

 

(b)  If any mutilated Certificate is surrendered to the Transfer Agent, the appropriate Officers on behalf of the Partnership shall execute, and the Transfer Agent shall countersign and deliver in exchange therefor, a new Certificate, or shall deliver other evidence of the issuance of uncertificated Partnership Securities, evidencing the same number and type of Partnership Securities as the Certificate so surrendered.

 

(c)  The appropriate Officers on behalf of the Partnership shall execute and deliver, and the Transfer Agent shall countersign a new Certificate, or shall deliver other evidence of the issuance of uncertificated Partnership Securities, in place of any Certificate previously issued if the Record Holder of the Certificate:

 

(i)  makes proof by affidavit, in form and substance satisfactory to the Partnership, that a previously issued Certificate has been lost, destroyed, or stolen;

 

(ii)  requests the issuance of a new Certificate, or other evidence of the issuance of uncertificated Partnership Securities, before the Partnership has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;

  

(iii)  if requested by the Partnership, delivers to the Partnership a bond, in form and substance satisfactory to the Partnership, with surety or sureties and with fixed or open penalty as the Partnership may direct to indemnify the Partnership and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and

 

(iv)  satisfies any other reasonable requirements imposed by the Partnership.

 

(d)  If a Limited Partner fails to notify the Partnership within a reasonable time it has notice of the loss, destruction, or theft of a Certificate, and a transfer of the Units represented by the Certificate is registered before the Partnership or the Transfer Agent receives such notification, the Limited Partner shall be precluded from making any claim against the Partnership or the Transfer Agent for such transfer or for a new Certificate or other evidence of the issuance of uncertificated Partnership Securities.

 

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(e)  As a condition to the issuance of any new Certificate, or other evidence of the issuance of uncertificated Partnership Securities, under this Section 5.02, the Partnership may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith.

 

Section 5.03 Record Holders. The Partnership shall be entitled to recognize the Record Holder as the owner of a Unit and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Unit on the part of any other Person, regardless of whether the Partnership shall have actual or other notice thereof, except as otherwise provided by law or any applicable rule, regulation, guideline or requirement of any National Securities Exchange on which such Units are listed for trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company, clearing corporation, or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring and/or holding Units, as between the Partnership on the one hand, and such other Persons on the other, such representative Person shall be the Record Holder of such Interest.

 

Section 5.04 Transfer of the General Partner. The General Partner may, at any time, assign all or a portion of its Partnership Interest to any Affiliate and, in the General Partner’s sole discretion, admit the Affiliate as an additional or substitute General Partner (and/or a Limited Partner in the case of any Unit owned by the General Partner). The consent of the Limited Partners to the admission of any Affiliate as an additional or substitute General Partner (and/or a Limited Partner in the case of any Unit owned by the General Partner) shall not be required. In addition, without the consent of the Limited Partners, the General Partner may, at the General Partner’s expense, be reconstituted as or converted into a corporation, partnership, or other form of entity (any such reconstituted or converted entity being deemed to be the General Partner for all purposes hereof) by merger, consolidation, conversion, or otherwise, or Transfer its Partnership Interest (in whole or in part) to one of its Affiliates so long as (i) such reconstitution, conversion, or Transfer does not have material adverse tax or legal consequences for the Limited Partners; (ii) such other entity is under common control with the General Partner; and (iii) such other entity shall have assumed in writing the obligations of the General Partner under this Agreement and any other related agreements of the General Partner. Additionally, the General Partner may, at any time and without the consent of the Limited Partners, pledge its economic (but not management) interest in the Partnership to secure a borrowing pledge related to the activities or operations of the Partnership. 

 

Section 5.05 Transfer of Units.

 

(a)  The Partnership shall keep or cause to be kept on behalf of the Partnership a register that, subject to such reasonable regulations as it may prescribe and subject to the provisions of Section 5.05(b), will provide for the registration and transfer of Units. The Partnership is authorized to appoint a Transfer Agent as registrar and transfer agent for the purpose of registering Common Units and transfers of such Common Units as herein provided. The Partnership shall not recognize transfers of Certificates evidencing Units unless such transfers are effected in the manner described in this Section 5.05. Upon surrender of a Certificate for registration of transfer of any Interests evidenced by a Certificate, and subject to the provisions of Section 5.05(b), the appropriate Officers of the Partnership shall execute and deliver, and in the case of Common Units, the Transfer Agent shall countersign and deliver, in the name of the holder or the designated transferee or transferees, as required pursuant to the Record Holder’s instructions, one or more new Certificates, or shall deliver other evidence of the issuance of uncertificated Partnership Securities, evidencing the same aggregate number and type of Units as were evidenced by the Certificate so surrendered.

 

(b)  The Partnership shall not recognize any transfer of Units until the Certificates evidencing such Units are surrendered for registration of transfer or such other documentation as may be required to transfer uncertificated Units is delivered. No charge shall be imposed by the Partnership for such transfer; provided, however, that as a condition to the issuance of any new Certificate, or other evidence of the issuance of uncertificated Interests, under this Section 5.05(b), the Partnership may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto.

 

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(c)  By acceptance of the transfer of any Units in accordance with this Section 5.05, each transferee of any Units (including any nominee holder or an agent or representative acquiring such Units for the account of another Person) (“Transferee”) (i) shall be admitted to the Partnership as a Limited Partner with respect to the Units so transferred to such Person when any such transfer or admission is reflected in the books and records of the Partnership, with or without execution of this Agreement, (ii) shall be deemed to agree to be bound by the terms of, and shall be deemed to have executed and delivered, this Agreement, (iii) shall become the Record Holder of the Units so transferred, (iv) represents that the Transferee has the capacity, power, and authority to enter into this Agreement, (v) grants powers of attorney to the Officers of the Partnership and any Liquidator of the Partnership as set forth in this Agreement, and (vi) makes the consents and waivers contained in this Agreement. The transfer of any Units and the admission of any new Partner shall not constitute an amendment to this Agreement.

 

(d)  Subject to (i) the foregoing provisions of this Section 5.05, (ii) Section 5.03, (iii) with respect to any series of Units, the provisions of any statement of designations establishing such series, (iv) any contractual provision binding on any Partner and (v) provisions of applicable law including the Securities Act, Units shall be freely transferable to any Person.

 

Section 5.06 Death, Disability etc., of Limited Partners. The withdrawal, death, disability, incapacity, incompetency, termination, Bankruptcy, insolvency, or dissolution of a Limited Partner shall not in and of itself dissolve the Partnership.

 

ARTICLE VI
TERMINATION AND DISSOLUTION OF THE COMPANY

 

Section 6.01 Termination. The existence of the Partnership commenced on the Certificate Filing Date and shall continue until the Partnership is dissolved and subsequently terminated, which dissolution shall occur upon the first of any of the following events (each an “Event of Dissolution”):

 

(a)  an election to dissolve the Partnership by the General Partner that is approved by a Unit Majority;

 

(b)  the sale, exchange, or other disposition of all or substantially all of the Partnership Assets;

 

(c)  the Partnership ceasing to have any Limited Partners, unless a Person is admitted as a Limited Partner to the Partnership and the Partnership is continued without dissolution in accordance with the Act;

 

(d)  the Partnership has a negative Audited Book Value; or

 

(e)  the entry of a decree of judicial dissolution of the Partnership pursuant Section 17-802 of the Act.

 

Section 6.02 Winding Up and Final Distribution.

 

(a)  Upon the occurrence of an Event of Dissolution, the Partnership shall be wound up and liquidated. The General Partner or, if there is no General Partner, an entity controlled by the managing member of UCF Asset LLC or, if there is no such entity, a liquidator appointed by a Unit Majority, shall proceed with the winding up of the affairs of the Partnership and shall make distributions out of Partnership Assets in the following manner and order:

 

(i)  To satisfy all creditors of the Partnership as required by the Act (including the payment of expenses of the winding up, liquidation, and the dissolution of the Partnership) including Partners who are creditors of the Partnership, to the extent otherwise permitted by law, either by the payment thereof or the making of reasonable provision therefor (including the establishment of reserves, in amounts established by the General Partner, an entity controlled by the managing member of UCF Asset LLC or such liquidator); and

 

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(ii)  The remaining proceeds, if any, plus any remaining Partnership Assets, shall be distributed to the Partners in accordance with Section 4.07(c). Distributions pursuant to this Section 6.02(a)(ii) shall be made by the end of the Fiscal Year during which the liquidation occurs (or, if later, within ninety (90) days after the date of such liquidation).

 

(b)  Notwithstanding the provisions of Section 4.05(b), if, after giving effect to all allocations of Net Profits and Net Losses under Section 4.05(b) for all periods (including the Fiscal Year during which the liquidation of the Partnership occurs), any Partner’s Capital Account is not equal to the amount to be distributed to such Partner pursuant to Section 6.02(a)(ii), the Net Profits or Net Losses for the Fiscal Year in which the Partnership is liquidated are to be allocated among the Partners in such a manner as to cause, to the nearest extent possible, each Partner’s Capital Account to be equal to the amount to be distributed to such Partner pursuant to Section 6.02(a)(ii).

  

Section 6.03 Events Affecting a Member of the General Partner. The death, temporary incapacity, Permanent Incapacity, Insanity, Incompetency, Bankruptcy, expulsion, retirement, withdrawal, or removal of any of the members of the General Partner, or the admission of additional members to the General Partner, shall not dissolve the Partnership.

 

Section 6.04 No Restoration Obligation. No Partner shall have an obligation to restore a negative balance in its Capital Account.

 

Section 6.05 General Partner Clawback. If, following an Event of Dissolution, winding up and termination of the Partnership and the distribution of all or substantially all of the Partnership Assets, the General Partner has received aggregate distributions pursuant to Section 4.07(c)(iii) and Section 4.07(d) which are in excess of the amount that would have otherwise been distributable to the General Partner pursuant to such sections, determined on an aggregate basis taking into account all Partnership transactions, then the General Partner shall be obligated to return promptly to the Partnership such excess amount by means of a payment made directly to the Partnership by or on behalf of the General Partner; provided, that the amount payable by the General Partner to the Partnership pursuant to this Section 6.05 shall in no event exceed the cumulative distributions received by the General Partner pursuant to Section 4.07(c)(iii) and Section 4.07(d) less any applicable income taxes with respect to the Carried Interest (determined at the Assumed Income Tax Rate) (any such amount, the “Clawback Amount”). The payment of such amount to the Partnership shall constitute full satisfaction by the General Partner of its obligations under this Section 6.05 in respect of such Clawback Amount.

 

ARTICLE VII
REPORTS; TAX MATTERS; CONFIDENTIALITY; MEETINGS

 

Section 7.01 Independent Auditors. The books and records of the Partnership will be audited by an independent accounting firm with relevant credentials and expertise selected by the General Partner as of the end of each Fiscal Year of the Partnership.

 

Section 7.02 Reports to Current Partners.

 

(a)  As soon as reasonably possible after the end of each Fiscal Year, the Partnership shall prepare and transmit to each Partner an audited financial report, which shall set forth as of the end of that Fiscal Year:

 

(i)  a balance sheet of the Partnership; and

 

(ii)  an income statement of the Partnership.

 

(b)  Each Limited Partner will receive unaudited statements of the Partnership’s Net Asset Value at least semi-annually. Upon inquiry, Limited Partners may be given access to additional or more frequent information, at the discretion of the General Partner. Additional information made available to any Limited Partner will be made available to each other Limited Partner making a similar request; provided, however, no information that is confidential or proprietary as to a Limited Partner shall be made available to any other Limited Partner. Specifically, the General Partner may keep confidential from any Limited Partner any information the disclosure of which the General Partner in good faith believes could be harmful to the business of the Partnership or is otherwise not in the best interests of the Partnership, or that the Partnership is required by law or agreement with a third party to keep confidential. Notwithstanding anything to the contrary in this Agreement or in the Act, Limited Partners will not be entitled to inspect or receive copies of the following: (i) internal memoranda of the General Partner and/or its Affiliates, whether relating to Partnership matters or any other matters; (ii) correspondence and memoranda of advice from attorneys or accountants for the Partnership, the General Partner, and their respective Affiliates; (iii) trade secrets of the Partnership, the General Partner, and their respective Affiliates, (iv) information relating to any other Limited Partner, and (v) financial statements of the Partners, or similar materials, documents, and correspondence. 

 

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(c)  The Limited Partners hereby acknowledge that pursuant to Section 17-305(f) of the Act, the rights of a Limited Partner to obtain information from the Partnership shall be limited to only those rights provided for in this Agreement, and that any other rights provided under Section 17-305(a) of the Act shall not be available to the Limited Partners or applicable to the Partnership. Notwithstanding anything in this Agreement to the contrary, including any requirement to deliver audited or unaudited financial statements or to allow the inspection of the Partnership’s books, any information provided or disclosed to a Limited Partner may be adjusted, at the General Partner’s discretion, such that the actual names and other identifying data that relate to the Partnership’s current, past, or prospective Portfolio Investments need not be disclosed to the Limited Partners.

 

(d) for the purpose of this Section 7.02, any documents, including audited financial reports and unaudited statements, shall be considered as being transmitted to each and every Limited Partners when they are included into the Partnership’s SEC filings and made available online through the SEC’s EDGAR database.

 

Section 7.03 Tax Matters.

 

(a)  Tax Matters Partner and Partnership Representative.

 

(i)  The General Partner is hereby designated as the Tax Matters Partner. The Tax Matters Partner is authorized and required to represent the Partnership in connection with all tax audits, examinations and investigations of the affairs of the Partnership by any federal, state or local tax authorities, including any resulting administrative and judicial proceedings, and to expend funds of the Partnership for professional services and costs associated therewith.

 

(ii)  As of the effective date of the Bipartisan Budget Act, the General Partner is designated as the Partnership Representative, who shall have sole authority to act on behalf of the Partnership with respect to any audit, controversy, refund action, or other matter (subject to the provisions of the Bipartisan Budget Act). The General Partner, in its capacity as the Partnership Representative, shall have the authority to take all action and make all decisions and elections required or permitted by the Bipartisan Budget Act.

 

(iii)  All expenses incurred in connection with any tax audit, examination, or investigation of the Partnership shall be borne by the Partnership. The General Partner, in its capacity as the Tax Matters Partner or the Partnership Representative, as applicable, shall keep all Partners reasonably informed of the progress of any such examination, audit or other proceeding. Each Partner agrees to cooperate with the Tax Matters Partner or the Partnership Representative, as applicable, and to do or refrain from doing any and all things reasonably required by the Tax Matters Partner or the Partnership Representative, as applicable, in connection with the conduct of such proceedings.

  

(b)  Tax Returns; Information Returns to Partners. The Partnership shall prepare and timely file, or cause the accountants of the Partnership to prepare and timely file, all federal, state, and local income tax returns or other returns or statements required by applicable law. The Partnership shall, to the extent permitted by applicable law, elect or otherwise take such tax positions as the General Partner determines. The Limited Partners shall not take any position on their individual tax returns inconsistent with the reporting of tax items on the Partnership’s tax return. The Partnership shall use commercially reasonable efforts to provide (or cause to be provided) to each Partner and, to the extent necessary, to each former Partner (or its legal representatives), by April 15th of the calendar year immediately following the end of each Fiscal Year, or as soon as practicable thereafter, Internal Revenue Service Schedule K-1 with respect to such Fiscal Year (or substantially similar report setting forth in sufficient detail information which shall enable such Partner or former Partner (or its legal representatives) to prepare its federal income tax returns).

 

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(c)  Partnership Status for Income Tax Purposes. The Partners intend that the Partnership shall be treated as a partnership for federal, state, and local income tax purposes, and the Partnership shall not elect, and the General Partner shall not permit the Partnership to elect, to be treated as an association taxable as a corporation for federal, state, or local income tax purposes under Regulations Section 301.7701-3 or under any corresponding provision of state or local law. Each Partner and the Partnership shall file all tax returns consistent with such treatment. Notwithstanding the foregoing restriction in Section 7.03(c), the General Partner may cause the Partnership to be converted into a corporation pursuant to Section 7.04.

 

(d)  FATCA. Each Limited Partner agrees to provide the Partnership at the time or times prescribed by applicable law and at such time or times reasonably requested by the Partnership such information and documentation prescribed by applicable law and such additional documentation reasonably requested by the Partnership as may be necessary for the Partnership to comply with its obligations (if any) under Sections 1471 through 1474 of the Code (or any amended or successor provisions) and any current or future Regulations or official interpretations thereof (collectively, “FATCA”). Each Limited Partner acknowledges that if such Limited Partner fails to timely provide such information and other documentation, the Partnership may be required to deduct or withhold tax under FATCA with respect to amounts to which such Limited Partner would otherwise be entitled to receive, and the Partnership would not be obligated to pay additional amounts to such Limited Partner as a result of the deduction or withholding of such tax.

 

(e)  Tax Indemnification. Notwithstanding anything to the contrary herein, if the Partnership becomes subject to any tax as a result of any adjustment to taxable income, gain, loss, deduction or credit for any taxable year of the Partnership (pursuant to a tax audit or otherwise), each Limited Partner (and each former Limited Partner) shall indemnify the Partnership and the General Partner against any such taxes (including any interest and penalties) to the extent such tax (or portion thereof) is properly attributable to such Limited Partner (or former Limited Partner). In such event, the General Partner, at its option, may (i) require such Limited Partner (or former Limited Partner) to reimburse the Partnership for the amount of such tax (including interest and penalties) properly attributable to such Limited Partner (or former Limited Partner) or (ii) in the case of a Limited Partner that has not completely withdrawn from the Partnership as of the date of the payment by the Partnership of such tax, reduce any subsequent distributions to such Limited Partner by the amount of such tax (including interest and penalties) properly attributable to such Limited Partner. In the event of any claimed over-assessment of tax against a Limited Partner (or former Limited Partner), such Limited Partner (or former Limited Partner) shall be limited to an action against the applicable jurisdiction and not against the Partnership or the General Partner. The General Partner, on behalf of the Partnership, may take any action permitted under applicable law to avoid the assessment of any such taxes against the Partnership (including, without limitation, an election to issue adjusted Schedule K-1s to the Limited Partners (and/or former Limited Partners) which takes such adjustments to taxable income, gain, loss, deduction or credit into account. 

 

Section 7.04 Confidentiality.

 

(a)  In connection with the organization of the Partnership and its ongoing business, the Limited Partners may receive or have access to confidential information concerning the Partnership, including, without limitation, information relating to portfolio positions, valuations, information regarding potential investments, financial information, and trade secrets (the “Confidential Information”), which is non-public and may be proprietary in nature. No Limited Partner, nor any Affiliate, legal representative, or tax, legal, or other advisor of any Limited Partner, shall disclose or cause to be disclosed any Confidential Information to any Person nor use any Confidential Information for its own purposes or its own account, except (i) to its employees, officers, directors, and advisors, in each case who agree to keep such information confidential, in connection with monitoring its investment in the Partnership and (ii) as otherwise required by any regulatory authority, law or regulation, or by legal process. Without limitation of the foregoing, each Limited Partner acknowledges that notices and reports to Limited Partners hereunder may contain material non-public information concerning, among other things, the Partnership Assets and the Partnership’s investment strategy in relation thereto and agrees not to use such information other than in connection with monitoring its investment in the Partnership and each Limited Partner, personally and on behalf of its Affiliates, legal representatives, and tax, legal and other investment managers agrees in that regard not to trade in securities on the basis of any such information.

 

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(b)  To the extent that the General Partner determines in good faith that there is a reasonable likelihood that as a result of the Freedom of Information Act, 5 U.S.C. § 552, (“FOIA”), any U.S. state public records access law, any state or other jurisdiction’s laws similar in intent or effect to FOIA, or any other similar statutory or regulatory requirement, a Limited Partner or any of its Affiliates may be required to disclose information relating to the Partnership, its Affiliates, and/or any Partnership Assets, such Limited Partner hereby agrees to use commercially reasonable efforts to notify the General Partner promptly in writing of any such potential disclosure and to take commercially reasonable steps to oppose and present the requested disclosure unless (i) a court order to disclose such information has been issued by a court of competent jurisdiction or such Limited Partner is advised by counsel (which, in the case of a Limited Partner that is an institutional investor, may be staff counsel regularly employed by such institutional investor) that there exists no reasonable basis on which to oppose such disclosure or (ii) such disclosure relates solely to fund-level, aggregate performance information (i.e., aggregate cash flows, the name of the Partnership, the year of formation of the Partnership, such Limited Partner’s own Capital Contribution, the date the investment was made by such Limited Partner, the amount of such Limited Partner’s cash drawn by the Partnership, the amount of cash returned to such Limited Partner by the Partnership, the market value of such Limited Partner’s investment in the Partnership, the Management Fees paid by such Limited Partner, and the net internal rate of return and the resulting investment multiple of such Limited Partner’s investment in the Partnership) and does not include (A) any information relating to individual Partnership Assets, (B) copies of this Agreement and related documents, or (C) any other information not referred to in clause (ii) above, or any other information which the General Partner determines in good faith is confidential, proprietary, or should not be disclosed absent compulsion of legal process.

  

(c)  In order to preserve the confidentiality, and to prevent the disclosure by a Limited Partner, which disclosure the General Partner determines in good faith is reasonably likely to occur, of certain information disseminated by the General Partner or the Partnership under this Agreement that such Limited Partner is entitled to receive pursuant to the provisions of this Agreement, including, but not limited to, annual, and other reports (other than Internal Revenue Service Schedule K-1s) and information provided at the Partnership’s informational meetings, the General Partner may (i) provide any of the foregoing information to such Limited Partner by means of access on the Partnership’s website in password protected, non-downloadable, non-printable format, (ii) require such Limited Partner to return any copies of any of the foregoing information provided to it by the General Partner or the Partnership to the extent that such Limited Partner is permitted to do so under applicable law, (iii) provide to such Limited Partner access to any of the foregoing information only at the Partnership’s (or its counsel’s) office, or (iv) withhold all or any part of the foregoing information otherwise to be provided to such Limited Partner (other than the Internal Revenue Service Schedule K-1s); provided, that the General Partner shall not withhold any information pursuant to this clause (iv) if a Limited Partner confirms in writing to the General Partner that compliance with the procedures provided for in clauses (i), (ii), or (iii) above or other means mutually agreeable to the General Partner and the relevant Limited Partner would be legally sufficient to prevent such potential disclosure.

 

(d)  Any obligation of a Limited Partner pursuant to this Section 7.04 may be waived by the General Partner in its sole discretion.

 

Section 7.05 Partner Meetings; Action by Written Consent.

 

(a)  All acts of Limited Partners to be taken hereunder shall be taken in the manner provided in this Section 7.05 through Section 7.14. Starting from the year of 2019, an annual meeting of Partners for the transaction of such business as may properly come before the meeting may be held on such day and at such time and place as the General Partner shall specify.

 

(b)  If authorized by the General Partner, and subject to such guidelines and procedures as the General Partner may adopt, Limited Partners and proxyholders not physically present at a meeting of the Partners may by means of remote communication participate in such meeting, and be deemed present in person and vote at such meeting; provided, that the Partnership shall implement reasonable measures to verify that each Person deemed present and permitted to vote at the meeting by means of remote communication is a Limited Partner or proxyholder, to provide such Limited Partners or proxyholders a reasonable opportunity to participate in the meeting and to record the votes or other action made by such Limited Partners or proxyholders.

 

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(c)  A failure to hold an annual meeting of Partners at the designated time shall not affect otherwise valid acts of the Partnership or work a forfeiture or dissolution of the Partnership. If an annual meeting is not held on the date designated therefor, the General Partner shall cause the meeting to be held as soon as is convenient. Nothing in this Section 7.05 shall prevent the Limited Partners holding at least the number of outstanding Units as would otherwise be necessary to take any such action at a special meeting from taking any action by means of a consent in writing or by electronic transmission.

 

(d)  Special meetings of the Partners may be called only by the General Partner or a Unit Majority.

 

Section 7.06 Notice of Meetings of Limited Partners.

 

(a)  Notice, stating the place, day, and hour of any annual meeting or special meeting of the Partners, as determined by the General Partner, and (i) in the case of a special meeting of the Partners, the purpose or purposes for which the meeting is called, as determined by the General Partner or (ii) in the case of an annual meeting, those matters that the General Partner, at the time of giving the notice, intends to present for action by the Partners, shall be delivered by the Partnership not less than ten (10) calendar days nor more than sixty (60) calendar days before the date of the meeting, in a manner and otherwise in accordance with Section 9.06 to each Record Holder who is entitled to vote at such meeting. Such further notice shall be given as may be required by Delaware law. Only such business shall be conducted at a meeting of the Partners as shall have been brought before the meeting pursuant to the Partnership’s notice of meeting. Any previously scheduled meeting of the Partners may be postponed, and any special meeting of the Partners may be canceled, by resolution of the General Partner upon public notice given prior to the date previously scheduled for such meeting of the Partners.

 

(b)  The General Partner shall designate the place of meeting for any annual meeting or for any special meeting of the Partners. If no designation is made, the place of meeting shall be the principal office of the Partnership.

 

Section 7.07 Record Date. For purposes of determining the Limited Partners entitled to notice of or to vote at a meeting of the Limited Partners, the General Partner may set a Record Date, which shall not be less than ten (10) nor more than ninety (90) days before the date of the meeting (unless such requirement conflicts with any rule, regulation, guideline, or requirement of any National Securities Exchange on which the Common Units are listed for trading, in which case the rule, regulation, guideline, or requirement of such exchange shall govern). If no Record Date is fixed by the General Partner, the Record Date for determining Limited Partners entitled to notice of or to vote at a meeting of Limited Partners shall be at the close of business on the day next preceding the day on which notice is given. A determination of Limited Partners of record entitled to notice of or to vote at a meeting of Limited Partners shall apply to any adjournment or postponement of the meeting; provided, however, that the General Partner may fix a new Record Date for the adjourned or postponed meeting.

 

Section 7.08 Adjournment. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting and a new Record Date need not be fixed, if the time and place thereof are announced at the meeting at which the adjournment is taken, unless such adjournment shall be for more than thirty (30) days. At the adjourned meeting, the Partnership may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with this ARTICLE VII.

 

Section 7.09 Waiver of Notice; Approval of Meeting. Whenever notice to the Limited Partners is required to be given under this Agreement, a written waiver, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a Person at any such meeting of the Limited Partners shall constitute a waiver of notice of such meeting, except when the Person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Partners need be specified in any written waiver of notice unless so required by resolution of the General Partner. All waivers and approvals shall be filed with the Partnership records or made part of the minutes of the meeting.

  

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Section 7.10 Quorum; Required Vote for Limited Partner Action.

 

(a)  At any meeting of the Limited Partners, the holders of a Unit Majority for which a meeting has been called represented in person or by proxy shall constitute a quorum of such class or series or classes or series unless any such action by the Limited Partners requires approval by holders of a greater percentage of the outstanding Common Units, in which case the quorum shall be such greater percentage. Except as provided by Section 7.12, the submission of matters to Limited Partners for approval shall occur only at a meeting of the Partners duly called and held in accordance with this Agreement at which a quorum is present; provided, however, that the Limited Partners present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Limited Partners to leave less than a quorum, if any action taken (other than adjournment) is approved by the required percentage of Interests specified in this Agreement. In the absence of a quorum any meeting of Limited Partners may be adjourned from time to time by the chairman of the meeting to another place or time.

 

(b)  Each outstanding Common Unit shall be entitled to one vote per Common Unit on all matters submitted to a vote of the Limited Partners. Limited Partners shall have no voting rights on any matter not explicitly stated in this Agreement to require a vote of the Limited Partners (even if a right to vote would otherwise be provided under the Act).

 

(c)  All matters submitted to Limited Partners for approval shall be determined by a majority of the votes cast by the holders of the outstanding Common Units of the class or series or classes or series entitled to vote unless a greater percentage is required with respect to such matter under the Act or other applicable law, under the rules of any National Securities Exchange on which the Common Units are listed for trading, or under the provisions of this Agreement, in which case the approval of Limited Partners holding outstanding Common Units entitled to vote that in the aggregate represent at least such greater percentage shall be required.

 

Section 7.11 Conduct of a Meeting; Limited Partner Lists.

 

(a)  The General Partner shall have full power and authority concerning the manner of conducting any meeting of the Partners, including the determination of Persons entitled to vote, the existence of a quorum, the satisfaction of the requirements of this ARTICLE VII, the conduct of voting, the validity and effect of any proxies and the determination of any controversies, votes, or challenges arising in connection with or during the meeting or voting. The General Partner shall designate a Person to serve as chairman of any meeting and shall further designate a Person to take the minutes of any meeting. All minutes shall be kept with the records of the Partnership maintained by the General Partner. The General Partner may make such other regulations consistent with applicable law and this Agreement as it may deem advisable concerning the conduct of any meeting of the Partners, including regulations in regard to the appointment of proxies, the appointment and duties of inspectors of votes, the submission and examination of proxies and other evidence of the right to vote.

  

(b)  A complete list of Limited Partners entitled to vote at any meeting of the Partners, arranged in alphabetical order for each class of Units and showing the address of each such Limited Partner and the number of outstanding Common Units registered in the name of such Limited Partner, shall be open to the examination of any Limited Partner, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days before the meeting, at the principal place of business of the Partnership. The Limited Partner list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any Limited Partner who is present.

 

Section 7.12 Action Without a Meeting. Any action permitted or required to be taken at a meeting may be taken by Limited Partners holding at least the number of outstanding Common Units as would otherwise be necessary to take any such action at a meeting at which all Limited Partners entitled to vote were present and voting, by written consent or by electronic transmission.

 

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Section 7.13 Voting and Other Rights.

 

(a)  Only those Record Holders of Outstanding Shares on the Record Date set pursuant to Section 7.07 shall be entitled to notice of, and to vote at, a meeting of the Partners or to act with respect to matters as to which the holders of the outstanding Common Units have the right to vote or to act. All references in this Agreement to votes of, or other acts that may be taken by, the outstanding Common Units shall be deemed to be references to the votes or acts of the Record Holders of such outstanding Common Units.

 

(b)  With respect to outstanding Common Units that are held for a Person’s account by another Person (such as a broker, dealer, bank, trust company or clearing corporation, or an agent of any of the foregoing), in whose name such outstanding Common Units registered, such other Person shall, in exercising the voting rights in respect of such outstanding Common Units on any matter, and unless the arrangement between such Persons provides otherwise, vote such outstanding Common Units in favor of, and at the direction of, the Person who is the beneficial owner, and the Partnership shall be entitled to assume it is so acting without further inquiry. The provisions of this Section 7.13(b) (as well as all other provisions of this Agreement) are subject to the provisions of Section 5.03.

 

Section 7.14 Proxies and Voting.

 

(a)  At any meeting of the Partners, every holder of a Common Unit may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile, telecommunication or other reliable reproduction of the writing or transmission created pursuant to this Section 7.14(a) may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile, telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

 

(b)  The Partnership may, and to the extent required by law, shall, in advance of any meeting of the Partners, appoint one or more inspectors to act at the meeting and make a written report thereof. The Partnership may designate one or more alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the Partners, the Person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. Every vote taken by ballots shall be counted by a duly appointed inspector or inspectors.

 

(c)  With respect to the use of proxies at any meeting of Limited Partners, the Partnership shall be governed by paragraphs (b), (c), (d) and (e) of Section 212 of the DGCL and other applicable provisions of the DGCL (but not Section 160(c) thereof), as though the Partnership were a Delaware corporation.

 

ARTICLE VIII
MANAGEMENT FEE; EXPENSES

 

Section 8.01 Management Fee. The Partnership will pay to the General Partner each Fiscal Quarter with respect to each Fiscal Year an amount equal to the sum of the following (the “Management Fee”): (i) one quarter of an annual management fee of two percent (2.00%) of the Audited Book Value available for such Fiscal Quarter; provided, however, that promptly after a final determination of a new Audited Book Value (the “Adjusted Book Value” and the date on which such Adjusted Book Value was determined is referred to herein as the “Adjusted Book Value Date”), which shall be conducted no later than the date on which the Partnership’s financial statements with respect to the current Fiscal Year must be publicly filed pursuant to the rules and regulations of the Commission, the Partnership will pay the General Partner or the General Partner will credit the Partnership, as the case may be, an amount, if any, representing any adjustment necessary to reflect the actual amount of aggregate Management Fees that would have been paid to the General Partner in the current Fiscal Year with respect to the Fiscal Quarter(s) occurring prior to the Adjusted Book Value Date had such Management Fees been calculated using the Adjusted Book Value, and (ii) one-half percent (0.50%) of any Capital Contributions actually received by the Partnership between the beginning of the current Fiscal Year and the beginning of the current Fiscal Quarter, and the fee payable to the General Partner pursuant to this clause (ii) shall continue until the end of the current Fiscal Year. For the avoidance of doubt, the Management Fee payable to the General Partner pursuant to the foregoing clauses (i) and (ii) shall apply to each Fiscal Year during the Term. The Management Fee will be paid quarterly in advance on the first Business Day of each Fiscal Quarter. The Management Fee will not be pro rated for any period less than a Fiscal Quarter.

 

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Section 8.02 Expenses.

 

(a)  The Partnership shall bear and be charged with the costs and expenses of the Partnership (and shall promptly reimburse the General Partner or its Affiliates, as the case may be, to the extent that any of such costs and expenses are paid by such entities and not otherwise reimbursed by a third party or otherwise payable by the General Partner as agreed to in writing by the General Partner) (the “Partnership Expenses”), including, but not limited to, the following:

 

(i)  Organizational Expenses;

 

(ii)  expenses associated with the offering of the Units and other Partnership Securities;

 

(iii)  expenses associated with converting the Partnership into a public entity and the Common Units into publicly-traded securities;

 

(iv)  fees, costs, and expenses for outside tax advisors, accountants, administrators, attorneys, auditors, and other professionals and fees, costs, and expenses payable under investment advisory, servicing, or information services agreements; 

 

(v)  expenses associated with the preparation of the Partnership’s financial statements, tax returns, and each Limited Partner’s Internal Revenue Service Schedule K-1 or other equivalent report;

 

(vi)  all operating expenses and out-of-pocket costs and expenses, if any, incurred in identifying, evaluating, developing, negotiating, structuring, acquiring, monitoring, holding, and disposing of Portfolio Investments (whether or not the Portfolio Investments are consummated), including, without limitation, the Management Fee, any financing, legal, accounting, advisory, consulting, research and brokerage services, travel expenses (including lodging and meal expenses), and transaction fees to third parties (including certain Limited Partners and/or Affiliates of the General Partner) in connection therewith (to the extent not subject to any reimbursement of such costs and expenses by third parties or capitalized as part of the acquisition price of the transaction), in each case, whether performed by the internal staff of the General Partner, the Partnership, and/or their respective Affiliates;

 

(vii)  the management, operation, development, improvement, financing, and disposition of the Portfolio Investments (to the extent not otherwise paid by a third party) or other Partnership Assets;

 

(viii)  the fees and reasonable costs of any independent valuation consultant engaged in connection with the valuation of Portfolio Investments or other Partnership Assets or liabilities;

 

(ix)  brokerage commissions, custodial expenses, other bank service fees, and other investment costs, fees, and expenses actually incurred in connection with making, holding, settling, monitoring, or disposing of actual Portfolio Investments or other Partnership Assets;

 

(x)  interest on and fees and expenses arising out of all borrowings made by the Partnership, including, but not limited to, the arranging thereof;

 

(xi)  all fees and expenses associated with the Partnership’s investment in one or more pooled investment vehicles, including, but not limited to, the management fees and/or performance allocations/ fees charged by such pooled investment vehicles;

 

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(xii)  the costs of any litigation, directors’ and officers’ liability, errors and omissions or other insurance, and indemnification or extraordinary expense or liability relating to the affairs of the Partnership;

 

(xiii)  expenses of winding up and liquidating the Partnership;

 

(xiv)  meeting expenses for any meetings of the Limited Partners;

 

(xv)  expenses of any Audit Committee or other committee meetings and reimbursement of reasonable out-of-pocket costs for members of any such committee and the General Partner to attend such meetings;

 

(xvi)  any entity-level taxes, fees, or other governmental charges levied against the Partnership and all expenses incurred in connection with any tax audit, investigation, settlement, or review of the Partnership; and

  

(xvii)  fees, costs, and expenses incurred by the General Partner or members of the General Partner in connection with the liquidation of the Partnership’s assets pursuant to ARTICLE VI, including legal and accounting fees and expenses.

 

(b)  All Partnership Expenses shall be (i) expenses that are incurred in the ordinary course of business, (ii) allocated to the Partnership in a manner that is fair and equitable, and (iii) reasonable, necessary, and have a valid business purpose.

 

(c)  Expenses associated with items such as equipment, utilities, and personnel that are related solely to the General Partner will be borne by the General Partner.

 

ARTICLE IX
MISCELLANEOUS

 

Section 9.01 Waiver of Partition/Action for Accounting. Except as may be otherwise required by law, each Partner hereby irrevocably waives any and all rights that it may have to maintain an action for partition or for an accounting or for similar action of any of the Partnership Assets.

 

Section 9.02 General; Counterparts. This Agreement (a) shall be binding on the executors, administrators, estates, heirs, and legal successors and representatives of the Partners, (b) may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and (c) may be executed by facsimile signature(s) or signature(s) delivered by other electronic means.

 

Section 9.03 Amendments to the Agreement.

 

(a)  The terms and provisions of this Agreement may be modified or amended at any time and from time to time with the consent of a Unit Majority (which consent may be obtained as provided for in Section 9.04(c)) and the General Partner; provided, however, that the General Partner may, without consent of a Unit Majority, in the General Partner’s sole discretion, amend this Agreement (i) in any manner that does not materially adversely affect the Limited Partners, individually or collectively, (ii) to effect any changes required by any governmental and/or regulatory body or agency, or (iii) to comply with any applicable laws or regulations; provided, further, that there shall be no amendment to this Agreement that (i) would materially reduce the rights, or increase the obligations, of a Partner under this Agreement unless the amendment (A) is consented to by such Partner or (B) by its terms applies to all Partners; or (ii) imposes personal liability upon a Partner for any debts or obligations of the Partnership unless, in each case, the amendment is consented to by such Partner.

 

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(b)  Each Limited Partner is aware that the terms of this Agreement permit certain amendments to this Agreement to be effected and certain other actions to be taken or omitted by or with respect to the Partnership without its consent. If an amendment of the Certificate of Limited Partnership or this Agreement or any action by or with respect to the Partnership is taken by the General Partner in the manner contemplated by this Agreement, each Limited Partner agrees that, notwithstanding any objection which such Limited Partner may assert with respect to such action, the General Partner may exercise its authority granted herein in any manner which may be necessary or appropriate to permit such amendment to be made or action lawfully taken or omitted. 

 

(c)  Consent by Silence. For purposes of obtaining any consent as to any matter proposed by the General Partner, the General Partner may, in the notice seeking consent of Limited Partners, require a response within a specified period (which will not be less than fifteen (15) days) and failure to respond within that period will constitute a vote and consent to approve the proposed action. Except as otherwise expressly provided in the proposal for such action, any such action will be effective immediately after the required signatures have been obtained or, if applicable, the expiration of the period within which responses were required, if such requirement was imposed, and there were not votes cast against such action in the amount necessary to prevent such action from becoming effective.

 

Section 9.04 Governing Law. Notwithstanding the locations where this Agreement may be executed by any of the parties, the parties expressly agree that all the terms and provisions hereof shall be construed under the laws of the State of Delaware and, without limitation thereof, that the Act as now adopted or as may be hereafter amended shall govern the Partnership aspects of this Agreement.

 

Section 9.05 [RESERVED]

 

Section 9.06 Notices. Each notice or report relating to this Agreement shall be in writing and delivered (a) in person, by registered or certified mail, or by private courier or (b) by electronic mail, unless a Limited Partner has elected not to receive notices, reports, or other information by electronic mail and has provided written notice to the Partnership to that effect. All notices to the Partnership shall be addressed to its office and principal place of business. All notices addressed to the Partner or such Principal shall be addressed to such Partner or Principal, as applicable, at the address set forth in the records of the Partnership. Any Partner may designate a new address by written notice to that effect given to the Partnership. Unless otherwise specifically provided in this Agreement, a notice shall be deemed to have been effectively given when transmitted by electronic mail, facsimile, mailed by registered or certified mail, or sent by courier to the proper address or delivered in person. Any notice to a Limited Partner by electronic mail shall be deemed to have been effectively given when delivery is confirmed by electronic receipt or another method.

 

Section 9.07 Power of Attorney. By signing this Agreement, each Limited Partner irrevocably designates and appoints the General Partner its true and lawful attorney, in its name, place and stead to make, execute, sign, and file any agreements, instruments, documents, or certificates that (i) may from time to time be required of the Partnership by the laws of the United States of America, the State of Delaware, the State of Georgia, or any other state or other jurisdiction. In no event shall the General Partner be deemed to have the authority under this Section 9.07 to take any action that would result in any Limited Partner losing the limitation on liability afforded by Section 2.08. The power of attorney granted pursuant to this Section 9.07 is coupled with an interest, shall extend to each Limited Partner’s successors, assigns, and legal representatives and shall not be revoked by the Bankruptcy, Incompetency, death, disability, dissolution, termination, or other event of legal incapacity of the granting Limited Partner. If specifically requested by a Limited Partner, the General Partner may vote any Unit owned by such Limited Partner in the General Partner’s discretion.

 

Section 9.08 Anti-Money Laundering Compliance.

 

(a)  Each Limited Partner hereby acknowledges that the Partnership seeks to comply with all applicable laws concerning money laundering, terrorist financing, and similar activities. In furtherance of such efforts, such Limited Partner hereby represents and agrees that, to the best of such Limited Partner’s knowledge based upon appropriate diligence and investigation: (i) none of the cash or property that is paid or contributed to the Partnership by such Limited Partner shall be derived from, or related to, any activity that is deemed criminal under U.S. law; and (ii) no contribution or payment to the Partnership by such Limited Partner shall (to the extent that such matters are within such Limited Partner’s control) cause the Partnership or the General Partner to be in violation of the U.S. Bank Secrecy Act, the U.S. Money Laundering Control Act of 1986 or the U.S. International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. Each Limited Partner shall promptly notify the General Partner if any of the foregoing shall cease to be true and accurate with respect to such Limited Partner.

 

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(b)  Each Limited Partner hereby agrees to provide to the General Partner any additional information regarding such Limited Partner deemed necessary or convenient by the General Partner to ensure compliance with all applicable laws concerning money laundering and similar illicit activities. Each Limited Partner understands and agrees that the Partnership or the General Partner may release confidential information about such Limited Partner and, if applicable, any underlying beneficial owners, to proper authorities if the General Partner determines that it is in the best interests of the Partnership or its Affiliates in light of relevant rules and regulations under the laws set forth above.

  

(c)  Each Limited Partner understands and agrees that, if at any time it is discovered that any of the foregoing representations are incorrect, or if otherwise required by applicable law or regulation related to money laundering and similar activities, the General Partner may undertake appropriate actions to ensure compliance with applicable law or regulation, including segregation or withdrawal of such Limited Partner’s investment in the Partnership, cessation of further distributions to such Limited Partner, refusal of future Capital Contributions by such Limited Partner, and other similar acts. In the event that the General Partner takes any of the foregoing acts, each Limited Partner agrees that the General Partner may manage the remaining portion of such Limited Partner’s investment in the Partnership separate and apart from the Partnership Assets, including selling or otherwise disposing of such assets and reinvesting the proceeds therefrom. The rights and obligations of the General Partner under this Section 9.08 shall expressly supersede any duties that the General Partner may have to such Limited Partner under the Act or otherwise.

 

(d)  In addition to any remedies at law or in equity, each Limited Partner severally agrees to indemnify and hold harmless the Partnership, the General Partner and its Affiliates, and each other Limited Partner from and against any and all losses, liabilities, damages, penalties, costs, fees, and expenses (including legal fees and disbursements) which may result, directly or indirectly, from any acts taken by the General Partner in accordance with this Section 9.08.

 

Section 9.09 Goodwill. No value shall be placed on the name or goodwill of the Partnership, which shall belong exclusively to the General Partner.

 

Section 9.10 Entire Agreement. This Agreement constitutes the entire contract among the parties hereto relative to the subject matter hereof and supersedes all prior term sheets, discussions, negotiations, and agreements, written or oral, with respect thereto.

 

Section 9.11 Use of Name. Subject to the terms of this Agreement, for the duration of the Term, UCF Asset LLC (the “Licensor”) hereby grants to the Partnership, under any rights owned or controlled by the Licensor, a non-exclusive, non-transferable, non-sublicensable royalty-free license to use the marks “UC Asset”, “UCF Asset”, and derivations thereof (collectively, the “Marks”) as part of the Partnership’s name and in connection with the general operation of the Partnership using that name. The Partners acknowledge that the Licensor shall have the right to terminate the foregoing license at any time upon written notice, and that the Partnership shall cease all use of the Marks upon receipt of such notice of termination whether or not the Licensor has any rights in the Marks. The Licensor retains all rights, title, and interest in the Marks. All goodwill from the Partnership’s use of the Marks shall accrue to the Licensor, and at no time during the continuation or upon dissolution of the Partnership shall any value be placed on the Partnership name, or the right to its use, or the goodwill, if any, attached thereto for any purposes, nor shall such name or the right to its use be considered an asset of the Partnership. The Partners agree not to challenge the Licensor’s rights in any of the Marks. The Partnership shall comply with all standards and conditions maintained by the Licensor in connection with all use of the Marks by the Partnership. All usage of the Marks by the Partnership shall include the appropriate trademark or service mark symbol as directed by the Licensor from time to time. The Licensor shall have the sole right, but not the obligation, to file in the appropriate government or other applicable offices of each country in the world, at its own expense, trademark and service mark and domain name applications for the Marks or any marks confusingly similar to the Marks. No Partner shall, by virtue of its ownership of any Unit, hold any right, title, or interest in or to the Marks. Upon termination of the Partnership or the foregoing license for any reason, the Partnership shall have no right to use any of the Marks in any manner and shall immediately cease all use of the Marks.

 

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Section 9.12 General Usage. The titles and subtitles used in this Agreement are for convenience only and shall not be considered in the meaning or interpretation of this Agreement. Except where the context clearly requires to the contrary or is otherwise stated: (i) all references in this Agreement to designated “Sections” are to the designated Sections and other subdivisions of this Agreement, and all references in this Agreement to designated “Articles” are to the designated Articles and other subdivisions of this Agreement; (ii) all pronouns contained in this Agreement, and any variations thereof, shall be deemed to refer to the masculine, feminine, or neutral, singular or plural, as applicable, as to the identity of any party may require; (iii) the word “or” shall not be applied in its exclusive sense; (iv) the words “include,” and “includes” and “including” shall be deemed to be followed by the phrase “without limitation”; (v) the words “hereof,” “herein,” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; (vi) as used in this Agreement, the terms “former Limited Partners” and “former General Partners” refer to the Persons that from time to time cease to be Limited Partners or General Partners, as the case may be, under this Agreement; (vii) references to laws, regulations and other governmental rules, as well as to contracts, agreements, and other instruments, shall mean such rules and instruments as in effect at the time of determination (taking into account any amendments thereto effective at such time without regard to whether such amendments were enacted or adopted after the effective date of this Agreement) and shall include all successor rules and instruments thereto; (viii) references to “cash,” “$,” or “dollars” shall mean the lawful currency of the U.S.; (ix) references to “Federal” or “federal” shall be to laws, agencies, or other attributes of the U.S. or other relevant national government (and not to any State or locality thereof); (x) the meaning of the terms “domestic” and “foreign” shall be determined by reference to the U.S.; (xi) references to “days” shall mean calendar days, as determined by reference to local time in Atlanta, Georgia; (xii) references to times of day shall be determined by reference to local time in Atlanta, Georgia; (xiii) the definitions of defined terms referenced in this Agreement shall apply equally to both the singular and plural forms of such terms; (xix) for purposes of the Act, the Limited Partners shall constitute a single class or group of limited partners; (xv) the English language version of this Agreement shall govern all questions of interpretation relating to this Agreement, notwithstanding that this Agreement may have been translated into, and executed in, other languages; and (xvi) except as expressly provided in this Agreement, any references to the General Partner’s discretionary election, determination, granting or withholding of consent, or other similar action or non-action shall mean that such election, determination, granting or withholding of consent, or other similar action or non-action is subject to the sole and absolute discretion of the General Partner and shall not be subject to challenge by any Limited Partner, provided that the General Partner acts in good faith.

 

Section 9.13 Recitals and Exhibit(s) Incorporated. The recitals hereof and the Exhibits annexed hereto, if any, are hereby incorporated by reference into this Agreement, with the same force and effect as if the same were fully set forth herein.

[signature page follows]

 

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IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the day and year first above written.

 

General Partner:

 

UCF Asset LLC,

a Georgia limited liability company

 

By:   and      
  Gregory Charles Bankston     Xianghong Wu  
  Managing Partner     Member of Majority Interest  

 

 

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Exhibit 4.1