Client Memrandum Final Rules fr the Private Fund Investment Advisers Registratin Act f 2010 August 8, 2011 The Securities and Exchange Cmmissin (the SEC ) has adpted rules t implement the Private Fund Investment Advisers Registratin Act f 2010 (the Advisers Registratin Act r the Act ), which was signed int law as part f the Ddd-Frank Wall Street Refrm and Cnsumer Prtectin Act f 2010 (the Ddd-Frank Act ). The SEC s adptin f rules t implement the Act will have a significant effect n many private fund managers. Nt nly will many advisers that were previusly exempt frm registratin be required t register, but certain advisers that will be exempt frm registratin will nw be subject t SEC examinatin and reprting requirements (including a fund-by-fund reprting bligatin under the mdified Frm ADV, Part 1A). 1 The SEC als amended its rule regarding plitical cntributins (the Pay-t-Play Rule ) t prvide that advisers taking advantage f certain new exemptins frm registratin are subject t the Pay-t-Play Rule. This Memrandum discusses key issues fr private fund managers regarding (i) registratin under the Investment Advisers Act f 1940 (the Advisers Act ); (ii) the rules regarding the new exemptins frm registratin under the Advisers Act; (iii) regulatry requirements fr Exempt Reprting Advisers ; (iv) private fund reprting n new Frm ADV, Part 1A; and (v) additinal changes t Frm ADV. Registratin f Advisers t Private Funds Under the Act, the minimum threshld fr investment adviser registratin has changed. There are tw categries f advisers that are eligible fr registratin n Frm ADV: (i) larger advisers, which are advisers with regulatry assets under management ( Regulatry AUM ) f $100 millin r mre and (ii) mid-sized advisers, which are advisers with Regulatry AUM between $25 millin and $100 millin and that (a) are nt required t be registered in the state in which they maintain their principal ffice and place f business, 2 (b) are nt subject t examinatin as investment advisers by such state; 3 (c) are required t register in 15 r mre states; r (d) are advisers t registered investment cmpanies r business develpment cmpanies. Larger advisers and mid-sized advisers that rely n exemptins in the state in which they have their principal place f business are required t register with the SEC unless an exemptin frm registratin is available. 1 An adviser with n place f business in the United States will either be required t register r be subject t SEC examinatin and reprting requirements if it cannt rely n the exemptin fr freign private advisers. See Exemptins frm Registratin Exemptin fr Freign Private Advisers fr a discussin f the Freign Private Adviser Exemptin. Additinally, advisers slely t venture capital funds as defined by Rule 203(l)-1 will be exempt frm SEC registratin. See Exemptins frm Registratin Exemptin fr Advisers t Venture Capital Funds fr a discussin f the Venture Capital Fund Exemptin. 2 See Exemptins frm Registratin Exemptin fr Freign Private Advisers Meaning f Place f Business " fr the definitin f place f business. 3 The SEC cntacted each state and has identified states withut examinatin prgrams. Currently, advisers with their principal place f business in Minnesta, New Yrk and Wyming, with AUM between $25 millin and $100 millin, must register with the SEC (subject t any applicable exemptins).
In additin, the SEC will permit the fllwing types f advisers t register under the Advisers Act: (i) natinally recgnized statistical rating rganizatins; (ii) pensin cnsultants; (iii) investment advisers affiliated with registered advisers; (iv) advisers expecting t be eligible fr registratin within 120 days f filing Frm ADV; (v) multi-state advisers; and (vi) internet advisers. Regulatry Assets Under Management The SEC is requiring a single methd f calculatin fr an adviser s assets under management fr varius purpses under the Advisers Act, including determining whether an adviser is eligible fr SEC registratin r fr an exemptin frm registratin. Frm ADV, Part 1A will refer t regulatry assets under management t distinguish this amunt frm the assets under management reprted in Part 2 f Frm ADV. Under the Instructins t Item 5, regulatry assets under management are calculated by determining the market value f the securities prtflis t which the adviser prvides cntinuus and regular supervisry r management services r the fair value f such assets where market value is unavailable. 4 The definitin requires advisers t calculate regulatry assets under management n a grss basis advisers cannt deduct utstanding indebtedness r ther accrued but unpaid liabilities, including accrued fees, expenses r the amunt f any brrwing, frm the calculatin f regulatry assets under management. In cntrast t the current Frm ADV, the new definitin f regulatry assets under management des nt prvide advisers with the ptin f excluding family r prprietary accunts r accunts fr which the adviser receives n cmpensatin fr its services. The new methd als requires managers t include in their Regulatry AUM any uncalled capital cmmitments t a private fund. As a result, Regulatry AUM will typically be different than the calculatin advisers use in reprting their assets under management t their investrs, and the adpting release 5 ntes that the wrd regulatry has been used t clarify that this calculatin may be different than the calculatin used by an adviser in its Frm ADV, Part 2. Transitin t SEC Registratin The SEC has prvided a transitin perid fr advisers previusly relying n the private adviser exemptin frm registratin under Sectin 203(b)(3) f the Advisers Act. 6 Any adviser relying n Sectin 203(b)(3) as f July 20, 2011, may delay registratin with the SEC until March 30, 2012. In rder t take advantage f the transitin perid, advisers relying n Sectin 203(b)(3) must have fewer than 15 clients fr the 12 mnths preceding March 30, 2012 and must nt hld themselves ut generally t the public as an investment adviser r act as an adviser t a registered investment cmpany r business develpment cmpany during that perid. Advisers seeking t register by March 30, 2012 must file Parts 1 and 2A f Frm ADV by Feb. 14, 2012 t allw 45 days fr SEC apprval. Nte that new advisers that begin managing assets after July 20, 2011 are nt able t rely n the transitin rule, thugh they may be able t take advantage f the Private Fund Adviser Exemptin described belw, which was effective July 21, 2011. Each adviser registered with the SEC n Jan. 1, 2012 will be required t file an amendment n Frm ADV by March 30, 2012 t reprt its Regulatry AUM and determine its eligibility t remain registered with the SEC. If the adviser is n lnger eligible, it will have t withdraw its registratin by June 28, 2012. Additinally, Rule 203A-1 prvides a buffer fr advisers with Regulatry AUM clse t $100 millin t determine when t switch between registratin with a state authrity and the SEC. An adviser may register with the SEC with Regulatry AUM f at least $100 millin, but must register with Regulatry AUM f $110 millin r greater. Once registered with the SEC, an adviser des nt need t withdraw its registratin until the adviser has less than $90 millin in Regulatry AUM. 4 An investment adviser that des nt use generally accepted accunting principles ( GAAP ) r anther internatinal accunting standard may rely n anther prcess it uses fr calculating fair value as lng as it des s cnsistently and in gd faith. 5 Securities and Exchange Cmmissin Release N. IA-3221 available at http://www.sec.gv/rules/final/2011/ia-3221.pdf. 6 Rule 203-1(e). 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 2
State Registratin Issues Raised by Transitin t SEC Registratin Since Sectin 203(b)(3) f the Advisers Act was repealed at the beginning f the transitin perid, n July 21, 2011, advisers that are delaying their registratin shuld evaluate the state registratin requirements f the state in which their business is lcated. New Yrk s investment adviser registratin regulatins, fr example, prvide fr an exemptin frm state registratin fr a persn wh is registered with the SEC r wuld be required t register with the SEC were it nt fr the exemptin under Sectin 203(b)(3). 7 Because the SEC transitin rule applies t thse advisers relying n Sectin 203(b)(3) as f July 20, 2011, such advisers will cntinue t be persns wh wuld be required t register with the SEC were it nt fr the exemptin under Sectin 203(b)(3) until the transitin rule expires n March 30, 2012. In additin, advisers lcated in New Yrk, including thse that cmmence business n r after July 21, 2011, may rely n New Yrk s de minimis exemptin, which exempts frm registratin a persn wh sells investment advisry services t less than six (6) persns in this state exclusive f financial institutins and institutinal buyers. 8 Exemptins frm Registratin The Advisers Registratin Act eliminated the private adviser exemptin in Sectin 203(b)(3) f the Advisers Act, which exempted frm registratin managers wh did nt hld themselves ut t the public as investment advisers and had fewer than 15 clients. Many investment advisers that have been exempt under Sectin 203(b)(3) will be required t register by March 30, 2012. Hwever, the Act created three new exemptins frm registratin: (i) an exemptin fr an adviser that acts slely as an adviser t private funds that manages Regulatry AUM f less than $150 millin (if the adviser s principal place f business is in the United States) r that manages Regulatry AUM f less than $150 millin frm a place f business in the United States (if the adviser s principal place f business is nt in the United States); 9 (ii) an exemptin fr an adviser that manages nly venture capital funds; and (iii) an exemptin fr a freign private adviser with de minimis U.S. investrs, clients and assets. An adviser that is exempt frm the registratin requirements f the Advisers Act in reliance n the Private Fund Adviser Exemptin r the Venture Capital Fund Exemptin will still be subject t SEC examinatin and must cmply with the new reprting requirements described in mre detail belw under Exempt Reprting Advisers. The SEC will separately prpse and adpt rules requiring Exempt Reprting Advisers t maintain recrds subject t examinatin in future releases. 10 Exemptin fr Advisers that Manage Less Than $150 Millin in the United States (the Private Fund Adviser Exemptin ) The SEC adpted Rule 203(m)-1 t implement the exemptin frm registratin fr any investment adviser that acts slely as an adviser t qualifying private funds 11 and manages less than $150 millin frm a place f business in the United States Unlike the private adviser exemptin that many managers have previusly relied n (Sectin 203(b)(3)), under the new rules, the number f private funds managed is nt relevant; nly the aggregate Regulatry AUM and the fact that the manager acts slely as an adviser t qualified private funds. In the adpting release, 12 the SEC ntes that there may be situatins where a single investr fund may 7 N.Y. Cmp. Cdes R. & Regs. tit. 13, 11.13(a)(6) (2011). 8 N.Y. Cmp. Cdes R. & Regs. tit. 13, 11.13(a)(5) (2011). 9 The methd fr determining Regulatry AUM fr the Private Fund Adviser Exemptin is based n the lcatin f the principal place f business f the adviser and the place frm where the adviser manages client assets, nt the lcatin f the assets and is discussed in detail belw in the sectin entitled Exemptin fr Advisers with Less Than $150 Millin AUM in the United States. 10 See SEC Rel. N. IA-3221, fn. 163. 11 Rule 203(m)-1(e)(5) defines a qualifying private fund as any private fund that is nt registered under Sectin 8 f the Investment Cmpany Act f 1940, as amended (the Investment Cmpany Act ), and has nt elected t be treated as business develpment cmpany pursuant t Sectin 54 f that Act. Rule 203(m)-1 als includes in its definitin f "qualifying private fund" any fund that qualifies fr an exclusin frm the investment cmpany definitin in Sectin 3 f the Investment Cmpany Act; Sectin 3 includes certain real estate funds. An adviser relying n this exemptin must treat the fund as a private fund under the Advisers Act and must cmply with all the rules under the Advisers Act t rely n this exemptin. Private fund is defined in the Advisers Act as an issuer that wuld be an investment cmpany, as defined in Sectin 3 f the Investment Cmpany Act, but fr Sectin 3(c)(1) r 3(c)(7) f that Act. Only funds that are ffered in the United States typically need t rely upn these exemptins. 12 SEC Rel. N. IA-3222 available at http://www.sec.gv/rules/final/2011/ia-3222.pdf. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 3
be a private fund depending n the facts and circumstances, but nly prvides tw narrwly defined examples. The examples cited as being apprpriate are when (i) a fund seeks t raise capital frm multiple investrs but nly has a single, initial investr fr a perid f time r (ii) a fund has nly ne investr left as a result f redemptins. The SEC declined t prvide cmfrt that single investr funds frmed at the request f an investr wuld qualify as a private fund fr purpses f the Private Fund Adviser Exemptin. The SEC has premised its apprach in determining whether a manager advises slely qualifying private funds and the assets managed by an adviser in the United States 13 based n the lcatin f the principal ffice and place f business f the manager. 14 Cnsequently, the adpted rule cntains separate tests fr U.S. advisers 15 and nn-u.s. advisers. 16 U.S. Advisers. The adpted rule presumes that a U.S.-based adviser manages all f its assets frm the United States. Accrdingly, a U.S. adviser must lk at its U.S. and nn-u.s. clients t determine whether it is eligible fr the Private Fund Adviser Exemptin. A U.S. adviser generally must cunt private fund assets in nn-u.s. cuntries in determining its assets under management in the United States even if thse funds are managed thrugh affiliates lcated utside f the United States. S lng as all f the adviser s clients are qualifying private funds and it manages less than $150 millin in the aggregate, a U.S. adviser can rely n the exemptin. An affiliated advisry entity may, in certain circumstances, be treated independently fr purpses f determining whether it meets an exemptin frm registratin. The SEC staff has prvided guidance as t whether tw advisry businesses are required t be integrated fr registratin purpses (See Richard Ellis, Inc., SEC Staff N-Actin Letter (Sept. 17, 1981), which was later supplemented by the staff s psitin in the Unibanc line f n-actin letters). There had been sme cncern that the staff s psitin in the Unibanc letters wuld be vacated because the letters were develped in the cntext f the private adviser exemptin. The adpting release expressly states that nthing in the new rules is intended t withdraw the views expressed in the Unibanc letters. Nn-U.S. Advisers. In cntrast, under the rule, a nn-u.s. adviser is required nly t lk at its clients managed frm a U.S. place f business t determine whether it is eligible fr the Private Fund Adviser Exemptin. 17 A nn-u.s. adviser can rely n the exemptin as lng as all f the adviser s U.S. clients managed frm a U.S. place f business are qualifying private funds and the Regulatry AUM f thse private funds is less than $150 millin. A nn-u.s. adviser seeking t rely n the Private Fund Adviser 13 This apprach is different frm the apprach taken with respect t the Freign Private Adviser Exemptin, which lks at whether r nt an adviser has a place f business in the United States and nt whether assets are managed frm the United States. 14 The SEC s lng-standing psitin with respect t regulating the activities f nn-u.s. advisers has been t fllw a territrial apprach that is based upn the agency s recgnitin that the nn-u.s. activities f nn-u.s. advisers are less likely t implicate U.S. regulatry interests and that nn-u.s. advisers are less likely t participate in U.S. markets if it results in their glbal activities being subject t U.S. regulatry requirements. Fr instance, under the private adviser exemptin, nly the United States clients f nn-u.s. advisers with n U.S. place f business were cunted fr purpses f the client limit. 15 A "U.S. adviser" is an adviser with a principal ffice and place f business in the United States. 16 A "nn-u.s. adviser" is an adviser with a principal ffice and place f business utside f the United States. 17 With respect t whether the activities f a nn-u.s. adviser s U.S. ffice meet the managed in the U.S. threshld, the adpting release cites t the definitin f cntinuus and regular supervisry r management services that is fund in the adpted new Frm ADV: Instructins fr Part 1A, Instructin 5.b(3). Under that definitin, a nn-u.s. adviser will be cnsidered t be managing ne r mre funds r prtflis frm the United States if its U.S. ffice (a) has discretinary authrity ver and prvides nging supervisry r management services with respect t thse funds r prtflis; r (b) des nt have discretinary authrity but has nging respnsibility fr selecting r making recmmendatins with respect t thse funds r prtflis and is respnsible fr arranging r effecting the trades resulting frm acceptance f thse recmmendatins. The Instructins indicate that the issue f whether cntinuus and regular supervisry r management services are being prvided ut f a particular lcatin wuld be determined n a case-by-case basis, taking int accunt: (a) the terms f the relevant advisry agreement, i.e., is the U.S. ffice specifically mentined and/r delegated certain functins; (b) the frm f cmpensatin, i.e., are U.S. ffice persnnel cmpensated based n the perfrmance f particular funds r prtflis; and (c) management practices, i.e., are there any funds r prtflis fr which the persnnel in the U.S. ffice perfrm the lin s share f the advisry wrk. The adpting release ntes that prviding research r cnducting due diligence at a U.S. place f business wuld nt be viewed as cntinuus and regular supervisry r management services if a persn utside f the United States makes independent investment decisins and implements thse decisins. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 4
Exemptin culd nt advise any client frm a U.S. place f business that is a U.S. persn 18 ther than a private fund. Under the adpted rule, a client will nt be cnsidered a U.S. persn s lng as that persn was nt a U.S. persn at the time f becming a client f the adviser. The business activities f a nn-u.s. adviser utside f the United States have n bearing n the manager s ability t rely n the Private Fund Adviser Exemptin. Specifically, nn-u.s. advisers that manage U.S. private funds frm nn-u.s. lcatins are able t rely n the exemptin, even if thse U.S. private funds have $150 millin r mre in assets. In additin, nn-u.s. advisers may have nn-u.s. managed accunt clients and/r nn-u.s. managed fund clients that are nt qualifying private funds and yet still qualify fr the exemptin because their nn-u.s. activities are nt taken int accunt fr purpses f the exemptin. Furthermre, a nn-u.s. adviser des nt need t manage ne r mre U.S. private funds t rely n this exemptin. Timing f Regulatry AUM Calculatin. While the prpsed rule wuld have required managers t calculate whether they had crssed the $150 millin threshld n a quarterly basis, Rule 203(m)-1, as adpted, requires a manager t determine whether it has exceeded the $150 millin threshld n an annual basis. If the manager s Regulatry AUM managed frm a place f business in the U.S. is $150 millin r mre as reprted n its Frm ADV, the manager is n lnger eligible fr the Private Fund Adviser Exemptin and will be required t register under the Advisers Act unless it qualifies fr anther exemptin. Fluctuatins in Regulatry AUM in between the filing f each annual updating amendment d nt affect the availability f the Private Fund Adviser Exemptin. An adviser culd rely n the Private Fund Adviser Exemptin if its Regulatry AUM fluctuates abve the threshld during a year s lng as its Regulatry AUM is less than $150 millin threshld at the time it is required t file its annual updating amendment. Timing f Registratin. Advisers that have cmplied with their reprting requirements, which are discussed in detail belw under Reprting by Exempt Reprting Advisers, have up t 90 days after filing their annual updating amendment t apply fr registratin nce the manager s Regulatry AUM is $150 millin r mre as reprted n its updated ADV. Accrdingly, these managers will have up t 180 days after the end f the year that they crss the threshld t register. 19 Managers that d nt cmply with their reprting requirements are nt affrded this transitin perid. Additinally, an adviser that is n lnger able t rely n the Private Fund Adviser Exemptin by virtue f prviding advice t clients ther than qualifying private funds (e.g., managed accunts) is required t register prir t advising nn-qualifying private fund clients. Exemptin fr Advisers t Venture Capital Funds Any investment adviser that acts slely as an adviser t venture capital funds is exempt frm registratin. Rule 203(l)-1 defines venture capital fund narrwly and was designed t distinguish venture capital funds frm ther types f private funds such as hedge funds and private equity funds. Definitin f Venture Capital Fund. Specifically, a private fund will be cnsidered a venture capital fund if all f the fllwing criteria are met: The fund represents itself as pursuing a venture capital strategy t investrs and ptential investrs. The apprpriate framewrk fr analyzing whether a qualifying fund represents itself as pursuing a venture capital strategy depends n all f the relevant statements (and missins) made by the fund t its investrs and its prspective investrs regarding its investment strategy. 18 The SEC defines U.S. persn in this cntext by incrprating the definitin f that term in Regulatin S because it wuld prvide a well-develped bdy f law that wuld apprpriately address many f the questins that will arise under Rule 203(m)-1. Under Regulatin S, a discretinary accunt generally is treated as a U.S. persn if the fiduciary (such as an adviser) is a U.S. persn and as a nn-u.s. persn if the fiduciary is a nn-u.s. persn irrespective f the status f the accunt s wner. Regulatin S generally lks t the residence f an individual t determine whether the individual is a U.S. persn and in the case f entities, such as partnerships r crpratins, lks t the cuntry under whse laws the entity is rganized r incrprated. In the case f a trust, Regulatin S lks t the residence f the trustee. See generally 17 C.F.R. 230.902(k)(1) and (2). 19 Advisers must file their updating amendments within 90 days after the end f their fiscal year and then have anther 90 days t register frm the date f the filing f their updating amendment. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 5
The histrical cst (r fair value) f the fund s nn-qualifying investments (ther than shrt-term hldings) 20 may nt exceed 20 percent f the fund s capital cmmitments. 21 Venture funds generally are required t pursue qualifying investments, 22 which generally cnsist f equity securities issued by qualifying prtfli cmpanies. 23 A fund may use either histrical cst r fair value t determine whether it satisfies the abve limits fr nn-qualifying and qualifying investments, s lng as the same methd is applied t all investments f a qualifying fund in a cnsistent manner during the term f the fund. Only bna fide capital cmmitments may be included fr the purpses f determining the 20 percent nn-qualifying basket threshld. The fund des nt utilize leverage except fr limited shrt-term brrwing. The rule mandates that a venture capital fund must nt brrw, issue debt bligatins, prvide guarantees r therwise incur leverage in excess f 15 percent f its capital cntributins and uncalled cmmitted capital. Any brrwing, indebtedness, guarantee r leverage belw this threshld must be fr a nnrenewable term f n lnger than 120 calendar days. Hwever, any guarantee by a fund f a qualifying prtfli cmpany s bligatins, up t the value f the fund s investment in the qualifying prtfli cmpany, is nt subject t the 120 calendar day limit. The fund prvides investrs with n liquidity rights, except in extrardinary circumstances. T qualify as a venture capital fund, a fund cannt permit investrs t redeem r t withdraw securities, nr can it permit investrs t require the repurchase f securities, except in extrardinary circumstances, thugh pr rata distributins are permissible. The rule des nt specifically define what cnstitutes extrardinary circumstances, but, instead, prvides several clarifying examples, and ntes that whether r nt a specific redemptin r pt ut right shuld be treated as extrardinary will depend n the particular facts and circumstances. 24 The fund has nt registered under r elected t be treated as a business develpment cmpany pursuant t the Investment Cmpany Act. Grandfathering Prvisin. The rule cntains a grandfathering prvisin that exempts frm the definitin f venture capital fund any private fund that: (i) represented itself t investrs and ptential investrs as pursuing a venture capital strategy at the time the fund ffered its securities; (ii) has sld securities t investrs prir t Dec. 31, 2010; and (iii) des nt sell any securities r accept additinal capital cmmitments after July 21, 2011. Thus, a fund that 20 Shrt-term hldings excluded frm this 20 percent limit are cash and cash equivalents, U.S. Treasuries with a remaining maturity f 60 days r less and shares f registered mney market funds that are regulated under Rule 2a-7 under the Investment Cmpany Act. 21 The fund s cmpliance with the 20 percent limit is calculated at the time any nn-qualifying investment is made and is based n the nn-qualifying investments then held in the fund s prtfli and the fund s ttal capital cmmitments at the time the investment is made. A fund need nly calculate the 20 percent limit when the fund acquires a new nn-qualifying investment (ther than shrt-term hldings). If a fund measures its 20 percent cmpliance based n the fair value f its nn-qualifying investments, then it need nt dispse f a nn-qualifying investment simply because a change in value f investment puts it ver the 20 percent threshld. Hwever, such fund culd nt purchase additinal nn-qualifying investments until the value f its then-existing nn-qualifying investments fell belw 20 percent f the fund s cmmitted capital. 22 Qualifying investments are generally equity securities that were acquired in ne f three ways that suggest that the fund s capital is being used t finance the peratins f the businesses rather than fr trading in secndary markets. Rule 203(1)-1 defines a qualifying investment as: (i) any equity security issued by a qualifying prtfli cmpany that is directly acquired by the private fund frm the cmpany ( directly acquired equity"); (ii) any equity security issued by a qualifying prtfli cmpany in exchange fr directly acquired equity issued by the same qualifying prtfli cmpany; and (iii) any equity security issued by a cmpany f which a qualifying prtfli cmpany is a majrity-wned subsidiary, r a predecessr, and that is acquired by the fund in exchange fr directly acquired equity. 23 A qualifying prtfli cmpany is defined as any cmpany that: (i) is nt a reprting r freign traded cmpany and des nt have a cntrl relatinship with a reprting r freign traded cmpany; (ii) des nt incur leverage in cnnectin with the investment by the private fund and distribute the prceeds f any such brrwing t the private fund in exchange fr the private fund investment; and (iii) is nt itself a fund (i.e., is an perating cmpany). 24 Venture capital funds may prvide extrardinary rights fr an investr t withdraw frm the fund under freseeable but unexpected circumstances r t be excluded frm particular investments due t regulatry r ther legal requirements. These events may be freseeable because they are circumstances that are knwn t ccur (e.g., changes in law, crprate events such as mergers, etc.) but are unexpected in their timing r scpe. Thus, withdrawal, exclusin r similar pt-ut rights wuld be deemed extrardinary circumstances if they are triggered by a material change in the tax law after an investr invests in the fund, r the enactment f laws that may prhibit an investr s participatin in the fund s investment in particular cuntries r industries. The trigger events fr these rights are typically beynd the cntrl f the adviser and fund investr (e.g., tax and regulatry changes). 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 6
cmmenced its ffering by the end f 2010 and cncluded such ffering by July 21, 2011 may be exempt frm registratin even if it des nt satisfy the elements f the new venture capital fund definitin. This grandfathering prvisin affrds pre-existing venture capital funds the benefit f exemptin frm SEC registratin withut requiring such funds t cnfrm their investment strategies r fund terms t the standards set frth in the new definitin. Nn-U.S. Advisers. Under the rule, a nn-u.s. adviser may rely n the venture capital exemptin nly if all f its clients, whether U.S. r nn-u.s., are venture capital funds. Generally, nly a fund that uses U.S. jurisdictinal means in the ffering f the securities it issues and that relies n Sectin 3(c)(1) r 3(c)(7) f the Investment Cmpany Act qualifies as a private fund, and thus can be a venture capital fund if it meets the definitin f a venture capital fund. Hwever, under the rule, an adviser may treat as a private fund and thus a venture capital fund, if it meets the rules ther criteria any nn-u.s. fund that is nt ffered thrugh the use f U.S. jurisdictinal means but that wuld be a private fund if the issuer were t cnduct a private ffering in the United States. A nn-u.s. fund that is treated as a private fund under these circumstances by an adviser relying n the venture capital exemptin wuld als be treated as a private fund under the Advisers Act fr all purpses, and thus wuld have t be reprted in Item 7.B and Sectin 7.B f Schedule D f the adviser s Frm ADV, in accrdance with the requirements fr Exempt Reprting Advisers, which is discussed belw under Exempt Reprting Advisers. Timing f Registratin. An adviser that is n lnger able rely n the Venture Capital Fund Exemptin by virtue f prviding advice t clients ther than venture capital funds is required t register prir t advising thse ther funds unless anther exemptin is available. Exemptin fr Freign Private Advisers (the Freign Private Adviser Exemptin ) As nted abve, the Act creates an exemptin frm SEC registratin fr freign private advisers and defines freign private adviser, as any investment adviser that: Has n place f business in the United States; Has, in ttal, fewer than 15 (a) clients in the United States and (b) investrs in the United States in private funds managed by the adviser; Has less than $25 millin f Regulatry AUM attributable t (a) clients in the United States and (b) investrs in the United States in private funds advised by the investment adviser; Des nt hld itself ut generally t the public in the United States as an investment adviser; and Des nt act as an investment adviser t a registered investment cmpany r a business develpment cmpany. Newly adpted Rule 202(a)(30)-1 clarifies the meaning and applicatin f certain key terms in the Freign Private Adviser Exemptin. Cunting Clients. The rule incrprates the safe harbr fr cunting clients currently in Rule 203(b)(3)-1, but mdifies the rule t accunt fr its use in the freign private adviser cntext and eliminates the prvisin allwing advisers nt t cunt thse clients frm which they receive n cmpensatin. Under the new Freign Private Adviser Exemptin, a nn-u.s. adviser can have a ttal f nly 14 U.S. clients and U.S. investrs in private funds managed by the adviser. The adviser can still have unlimited nn-u.s. clients s lng as the nn-us clients that are private funds d nt exceed the U.S. investr limitatins. 25 25 An adviser t a private fund wuld nt be required t lk thrugh a nn-u.s. entity investr and cunt U.S. persns that are equity hlders f that nn-u.s. entity twards the 15 investr threshld unless the nn-u.s. entity was frmed fr the purpse f investing in 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 7
Like the frmer private adviser exemptin, prpsed Rule 202(a)(30)-1 allws a nn-u.s. adviser t cunt as a single client (i) a natural persn, its immediate family members and certain family-related and estate planning vehicles 26 and (ii) a vehicle t which the adviser prvides investment advice based n its investment bjectives. 27 T avid duble-cunting, an adviser need nt cunt a private fund as a client if the adviser cunted ne r mre investrs in that private fund as investrs fr purpses f the limit. In a significant departure frm the frmer rule, the new rule eliminates the special rule that permitted advisers nt t cunt as a client any persn fr whm the adviser prvided investment advisry services withut cmpensatin. This is cnsistent with the inclusin f the assets f such clients in regulatry assets under management. Cunting Private Fund Investrs. As is nted abve, new Advisers Act Sectin 202(a)(30) prvides that, inter alia, in rder t be exempt frm SEC registratin, a freign private adviser cannt have mre than 14 clients and investrs in the United States in private funds advised by the adviser. The term investr was nt previusly defined in the Advisers Act r the underlying rules. New Rule 202(a)(30)-1 defines an investr in a private fund as including several different types f persns; knwledgeable emplyees are nt included in the definitin. 28 First, investr includes any persn wh wuld be included in determining the number f beneficial wners f the utstanding securities f a private fund under Sectin 3(c)(1) f the Investment Cmpany Act, r wh wuld be cnsidered in determining whether the utstanding securities f a private fund are wned exclusively by qualified purchasers under Sectin 3(c)(7) f that Act. In rder t avid duble-cunting, an adviser wuld be permitted t treat as a single investr any persn wh is an investr in tw r mre private funds advised by it. Secnd, an adviser must determine the number f investrs in a private fund taking int accunt the prhibitin in Sectin 208 f the Advisers Act against ding indirectly r thrugh any ther persn, what it is unlawful t d directly. Thus, under certain circumstances, an adviser relying upn the exemptin has t cunt as an investr a persn wh is nt the nminal wner f the private fund s securities. Such circumstances include the fllwing: In a master-feeder arrangement, the adviser t the master fund wuld treat as investrs the hlders f the units f any feeder fund frmed t invest in the master fund; the private fund. An adviser t a private fund with a nn-u.s. fund f funds investr wuld cunt the fund f funds as a nn-u.s. investr (regardless f the make-up f its equity hlders) unless the fund f funds was frmed fr the purpse f investing in the private fund. 26 Like the frmer Rule 203(b)(3)-1, new Rule 202(a)(30)-1 permits a nn-u.s. adviser t treat as a single client a natural persn and: (i) that persn s minr children (whether r nt they share the natural persn s principal residence); (ii) any relative, spuse, r relative f the spuse f the natural persn living at the same residence; (iii) all accunts f which the natural persn and/r the persn s minr child r relative, spuse, r relative f the spuse wh has the same principal residence are the nly primary beneficiaries; and (iv) all trusts f which the natural persn and/r the persn s minr child r relative, spuse, r relative f the spuse wh has the same principal residence are the nly primary beneficiaries. 27 The new rule als retains the prvisins f current Rule 203(b)(3)-1 that permit an adviser t treat as a single client (i) a crpratin, general partnership, limited partnership, limited liability cmpany, trust, r ther legal rganizatin t which the adviser prvides investment advice based n the rganizatin s investment bjectives; and (ii) tw r mre legal rganizatins that have identical sharehlders, partners, limited partners, members, r beneficiaries. Rule 202(a)(30)-1(b)(1) - (3) als retains the current special rules : (1) an adviser must cunt a sharehlder, limited partner, member r beneficiary (each, an wner ) f a crpratin, general partnership, limited partnership, limited liability cmpany, trust r ther legal rganizatin, as a client if the adviser prvides investment advisry services t the wner separate and apart frm the legal rganizatin; (2) an adviser is nt required t cunt an wner as a client slely because the adviser, n behalf f the legal rganizatin, ffers, prmtes, r sells interests in the legal rganizatin t the wner, r reprts peridically t the wners as a grup slely with respect t the perfrmance f r plans fr the legal rganizatin s assets r similar matters; and (3) any general partner, managing member r ther persn acting as an investment adviser t a limited partnership r limited liability cmpany must treat the partnership r limited liability cmpany as a client. 28 This is cnsistent with the pre-ddd-frank apprach under which knwledgeable emplyees were nt cunted as beneficial wners f a fund fr purpses f Sectin 3(c)(1), and are nt required t be qualified purchasers under Sectin 3(c)(7). 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 8
Any hlder f an instrument, such as a ttal return swap, that effectively transfers the risk f investing in the private fund away frm the nminal investr, wuld be cunted as an investr fr purpses f the Freign Private Adviser Exemptin. Third, the new rule includes within the definitin f investr thse wh wn shrt term paper issued by the private fund and incrprates the brad definitin f shrt term paper cntained in Sectin 2(a)(38) f the Investment Cmpany Act, which includes any nte, draft, bill f exchange, r banker s acceptance payable n demand r having a maturity at time f issuance nt exceeding nine mnths. Under the Investment Cmpany Act, such persns are nt cunted as beneficial wners fr purpses f the exemptin frm registratin under Sectin 3(c)(1) but are required t be qualified purchasers fr purpses f the exemptin under Sectin 3(c)(7). Meaning f in the U.S. The Freign Private Adviser Exemptin under Sectin 202(a)(30) f the Advisers Act emplys the term in the U.S. in several cntexts including: (a) limiting the number f, and Regulatry AUM attributable t, an adviser s clients in the United States and investrs in the United States in private funds advised by the adviser; (b) exempting nly thse advisers withut a place f business in the United States and (c) exempting nly thse advisers that d nt hld themselves ut t the public in the United States as an investment adviser. 29 The SEC had added a nte t paragraph (c)(2)(i) f new Rule 202(a)(30)-1 specifying that a persn that is in the U. S. may be treated as nt being in the U. S. if such persn was nt in the United States at the time f becming a client r, in the case f an investr in a private fund, at the time the investr acquired the securities issued by the fund. This is intended t relieve nn- U.S. advisers f the burden f having t mnitr the lcatin f clients and investrs n an nging basis and pssibly having t chse between registering with the SEC r terminating their relatinships with any client r investr that mves t the United States. Meaning f Place f Business. A nn-u.s. adviser seeking t utilize the Freign Private Adviser Exemptin cannt have a place f business in the United States. New Rule 203(a)(30)-1 defines place f business t mean any ffice where the adviser regularly prvides advisry services, slicits, meets with, r therwise cmmunicates with clients, and any lcatin held ut t the public as a place where the adviser cnducts any such activities. The SEC ntes that a place f business in the United States wuld include: (i) any ffice frm which an adviser cmmunicates with clients; and (ii) an ffice r ther lcatin where an adviser regularly cnducts research. The SEC als ntes that, in cntrast, an ffice where an adviser slely perfrms administrative services and back ffice activities wuld nt be a place f business if such activities are nt intrinsic t prviding investment advisry services and d nt invlve cmmunicating with clients. This is the definitin that is used by bth the SEC and state regulatrs fr purpses f determining their regulatry jurisdictin pursuant t Sectin 222(d) f the Advisers Act, which states that a state may nt require an adviser t register if the adviser des nt have a place f business within, and has fewer than six clients resident in, the state. Calculatin f Assets Under Management. Under the Freign Private Adviser Exemptin, a nn- U.S. adviser must have less than $25 millin in Regulatry AUM attributable t clients in the United States and investrs in the United States in private funds. 30 Timing f Registratin. An adviser that is n lnger able t rely n the Freign Private Adviser Exemptin fr any reasn is required t register prir t becming ineligible fr the Freign Private Adviser Exemptin unless anther exemptin is available. 29 The new rule defines in the U.S. in accrdance with the established definitins under Regulatin S with ne significant exceptin: any discretinary accunt fr the benefit f a U.S. persn that is maintained utside f the United States is treated as if it were maintained in the United States if the nn-u.s. adviser is a related persn (i.e., an entity that is cntrlling, cntrlled by r under cmmn cntrl with) f the adviser claiming the Freign Private Adviser Exemptin. The SEC believes that this exceptin is necessary in rder t discurage nn-u.s. advisers frm creating such discretinary accunts with the gal f circumventing the exemptin s limitatin with respect t persns in the U.S. SEC Release at 117. 30 See Registratin f Advisers t Private Funds Regulatry Assets Under Management. The definitin des nt permit the exclusin f accunts f clients wh are nt U.S. persns; hwever, this prvisin wuld have little r n impact n the $25 millin threshld under the Freign Private Adviser Exemptin, which applies nly t clients in the United States. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 9
Impact n Subadvisers and Affiliates The rules state that subadvisers will be eligible t rely n the abve exemptins t the extent that they satisfy their cnditins with respect t the funds and/r managed accunts t which they prvide advisry services. The SEC ntes that advisers with advisry affiliates will encunter interpretative issues as t whether thse affiliates activities need t be taken int accunt fr purpses f determining the adviser s cmpliance with the cnditins f a particular exemptin and states that such issues will be reslved under a facts and circumstances apprach. 31 In the past, the SEC staff stated that certain affiliates f a registered investment adviser may rely n the registered adviser s status if the affiliate is subject t the adviser s supervisin and cntrl and is subject t the requirements f the Advisers Act. 32 It fllws that a similar analysis wuld allw certain affiliates f exempt advisers t rely n the exempt adviser s status with respect t the Advisers Act. Further interpretative guidance frm the SEC may be frthcming n this issue. Optinal Nature f Exemptins Nne f the abve exemptins are mandatry. Ntwithstanding its qualificatin fr ne f the abve exemptins, an adviser culd elect t register (r remain registered) with the SEC if it has the requisite Regulatry AUM under Sectin 203A f the Advisers Act, which is generally $100 millin subject t certain exceptins. Fr nn-u.s. advisers, Regulatry AUM fr freign clients cunt tward the minimum threshld. Exempt Reprting Advisers Examinatin and Recrdkeeping Requirements The SEC has created the new categry f Exempt Reprting Advisers, which cnsists f advisers relying n the Private Fund Adviser Exemptin and the Venture Capital Fund Exemptin. Exempt Reprting Advisers have nt been specifically exempted frm the requirement t register under Sectin 203(b) f the Advisers Act. Accrdingly, the SEC has authrity t require them t maintain recrds and prvide reprts and examine their recrds under Sectin 204(a). The SEC des nt anticipate that its staff will examine Exempt Reprting Advisers n a regular basis, but the staff will cnduct cause examinatins f Exempt Reprting Advisers prmpted by tips, cmplaints and referrals. The new rules describe the initial reprting requirements fr Exempt Reprting Advisers, but d nt specify the recrds required t be kept fr SEC examinatin purpses. 33 The SEC will address recrdkeeping requirements fr Exempt Reprting Advisers in future rulemaking. Reprting Requirements Rule 204-4 requires Exempt Reprting Advisers t file the SEC s new Frm ADV, Part 1A ( Unifrm Applicatin fr Investment Adviser Registratin and Reprt by Exempt Reprting Advisers ), which will be publicly available via the SEC s website. Hwever, unlike registering r registered advisers, Exempt Reprting Advisers nly have t respnd t the fllwing items n Frm ADV, Part 1A: Item 1 (Identifying Infrmatin); Item 2.B (SEC Reprting by Exempt Reprting Advisers); Item 3 (Frm f Organizatin); 31 See abve in the sectin Exemptins Frm Registratin Exemptin fr Advisers with Less Than $150 Millin AUM in the United States U.S. Advisers regarding the Richard Ellis and Unibanc n actin letters. 32 Letter frm SEC staff t the ABA Subcmmittee n Private Investments Dec. 8, 2005. 33 Exempt reprting advisers als remain subject t examinatin under Sectin 206 f the Advisers Act, the antifraud prvisins f the Advisers Act. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 10
Item 6 (Other Business Activities); Item 7 (Financial Industry Affiliatins and Private Fund Reprting); Item 10 (Cntrl Persns); Item 11 (Disciplinary Disclsure); and the crrespnding sectins f Schedules A, B, C and D. Exempt Reprting Advisers d nt have t cmplete the ther Items in Part 1A r prepare a client brchure (Frm ADV, Part 2). Hwever, Item 7.B and its related Schedule D sectin have been expanded t require significantly mre types f infrmatin regarding private funds advised by Exempt Reprting Advisers. 34 It is imprtant t nte that advisers whse principal ffice and place f business is utside f the United States are permitted t mit frm Item 7.B infrmatin fr any private fund that is nt rganized in the United States and that is nt ffered t r wned by U.S. persns (ther than thse funds that are treated as private funds fr purpses f the Venture Capital Fund Exemptin). An Exempt Reprting Adviser is required t file its initial reprt n Frm ADV by March 30, 2012. Advisers wuld need t update their Frm ADV filings based n the same deadlines as registered advisers, which generally calls fr an annual update with prmpt updates t infrmatin in Items 1, 3 and 11 as it changes and t Item 10 if it becmes materially inaccurate. The SEC Chairman indicated, in cnnectin with the adptin f the new rules relating t Exempt Reprting Advisers, that the SEC will recnsider the reprting requirements f Exempt Reprting Advisers ne year after the first reprts are filed. Adviser Reprting Requirements Regarding Private Funds The SEC significantly amended Item 7.B and Sectin 7.B f Schedule D f Frm ADV, Part 1A, the frm that serves as the applicatin fr investment adviser registratin. Under their current versins, these parts f the frm require advisers t identify and prvide certain infrmatin, such as assets under management fr each investment-related limited partnership that the adviser r a related persn advises. The amendment requires advisers t prvide infrmatin n private funds and expands the amunt f infrmatin required t be reprted by adding basic rganizatinal, peratinal and investment characteristics f each private fund, the nature f the investrs in the fund, and the fund s service prviders. The amendment des nt require advisers t reprt n private funds advised by related persns. 35 As amended, Part A f Sectin 7.B requires: Basic identifying infrmatin abut the fund (including the name f the fund, the jurisdictin in which it was rganized and the name(s) f the fund s general partner, directrs r persns serving in a similar capacity); Operatinal and structural infrmatin (including the strategy f the fund and whether it is part f a master-feeder arrangement); The Investment Cmpany Act exemptin n which it relies; The name f any freign regulatry authrity with which the fund has registered; 34 See Adviser Reprting Requirements Regarding Private Funds fr a discussin f the changes t Item 7.B and its related Schedule D. 35 T the extent that an adviser files n behalf f multiple related entities, infrmatin regarding the private funds advised by thse entities will be incrprated int the respnse t Item 7.B. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 11
The type f private fund (hedge fund, liquidity fund, private equity fund, real estate fund, securitized asset fund, venture capital fund r ther type f fund); The grss asset value f the fund; The minimum investment amunt; The apprximate number f beneficial wners; and The apprximate percentage f the fund wned by the investment adviser r related persns, by fund f funds and by nn-united States persns. As amended, Part B f Sectin 7.B requires identifying and ther infrmatin n the fund s service prviders, including auditrs, prime brkers, custdians, administratrs and marketers. T avid multiple reprting fr certain private funds, the SEC will permit a sub-adviser t exclude private funds that are the subject f reprting by anther adviser n Schedule D and will permit an adviser spnsring a master-feeder arrangement t cmplete a single Schedule D fr the master fund and its feeders if the infrmatin is substantially identical fr all feeder funds (and if the feeder funds d nt use a prime brker r custdian). As amended, advisers must cmplete Sectin 7.B. f Schedule D fr each private fund they (and nt a related persn) advise. If a private fund has issued tw r mre series (r classes) f equity interests whse values are determined with respect t separate prtflis f securities and ther assets, then each series (r class) shuld be regarded as a separate private fund if the separate classes are managed as if they are separate funds. Additinal Changes t Frm ADV The SEC has made a number f changes t Frm ADV, Part 1A in additin t the reprting requirements regarding private funds. The changes are intended t prvide the Cmmissin with additinal infrmatin necessary t effectively run its regulatry prgram. The amendments are in additin t the previusly adpted amendments t Part 2 f Frm ADV. The ther amendments t Frm ADV include the fllwing changes. Advisers will be asked in Item 1.O. if they had $1 billin r mre in ttal assets as f the last day f its mst recent fiscal year. The questin specifically addresses the adviser s ttal assets and nt the net asset value f clients advised by the adviser. This questin has been added t Frm ADV, Part 1A pursuant t Sectin 956 f the Ddd-Frank Act which requires versight with respect t incentive cmpensatin arrangements fr certain firms, including investment advisers with $1 billin r mre in ttal assets. Advisers will be asked t prvide cntact infrmatin fr their chief cmpliance fficer in Item 1.J with the ptin t prvide an additinal cntact in Item 1.K. An adviser als will have t disclse any f its cntrl persns that are public reprting cmpanies under the Exchange Act. Item 2, which requires each applicant t indicate its basis fr registratin, will be revised t reflect the new threshlds and ther revisins resulting frm the Act. The mdificatins t Item 5 f Part 1A expand the scpe f the infrmatin the SEC cllects frm advisers regarding their business, types f services prvided and types f clients. Advisers will be required t disclse exact numbers in respnse t questins regarding their emplyees (as ppsed t checking f a range f numbers). The list f types f clients will be expanded t include business develpment cmpanies, insurance cmpanies, ther investment advisers and pensin and prfit-sharing plans, and advisers will have t reprt the percentage (in 25 percent segments) f regulatry assets under management attributable t each type f client. The list f advisry activities in Item 5.G. will be expanded 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 12
t include prtfli management fr pled investment vehicles, ther than registered investment cmpanies t accurately capture alternative asset managers. Advisers will als be asked t select frm a list the types f investments abut which they prvide advice, which will be similar t, but mre expansive than, the list included in Item 3 f the ld Frm ADV, Part 2. The changes t Items 6 and 7 f Part 1A expand the types f businesses in which the adviser and its related persns may indicate they are actively engaged (e.g., accuntant, lawyer, trust cmpany, registered municipal advisr, registered security-based swap dealer, r majr security-based swap participant). In additin the SEC will require additinal reprting in the crrespnding sectin f Schedule D including listing ther names under which the adviser engages in nn-advisry business and additinal identifying infrmatin abut related persns listed in Item 7.A. In cntrast, the previus requirements nly required identifying infrmatin abut related persns that were investment advisers r brker dealers. An adviser may exclude certain related persns frm Sectin 7.A f Schedule D if: (1) the adviser has n business dealings with the related persn in cnnectin with advisry services it prvides t its clients; (2) the adviser des nt cnduct shared peratins with the related persn; (3) the adviser des nt refer clients r business t the related persn, and the related persn des nt refer prspective clients r business t the adviser; (4) the adviser des nt share supervised persns r premises with the related persn; and (5) the adviser has n reasn t believe that its relatinship with the related persn therwise creates a cnflict f interest with its clients. The amendments t Item 8, which requires disclsure abut an adviser s participatin in its client s transactins, require an adviser t disclse whether the brkers r dealers it uses are related persns. Additinally, an adviser is required t reprt whether all f its sft dllar benefits qualify fr the safe harbr under Sectin 28(e) f the Securities and Exchange Act f 1934 and whether it r a related persn receives direct r indirect cmpensatin fr client referrals. Advisers will be asked t disclse the ttal number f persns that act as qualified custdians fr their clients in Item 9.F. The SEC als made three technical changes t reprting f disciplinary events, including crrecting a drafting errr in cnnectin with Item 3.D f Part 2B (the Brchure Supplement ) t require disclsure f the revcatin r suspensin f a prfessinal attainment, designatin r license by the designating authrity, as ppsed t just revcatins r suspensins by gvernment authrities r self-regulatry rganizatins. Summary f Exemptins t Registratin Exemptin ADV Part 1A Reprting Requirements Subject t SEC Examinatin Subject t SEC Payt-Play Rule Private Fund Adviser Yes Yes Yes Venture Capital Fund Yes Yes Yes Freign Private Adviser N N Yes Authred by Paul N. Rth, Jsh Dambacher, Ida Wurczinger Draim, Marc E. Elvitz, Jasn S. Kaplan, David K. Mmbrquette and Phyllis A. Schwartz. If yu have any questins cncerning this Memrandum, please cntact yur attrney at Schulte Rth & Zabel r ne f the authrs. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 13
New Yrk Schulte Rth & Zabel LLP 919 Third Avenue New Yrk, NY 10022 +1 212.756.2000 +1 212.593.5955 fax www.srz.cm Washingtn, DC Schulte Rth & Zabel LLP 1152 Fifteenth Street, NW, Suite 850 Washingtn, DC 20005 +1 202.729.7470 +1 202.730.4520 fax Lndn Schulte Rth & Zabel Internatinal LLP Heathcat Huse, 20 Savile Rw Lndn W1S 3PR +44 (0) 20 7081 8000 +44 (0) 20 7081 8010 fax U.S. Treasury Circular 230 Ntice: Any U.S. federal tax advice included in this cmmunicatin was nt intended r written t be used, and cannt be used, fr the purpse f aviding U.S. federal tax penalties. This infrmatin has been prepared by Schulte Rth & Zabel LLP ( SRZ ) fr general infrmatinal purpses nly. It des nt cnstitute legal advice, and is presented withut any representatin r warranty as t its accuracy, cmpleteness r timeliness. Transmissin r receipt f this infrmatin des nt create an attrney-client relatinship with SRZ. Electrnic mail r ther cmmunicatins with SRZ cannt be guaranteed t be cnfidential and will nt (withut SRZ agreement) create an attrney-client relatinship with SRZ. Parties seeking advice shuld cnsult with legal cunsel familiar with their particular circumstances. The cntents f these materials may cnstitute attrney advertising under the regulatins f varius jurisdictins. 2011 Schulte Rth & Zabel LLP. All Rights Reserved. 14