SUMMARY OF TERMS

                                                             SUMMARY OF PRINCIPAL TERMS
Set forth below is a summary of certain significant provisions of the Limited Partnership Agreement and other related agreements governing the Partnership.  The following summary does not purport to be complete and is subject to the detailed provisions of the Limited Partnership Agreement, the Subscription Agreement and the Management Agreement.  These documents should be read in their entirety by investors and are available upon request from the General Partner, who is also available to respond to investors' inquiries and requests for further information concerning the Partnership.

Partnership:                

Providence Group, L.P., a Delaware limited partnership (the “Partnership”).

 

General Partner:          

Providence Group, LLC, a Wyoming limited liability company (the "General Partner"). The General Partner shall have full control over the business and affairs of the Partnership, except that the Partnership shall make no investment in a Portfolio Company without a “yes” vote of a Majority in Interest of the Limited Partners.

  

Limited Partners:       

Purchasers of Interests are referred to collectively herein as the “Limited Partners”, and together with the General Partner as the “Partners”.

 

Manager:                     

Providence Management, Inc, a New York corporation (the “Manager”). Pursuant to a Management Agreement, the Manager will manage the affairs of the Partnership, however, the General Partner shall remain responsible for the management and control of the Partnership ’s affairs.

The Offering:               

The Partnership Offering is $10,000,000 of limited partnership interests (the "Interests"). However, the General Partner may increase or decrease the size of the offering. ​

Minimum Limited

Partner Commitment:  

The minimum subscription by a Limited Partner will be $50,000, subject to the discretion of the General Partner, which also has discretion to reject the offer of a subscription for any reason.

 

Term:                            

The Partnership's term will continue until the tenth anniversary of the Final Closing, unless terminated sooner upon the happening of certain events as set forth in the Partnership Agreement, subject to extension of up to two additional one-year periods by the General Partner in the discretion of the General Partner.

 

Closings:                      

The General Partner is entitled, at its sole discretion, to continue to accept subscriptions and to hold one or more subsequent closings (the last one of which is referred to as the "Final Closing") after the Initial Closing. The General Partner may accept subscriptions in tranches,with each tranche for the purpose of acquiring a targeted Portfolio Company. 

Subsequent

Closings:                       

Each Limited Partner that participates in a closing subsequent to the Initial Closing will be required to contribute its proportionate share of all prior drawdowns, and each Limited Partner participating in a closing subsequent to the Initial Closing also will be required to pay its proportionate share of the cumulative amount of the Management Fee to the Manager that it would have paid if it had been a Limited Partner on the date of the Initial Closing.

Investment

Term:                           

The investment term (the "Investment Term") of the Partnership will extend from the Initial Closing to the earlier of (i) the date on which the total committed capital of the Partnership has been invested or used to pay expenses and liabilities of the Partnership,or formally reserved for such purposes or (ii) the fifth anniversary of the Final Closing. Up to 15% of the committed capital of the Partnership may be designated as reserved for the purpose of making follow-on investments in existing Portfolio Companies after the end of the Investment Term.  After the Investment Term, further drawdowns may be made only for the purposes of Partnership investments committed to prior to the end of the Investment Term and which close within six months of the end of the Investment Term, or for follow-on investments as described above, or for meeting Partnership expenses.

Reinvestment of

Capital:                        

Proceeds from the sale or other disposition of investments other than short-term investments of excess cash generally will not be subject to reinvestment and, once distributed, generally will not be subject to recall. However, proceeds constituting a return of capital (but not income or gain) from the sale or other disposition of a Portfolio Investment within one year of the date such investment originally was made may be reinvested by the General Partner in Portfolio Investments (including follow-on investments). In addition, if and to the extent that any such proceeds are distributed, they will be added to unfunded capital commitments and again be available for draw downs throughout the term of the Partnership to the extent otherwise permitted.

 

Management Fees:      

The Manager will receive an annual management fee (the "Management Fee"), payable quarterly in advance by the Partners, of the greater of (a) 2.5% per year based on the total capital committed to the Partnership or (b) $250,000 for the Investment Term and thereafter the greater of 2.5% per year based upon unreturned capital contributions to the Partnership or (b) $250,000. Fifty percent of the aggregate amount of any fees (net of any related expenses) received by the Manager, the General Partner, any principals or any Affiliate from Portfolio Companies or potential Portfolio Companies, including directors fees, management fees, advisory fees, consulting fees, monitoring fees, brokers' and finders' fees, transaction fees, investment banking fees and net break-up fees and litigation payments, if any, from broken deals (collectively, “Transaction Fees"), shall be applied to reduce the amount of future Management Fees. The payment of the Management Fee will not constitute a contribution of capital to the Partnership and will not reduce the capital commitment of any Partner.

Expenses

Each Partner will be responsible for its pro rata share of the Organizational Expenses of the Partnership up to a limit not to exceed $250,000, the payment of which will not reduce such Partner's Capital Commitment, but which shall be apportioned back to the to the Limited Partners 100% before the General Partner Carried Interest Catch-Up.  Each Limited Partner will be solely responsible for its own legal and tax counsel expenses and any out-of-pocket expenses incurred in connection with the organization of, its admission to, or the maintenance of its Interest in, the Partnership. The Manager will be responsible for all of its own normal day-to-day operating expenses, such as compensation of its professional staff and the cost of office space, office equipment, communications, utilities and other such normal overhead expenses. In addition, the Manager will be responsible for expenses incurred in connection with the research and analysis of potential Portfolio Investments and divestments and the management of the Partnership's investment portfolio, except to the extent that legal, accounting or other specialized consulting or professional services are required that the Manager would not normally be expected to render with its own professional staff. The Partnership will be responsible for all other expenses of the Partnership including, but not limited to, the following:

   (i)  All expenses incurred in connection with Partnership operations, including the purchase, holding, sale or proposed sale of any              Partnership investments (including legal and accounting fees) unless paid for by the company which is the subject of the                        investment;

 

   (ii)  Costs and fees relating to the preparation of financial and tax reports, portfolio valuations and tax returns of the Partnership;

 

   (iii) The costs of prosecuting or defending any legal action for or against the Partnership, the General Partner, the Manager or their               affiliates;

 

   (iv)  All costs related to the Partnership's indemnification of the General Partner, the Manager, the sponsors, their Affiliates and the                members of the Investment Committee and the Advisory Committee;

 

   (v)   Interest on and fees and expenses arising out of all permitted borrowings made by the Partnership;

 

   (vi)  The costs of any litigation, director and officer liability or other insurance and indemnification or extraordinary expense or liability            relating to the affairs of the Partnership;

 

   (vii)  All un-reimbursed out-of-pocket costs relating to investment transactions that are not consummated, including legal, accounting            and consulting fees, and all extraordinary professional fees incurred in connection with the business or management  of the                    Partnership;

 

  (viii)  All expenses of liquidating the Partnership; and

 

   (ix)  Any taxes, fees or other governmental charges levied against the Partnership and all expense incurred in connection with any                tax audit, investigation, settlement or review of the Partnership.

Incurrence of

Indebtedness:               

The Partnership may not incur any indebtedness other than to pay expenses or short-term borrowings to Partnership Limited Partners' Capital Contributions on an expedited basis. If a Limited Partner's Capital Contributions are "bridged" by such short-term borrowings, the Limited Partners whose Capital Contributions were so "bridged" shall be responsible for the costs of such borrowings. The Partnership may incur indebtedness as relates to the financing structure of Portfolio Company acquisitions.

 

Distributions:           

The General Partner will distribute proceeds realized from dispositions of investments, plus any dividends or interest income received at least annually; however, the General Partner may retain amounts it considers prudent reserves to meet future expenses and liabilities of the Partnership. Distributions will be made in cash and in U.S. dollars or in Marketable Securities at the sole discretion of the General Partner (distributions of other property may be made only with the consent of a majority in interest of the Limited Partners). Distributions attributable to any portfolio investment will be initially apportioned among the Partners in proportion to their respective percentage interests relating to such investment. The amount apportioned to the Limited Partners will then be immediately reapportioned as between the Limited Partners and the General Partner as follows:

 

    (i) Return of Contributed Capital. 100% to the Limited Partners in proportion to their contributed capital until they have received                  distributions equal to their Capital Contributions and the pro rata expenses of the Partnership with respect to all Realized                        Investments;

    (ii) Preferred Return. 100% to the Limited Partners in proportion to their contributed capital until they have received distributions                   equal to an 8% per annum cumulative return, compounded annually (the "Preferred Return") as calculated on their Capital                       Contributions and the pro rata expenses of Partnership with respect to all realized investments;

 

   (iii) Carried Interest Catch-Up. 33.3% to the Limited Partners and 66.7% to the General Partner as an incentive distribution (the                    "Carried Interest") until the General Partner has received cumulative distributions of 33.3% of the net profits on all Realized                       Investments; and

 

   (iv) Carried Interest. thereafter, 66.7% to the Limited Partners in proportion to their contributed capital and 33.3% to the General                   Partner as additional Carried Interest.

Allocation of Income            

Gain and Loss:           

Income, expense, gain and loss of the Partnership will generally be allocated to the Partners in a manner consistent with the distribution of proceeds from investments as described above.

 

Co-Investment by

Limited Partners:        

When the General Partner deems it appropriate and consistent with the interests of the Partnership, it may provide Limited Partners with additional co-investment opportunities. Such opportunities may take the form of senior debt, subordinated debt, equity or equity-related investments.

Investment

Guidelines:                

The investment objective of the Partnership is to acquire, subject to the discretion of the General Partner, approximately three (3) Portfolio Companies with the following general characteristics:

     (i)  “Microcap” companies, as generally described herein;

 

     (ii)  Domestic companies located within an approximate radius of 1,000 miles from New York City near travel centers;

 

     (iii)  Generally, in basic, well established industries;

 

     (iv)  A minimum 10-year operating history;

 

     (v)   A strong asset base of machinery and equipment;

 

     (vi)  An asset to debt ratio of approximately 3 to 1;

 

     (vii)  An owner who is preparing to retire, but who is available for a transition;

 

     (viii) Non-union employees (exceptions for certain industries where union workers may be required);

 

      (ix)  A market niche that makes the company unique or gives it a proprietary advantage;

 

      (x)  A purchase price (excluding real estate) in the general range of 3x earnings (based on a weighted 3-                                                        year average);

 

     (xi)  An acquisitions structure that generally consists of approximately 1/3 of the purchase price in the form of equity; 1/3 of the                      purchase price in the form of debt and 1/3 of the purchase price in the form of Seller financing, with an option for for mezzanine              financing or other form of acquisition structure that may be arranged by the General Partner;

 

     (xii)  An earnings (“EBITDA”) criteria, generally, as follows:

 

              - For the first Portfolio Company, EBITDA in the range of $1,000,000 per year;

 

              - For the second Portfolio Company, EBITDA in the range of $3,000,000 per year;

 

              - For the third Portfolio Company, EBITDA in the range of $5,000,000 per year;

 

     (xiii)  A performance analysis prior to acquisition to be completed by the General Partner for each targeted Portfolio Company on an                independent “stand-alone” basis to project returns to the Limited Partners in the range of not less than 20% (IRR) and a                          multiple of capital invested of not less than 2.5x based upon conservative management expectations (generally consisting of                  3 years’ historical performance adjusted and carried forward);

 

    (xiv)   Exit consisting of a sale, liquidation or refinance of the Limited Partner’s Interest at the end of the Commitment Period, or the                    buy out of the Limited Partners by the General Partner at Fair Market Value.

 

    (xv)   The Partnership will not, without the consent of a Majority in Interest, acquire any Portfolio Company

Drawdowns:            

Commitments generally will be drawn down as necessary to Partnership investments and to meet Partnership expenses. A minimum of ten calendar days written notice (a "Funding Notice") will be given by the General Partner. Each Funding Notice will specify the date, amount and proposed use of proceeds for each drawdown, as well as provide appropriate payment instructions.

 

Defaulting Partners: 

Any Limited Partner that fails to contribute the full amount specified in a Funding Notice within five business days of the specified due date or any other payment required to be made by it to the General Partner, the Manager or the Partnership may be deemed a defaulting partner (a "Defaulting Partner") at the discretion of the General Partner. The General Partner in its sole discretion may waive or permit the cure of the condition causing such default subject to such conditions upon which the General Partner and such Limited Partner may agree. A Defaulting Partner will not be entitled to participate in any vote, consent or decision to be made by the Limited Partners of the Partnership or be permitted to make any further Capital Contributions to the Partnership. A Defaulting Partner may be subject to forfeitures of distributions that it otherwise would have received and may be subject to a 25% reduction in the balance of its capital account. A Defaulting Partner may also be required to sell its Interest in the Partnership to the other Partners or to a third party at its cost or another price determined to be fair and reasonable under the circumstances by the General Partner in its sole discretion.

 

Withdrawal /

Transfer of Interests:

Voluntary withdrawal by Limited Partners from the Partnership will not be permitted. In certain circumstances, however, a Limited Partner may be required to withdraw if its continued participation in the Partnership would result in a violation of ERISA or other laws or could otherwise be expected to have a Material Adverse Effect on the Partnership. The Interests will be subject to restrictions on resale designed to ensure that the Partnership will not be required to register under the Investment Company Act, to ensure compliance with the laws regulating the sale of unregistered securities and to satisfy certain tax law considerations.  All proposed transfers will be subject to the consent of the General Partner and proposed purchasers of Interests will be required to demonstrate sufficient financial wherewithal to meet remaining Drawdown obligations.

Dedication of the

General Partner and

the Principals:           

In the event that a majority of the Principals ceases to be actively involved with the business of either the Manager or the General Partner, Limited Partners representing 66-2/3% of the capital of the Partnership shall have the right to terminate their commitments (except as they relate to existing contracts of the Partnership) and to terminate the Partnership. The term "Principals" shall refer to the owners of a controlling interest in the General Partner and to any additional individuals who shall be approved by Limited Partners representing 66- 2/3% of the capital of the Partnership.

Termination:            

Upon termination, the Partnership shall be dissolved and wound-up. The General Partner or, if there is no General Partner, a liquidator or other representative (the "Representative") appointed by a majority in interest of the Limited Partners shall proceed with the orderly sale or liquidation of the assets of the Partnership and shall apply and distribute the proceeds of such sale or liquidation in the following order of priority, unless otherwise required by law:

    (i)  first, to pay all expenses of liquidation;

 

    (ii) second, to pay all creditors of the Partnership (including Partners who are creditors) in the order of priority                                               provided by law or otherwise;

 

   (iii) third, to the establishment of any reserve which the General Partner or the Representative may deem                                                         necessary (such reserve may be paid over to an escrow agent); and

 

   (iv) fourth, to the Partners or their legal representatives.

Upon dissolution, the General Partner or the Representative may in its sole and absolute discretion (a) liquidate all or a portion of the Partnership assets and apply the proceeds of such liquidation in the manner set forth above and/or (b) hire independent appraisers to appraise the value of Partnership assets not sold or otherwise disposed of or determine the fair market value of such assets, and allocate any unrealized gain or loss determined by such appraisal to the Partners as though the properties in question had been sold on the date of distribution and, after giving effect to any such adjustment, distribute said assets in the manner set forth above, provided that the General Partner or the Representative shall in good faith attempt to liquidate sufficient Partnership assets to satisfy in cash the debts and liabilities described above. If a Limited Partner shall, upon the advice of counsel, determine that there is a reasonable likelihood that any distribution in kind of an asset would cause such Limited Partner to be in violation of any law, regulation or order, such Limited Partner and the General Partner shall each use its best efforts to make alternative arrangements for the sale or transfer into an escrow account of any such distribution on mutually agreeable terms. A reasonable amount of time shall be allowed for the orderly liquidation of the assets of the Partnership and the discharge of liabilities to creditors so as to enable the General Partner or the Representative to minimize the losses attendant upon such liquidation.

Clawback:               

To the extent that over the life of the Partnership the General Partner has received distributions in respect of the Carried Interest exceeding the stipulated share of aggregate net capital gains from Portfolio Companies, the General Partner will be liable to return the after-tax amount of any such excess distributions received by it to the Partnership, for distribution to the Partners, at the end of the Partnership's term.

Other Partnerships: 

Neither the General Partner, the Principals, nor any Affiliate of any Principal will organize or be associated with another investment Partnership with objectives similar to those of the Partnership without the prior consent of the Limited Partners representing a majority of the aggregate Commitments until the earlier of the termination of the Investment Period or the date on which at least 66.7% of the aggregate capital commitments has been drawn down or is committed to Portfolio Companies or is otherwise unavailable therefor.

Indemnification:    

The Partnership will indemnify, to the maximum extent permitted by law, the General Partner, the Manager, each of their respective directors, officers, partners, employees, affiliates and assigns and the members of the Investment Committee and the Executive Advisory Committee, against liabilities, claims and related expenses including attorneys' fees, incurred by reason of any action performed or omitted in connection with the activities of the Partnership or in dealing with third parties on behalf of the Partnership if such action or decision not to act was taken in good faith, and provided that such action or decision not to act does not constitute gross negligence,    intentional misconduct, a knowing violation of law or an intentional or material breach of the Limited Partnership Agreement or the Management Agreement.

ERISA

Considerations:      

Investment in the Partnership generally is open to sophisticated institutional investors, including pension and other Partnerships subject to the United States Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Investors subject to ERISA will be required to make certain customary representations or provide assurances in order that the General Partner may determine compliance with ERISA's provisions. The Partnership will be managed in a manner intended to qualify it for the venture capital operating company (“VCOC”) exception from the ERISA plan asset rules. In addition, the General Partner may decide to limit the  aggregate Interests held by investors subject to ERISA to less than 25%. See "ERISA Considerations."

Income Tax

Considerations:     

The Partnership will be treated as a partnership for U.S. federal income tax purposes. Accordingly, each Partner will be allocated its allocable share of Partnership items of income, gain, loss, deduction and credit. See "U.S. Federal Income Tax Considerations" for a discussion of the U.S. tax consequences of an investment in the Partnership. The General Partner intends to operate the Partnership in a manner such that it will not be engaged in a trade or business for U.S. tax purposes.  Further, the Partnership generally will use its best efforts to avoid generating income or allocating income in a manner that would cause an ERISA or other investor exempt from tax in the United States to recognize unrelated business taxable income (“UBTI”) or unrelated debt-financed income for U.S. tax purposes. See "Tax Considerations."

 

Risk Factors:         

An investment in the Partnership involves significant risk and should be considered only by sophisticated investors able to meet drawdown obligations and assume the risks of loss and illiquidity inherent with an investment in the Partnership. See "Risk Factors."

 

Financial Reporting:

The General Partner will provide the Limited Partners with annual audited financial statements of the Partnership within 90 days after the end of the fiscal year of the Partnership and quarterly unaudited financial statements within 60 days after the end of each fiscal quarter (except the last). Financial statements will be prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).  The fiscal year end of the Partnership will be December 31.

 

Annual Meeting:      

The Partnership will hold an annual meeting of the Partners.

 

Legal:                       

Manners & Malone, PLLC

 

Accounting:              

Sobel & Cookler, CPAs

 

Placement Agent:     

Providence Management, Inc.

Executive Advisory Committee:

The General Partner has established an Executive Advisory Committee which will include representatives from the Limited Partners.

©  2017 by Providence Group L.P.

     950 Jericho Turnpike Westbury, NY 11590-1512

     Telephone: 516-822-9100

     e-mail: info@providencegrouplp.com

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