Waterman Bridge Finance Income Fund

Transcription

1 Waterman Bridge Finance Income Fund An opportunity to invest in a fund secured by first legal charge on property assets in the UK with a target Priority annual yield of 10% with Profit Participation Second Series Information Memorandum

2 Waterman Bridge Finance Income Fund Important Notice Reliance on this promotion for the purpose of investing in Interests to which the promotion relates may expose an individual to a signifi cant risk of losing all of the property or other assets involved. If you are in any doubt about the contents of this document, you should consult an authorised person who specialises in advising on the type of investment to which this promotion relates and is authorised under the Financial Services and Markets Act 2000 ( FSMA ). Prospective Investors should read this Memorandum carefully and consider the matters set out under Section 12, Risk Factors, of this Memorandum. This fund is not available to ordinary retail clients. This Information Memorandum ( Memorandum ) gives information relating to the limited partnership formed pursuant to the Limited Partnership Act 1907, under the limited partnership name Waterman Bridge Finance Income Fund LP (the Partnership ) and the unit trust under the name Waterman Income Fund Unit Trust (the Unit Trust ). This Memorandum is issued by City & Merchant General Partner Limited which is the General Partner to the Partnership. City & Merchant General Partner Limited is an Appointed Representative of City & Merchant Limited which is authorised and regulated by the Financial Conduct Authority. This Memorandum is not to be distributed, published or reproduced, in whole or in part, to the public, nor should its contents be disclosed by recipients to any other person. Each of the Partnership and the Unit Trust (collectively known as the Fund or the Schemes ) is an unregulated collective investment scheme as defi ned in the Financial Services and Markets Act 2000 ( FSMA ). The Schemes have not been authorised or otherwise approved by the UK Financial Conduct Authority and, as unregulated collective investment schemes, cannot be marketed in the UK to the general public. This Memorandum is exempt from the scheme promotion restriction (in Section 238 of FSMA) on the communication of invitations or inducements to participate in unregulated schemes on the grounds that it will be issued in the UK only to restricted categories of recipients, namely: a. persons authorised under FSMA or other persons falling within the definition of investment professional in Article 14 of the FSMA 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (as amended) (the CIS Order ); b. to persons falling within Article 21 of the CIS Order ( Certifi ed High Net Worth Individuals ) who have signed, within the period of 12 months ending on the date when this Memorandum is communicated to such person, a statement complying with Part 1 of the Schedule of the CIS Order; c. to persons falling within Article 22 of the CIS Order including: i. high net worth companies; ii. unincorporated associations; and iii. trustees of high value trusts. d. to persons falling within Article 23 of the CIS Order ( Certifi ed Sophisticated Investors ) who have a current certifi cate in writing or other legible form signed by a person authorised under FSMA to the effect that he is suffi ciently knowledgeable to understand the risk associated with participating in unregulated schemes and who have signed within the period of 12 months ending on the date when this Memorandum is communicated to such person a statement in the terms set out in paragraph (1)(b) of Article 23 of the CIS Order; e. to persons falling within Article 23A of the CIS Order ( Self-certifi ed Sophisticated Investors ) who have signed within the period of 12 months ending on the date when this Memorandum is communicated to such person a statement in the terms set out in Part II of the Schedule of the CIS Order; or f. to persons falling within Section of the Conduct of Business Sourcebook of the FCA s Handbook of Rules and Guidance (the COB Rules ) including: i. eligible counterparties; and ii. professional clients. g. any other person to whom the promotion may otherwise lawfully be made in accordance with the CIS Order or otherwise. Interests in the Fund are only available to such categories of person and no other person should rely on the content of this Memorandum. This Memorandum must not and will not be made available to the public in the UK (within the meaning of Section 102B of FSMA) save in circumstances where it is lawful to do so without an approved prospectus (within the 1

3 meaning of Section 85 of FSMA) being made available to the public before the offer is made. No approved prospectus is required under Section 85 of the FSMA because the offer relates to units in an open-ended collective investment scheme. Transmission of this Memorandum to any other person in the UK is unauthorised and may contravene the FSMA. Buying the Interests or Units to which this Memorandum relates may expose the individual to risks that could result in a loss of capital. Prospective Investors must rely on their own examination of the legal, taxation, fi nancial and other consequences of an investment in the Fund, including the merits of investing and the risks involved. Prospective Investors should not treat the contents of this Memorandum as advice relating to legal, taxation or investment matters and are advised to consult their own professional advisers concerning the acquisition, holding or disposal of an interest in the Partnership and/or Units in the Unit Trust. Certain information contained in this Memorandum has been obtained from published sources prepared by other parties. Neither City & Merchant General Partner Limited nor any other person assumes any responsibility for the accuracy or completeness of such information. All statements of opinion and/or belief contained in the Memorandum and all views expressed and all projections or forecasts, or statements relating to expectations regarding future events or the possible future performance of the Fund represent City & Merchant General Partner Limited s own assessment and interpretation of information available to it as at the date of this Memorandum. No representation is made or assurance given that such statements, views, projections or forecasts are correct or that the objectives of the Fund will be achieved. Prospective Investors must determine for themselves if such statements, views, projections or forecasts are reasonable and no responsibility is accepted by City & Merchant General Partner Limited nor any other person in respect thereof. Prospective Investors are strongly advised to conduct their own due diligence including, without limitation, on the legal and tax consequences to them of investing in the Fund. This Memorandum does not constitute, and may not be used for the purpose of, an offer of an Interest or an invitation to apply to participate in the Partnership, or an invitation to subscribe for Units in the Unit Trust, by any person in any jurisdiction in which such offer or invitation is not authorised or in which the person to whom it is unlawful to make such an offer or invitation. It is the responsibility of prospective Investors to satisfy themselves as to full compliance with the relevant laws and regulations of any territory in connection with any application to participate in the Partnership and/or subscribe for Units in the Unit Trust including obtaining any requisite governmental or other consent and adhering to any other formality prescribed in such territory. Prospective Investors should note that past performance should not be seen as an indication of future performance. The value of an investment and the income from it can fall as well as rise and investors may not get back the amount originally invested. Taxation levels, bases and reliefs may change if the law changes and independent advice should be sought. Prior to subscribing for an Interest in the Partnership, or subscribing for Units in the Unit Trust, prospective Investors should review this Memorandum and the Limited Partnership Agreement and the Unit Trust Deed. This Memorandum contains summary descriptions, believed to be accurate, of certain terms of the Limited Partnership Agreement and the Unit Trust Deed, copies of which are available on written request from City & Merchant General Partner Limited. These descriptions do not purport to be complete and may change subsequent to the date hereof and are qualifi ed in their entirety by reference to the actual text of the Limited Partnership Agreement and the Unit Trust Deed. The delivery of this Memorandum does not imply that the information contained herein is correct as of any time subsequent to the date hereof. 1 July

4 Table of Contents Parties Definitions Key Features Executive Summary Overview of Waterman The Bridging Finance Market in the UK The Investments by the Partnership Principal Terms of Participation in the Partnership Fund Structure The Multiple Series Fund Raising Process Taxation Risk Factors Summary of Principal Fund Documents Second Series Term Sheet Procedure for Subscription

5

6 Waterman Bridge Finance Income Fund 1 Parties General Partner Waterman Capital Operator of the Partnership and the Unit Trust City & Merchant General Partner Limited Salisbury House 29 Finsbury Circus London EC2M 5QQ Waterman Capital Limited Murdoch House North Shore Road Ramsey Isle of Man IM8 3DY City & Merchant Limited Salisbury House 29 Finsbury Circus London EC2M 5QQ Legal Advisers to the Fund Auditors Bankers Edwin Coe LLP 2 Stone Buildings Lincoln s Inn London WC2A 3TH Kingston Smith LLP Devonshire House 60 Goswell Road London EC1M 7AD Barclays Bank PLC Cheapside Business Centre Atlas House 1 7 King Street London EC2V 8AU Trustee of the Unit Trust Legis Trust Limited PO Box 25 Regency Court Glategny Esplanade St Peter Port Guernsey Channel Islands GY1 3AP 5

7 2 Defi nitions The following definitions apply in this document unless the context requires otherwise. 90 day open market valuation Application Form Assets Auditors Business Day Contribution Financial Year FCA FSMA Fund A valuation of a property at open market value on the assumption of a 90 day marketing period The application form whereby prospective Investors may apply to become a Limited Partner, or as the case may be, a Unitholder in respect of any Series The benefi t of the Loan Notes, cash and other assets held by the Partnership or an entity majority owned by the Partnership from time to time (or where the context so requires, proposed to be acquired) and the term Asset shall be construed accordingly Kingston Smith LLP or such other fi rm of auditors as may be selected by the General Partner to be the auditors of the Fund Any day other than a Saturday, Sunday or public holiday in England Each Investor s contribution to the Partnership which is subject to a minimum Contribution of 25,000 or as may be accepted by the General Partner The financial period ending on 30 April or such other date specifi ed by the General Partner as the financial year end of the Partnership The UK Financial Conduct Authority Financial Services and Markets Act 2000 The Partnership and/or Unit Trust as the context requires 6

8 Waterman Bridge Finance Income Fund General Partner Income Distribution Income Distribution Dates Initial Period Interest Investor Limited Partner Limited Partner Special Consent Limited Partnership Agreement Loan Loan Note LTV Offer Operator Operator Agreement Participation Partner City & Merchant General Partner Limited, incorporated in England and Wales, company number , whose registered offi ce is Salisbury House, 29 Finsbury Circus, London, EC2M 5QQ The distribution of net income of the Partnership on Participations and, where an Investor has so elected, its accrual to his Participation 14 February, 14 May, 14 August and 14 November in each year (or, if that date is not a Business Day, the next following Business Day) The minimum period of investment as set out in a Series Term Sheet With respect to and subject to the provisions of the Limited Partnership Agreement, the interest of an Investor in the Partnership (including, for the avoidance of doubt, through a holding of Units in the Unit Trust) and Interests shall be construed accordingly A person who holds Units in the Trust or who is a Limited Partner in the Partnership Those Investors investing directly in the Partnership of which the Trustee of the Unit Trust will be one In relation to the Partnership means the consent (which may consist of one or more documents in like form each signed by one or more of the Limited Partners) of Limited Partners who hold at least 75% of the Participations of all the Limited Partners given in writing or by resolution at a meeting of Limited Partners The agreement entered into between Investors and the General Partner which will govern the operation of the Partnership A loan made by Waterman 104 to an end borrower as described in this Information Memorandum A loan note issued by Waterman 104 to the Fund which finances a Loan to be made by Waterman 104 on a back to back basis Loan to valuation ratio, which is represented as the Loan amount as a percentage of the relevant property s value An offer to participate in the Fund, as set out in a Series Term Sheet City & Merchant Limited, company number which is authorised and regulated by the Financial Conduct Authority (Firm No ) and whose registered offi ce is Salisbury House, 29 Finsbury Circus, London, EC2M 5QQ The agreement entered into between the General Partner and the Operator An Investor s participation in the Partnership comprising the Investors Contribution and any accruals to such participation A partner in the Partnership whether limited or general partner Partnership The limited partnership constituted by the Limited Partnership Agreement and called the Waterman Bridge Finance Income Fund Limited Partnership 7

9 Priority Return Profit Participation Quarter Redemption Date Returns Second Series Term Sheet Series Series Term Sheet SIPPs SSASs Subscription Trustee UK Unit Unitholder Unit Trust Unit Trust Deed Waterman 104 Waterman Capital The annual rate of Priority Return for a Participation in respect of each Series as specifi ed in the Series Term Sheet The additional return to Investors being in respect of the Second Series an amount equal to 50% of the earnings of Waterman 104 after Fund costs, Priority Returns and an amount retained by Waterman 104 matching the Priority Return as more fully described in this document The period of three calendar months ending on the last day of January, April, July and October in each year 1 February, 1 May, 1 August and 1 November in each year (or, if that date is not a Business Day, the next following Business Day) The returns on Participations, being the Priority Returns and Profi t Participation The second of the Series Term Sheets issued on the date hereof as set out in Section 14 of this Memorandum Each series of Contributions made by Investors on the terms of the relevant respective Series Term Sheets each to be sequentially numbered The term sheet issued by the General Partner specifying the terms of each Series offered to potential Investors Self-Invested Personal Pension schemes which are approved under Part XIV of the Income and Corporation Taxes Act 1988 or registered under Part 4 of the Finance Act 2004 Small Self-Administered Schemes, being pension schemes which are approved under Part XIV of the Income and Corporation Taxes Act 1988 or registered under Part 4 of the Finance Act 2004 The process by which an Investor applies to become a Limited Partner or, as the case may be, a Unitholder in each case in multiples of 1,000 subject to the minimum investment The trustee of the Unit Trust, Legis Trust Limited, PO Box 25, Regency Court, Glategny Esplanade, St Peter Port, Guernsey, Channel Islands, GY1 3AP The United Kingdom of Great Britain and Northern Ireland An interest in the Unit Trust A holder of Units The unit trust which will subscribe for an interest in the Partnership, and known as Waterman Income Fund Unit Trust The deed, including any supplemental deeds, entered into by the Trustee pursuant to which the Unit Trust is constituted Waterman Capital (Subsidiary 104) Limited, incorporated in the Isle of Man, company number C, whose registered offi ce is at Murdoch House, North Shore Road, Ramsey, Isle of Man, IM8 3DY Waterman Capital Limited incorporated in the Isle of Man company number C, whose registered offi ce is Murdoch House, North Shore Road, Ramsey, Isle Of Man, IM8 3DY. 8

10 Waterman Bridge Finance Income Fund 3 Key Features Priority Investor Return Return Paid To Investors Profit Participation Initial Period Investor Redemptions Minimum Investment Maximum Investment As specifi ed for each Series and for the Second Series, 2.5% per Quarter. Quarterly in arrears (normally paid 14 days after the end of each relevant Quarter period) with option to elect to accrue returns to Contributions. The additional return on investment being 50% of underlying earnings after Fund costs, Priority Returns and a retained amount matching Priority Returns. For the Second Series, a period of one year from the Quarter day immediately following acceptance of a Subscription. On any Redemption Date upon not less than 6 months prior notice expiring on or after the Initial Period. 25,000 for the Second Series, or as may be accepted by the General Partner. 20,000,000 for the Second Series (per Investor) or as may be accepted by the General Partner. 9

11 Summary of the Fund s Investments The Investment Loan Size Loan Term Loan Repayment Security The Fund will make investments in secured Loan Notes issued by Waterman 104 which sums will be on-lent by Waterman 104 to the end borrower as Loans. Loans are anticipated to be between 50,000 and 2,000,000; a maximum loan size of 500,000 or 20% of the size of the Fund (whichever is the greater). The agreed term is generally 6 months and in any event less than one year. Waterman 104 will not make a Loan unless it is satisfi ed that the intended repayment plan of the end borrower is realistic within the term of the Loan. The Fund will hold first charge security over property in the UK. The property may be residential or commercial property. Owner-occupied residential properties will not be accepted as security. In the case of commercial property, working farms and land without planning permission will not be accepted as security. The Fund holds a fi rst charge debenture over all the assets of Waterman 104. LTV Of Loans In the case of residential property the Loan principal will be 75% or less of the 90 day open market valuation of the property. In the case of commercial property the Loan principal will be 70% or less of the open market valuation of the property. In all cases, interest for the term of the loan will be deducted from the loan advance, thus the net effective LTV (gross LTV less the interest deducted) will be less than 70% or 75% (as applicable). Valuations will be determined by an independent valuer in each instance. 10

12 Waterman Bridge Finance Income Fund 4 Executive Summary The Fund The Fund s operation The Fund has been established to finance lending in property bridging finance transactions to be entered into by Waterman 104, whether entered into alone or jointly with another loan provider. Waterman Capital is a specialist property bridging fi nance business. The lending transactions introduced to the Fund will be asset backed, with the security being a first charge over real estate property in the UK. In the current market, lending finance cannot be raised expeditiously even for the more compelling of property investment opportunities. Individuals and businesses are seeing opportunities pass them by because they cannot access capital from traditional funding sources in a timely manner. Operationally, Waterman 104 will fi nd lending opportunities through the Waterman Capital network and then conduct appropriate due diligence on the borrower and the security offered. Waterman 104 will generally target lending opportunities between 50,000 and 2,000,000. The finance is short term and the terms of the Loans will generally be 6 months. A valuation on the security will be obtained from a reputable independent valuer and due diligence will be conducted by Waterman 104 and its legal advisors in each instance. Waterman 104 Loans will all be secured on a first legal charge basis against property in the UK. Waterman 104 will lend up to a maximum loan principal of 75% of the 90 day open market valuation in the case of residential property and up to 70% of the open market valuation of commercial property. Waterman 104 may identify and arrange for the Loan to the end borrower to be a syndicated loan arrangement alongside other loan providers. Once the Loan has been approved, Waterman 104 will draw down the advance required 11

13 from the Fund against the issue of a secured Loan Note and Waterman 104 will on-lend this amount as a Loan to the end borrower. The security granted by the end borrower is assigned to the Fund on drawdown. Investor Reporting How Investor returns will be achieved Investors will be sent a quarterly investor letter and a report on the Fund annually which will constitute periodic statements for the purposes of FSMA. The Fund will make advances to Waterman 104 against the issue of secured Loan Notes by Waterman 104. The Loan Notes will provide for a return to the Fund, based on the earnings of Waterman 104. The earnings of Waterman 104 will be applied at the end of each Quarter. 3 first in paying the Priority Return for such Quarter; 3 second in paying the costs and expenses of the Fund for the Quarter; 3 third in paying any shortfall of Priority Return in the prior three Quarters in respect of the current Participations; 3 fourth an amount equal to the Priority Return will be retained by Waterman 104 including any payment of prior shortfall; 3 fi fth 50% of any balance will be applied in paying the Profi t Participation; and 3 sixth the other 50% will be retained by Waterman 104. Waterman Capital has agreed to meet the costs and expenses of the Fund for any Quarter in the event of any shortfall in earnings to enable the Priority Return to be paid fi rst in order of priorities. Any balances retained by Waterman 104 may be paid or distributed to Waterman Capital. The Fund will generally seek to hold at least 10% of its assets in cash which may be utilised to meet inter alia costs, expenses and redemptions. This reserve will be held in cash or in readily realisable cash instruments. Investors should take note that the Priority Returns are not guaranteed and will not be achieved in the event that the earnings of Waterman 104 after deductions of direct costs of lending do not meet the Priority Return. Security type Security leverage levels The Fund s investment in Waterman 104 will be as a subscription for Loan Notes secured by way of a security assignment of the Loans which have been made to the end borrower and the first charges against property in the UK. The Fund will also hold a first charge debenture over all the assets of Waterman 104. The Fund will lend principal amounts up to a maximum of 75% of the 90 day open market valuations in respect of residential property and 70% of open market valuations in respect of commercial property. If Waterman 104 enters into a syndicated loan arrangement with another loan provider this LTV will still apply to the syndicated loan amount. A reputable independent valuer will be instructed to value each property that Waterman 104 lends against. The valuation will be addressed to the Fund and Waterman 104 in each instance and the valuer is required to have suffi cient insurance cover for the value of the Loan. Term of Loans Loan amounts Withdrawal from the Fund The Loans that the Fund invests in will generally be for a term of 6 months and in any event less than one year. It is anticipated that Loans will typically be of a principal amount between 50,000 and 2,000,000. The maximum principal amount contributed by the Fund in respect of any Loan will be 500,000 or 20% of the aggregate size of the Fund, whichever is the greater. Investors may withdraw their Participation after the Initial Period four times a year on any Redemption Date provided they have given not less than 6 months prior written notice of withdrawal to the General Partner. 12

14 Waterman Bridge Finance Income Fund 5 Overview of Waterman Background In 2007 Waterman Capital Limited was formed in order to enter the secured bridge finance market in the UK. Hassan Sayani originally qualifi ed as a solicitor and gained signifi cant legal experience of secured lending acting for banks and a number of high net worth individuals during his career. Between 2007 and 2011, Waterman companies tested and refined the bridge finance model, lending monies provided by Mr Sayani and other high net worth individuals. In 2011, when it was felt that the business model had been suitably tested, a decision was made to scale up the business. In mid 2011, the Waterman group formed Simple Bridging Limited as its marketing arm for bridging business. The Simple Bridging Limited team includes Christopher Fortune who has over 10 years of mortgage funding experience, and who has taken up the role of Head of Direct Sales and Marketing. The Chairman of Simple Bridging Limited is Mr Jo Welman, founder and former Chairman of Brit Insurance Holdings plc. Waterman companies have, since 2007, made and redeemed over 44 loans with a total capital value of over 30m. The providers of finance for such bridging transactions include corporate treasury departments and high net worth investors. 13

15 Waterman Capital Waterman Capital has established referrers of potential loan transactions, principally, Simple Bridging Limited. Waterman Capital has built up a reputation for providing a fast and professional service. The directors of Simple Bridging Limited have developed relationships with lawyers, accountants, insolvency practitioners, real estate agents, mortgage brokers, IFAs, private bankers, other bridging fi nance companies, and various consultants to generate referrals. Waterman 104 is a wholly owned subsidiary of Waterman Capital and has been established for the purposes of solely carrying on the business of making the Loans which are financed in whole or part by the Fund. 14

16 Waterman Bridge Finance Income Fund 6 The Bridging Finance Market in the UK The size of the bridging finance market is uncertain. No reliable statistics exist as there is no single regulatory organisation which collects the data. What seems to be uncontroversial is that the overall mainstream lending market is much smaller now than it was in, say, 2008, before the credit crunch, and banks are taking longer to make decisions. Therefore investors in the buy to let market and those who are buying properties from receivers, administrators or at auction, are using bridging fi nance to fill the gap. The historic supply of bridging finance decreased substantially after 2008, as many bridging finance companies, often funded by banks, reduced or ceased trading as banks withdrew their credit lines. Examples include: Mathon (into administration), Cheval and Excel Securities (into administration). A chart showing the growth of annual gross bridging lending is below. Annual Gross Bridging Lending (billions) MAR 11 JUN 11 SEP 11 DEC MAR 12 JUN SEP 12 DEC MAR 13 JUN AUG 13 OCT 13 DEC 13 FEB 14 Annual Gross Bridging Lending ( billions) Source: West One Loans Bridging Indices April

17 According to West One, the main factor behind the growth in lending is the increase in lending volumes. See the chart below Index of Loan Volumes APR 10 JUN 10 AUG 10 OCT 10 DEC 10 FEB 11 APR 11 JUN 11 AUG 11 OCT 11 DEC 11 FEB 12 APR 12 JUN 12 AUG 12 OCT 12 DEC 12 FEB 13 APR 13 JUN 13 AUG 13 OCT 13 DEC 13 FEB 14 Index of Loan Volumes (3 month moving average) Source: West One Loans Bridging Indices April % 1.60% 1.50% 1.40% 1.30% 1.20% 1.10% 1.00% APR 10 JUN 10 AUG 10 OCT 10 DEC 10 FEB 11 APR 11 JUN 11 AUG 11 OCT 11 DEC 11 FEB 12 APR 12 JUN 12 AUG 12 OCT 12 DEC 12 FEB 13 APR 13 JUN 13 AUG 13 OCT 13 DEC 13 FEB 14 Interest Rate (monthly) Source: West One Loans Bridging Indices April 2014 The value of the average bridging loan is also increasing. See below. 55.0% 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% APR 10 JUN 10 AUG 10 OCT 10 DEC 10 FEB 11 APR 11 JUN 11 AUG 11 OCT 11 DEC 11 FEB 12 APR 12 JUN 12 AUG 12 OCT 12 DEC 12 FEB 13 APR 13 JUN 13 AUG 13 OCT 13 DEC 13 FEB 14 LTV 1st Charge Source: West One Loans Bridging Indices April 2014 Given that, according to the Council of Mortgage Lenders, gross mortgage lending was estimated at 15.4 billion in March 2014 alone, the bridging industry remains a tiny proportion of the overall mortgage market. But as the housing market strengthens, the bridging sector is expected to grow too, with a requirement for more capital investment. 16

18 Waterman Bridge Finance Income Fund 7 The Investments by the Partnership The Opportunity The investment objective is for the Fund to provide Investors with access to an innovative investment with the prospect of good returns. The investment to a large extent capitalises on the illiquidity in the financial markets as a result of the credit crisis. The Fund will invest its assets into secured Loan Notes issued by a specifi c purpose vehicle, Waterman 104, which will on a back to back basis lend on these sums directly to end borrowers (as opposed to financiers or other bridging finance companies). The advantage to this is that the investment provided by the Fund is a direct investment in property bridging finance loans. The Fund will also have the security taken in relation to each Loan (i.e. first legal charge against the property provided as security in each instance). The Fund will also have the benefi t of the market presence and deal-fl ow sourced through the Waterman Capital network. Operationally, Waterman 104 is introduced to lending opportunities through the Waterman Capital network. The network typically brings opportunities to lend such as: Need of fast access to credit An investor wants to buy a property at auction or from a bank receiver or liquidator, but does not have the cash to purchase the property outright. A bank will often not be able to make a loan in such a fast time, so the investor uses bridge funding pending refinance from a bank. In these cases, where the property may be available at a signifi cant discount to normal market value, the cost of bridge funding is commercially irrelevant because the property is available at such a bargain price. It is the fast access to credit that is most important. Insuffi cient funds to add value to a property An investor wants to buy a property which, with a change of use or specifi cation will be worth much more than the total cost of purchase price and specifi cation. The investor has enough 17

19 cash to make the necessary changes but not to buy the property. In this case Waterman 104 would make a loan for the purchase of the property with the security of a fi rst legal charge at a LTV of 75% of present not future value. This would enable the investor to buy the property, make the necessary changes and refi nance it. As part of its due diligence process, Waterman 104 would commission a valuation on the purchase price, the cost of the specifi cation works, and the end value. Waterman 104 would also require evidence of in principle exit refi nance. The Lending Process After Waterman 104 has carried out due diligence on the borrower and the security offered, the details are then presented to the Fund in the form of a report. If the General Partner is satisfi ed, the Fund shall make an advance to Waterman 104 against the issue of the secured Loan Notes by Waterman 104. Waterman 104 will then make the Loan to the end borrower. The Loans are secured by a first legal charge on property in the UK. The Fund will take a security assignment from Waterman 104 of the Loan and security granted by the end borrower. The Fund will in any event hold a debenture over all the assets of Waterman 104. Waterman 104 will lend up to a maximum loan principal amount of 75% of the 90 day open market valuation in respect of residential property and 70% of open market valuation in respect of commercial property being offered by a borrower as security in each transaction. The Due Diligence Process The process that Waterman 104 adopts in relation to its Loans in most instances includes the similar due diligence that a mainstream lender will perform on a loan prior to lending to a borrower. Whilst each Loan presents a different situation, Waterman 104 will generally perform the following as part of its initial due diligence process for the Fund: i. obtain the credit history or a credit score of any personal borrowers, personal guarantors, and corporate entities; ii. obtain company information on corporate entities involved with the Loan; iii. search the Land Registry concerning any property security; iv. obtain a valuation on the security being offered for the Loan; v. obtain a legal report on title in respect of the property security. Investors should note that, in exceptional circumstances (where, for example, LTV ratios are outstanding), Waterman 104 may decide not to carry out all the due diligence steps described above. Waterman 104 prepares an indicative Letter of Offer, typically after stage iii above, containing the terms for the offer of fi nance. The Letter of Offer is subject to positive due diligence, valuation and further approval. Once approved by Waterman 104, the Fund solicitors will be instructed to finalise the Loan and security documentation (which will refl ect the terms of the deal as agreed in the Letter of Offer). Property Valuations Waterman 104 will obtain a valuation on property security in all instances for the benefi t of the Fund and itself. The valuation will be obtained from an independent reputable valuer and the valuer will be required to have professional indemnity insurance at a level which is at least equal to the amount of the Loan. When the valuer is instructed, Waterman 104 will outline guidelines as to what the valuer is required to assess including in particular a 90 day open market valuation in the case of residential property and an open market valuation in respect of commercial property. These values refl ect the value which the relevant property would be expected to achieve taking into account the then current state of the credit market. Mitigating Risk There are a number of general standards that Waterman 104 will apply to its Loans, in order to mitigate the possible risk associated with any particular transaction. In addition to the due diligence conducted on the relevant borrower and security (as detailed above), Waterman 104 also will ensure that where possible: 18

20 Waterman Bridge Finance Income Fund i. the overall LTV for the Loan does not exceed the Fund s policy; ii. suitable enquiries are made to verify the stated circumstances surrounding a Loan application; iii. where there is a corporate borrower, all directors are also typically required to provide personal guarantees. This is an important way of ensuring that the individuals involved with the transaction are personally liable for guaranteeing the Loan. In effect this means that the security being taken by the Fund is potentially greater than simply the secured property; iv. the relevant solicitors that are instructed to prepare the Loan and mortgage/charge documentation have experience in drafting such documentation and advising on bridging or loan transactions; v. there is a clear understanding of the borrower s reasons for requiring the finance, and that the borrower s true position is understood; and vi. there is a clear explanation from the borrower (and verifi cation of the explanation provided), as to what the exit strategy for the Loan will be. Waterman 104 will make enquiries to ascertain whether the exit strategy is realistic in the circumstances, and whether the exit strategy to pay out the Loan can be achieved within the term of the Loan. This may also include some written evidence from potential lenders or mortgage brokers, where the exit involves the borrower refinancing the Loan. Term of Loans Loan amounts Syndication The Loans will each generally be for terms of 6 months and in any event less than one year. Additional charges are levied where loans are not repaid on their due date. It is anticipated that the amount of principal advanced by the Fund for a Loan will typically be of a principal amount between 50,000 and 2,000,000. The maximum principal amount contributed by the Fund in respect of any Loan will be 500,000 or 20% of the aggregate size of the Fund, whichever is the greater. Waterman 104 may, in its discretion, consider entering into a syndicated loan arrangement with another co-lender in certain circumstances, where, for example: i. the proposed Loan size is above the maximum limit for Loans to be financed by the Fund; or ii. there are good commercial reasons for the Loan to be syndicated (for example, syndication will share the risk of the Loan between the Fund and another lender). Legal costs for lending and syndication In every instance the relevant borrower will bear Waterman 104 s legal and other professional costs associated with the Loan, and that will include the borrower meeting the costs of entering into loan syndication documents with another co-lender. In such situations, security will be held for the benefi t of all syndicated lenders. The Regulatory Environment The Consumer Credit Act Waterman 104 has a Consumer Credit Licence issued by the Financial Conduct Authority for its bridging finance business (licence reference number ). The Consumer Credit Act 1974 (and its amendments in the Consumer Credit Act 2006) (the CCA ) encompasses the main consumer credit protection legislation for the UK. It provides a number of protections for borrowers and is primarily aimed at protecting the consumer in relation to consumer orientated financial services activities. Under the CCA, there is a specifi c exclusion for loans that are predominantly for business purposes or for buy to lets. Much of the bridging finance business of Waterman 104 is expected to come under these exclusions. 19

21 The Fund is solely providing facilities to Waterman 104 and is therefore not affected by the Consumer Credit Act. FCA Authorisation The Operator is authorised and regulated by the FCA, and has permission under FSMA to establish, operate and wind up unregulated collective investment schemes such as the Fund. The Operator will be responsible for all FSMA regulated activities including ensuring Investors are sent periodic statements, dealing with complaints and the giving of any regulatory advice. The Operator was appointed on the date of this document. The term of the agreement with the Operator is for an initial period of 12 months and rolling thereafter until terminated: i. by the Operator giving 9 months notice to the General Partner; or ii. the General Partner giving 9 months notice to the Operator; or iii. on the termination, winding up, or dissolution of the Fund in accordance with the Partnership Deed; or iv. by the General Partner if the Operator is in material breach which (if capable of remedy) is not remedied within 20 business days; or v. if the Operator ceases to be authorised by the FCA. The Operator will not: i. hold a direct or indirect participation in the Fund; ii. hold money or be the custodian of investments on behalf of the Fund; iii. act as principal in a transaction of the Fund; iv. undertake stock lending activities with or for the Fund; v. permit the Fund to invest in a collective investment scheme either operated or advised by the Operator. The Operator is paid an annual fee of 20,000 plus vat if applicable payable quarterly in advance for its compliance and monitoring services. Investors may direct any complaint to the Operator at Salisbury House, 29 Finsbury Circus, London EC2M 5QQ (marked for the attention of The Compliance Offi cer ). Investors may also subsequently complain direct to the Financial Ombudsman Service. FSMA is concerned with the regulation of financial services and markets in the UK. Under the FSMA, any person who carries on a regulated activity in the UK must be authorised by the FCA or come under a relevant exemption. Under the legislation there is a specifi c exemption for mortgages that are for investment purposes, second charge loans or overseas mortgages. Waterman 104 and the Fund is only concerned with investment mortgages. That is, Waterman 104 does not provide mortgages for home-buyers or take security over a borrower s home, and as such is involved only in unregulated mortgages for FCA Authorisation purposes. 20

22 Waterman Bridge Finance Income Fund 8 Principal Terms of Participation in the Partnership Structure The Partnership is an English limited partnership which is tax transparent for UK investors, with an unauthorised unit trust which is not UK tax resident and which will act as a feeder fund for pension schemes such as SIPPs and SSAS and other tax exempt investors. The Unit Trust, through the Trustee, will be a Limited Partner in the Partnership. The Partnership will be able to be terminated by a resolution of the General Partner or the passing of a Limited Partner Special Consent at any time, and the Unit Trust will come to an end on the date that the Partnership terminates. Participations will be allocated as to 0.001% in the capital of the Partnership and % as an interest free Loan to the Partnership. Redemptions Investors may request redemption of their Interest (in the Partnership and the Unit Trust) quarterly on any Redemption Date, subject to giving not less than 6 months prior written notice to the General Partner and, for the Second Series, subject to a minimum investment period of the Initial Period being 12 months from the Quarter day immediately following acceptance of a Subscription. The General Partner may redeem the Interests of an Investor on any Redemption Date subject to giving not less than 3 months prior written notice to the Investor provided that such redemption shall not be within the Initial Period. The redemption terms may be varied in respect of each Series. The General Partner anticipates it would exercise such right of redemption where the Partnership holds cash surplus to its requirements and would seek to do so pro rata to Investors Participation within a Series subject to the minimum Contribution. 21

23 Return to Investors Returns will be paid or accrued to Investors on a quarterly basis in arrears on each Income Distribution Date out of the income received from Waterman 104 in respect of that Quarter. Returns will be paid to Investors within 14 days of the end date of the Quarter. To the extent that the income of the Fund for that Quarter permits, these Quarterly returns will be paid on Participations at the Priority Return for the relevant Series. Investors (other than Unitholders) may elect at the time of Subscription to have their Priority Return added to their Participation rather than paid out. To the extent that Priority Returns are achieved in full for all Series in issue in any Quarter, any excess income after costs will be applied towards any shortfall of Priority Returns in the prior three Quarters in respect of current Participations. In the event of any shortfalls of Priority Returns the shortfalls will be borne pro rata amongst Participations. The Fund derives its income from Waterman 104. The earnings of Waterman 104 will be applied at the end of each Quarter to paying the Fund, fi rst the Priority Returns for such Quarter, second an amount equal to its costs and expenses in so far as these have not been satisfi ed, third to the extent that Priority Returns are achieved in full in such Quarter, earnings of the Waterman 104 will be applied towards any shortfall of Priority Returns in the prior three Quarters in respect of current Participations and fourth 50% of any balance of earnings after deducting an amount to be retained by Waterman 104 which matches Priority Returns paid out. Amounts retained by Waterman 104 will be for its benefi t or paid or distributed to Waterman Capital. Costs and expenses The Operator s fees for its role as Operator are as described above under the heading FCA Authorisation and will be met by the Partnership. City & Merchant General Partner Limited will receive a priority annual return from the Partnership payable quarterly in arrears and calculated as ¾% of the Participations of the Fund from time to time for its role as General Partner. The General Partner is not entitled to any other share in the profi ts of the Partnership. The Partnership will in addition pay the costs of maintaining the Partnership and Unit Trust including any fees due to the Trustee, the Auditors, any legal and accountancy costs and any other costs incurred in the running of the Partnership and Unit Trust and the reporting to Investors. All these costs will be charged against income received from Waterman 104 prior to payment of the Priority Return. Waterman 104 will incur the other direct costs associated with the making of the Loans and payments to the Partnership by Waterman 104 will be net of these costs. In addition, a further fee of up to 3% of Investor funds raised may be paid to approved introducers, authorised fi nancial advisers and other professional intermediaries for advising potential investors on the Fund. These advisory fees will be met by the Partnership and will be charged against income from Waterman 104 in the same way as the other costs of the Partnership. Waterman Capital has agreed to underwrite Waterman 104 to the extent that the income from Waterman 104 has been insuffi cient to cover expenses of the Partnership at the end of the Quarter although it may recoup these prior to payment of any shortfall of Priority Return for prior quarters. VAT Investors Contributions All fees are stated exclusive of and subject to VAT if it is payable. The minimum investment will be 25,000 per Investor for both the Partnership and the Unit Trust or as may be accepted by the General Partner. Contributions above this level will be offered in multiples of 1,000. Investors Contributions must be paid at the same time as the application for an Interest. 22

24 Waterman Bridge Finance Income Fund Financial Information, Reports and Financial Statements Termination of the Unit Trust and the Partnership The Financial Year of the Partnership and Unit Trust ends on 30 April in each year. Audited reports and financial statements will be made available to Investors by the General Partner within four months of the end of the Financial Year. Tax certifi cates will be sent to Limited Partners each year advising of Partnership income (or losses) attributed to them. Investors will in addition receive quarterly reports from the General Partner. The Partnership will be dissolved if at any time the Agreement between Waterman Capital and the Partnership is terminated for any reason. The Partnership will be able to be terminated by a resolution of the General Partner or the passing of a Limited Partner Special Consent at any time, and the Unit Trust will come to an end on the date that the Partnership terminates. The Unit Trust will come to an end if: i. the Trustee serves written notice to Unitholders that the Unit Trust be terminated for reasons of illegality; ii. if in the reasonable opinion of the Trustee it is impractical or inadvisable to continue the Unit Trust; or iii. the Trustee is directed to terminate the Unit Trust by an extraordinary resolution of the Unitholders of the Unit Trust. Risk Factors Investing in the Partnership or the Unit Trust is considered a potentially high risk investment. Prospective Investors should read the information set out in Section 12 of this Memorandum carefully before applying to invest in the Partnership or the Unit Trust. 23

25 9 Fund Structure Overview The Partnership will consist of an English limited partnership, which is tax transparent, with an unauthorised unit trust acting as a feeder fund for pension schemes and certain other tax-exempt investors. Investors are advised to consult their own professional advisers on the taxation consequences of an investment in the Fund. A representation of the Fund s legal structure is shown below: 24

26 Waterman Bridge Finance Income Fund Nature of the Partnership Investment Vehicle General Partner All assets will be in the name of the General Partner as general partner of the Partnership. Each Investor who invests directly in the Partnership, the Trustee and the General Partner will enter into the Limited Partnership Agreement, which sets out the terms governing the Partnership. Each Investor by signing the Application Form becomes a party to the Limited Partnership Agreement. The General Partner of the Partnership is City & Merchant General Partner Limited. The General Partner has an issued share capital of 1. The owner of the General Partner is City & Merchant Limited. City & Merchant General Partner Limited will manage the Partnership s assets. Nature of the Unit Trust Investment Vehicle It is intended that pension funds, certain charities and other UK investors wholly exempt from capital gains tax or corporation tax on chargeable gains in the UK (other than by way of residence) will be able to participate in the Fund by subscribing for Units in the Unit Trust which will, through its Trustee, be an Investor in the Partnership. The Unit Trust will not be liable to UK capital gains tax. This is similar to a common method used to enable tax exempt UK investors to participate where their constitutions, or other considerations, might otherwise prevent them from investing directly in the Partnership. Investors investing in the Partnership through the Unit Trust will effectively have an economic interest equivalent to that of other Investors in the Partnership. The Unit Trust will invest entirely in the Partnership and will therefore have the same Priority Returns, fund strategy and debt characteristics as the Partnership. Trustee Of The Unit Trust The trustee of the Unit Trust is Legis Trust Limited which is a trustee company with wide experience of acting in relation to trusts. It is responsible for the safe custody of the assets of the Unit Trust and has entered into the Unit Trust Deed. It will be paid an annual fee of 9,000 payable quarterly in advance and additional time costs as incurred. The fees will be paid by the Partnership. The Operator is the operator and the manager of the Unit Trust. 25

27 10 The Multiple Series Fund Raising Process In order to regulate the amount of Contributions which are made so that such funding may be effi ciently deployed, the Partnership will make Offers from time to time for Contributions identifi ed as sequentially numbered Series. Each Series will be described in its Series Term Sheet which will be issued with the Application Form for such Series. Series Term Sheets will set out for each Series its: i. Target Return ii. Profi t Participation iii. Targeted amount to be raised iv. Initial Period v. Minimum Investor notice for redemption vi. Minimum period before Fund notice of redemption vii. Any other differentiating terms of the Series The Second Series Term Sheet appears in Section 14. Whilst only one Series will be open for Subscription at any one time, Investors Participations in different Series may co-exist within the Fund and rank in all respects pari passu save that redemptions of different Series by the Fund will be at the General Partner s discretion. 26

28 Waterman Bridge Finance Income Fund 11 Taxation Overview The summary below is based on the taxation law and practice of the UK in force at the date of this memorandum, but prospective Investors should be aware that the relevant fi scal rules and practice or their interpretation may change. The following tax summary is not a guarantee to an Investor of the tax results of investing in the Partnership and/or the Unit Trust. Prospective Investors should consult their own professional advisers on the tax implications of making an investment in the Partnership, holding or disposing of an Interest in the Partnership or holding or disposing units in the Unit Trust and the receipt or accrual of income or gains there from under the laws of the jurisdiction in which they may be liable to taxation. Taxation of the Partnership The Limited Partnership will be treated as fi scally transparent by the UK HM Revenue & Customs. This means that, for UK tax purposes, the English limited partnership will not be treated as an entity separate and distinct from the Investors, and distributions of profi ts under the Limited Partnership Agreement to UK resident Investors will be made without deduction of tax. The Partnership has registered with the UK HM Revenue and Customs and received a tax reference number and will file an annual Partnership return. The following paragraphs under this Section discuss the position of Investors who are investing directly into the English limited partnership and not those who are investing via the Unit Trust. Income Each Investor, including a non-uk resident Investor, will be liable to pay tax on his share (as determined in accordance with the Limited Partnership Agreement) of the Partnership s profi ts (as adjusted for UK tax purposes), which will be treated as arising directly to the Investor. Investors will be liable to pay income or corporation tax, as appropriate, on such profi ts on the normal due dates for payment of tax in respect of the period in which they are taken into account. Assuming that Investors are subject to the highest rate of UK taxation, 27

29 individual Investors and Trustees may be subject to UK taxation at a current rate of 45% and corporate investors may be subject to UK taxation at a current rate of 21%. The Partnership s profi ts will be derived from the interest from what is considered to be the investment (and not trading) activities of the provision of bridging fi nance and will therefore be of an income rather than a capital nature and liable to tax as such in the UK. Investors Tax Responsibilities Inheritance tax Non-resident investors Taxation Of The Unit Trust Capital Stamp Duty Each UK resident Investor will be liable for any UK tax on his share of the income and gains arising in the Partnership. Each such Investor is responsible for submitting self-assessment tax returns, taking into account his Interest in the Partnership. In order to facilitate Investors compliance with these requirements, the General Partner will provide each Investor with an annual statement, within four months of the end of the Partnership s Financial Year, showing the relevant information on the Investors income and capital gains. A gift of the interest by, or the death of, an individual Limited Partner may (subject to certain exemptions) give rise to a liability to inheritance tax in the UK. As the Partnership is not considered to be trading each Interest in the Partnership held by an Investor subject to UK inheritance tax will not be property qualifying for business property relief. The Partnership should be treated as fi scally transparent in the UK. Consequently, the Partnership will not be taxable as a separate entity, and will have no tax liability of its own in the UK. The Limited Partners of the Partnership will be taxed in accordance with the taxation rules of their country of residence. Each Limited Partner may be responsible for any UK tax on his share of the income arising in the Partnership. Each limited partner may be responsible for submitting self assessment tax returns, taking into account his interest in the Partnership. Investors who are non-uk resident or who are non-uk citizens may have additional tax liabilities and tax filing obligations in their country of residence or citizenship or may be entitled to additional tax reliefs there. Non-UK Investors should seek their own professional advice in relation to all tax issues relevant to them particularly as the source of the income of the Partnership is considered to be outside UK. The Investor in the Unit Trust will not be UK tax resident and will be taxed as members of an offshore fund because all Unitholders are exempt from UK tax other than by reason of not being UK tax residents. Accordingly profi ts, arising in the Unit Trust, after deducting allowable expenses, should not be subject to income tax. As the Unit Trust will be open only to investors who are exempt from capital gains or corporation tax on chargeable gains, any gain accruing to the Unit Trust will not be chargeable to capital gains tax. On the basis that no UK land or UK securities are, or will be, held directly by the Partnership, no UK Stamp Duty, SDRT, or Stamp Duty Land Tax will be payable on the subscription for a partnership interest, or on subsequent transfers of partnership interests. Stamp Duty Reserve tax (SDRT) will be payable on the transfer of all or part of a Unitholder s interest in the Unit Trust. No liability to stamp duty or SDRT should arise on the subscription by investors for their interest in the Unit Trust. The Manager or Trustee of the Unit Trust may incur SDRT liabilities on the redemption of a Unitholder s interest in the Unit Trust. 28

30 Waterman Bridge Finance Income Fund 12 Risk Factors Any investment in the Partnership or the Unit Trust involves certain risks. Whilst prospective Investors should make their own evaluation of the risks involved in investing in the Partnership or the Unit Trust, they should consider, inter alia, the following matters before deciding to invest. The risks and uncertainties described below are not the only ones facing the Fund and additional risks and uncertainties not presently known or currently deemed immaterial may also have a material adverse effect on the Fund s activities, results of operations or financial condition. If any or a combination of the following risks materialise, the Fund s activities, financial condition, operational performance and capital invested could be materially and adversely affected to the detriment of the Fund and its Investors. General Risks 3 The investment opportunity described in this Memorandum may not be suitable for all recipients. Potential Investors are strongly advised to consult an independent financial adviser regarding all aspects of the investment, including taxation matters, prior to committing to invest in the Partnership or the Unit Trust. 3 Potential Investors should realise that investment in the Partnership or the Unit Trust incurs a high degree of risk. There is no guarantee that the investment targets of the Partnership will be met or that Investors will obtain a satisfactory return on investment or that Investors will get back all of the amount invested by them. 3 Investment in the Scheme is for a minimum of 12 months and should not be regarded as short-term in nature. Investors must be prepared to take a medium to long-term view of their investment. 29

31 3 Figures set out in this Memorandum have been prepared on the assumptions stated. Investors are reminded that such fi gures are given by way of illustration only and do not constitute forecasts. Past performance is not necessarily an indicator of future returns. 3 Investors are prohibited from participating in the day to day management of the Partnership or the Unit Trust or in Partnership or Unit Trust investment or funding decisions. 3 The success of the Partnership depends, in part, on the ability of its various advisers. No assurance can be given that any particular adviser will continue to be retained by the Partnership. No assurance can be given that particular directors or senior managers of the Operator or of the General Partner, who are qualifi ed to assess the commercial arrangements into which the Partnership must enter, will remain directors or senior managers of the Operator or General Partner. 3 There is potential for a change in the regulatory environment in which Waterman 104 (and the Fund) will operate. This includes the possibility that the FCA may require either the Fund or Waterman 104 to become authorised by the FCA, or to become an authorised Representative of an FCA authorised entity. 3 The Fund may be adversely affected by external risks including labour unrest, civil disorder, war, subversive activities or sabotage, fi res, fl oods, explosions or other catastrophes, epidemics or quarantine restrictions. Risks to Income 3 Returns from the Partnership and from the Unit Trust could be materially and adversely affected by any changes to current tax law, practice and procedures set by tax case law; conditions prevailing within the property market; changes in landlord and tenant law and/or land law; fluctuations in interest rates; or changes in planning, partnership or environmental law. 3 Investors should take note that the Priority Return is not guaranteed. 3 In the event the General Partner and/or Waterman 104 determines at the end of any Quarter that a Loan in default requires to be provided for, the amount of provision will be charged against the earnings of Waterman 104 and will reduce the amounts available to meet Target Returns and Profi t Participations. In the event such provision is subsequently released due to a repayment of a Loan provided for, the release may increase the earnings available to meet Target Returns and Profi t Participations in such subsequent Quarters. Investors who redeem their Investment during such period will not benefi t from subsequent releases. 3 Lending opportunities from the Waterman network may from time to time be offered to other financing sources and there cannot be any guarantee that the Partnership resources will be fully utilised in Loan Notes. Risks to Capital 3 The capital and assets of the Fund including Participations are at risk if Loans made by Waterman 104 go into default and result in a shortfall in recovery. 3 The Loans made by Waterman 104 may go into default in the event that the relevant borrower is unable to repay the Loan (or interest) when payable. In such instance, Waterman 104 and/or the Fund may be required to take possession of a security property and to seek to sell that property to recover the loan principal, interest and other costs associated with the relevant Loan and enforcement. In this instance, it may take approximately 9-12 months to recover the funds owing to the Fund. In such circumstances, the Fund may lack the necessary liquidity to meet redemptions. 3 If provisions in respect of defaults are made, these will be applied pro rata across Limited Partners loan accounts which may result in less than the full loan account being repaid. 30

32 Waterman Bridge Finance Income Fund 3 If Waterman 104 takes a mortgage over an additional property (or properties) as part of the collateral security for a Loan, that mortgage may rank behind another lender. This would mean that, on enforcement, Waterman 104 and accordingly the Fund would rank behind that other lender in the order of priority of payments out of any proceeds of sale received from the sale of that additional property (or properties). In those circumstances, the Fund may be prevented by the prior lender from taking enforcement action against that additional collateral property and from possession of it for the purposes of selling it to seek to recover the loan principal, interest and other costs associated with the relevant Loan and enforcement. 3 Although the Fund does not initially anticipate using leverage against the funds of the Fund, it may choose to do so, and this may have the effect of amplifying gains to the Fund, but also of amplifying any losses. Transferability 3 An Investor will not be able to sell, transfer, assign or otherwise dispose of any part of his Interest in the Partnership during the term of the Partnership other than with the consent of the General Partner or the Trustee. However, an Investor in the Partnership will have the ability to redeem his Participation in the Partnership subject to the terms described in this Memorandum and the Limited Partnership Agreement. 31

33 13 Summary of Principal Fund Documents The Limited Partnership Agreement Parties City & Merchant General Partner Limited ( General Partner ) and the Investors ( Limited Partners ) A. Establishment & Investment Objectives i. The Partnership is a limited partnership registered in England and Wales. ii. In the event that the Partnership is unable to pay its debts, the liability of an Investor will be limited to the capital element of his Participation. iii. The General Partner will be fully liable for such of the debts of the Partnership as exceed the total liability of the Investors. iv. The business of the Partnership is the business of investment in Assets. v. Each Investor in the Partnership will be a limited partner of the Partnership from the date of acceptance of his application. vi. The principal place of business of the Partnership is Salisbury House, 29 Finsbury Circus, London EC2M 5QQ or such other place in the UK as the General Partner determines. B. Contributions i. The Investors will contribute agreed amounts in pounds sterling as their Contributions to the Partnership. ii. The minimum amount of each Investor s Contributions is 25,000 for Series 2. The maximum amount will be 20,000,000, or as may be accepted by the General Partner. iii. Each Investor will contribute the full amount of his investment on application. 32

34 Waterman Bridge Finance Income Fund iv. No interest will be paid or be payable upon any Contribution or any other amount (whether representing income or capital) which has been allocated to any Investor but not yet distributed to it. C. General Partner i. The Partnership will not be obliged to hold annual general meetings. ii. The General Partner will have full power and authority on behalf of the Partnership to do all things as may in the General Partner s opinion be reasonably required to achieve the objectives of the Partnership as described above. iii. If the appointment of the Operator as operator of the Partnership is terminated for any reason, the General Partner will appoint a replacement operator. The appointment of the Operator may be terminated at any time upon 9 months written notice by the Waterman Capital. In the event of such termination the Partnership would be wound up. iv. Until such replacement operator is appointed, the Partnership will not undertake any new investment or trading activity and the General Partner will not (unless it holds the appropriate authorisations under the FSMA) operate or manage the Partnership. v. The General Partner will pay all of its separate debts itself and will indemnify the Limited Partners and the Partnership from liability in respect of such debts. vi. The Partnership has paid all of the costs associated with the formation of the Partnership. vii. The Partnership will bear the fees and expenses of professional advisers and regulatory and other costs. viii. The Partnership will bear all costs incurred in relation to the production and distribution of reports and accounts and any other valuations or certifi cations. ix. The General Partner will bear the costs of providing offi ce facilities and personnel to perform its duties under the Limited Partnership Agreement. x. The General Partner will be fully responsible for the debts of the Partnership to the extent that the Limited Partners are not liable, but the General Partner will not be liable to return any part of Contributions paid by the Limited Partners to the Partnership. D. Limited Partners i. The Limited Partners will take no part in the management or control of the business and affairs of the Partnership but they may request access to the books and records of the Partnership at reasonable times by arrangement with the General Partner. ii. A Limited Partner will not be entitled to repayment of his capital account until termination of the Partnership. iii. The Limited Partners will have no personal liability for the debts of the Partnership or of the other partners in the Partnership except as described in the Limited Partnership Agreement or the Limited Partnerships Act The liability of any Limited Partner for losses of the Partnership or any liabilities of the Partnership shall not exceed the element of Participation standing to the credit of his capital account. E. Controlling of Partnership Assets i. The General Partner will control money and other assets of the Partnership. ii. Money belonging to the Partnership will be held in a bank account opened by the General Partner specifi cally for this purpose. iii. Assets acquired by the Partnership will be registered in the name of the General Partner as general partner of the Partnership or its nominees. iv. Save to the extent required by the terms of the Financial Services and Markets Act 2000 or the Handbook of Rules and Guidance published by the Financial Conduct Authority, neither the Operator nor the General Partner accepts any liability, in the absence of its own negligence, fraud or wilful default, for any loss of value of the Assets held by or on behalf of the Partnership. 33

35 F. Distribution of Target Returns and redemptions i. Quarterly Partnership accounts will be prepared for the purposes of determining any distributions of Priority Returns and the ability to meet requests for redemptions of loan accounts by Limited Partners. The General Partner may inter alia make such provisions or revaluations as it shall consider proper in such accounts and accordingly make pro rata debits or credits to the loan accounts effective at the end of such Quarter prior to making redemptions or payment of Priority Returns. ii. Priority Returns will be distributed to Limited Partners in accordance with the relevant Series entitlements on their due dates and in the event of any shortfall arising payments of Priority Returns shall be reduced pro rata to a Limited Partners entitled thereto at the end of such Quarter. A Limited Partner s entitlement to Priority Returns ceases on the requested Redemption Date for redemption of such Partner s loan account to the extent of the requested redemption. iii. With Limited Partner Special Consent, the General Partner may distribute the assets of the Partnership in specie to the Limited Partners.. iv. The General Partner will establish and maintain current, capital and Loan accounts and records for each Limited Partner. Allocations of profi ts and losses of the Partnership will be made through these accounts. v. The General Partner will not make distributions on redemptions on behalf of the Partnership which would render the Partnership insolvent or which would, in its opinion be contrary to the prudent management of the Partnership. G. Assignment of Interests i. No Limited Partner may dispose of, assign or encumber any part of its Interest in the Partnership without the prior written consent of the General Partner such consent being given at the General Partner s sole discretion. It shall be a condition of any such consent that the assignee adheres to the Limited Partnership Agreement. ii. The General Partner may dispose of, assign or encumber its general partnership Interest in the Partnership only with Limited Partners consent. H. Termination i. The Partnership will continue, unless terminated by Limited Partner Special Consent or a resolution by the General Partner to terminate. ii. The Partnership will terminate upon the agreement with Waterman Capital terminating. iii. There are provisions in the Limited Partnership Agreement dealing with the circumstances under which the General Partner could be dismissed. I. Financial Statements, Reports and Auditors i. The General Partner will procure the preparation of the fi nancial statements of the Partnership and the Unit Trust in respect of each accounting period and will cause such statements to be audited by the Auditors. A copy of such accounts will be provided to each Limited Partners or Unitholder (as the case may be) within 4 months after the end of each accounting period. ii. The Financial Year of the Partnership and the Unit Trust is 30 April in each year. iii. The General Partner may appoint and remove the Auditors from time to time. 34

36 Waterman Bridge Finance Income Fund The Unit Trust Deed Party Legis Trust Limited ( Trustee ) in relation to the Waterman Income Fund Unit Trust i. The Unit Trust will be a Limited Partner in the Partnership. ii. The Unit Trust is a non UK resident unauthorised unit trust. iii. The trustee of the Unit Trust is Legis Trust Limited and the manager and operator will be the Operator. iv. The objective of the Unit Trust is to enable tax-exempt Investors to invest in the Partnership. v. The term of the Unit Trust will coincide with that of the Partnership. vi. Investors in the Unit Trust may not dispose of, assign or encumber any part of its Interest in the Unit Trust without the prior written consent of the Trustee, such consent being given at the Trustee s sole discretion. The Operator Agreements Parties City & Merchant Limited (the Operator ) and the General Partner in relation to the Partnership City & Merchant Limited (the Operator ) and the Trustee in relation to the Unit Trust i. The Operator will provide regulatory services to the Partnership as operator of an unregulated investment scheme. The Operator is authorised pursuant to the Financial Services and Markets Act 2000 in this respect. ii. The Partnership will be responsible for paying the Operator in respect of its services provided to the Partnership. iii. In the event of dissatisfaction with the performance of the Operator or the Unit Trust Manager, Limited Partners and Unitholders may complain direct to the Operator. If still dissatisfi ed, Investors may, in certain circumstances, be able to take their complaint to the Financial Ombudsman Service. iv. It should be noted that the Financial Services Compensation Scheme does not generally apply to investments in unregulated collective investment schemes such as the Fund. 35

37 14 Second Series Term Sheet Waterman Bridge Finance Income Fund LP Comprising: the Waterman Bridge Finance Income Fund LP and the Waterman Income Fund Unit Trust. Issued by: City & Merchant Limited. Second Series Term Sheet The Second Series Term Sheet is being issued in connection with an offer by the Waterman Bridge Finance Income Fund LP of Interests for subscription under the terms of an Information Memorandum dated 1 July The Second Series Term Sheet must accordingly be read in conjunction with the conditions and all other matters set out in the Information Memorandum and the Application Form. Opening Date Anticipated Closing Date Anticipated Maximum Amount of this Series Priority Return Profi t Participation Initial period: Minimum Period of Investment Minimum Notice for redemption on Redemption Date by Investor Minimum Period for redemption on Redemption Date by Fund 1 July December ,000, % per Quarter 50% 12 months from Quarter day immediately following acceptance of a Subscription. 6 months subject to Initial Period 3 months subject to Initial Period 36

38 Waterman Bridge Finance Income Fund 15 Procedure for Subscription To invest in the Waterman Bridge Finance Income Fund LP please obtain and complete an Application Form from: City & Merchant General Partner Limited telephone +44 (0) or from the website or from: Waterman Corporate Services (UK) Limited Telephone: +44 (0) or from the website Applications may be made by: 1. Individuals, companies, FURBS and trusts (including non-residents) wishing to make an investment in the Partnership. 2. UK pension schemes, UK charities and other UK and overseas investors wishing to make an investment in the Unit Trust. Potential Investors attention is drawn to the Important Notice at the outset of this Information Memorandum which specifi es categories of persons to whom this investment is available. 37