Until such time as the General Partner is permitted under the Partnership Agreement to raise a successor investment fund to the Fund, the Principals generally will pursue substantially all appropriate investment opportunities that meet the investment criteria of the Fund principally for the benefit of the Fund, subject to certain exceptions set forth in the Partnership Agreement. However, Red Mountain and its affiliates currently manage and may in the future manage other funds and accounts, including the Co-Invest Fund (collectively, the “Other Red Mountain Funds”), that invest in securities or obligations eligible for purchase by the Fund, which presents the possibility of overlapping investments and thus the potential for conflicts of interest. Over time, certain investment opportunities suitable for the Fund are likely also to be suitable for Other Red Mountain Funds. In determining which investment funds should participate in such investment opportunities, subject to the Partnership Agreement, the General Partner, the Principals and their affiliates are subject to potential conflicts of interest among the investors in the Fund and investors in the Other Red Mountain Funds. The General Partner will determine the allocation of investment opportunities among the Fund and Other Red Mountain Funds in a manner that it believes is fair and equitable consistent with the General Partner’s obligations and may take into consideration factors such as those set forth above. In the event that the available amount of an investment opportunity in which the Fund will invest exceeds an amount appropriate for the Fund, such excess may also be offered to one or more potential investors (see Section V – “Risk Factors – Co-Investments” below).
The General Partner’s allocation of investment opportunities among the Fund and any of the other investment funds sponsored by the General Partner may not always, and often will not, be proportional. Therefore, such allocations may be more advantageous to the Fund relative to one or all of the other investment funds, or vice versa. While the General Partner will allocate investment opportunities in a way that it believes in good faith is fair and equitable to the Fund, there can be no assurance that the Fund’s actual allocation of an investment opportunity, if any, or terms on which the allocation is made, will be as favorable as they would be if the conflicts of interest to which the General Partner may be subject did not exist. By acquiring an interest in the Fund, each Limited Partner will be deemed to have acknowledged the existence of any actual or potential conflicts of interest and that such conflicts are often resolved by the same or overlapping investment professionals at Red Mountain.
Additionally, conflicts of interest can arise if the Fund makes an investment in a portfolio company in conjunction with an investment made by another investment fund sponsored by the General Partner or an affiliate. For instance, the Fund may not invest through the same investment vehicles, have the same access to credit or employ the same hedging or investment strategies as such other investment fund. This may result in differences in price, investment terms, leverage and associated costs between the Fund and any other investing fund sponsored by the General Partner or an affiliate. There can be no assurance that the Fund and the other investing fund(s) will exit the investment at the same time or on the same terms, and there can be no assurance that the Fund’s return on such an investment will be the same as the returns achieved by any other investment fund participating in the transactions. Given the nature of these conflicts, there can be no assurance that the resolution of these conflicts will be beneficial to the Fund.
The General Partner may be faced with a variety of potential conflicts of interest when it determines allocations of various fees and expenses to the Fund. The General Partner, in its sole discretion, will allocate fees and expenses in accordance with the Partnership Agreement and in a manner that it believes in good faith is fair and equitable to the Fund under the circumstances and considering such factors as it deems relevant. The allocations of such expenses may not be proportional, and any such determinations involve inherent matters of discretion, e.g., in determining whether to allocate pro rata based on number of funds or co-investors receiving related benefits or proportionately in accordance with asset size.
The Fund may make controlling investments in portfolio companies. As a result of these controlling interests, the General Partner may have the right to appoint portfolio company board members (including current or former General Partner personnel or persons serving at their request), or to influence their appointment, and to determine or influence the determination of their compensation. Additionally, from time to time, portfolio company board members may approve compensation and other amounts payable to the General Partner in connection with services provided by the General Partner and its affiliates to such portfolio company, and, except to the extent such amounts are subject to the Partnership Agreement’s offset provision, are in addition to the Management Fee or carried interest discussed herein. The General Partner’s authority to appoint or influence the appointment of portfolio company board members who may be involved in approving compensation payable to the General Partner and its affiliates subjects the General Partner and any such portfolio company board appointees to potential conflicts of interest.