Schultze

Offshore Fund, Ltd.

Fund Investment Objectives

Schultze Asset Management uses specialized knowledge and experience of bankruptcy and reorganization procedures, along with fundamental analysis, to invest in various classes of securities and obligations of companies in financial or legal distress. Our investment mandate has 4 essential elements: We will consider the securities of companies anywhere in in bankruptcy cycle; pre- through post- reorganization. We invest in any part of the capital structure; equity through senior. We will make investments both long and short. We invest exclusively in U.S. situations. This strategy focuses on identifying securities that are inefficiently priced due to the issuer's financial or legal distress, and buying/ selling them at a time when we believe one or more events will occur causing the security to appreciate/depreciate. Other portfolio features: Very little leverage, limited to margin borrowing. Portfolio is usually 20% to 30% short. Asset mix 50/50 equity/fixed income. 50 to 60 positions. 15% maximum position size at market value. 7 year track record (predecessor portfolio). 31% IRR. The investment methodology is rooted in fundamental, bottom-up analysis. We overlay this with a study of the `Bankruptcy Dynamic' where we quantify risk in the investment. We then generate an IRR matrix where the forecast return is evaluated on a risk adjusted basis for acceptance or rejection. The investment approach then categorizes the position as either OPPORTUNISTIC or CONTROL: OPPORTUNISTIC positions are typically shorter-term, event driven trades. These include naked shorts where we expect the security's value to decline, long positions where we the market unfairly punishes a security's value because of the taint of bankruptcy, capital-structure arbitrage and intra-company hedging. CONTROL - Schultze Asset Management takes an active role in the reorganization of the company through the bankruptcy process. We will take seats on creditor committees, renegotiate contracts, dispose non-core assets or subs and resolve litigation. We seek to further influence the deal by appointing directors to the new company board and participate in the selection of new executive level talent if required. We often seek to strengthen and incentivize management through an equity `carve-out'. This serves to align management's interest with our investors as both parties hold the same security. These investments tend to be more illiquid and longer-term than the opportunistic trades yet they generate greater economics.