SOF III - 1081 Southern Financial LLC The Offshore Feeder Fund In determining beneficial ownership of an interest in the Offshore Feeder Fund, an interest held by (i) a partnership or entity treated as a partnership for U.S. federal income tax purposes or (ii) a PFIC, will be considered beneficially owned by its partners or equity holders, as the case may be. An interest held by any corporation other than a PFIC will be treated as held by a shareholder beneficially owning 50% or more of the stock of such corporation, measured by value. In addition, a holder of an option to acquire an interest will be treated as the beneficial owner of the underlying interest. As discussed above, the Offshore Feeder Fund is designed for Investors that are either (i) not "U.S. persons" as defined in Rule 902 under the Securities Act, as amended, and not U.S. Holders, or (ii) U.S. Tax-Exempt Investors that do not wish to receive UBTI but that are willing to have their income from an investment in the Offshore Feeder Fund potentially be subject to greater rates of withholding or other taxes as compared to the Onshore Feeder Fund. Investors that meet neither of the two foregoing definitions are "U.S. Taxable Investors." It is intended that no U.S. Taxable Investors will invest in interests in the Offshore Feeder Fund. Any U.S. Taxable Investor that does so could become subject to adverse U.S. federal income tax consequences. U.S. Taxation of the Offshore Feeder Fund. The Offshore Feeder Fund will elect to be treated as a foreign corporation for U.S. federal income tax purposes and will invest all of its assets available for investment (i.e., all assets not used or reserved for expenses of the Offshore Feeder Fund) in the Onshore Feeder Fund. A foreign corporation (other than a dealer in securities) that engages in the United States, directly or indirectly, in investing in or trading securities (including contracts or options to buy or sell securities) for its own