EXHIBIT a(2)
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS.............................................................................................1
Act .....................................................................................................1
Affiliate ...............................................................................................1
Affiliated Director......................................................................................1
Bankruptcy ..............................................................................................1
Board ...................................................................................................1
Business Day.............................................................................................1
Capital Account..........................................................................................2
Capital Contribution.....................................................................................2
Carrying Value...........................................................................................2
Certificate or Certificate of Formation..................................................................2
Closing Date.............................................................................................2
Code or Internal Revenue Code............................................................................2
Depreciation.............................................................................................2
Director or Directors....................................................................................3
Effective Date...........................................................................................3
Expense Allocation Date..................................................................................3
Fiscal Year..............................................................................................3
Fund ....................................................................................................3
Incapacity ..............................................................................................3
Indemnified Person.......................................................................................3
Independent Director.....................................................................................3
Initial Capital Contribution.............................................................................3
Investment Advisory Agreement............................................................................3
Investment Manager.......................................................................................3
Investors ...............................................................................................3
Majority-In-Interest of Members..........................................................................3
Management Fee...........................................................................................3
Member ..................................................................................................3
Member Nonrecourse Debt..................................................................................4
Member Nonrecourse Deductions............................................................................4
Nonrecourse Deductions...................................................................................4
Offering ................................................................................................4
Organizational Expenses..................................................................................4
Percentage Interest......................................................................................4
Person ..................................................................................................4
Portfolio Company........................................................................................4
Profits and Losses.......................................................................................4
Prospectus ..............................................................................................5
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Qualified Income Offset Amount...........................................................................5
Section 705(a)(2)(B) Expenditure.........................................................................5
Substituted Member.......................................................................................5
Taxable Period...........................................................................................5
Unit ....................................................................................................5
1940 Act ................................................................................................5
ARTICLE 2 THE COMPANY...................................................................................6
2.1 Formation of Limited Liability Company; Members...............................................6
2.2 Name of Fund..................................................................................6
2.3 Purpose of Company............................................................................6
2.4 Principal and Registered Office...............................................................6
2.5 Duration of Company...........................................................................6
2.6 Further Assurances............................................................................7
2.7 Accordance With the Act; Ownership............................................................7
2.8 Formation Costs...............................................................................7
ARTICLE 3 MEMBERS.......................................................................................7
3.1 Members.......................................................................................7
3.2 Admission of Members..........................................................................8
3.3 Limitation of Liability of Members............................................................8
3.4 No Management Responsibility..................................................................8
3.5 No Authority To Act...........................................................................8
3.6 Rights Of Members.............................................................................9
3.7 No Consent Required...........................................................................9
3.8 Meetings of Members...........................................................................9
ARTICLE 4 CAPITAL CONTRIBUTIONS........................................................................11
4.1 Capital Contributions of the Members.........................................................11
4.2 Capital Account..............................................................................11
ARTICLE 5 ALLOCATION OF PROFITS AND LOSSES AND DISTRIBUTIONS TO MEMBERS................................13
5.1 Allocations of Profits and Losses............................................................13
5.2 Additional Allocations.......................................................................13
5.3 Allocation of Organizational Expnses.........................................................14
5.4 Calculations.................................................................................14
5.5 Distributions................................................................................15
5.6 Contingency Reserves.........................................................................16
5.7 Additional Allocation Rules..................................................................16
5.8 Limitation of Liability......................................................................16
ARTICLE 6 DEPOSIT AND USE OF COMPANY FUNDS.............................................................16
6.1 Deposit of Company Funds....................................................................16
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ARTICLE 7 MANAGEMENT OF THE COMPANY....................................................................16
7.1 The Board of Directors.......................................................................16
7.2 Officers.....................................................................................19
7.3 Investment Manager...........................................................................19
7.4 Expenses.....................................................................................21
7.5 Appointment Of Auditors......................................................................22
7.6 [Intentionally omitted]......................................................................22
7.7 Prohibited Transactions......................................................................22
7.8 Limitations on Liability of Directors and Investment Manager; Indemnification................23
7.9 Limitations on Liability of Investment Manager...............................................24
ARTICLE 8 OTHER BUSINESS...............................................................................24
8.1. Other Business...............................................................................24
ARTICLE 9 TRANSFERABILITY OF MEMBER'S INTEREST; WITHDRAWALS OF CAPITAL BY MEMBERS......................25
9.1 Transfer of Units............................................................................25
9.2 Assignees....................................................................................26
9.3 Substituted Members..........................................................................27
9.4 Indemnification..............................................................................27
9.5 Incapacity of a Member.......................................................................28
9.6 Withholding of Distributions.................................................................28
9.7 Transferor-Transferee Allocations............................................................28
9.8 No Withdrawal................................................................................28
9.9 Notices......................................................................................28
9.10 Optional Adjustment to Basis of Fund Property................................................28
ARTICLE 10 DISSOLUTION AND LIQUIDATION..................................................................28
10.1 Dissolution..................................................................................28
10.2 Liquidation..................................................................................29
10.3 Return of Capital Contribution...............................................................30
ARTICLE 11 RESIGNATION OR REMOVAL OF DIRECTORS OR INVESTMENT MANAGER....................................30
11.1 Resignation of a Director....................................................................30
11.2 Resignation of the Investment Manager.......................................................31
11.3 Removal of a Director or Investment Manager, Designation of a Successor Director or
Investment Manager...........................................................................31
11.4 [Intentionally Omitted]......................................................................32
11.5 Admission of a Successor Director............................................................32
11.6 Liability of a Withdrawn or Removed Director.................................................33
11.7 Consent of Members to Admission of Successor Directors.......................................33
11.8 Continuation.................................................................................33
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ARTICLE 12 ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS...............................................33
12.1 Annual Accounting Period.....................................................................33
12.2 Records......................................................................................33
12.3 Income Tax Returns...........................................................................34
12.4 Reports......................................................................................34
12.5 Annual Meeting...............................................................................35
ARTICLE 13 MISCELLANEOUS................................................................................35
13.1 Notices......................................................................................35
13.2 Binding Effect...............................................................................35
13.3 Counterparts.................................................................................35
13.4 Section Headings.............................................................................35
13.5 Exhibits.....................................................................................35
13.6 Variation in Pronouns........................................................................36
13.7 Severability.................................................................................36
13.8 Qualification in Other States................................................................36
13.9 Entire Agreement.............................................................................36
13.10 Applicable Law...............................................................................36
13.11 Forum........................................................................................36
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
This Operating Agreement (the "Agreement") of THE OXBOW FUND, LLC (the
"Fund" or "Company"), dated as of [ ], 2000 is made by and among C.J.M. Asset
Management, LLC, as initial Member and any Person admitted as an additional
Member.
ARTICLE 1
DEFINITIONS
1.1 "Act" refers to the State of New Jersey Limited Liability Company
Act.
1.2 "Affiliate" means a Person or entity included within the definition
of "affiliate" set forth in Securities and Exchange Commission Rule 405, as
amended from time to time.
1.3 "Affiliated Director" means a Director of the fund who is an
"interested person" as such term is defined in Section 2(a)(19) of the 0000 Xxx.
1.4 "Bankruptcy" when used with reference to any Person, shall be
deemed to occur (1) when a Person (a) makes an assignment for the benefit of
creditors, or (b) files a voluntary petition in bankruptcy, or (c) is adjudged a
bankrupt or insolvent, or has entered against it an order for relief in any
bankruptcy or insolvency proceeding, or (d) files a petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
or (e) files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief, or (f) seeks, consents to or acquiesces in the appointment of
a trustee, receiver or liquidator of such Person or of all or any substantial
part of its properties, or (2) (a) 120 days after the commencement of any
proceeding against such Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, the proceeding has not been dismissed, or (b) 90 days after the
appointment without its consent or acquiescence of a trustee, receiver or
liquidator of such Person or of all or any substantial part of its properties,
the appointment is not vacated or stayed, or within 90 days after the expiration
of any such stay, the appointment is not vacated.
1.5 "Biannual Meeting" is defined in Section 3.8(d) of this Agreement.
1.6 "Board" means the Board of Directors of the Company having such
powers as described herein.
1.7 "Business Day" shall mean any day upon which banking institutions
are required or permitted to be open for the transaction of business in New York
City, New York.
1.8 "Capital Account" is defined in Section 4.2 of this Agreement.
1.9 "Capital Contribution" for each Member means the aggregate cash and
the fair market value of any property contributed by such Member pursuant to
Article 4 hereof.
1.10 "Carrying Value" means, with respect to any asset, the asset's
adjusted basis for Federal income tax purposes, except as follows:
(a) the Carrying Value of any asset of the Company on the date
of this Agreement shall be such asset's gross fair market value on such date,
and the Carrying Value of any asset contributed to the Company subsequent to the
date of this Agreement shall be such asset's gross fair market value at the time
of such contribution, in each case determined pursuant to the terms of this
Agreement, or if no such value is determined herein, by the Company's
independent accountants;
(b) upon adjustment (if any) of the Members' Capital Accounts
pursuant to Section 4.2(h), the Carrying Value of all Company assets shall be
adjusted to equal their respective gross fair market values at the time of such
adjustment; and
(c) if the Carrying Value of an asset has been determined
pursuant to Sections 1.10(a) or (b) above, such Carrying Value shall thereafter
be adjusted for Depreciation, rather than depreciation or amortization or other
cost recovery deduction as determined for Federal income tax purposes.
1.11 "Certificate" or "Certificate of Formation" means the Certificate
of Formation of the Company, as the same may be amended or restated as provided
herein or required by law, which was duly filed in accordance with (and which,
in all respects, shall be sufficient in form and substance under) the laws of
the State of New Jersey, and recorded with the Treasurer of the State of New
Jersey.
1.12 "Closing Date" means the third business day after the Fund has
terminated the Offering.
1.13 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, and the regulations and interpretations thereof promulgated
by the Internal Revenue Service.
1.14 "Depreciation" means for each tax year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Carrying
Value of an asset differs from its adjusted basis for Federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
Federal income tax depreciation, amortization, or other cost recovery deduction
for such year or other periods bears to such beginning adjusted tax basis;
provided, however that if the Federal income tax depreciation, amortization or
other cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Carrying Value using any method
approved by the Board with the advice of the Company's independent accountants.
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1.15 "Director" or "Directors" means each Affiliated Director or
Independent Director in his or her capacity as a Director of the Fund or,
collectively, the Affiliated Directors and Independent Directors.
1.16 "Effective Date" means the date on which the Company's Certificate
of Formation was duly filed in the office of the Treasurer of the State of New
Jersey.
1.17 "Expense Allocation Date" means the date of the first Capital
Contribution by a Member to the Company, and thereafter shall mean the last day
of each Fiscal Year through and including the year ending December 31, 2001
(unless, the Board determines in consultation with the Company's accountants
that such Expense Allocation Date should occur more often than annually), in
which a Capital Contribution is made to the Company pursuant to Section 4.1.
1.18 "Fiscal Year" means the calendar year ending December 31.
1.19 "Fund" means The Oxbow Fund, LLC, a limited liability company
organized under the laws of the State of New Jersey.
1.20 "Incapacity" means, as to any Person, the entry of an order for
relief in a bankruptcy proceeding or entry of an order of incompetence or
insanity, as the case may be, of such Person.
1.21 "Indemnified Person" is defined in Section 7.8 of this Agreement.
1.22 "Independent Director" means a Director of the Fund who is not an
"interested person" as such term is defined in Section 2(a)(19) of the 0000 Xxx.
1.23 "Initial Capital Contribution" is defined in Section 4.1(a) of
this Agreement.
1.24 "Investment Advisory Agreement" is defined in Section 7.3(a) of
this Agreement.
1.25 "Investment Manager" means C.J.M. Asset Management, LLC or any
Person appointed as a successor Investment Manager as provided in this
Agreement.
1.26 "Investors" means the Members, other than the Investment Manager.
1.27 "Majority-In-Interest of Members" means (a) the vote of
sixty-seven percent (67%) or more of the Units present at a meeting of Members
duly called, if more than fifty percent (50%) of the outstanding Units are
present or represented by proxy at such meeting; or (b) the vote of more than
fifty percent (50%) of the outstanding Units of the Fund, whichever is less.
1.28 "Management Fee" is defined in Section 7.3(b) of this Agreement.
1.29 "Member" means the Investment Manager and any other Members
admitted to the Fund in accordance with Section 3.2 hereof.
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1.30 "Member Nonrecourse Debt" means partner nonrecourse debt, as
defined in Treasury Regulation Section 1.704-2(b)(4).
1.31 "Member Nonrecourse Deductions" means, for a taxable year or other
period, the amount of partner nonrecourse deductions as set forth in Treasury
Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2).
1.32 "Nonrecourse Deductions" means, for a taxable year or other
period, the amount of nonrecourse deductions as determined under Treasury
Regulation Section 1.704-2(c).
1.33 "Offering" means the offering of Units by the Fund pursuant to
that certain Prospectus, dated _____________, 2000, which forms a part of the
Fund's Registration Statement on Form N-2 as initially filed with the Securities
and Exchange Commission on or about November 15, 1999.
1.34 "Organizational Expenses" means the aggregate expenses incurred by
the Company in connection with its formation, initial registration as an
Investment Company under the 1940 Act and the offering of Units.
1.35 "Percentage Interest" of a Member shall mean a fraction, the
numerator of which is the sum of all Units held by such Member and the
denominator of which is the aggregate sum of the Units held by all Members.
1.36 "Person" mean individuals, partnerships, corporations, trusts,
estates, limited liability companies and other associations.
1.37 "Portfolio Company" shall mean any Person in which the Fund has
made an investment.
1.38 "Profits" and "Losses" mean the Company's taxable income or loss,
respectively, for a period as determined for Federal income tax purposes in
accordance with Code Section 703(a), computed with the following adjustments:
(a) items of gain, loss and deduction relating to assets shall
be computed based upon the Carrying Values of the Fund's assets rather than upon
the assets' adjusted bases for Federal income tax purposes;
(b) tax-exempt income received by the Fund shall be deemed,
for purposes of this definition only, to be gross income;
(c) the amount of any adjustment to the Carrying Value of any
assets of the Fund pursuant to Section 743 of the Code shall not be taken into
account in computing Profits and Losses;
(d) Section 705(a)(2)(B) Expenditures shall be treated as
deductible expenses;
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(e) any items of gross income, gain, loss, deduction or
Section 705(a)(2)(B) Expenditures (including, without limitation, Organizational
Expenses) allocated pursuant to any provision of Article 5 (other than Section
5.2(c)), shall be excluded from the computation of Profits and Losses; and
(f) Nonrecourse Deductions and Member Nonrecourse Deductions
shall be excluded from the computation of Profits and Losses.
1.39 "Prospectus" means that certain Prospectus, dated ___________,
2000, which forms a part of the Fund's Registration Statement on Form N-2 as
initially filed with the Securities and Exchange Commission on or about November
15, 1999.
1.40 "Qualified Income Offset Amount" for a Member means the excess, if
any, of (i) the negative balance a Member has in his Capital Account (after
reducing such account by any adjustments, allocations or distributions of items
specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6)
that, as of the end of the taxable year, are reasonably expected to be made to
the Member) over (ii) the sum of (A) the amount, if any, of such Member's
unconditional obligation to make subsequent contributions to the Company within
the time period specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(c),
and (B) such Member's share of Company minimum gain and Member Nonrecourse Debt
minimum gain.
1.41 "Section 705(a)(2)(B) Expenditure" means an expenditure of the
Company (as described in Section 705(a)(2)(B) of the Code) which is neither
deductible in computing taxable income nor properly chargeable to a capital
account, and any other expenditure considered to be such an expenditure pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(i).
1.42 "Substituted Member" means a Person admitted as a Member to the
Fund pursuant to Section 9.3 in place of and with all of the rights of the
Member who has transferred or assigned such Member's Fund Interest to such
Person, and who is shown as a Member on the books and records of the Fund.
1.43 "Taxable Period" means each Fiscal Year.
1.44 "Unit" means all of the interests that a Member has in the Company
and represents a Member's rights and obligations as a Member pursuant to this
Agreement and under the Act, including but not limited to, voting rights, the
right to share in Profits and Losses and the right to a share of any
distribution of the assets of the Fund. Each Unit represents an Initial Capital
Contribution of $100.
1.45 "1940 Act" means the Investment Company Act of 1940 and all rules
and regulations promulgated thereunder, as amended by the Small Business
Incentive Act of 1980, and as further amended from time to time.
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ARTICLE 2
THE COMPANY
2.1 Formation of Limited Liability Company; Members. The Oxbow Fund,
LLC has been formed as a limited liability company under the laws of the State
of New Jersey by the filing of the Certificate of Formation pursuant to the Act,
on behalf of the Members. The terms and provisions hereof will be construed and
interpreted in accordance with the terms and provisions of such laws.
2.2 Name of Fund. The name of the Fund is "THE OXBOW FUND, LLC." If
considered necessary in the opinion of counsel to the Fund to preserve the
limited liability of the Members, Directors, and Investment Managers, property
acquired and business conducted by the Fund shall be in such other name as is
necessary to preserve such limited liability. The Board shall have the power to
change the name of the Fund at any time and shall give prompt notice of any such
change to each Member.
2.3 Purpose of Company. The Fund is authorized and empowered to elect
to operate and to operate, as a business development company under Section 55,
et. al. of the Investment Company Act of 1940, as amended. The Fund's principal
investment objective is to seek long term capital appreciation by investing
primarily in equity securities of private U.S. companies seeking capital for
start-up operations, business expansion, product development and/or strategic
acquisition opportunities. The Fund may invest in companies of any size, but
generally expects to invest in small to medium-sized companies with annual
revenues or projected annual revenues in the $2 million to $100 million range.
In addition, the Fund may acquire the assets of companies, invest in commercial
real estate and invest in the equity, debt or assets of companies of any size
which are facing financial difficulties, reorganizing or seeking capital for
debt or equity restructuring. Generating current income for distribution to
Members will not be a factor in the selection of investments by the Fund.
2.4 Principal and Registered Office.
(a) The principal office of the Fund shall be at:
000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, X.X. 00000
(b) The registered office of the Fund shall be at:
c/o C.J.M. Planning Corporation
000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, X.X. 00000
(c) The name of the registered agent at such address is S.
Xxxxxxx Xxxxxxxx, Xx.
2.5 Duration of Fund. The operation of the Fund will commence on the
Effective Date and shall continue in existence until (i) March 31, 2010, unless
further extended
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for up to two (2) additional two (2) year periods from such date if the Board of
Directors of the Fund determines that such an extension is in the best interest
of the Fund; or (ii) it is terminated pursuant to any provisions of this
Agreement or as otherwise provided by law.
2.6 Further Assurances. The Board will execute and cause to be filed,
recorded and published such certificates and documents, which are required to
form and operate a limited liability company under the laws of New Jersey. The
Board will execute and cause to be filed, recorded and published, such
certificates and documents as Board may deem necessary or appropriate to comply
with other applicable laws governing the formation and operation of a limited
liability company.
2.7 Accordance With the Act; Ownership. Except as expressly set forth
in this Agreement to the contrary, the rights and obligations of the Members,
and the administration, operation and termination of the Fund shall be governed
by the Act, as it may be amended. The interest of each Member in the Fund shall
be personal property for all purposes. All real and other property owned by the
Fund shall be deemed owned by the Fund as an entity, and no Member,
individually, shall have any ownership interest in such property.
2.8 Formation Costs.
(a) Each Member shall bear his own expenses in connection with
his consideration of an investment in the Fund and his acquisition of Units,
including without limitation the fees of any attorney, financial advisor, or
other consultant, except as this Agreement may otherwise expressly provide.
(b) The Fund shall pay for or reimburse the initial Member for
all other expenses of formation of every nature and description including,
without limitation, reproduction, printing and stenographic costs, filing,
recording and qualifying fees, taxes and costs of legal publication, expenses of
registration, qualification or obtaining exemptions under any federal or state
securities laws and legal and accounting fees incident to the formation of the
Fund and the offering and sale of Units.
ARTICLE 3
MEMBERS
3.1 Members; Initial Member.
(a) A record of the names and addresses of Members of the Fund
shall be maintained by the Fund and said list shall be amended from time to time
by the Fund to reflect the withdrawal of Members or the admission of additional
and/or Substituted Members pursuant to this Agreement. Such record of Members
shall also set forth the number of Units which each Member holds. The Members
shall constitute a single class or group of Members of the Company for all
purposes of the Act, unless otherwise explicitly provided herein.
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(b) On or prior to the date hereof, the Investment Manager, as
initial Member of the Fund, has made a Capital Contribution to the Fund in the
amount of $100,000.
3.2 Admission of Members. Persons who invest in the Fund in accordance
with the terms and conditions of the Prospectus and who satisfy the requirements
set forth in the Prospectus for an investment in Units may be admitted to the
Fund as Members based upon the determination of the Board or any two of the
Fund's Officers described in Section 7.2 hereof and, upon admission, shall
participate in the Profits, Losses, distributions and allocations of the Fund in
accordance with the terms and conditions of this Agreement. Admission of a new
Member shall be effective when reflected on the books and records of the Fund.
The manner of the offering of Units, the terms and conditions under which
subscriptions for such Units will be accepted, and the manner of and conditions
to the sale of Units to subscribers therefor and the admission of such
subscribers as Members will be as provided in the Prospectus in all material
respects and subject to any provisions hereof. Before any Person is admitted to
the Fund as a Member, such Person or such Person's attorney-in-fact shall
execute a counterpart of this Agreement and thereby agree in writing to be bound
by all of the provisions hereof as a Member.
3.3 Limitation of Liability of Members. Except as otherwise provided in
the Act, no Member of the Fund shall be obligated personally beyond the amount
of his Capital Contribution for any debt, obligation or liability of the Fund,
whether arising in contract, tort or otherwise, solely by reason of being a
Member of the Fund. No Member shall be liable to the Fund or any other Member
for acting in good faith reliance upon the provisions of this Agreement. No
Member shall have any responsibility to restore any negative balance in his
Capital Account or to contribute to or in respect of the liabilities or
obligations of the Fund or return distributions made by the Fund except as
required by the Act or other applicable law. The failure of the Fund to observe
any formalities or requirements relating to the exercise of its powers or the
management of its business or affairs under this Agreement or the Act shall not
be grounds for making its Members or the Investment Manager responsible for the
liabilities of the Fund. Notwithstanding the foregoing, a Member will be liable
to the Company for any distributions made to it, if, after such distribution,
the outstanding liabilities of the Company (other than liabilities to Members on
account of their interests in the Company and liabilities for which the recourse
of creditors is limited to specific Company property) exceed the fair value of
the Company's assets (provided that the fair value of Company property that
secures recourse liability shall be included only to the extent its fair value
exceeds such liability) and the Member had knowledge of this fact at the time
the distribution was received.
3.4 No Management Responsibility. No Investor, other than a Director,
shall participate in the management or the control of the business of or
transact any business for the Fund but may exercise the rights and powers of a
Member under this Agreement. All management responsibility is vested in the
Directors. The Investors other than the Directors hereby consent to the taking
of any action by the Directors, the Officers, and the Investment Manager
contemplated under Article 7.
3.5 No Authority To Act. No Investor other than a Director shall have
the power to represent, act for, sign for, or to bind the Fund. All authority to
act on behalf of the
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Fund is vested in the Directors, the Officers and the Investment Manager. The
Investors consent to the exercise by the Directors of the powers conferred on
them by law and this Agreement.
3.6 Rights Of Members. The Members shall have the following rights
subject to the terms and conditions of this Agreement:
(a) the right to approve and elect or disapprove and remove
Directors;
(b) the right to ratify or reject the appointment of the
independent accountants of the Fund selected by the Board, including a majority
of the Independent Directors;
(c) the right to propose and approve an amendment to this
Agreement; provided, however, that no such amendment shall conflict with the
1940 Act;
(d) the right to approve any other matters related to the
business of the Fund that the 1940 Act requires to be approved by the Members
pursuant to the provisions of the 1940 Act; and
(e) the right to cause the Fund to withdraw its election to be
treated as a Business Development Company under the 1940 Act.
Each of the foregoing matters shall be approved or disapproved, as the
case may be, upon the vote or consent of a Majority-in-Interest of Members.
3.7 No Consent Required. Notwithstanding the foregoing, no vote,
approvals, or other consent shall be required of the Members to amend this
Agreement in any of the following respects: (i) to admit an additional Member or
a Substituted Member or remove a Member in accordance with the terms of this
Agreement; or (ii) to correct any false or erroneous statement, or to make a
change in any statement in order that such statement shall accurately represent
the agreement among the Members and Directors in this Agreement; provided that
no such correction or change shall in any manner adversely affect the Units of
any Member.
3.8 Meetings of Members; Biannual Meeting.
(a) Actions requiring the vote of the Members may be taken at
any duly constituted meeting of the Members at which a quorum is present.
Meetings of the Members may be called by the Board of Directors or by Members
holding at least 10% of the Units and may be held at such time, date and place
as the Board of Directors shall determine. The Board of Directors shall arrange
to provide written notice of the meeting, stating the date, time and place of
the meeting and the record date therefore, to each Member entitled to vote at
the meeting within a reasonable time prior thereto. Such notifications shall
include any information required by this Agreement or by law. Failure to receive
notice of a meeting on the part of any Member shall not affect the validity of
any act or proceeding of the meeting, so long as a quorum shall be present at
the meeting, except as otherwise required by applicable law. Only matters set
forth in the notice of a meeting may be voted on by the Members at a meeting.
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Members holding Units which, in the aggregate, exceed fifty percent (50%) of the
outstanding Units of the Fund shall constitute a quorum for the transaction of
any business at a meeting of Members. In the absence of a quorum, a meeting of
the Members may be adjourned by action of the Board without additional notice to
the Members. When an adjourned meeting is reconvened, any business may be
transacted that might have been transacted at the original meeting. Except as
otherwise required by any provision of this Agreement or of the 1940 Act, (i)
those candidates receiving a plurality of the votes cast at any meeting of
Members shall be elected as Directors and (ii) all other actions of the Members
taken at a meeting shall require the affirmative vote of a Majority-In-Interest
of the Members in person or by proxy at such meeting.
(b) Each Member shall be entitled to cast at any meeting of
Members a number of votes equivalent to the number of Units held by such Member
as of the record date for such meeting. The Board of Directors shall establish a
record date not less than 10 nor more than 60 days prior to the date of any
meeting of Members to determine eligibility to vote at such meeting and the
number of votes which each Member will be entitled to cast thereat, and shall
maintain for each such record date a list setting forth the name of each Member
and the number of votes that each Member will be entitled to cast at the
meeting. Members shall not be entitled to cumulative voting.
(c) A Member may vote at any meeting of Members by a proxy
properly executed in writing by the Member and filed with the Fund before or at
the time of the meeting. A proxy may be suspended or revoked, as the case may
be, by the Member executing the proxy by a later writing delivered to the Fund
at any time prior to exercise of the proxy or if the Member executing the proxy
shall be present at the meeting and decide to vote in person. Any action of the
Members that is permitted to be taken at a meeting of the Members may be taken
without a meeting if consents in writing, setting forth the action taken, are
signed by Members holding not less than the minimum percentage of Units that
would be necessary to authorize or take such action at a meeting of Members.
(d) The Directors shall call a meeting of Members no less
often than every two years (the "Biannual Meeting") with the first such Biannual
Meeting to be held within two years from the Closing Date. At the Biannual
Meeting, the following items shall be submitted to a vote of the Members:
(i) the election of Directors;
(ii) the ratification of the Fund's independent
accountants;
(iii) the approval of the Investment Advisory
Agreement with the Investment Manager, or
any successor Investment Manager; and
(iv) any other matter required under the 1940 Act
to be voted upon by the Members.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions of the Members.
(a) Capital Contributions. The amount of cash and/or the fair
market value of property contributed by each Member shall be credited to such
Member's Capital Account pursuant to Section 4.2. The amount of cash and fair
market value of property contributed to the Fund by a Member upon admission to
the Fund is referred to herein as the Member's "Initial Capital Contribution."
The required minimum amount of an Initial Capital Contribution is two thousand
dollars ($2,000).
(b) Maximum Aggregate Investment from Members. The Fund will
not accept any additional Capital Contributions if or when the total Capital
Contributions of the Company equals or exceeds $25,000,000.
(c) Capital Contribution of Investment Manager. The Investment
Manager as initial Member, has made an Initial Capital Contribution of $100,000
and in exchange has received one thousand (1,000) Units. In its discretion, from
time to time, but subject to Section 4.1(b), the Investment Manager may make
additional Capital Contributions to the Fund.
(d) No Right to Withdraw Capital Contribution. The Members
have no right to withdraw any portion of their respective Capital Contributions.
(e) No Additional Contributions Required. No Member shall be
required to contribute any capital to the Company other than as provided in this
Section 4.1 hereof or to lend any funds to the Fund; however, subject to Section
4.1(b), any Member may make an additional Capital Contribution to the Fund at
any time.
(f) Cut-Off Date for Investment from Members. The Fund will
not accept any additional Capital Contributions after August 31, 2001.
4.2 Capital Account.
(a) A Capital Account shall be established for each Member.
Each Member's Capital Account shall equal the amount of his Initial Capital
Contribution and shall thereafter be adjusted as provided in Section 4.2(b).
(b) Each Member's Capital Account shall be maintained and
adjusted in accordance with Treasury Regulation Sections 1.704-1(b) and 1.704-2.
With respect to events or periods after the date hereof and consistent with such
Regulations, (a) there shall be credited to each Member's Capital Account: (i)
the amount of any cash contributed by such Member to the capital of the Company,
(ii) the fair market value of any property contributed by such Member to the
capital of the Company (net of all liabilities secured by such property that the
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Company is considered to assume or take subject to under Section 752 of the
Code), (iii) such Member's allocable share of Profits, as determined in
accordance with Section 5.1, and (iv) any items of income or gain allocated to
such Member pursuant to Section 5.2; and (b) there shall be charged against each
Member's Capital Account: (i) the amount of all cash distributions to such
Member pursuant to Article 5, (ii) the fair market value of any property
distributed to such Member by the Company (net of any liability secured by such
property that the Member is considered to assume or take subject to under
Section 752 of the Code), (iii) such Member's allocable share of Losses (as
determined in accordance with Section 5.1), and (iv) any items of loss,
deduction or Section 705(a)(2)(b) Expenditures allocated to such Member pursuant
to Section 5.2.
(c) Except as otherwise provided in this Agreement, whenever
it is necessary to determine the Capital Account of any Member, the Capital
Account of such Member shall be determined after giving effect to allocations
pursuant to Sections 5.1 and 5.2 and all distributions in respect to
transactions effected prior to the time as of which such determination is to be
made.
(d) No Member with a negative balance in his Capital Account
shall have any obligation to the Fund, the other Members or any other Person to
restore such negative balance.
(e) If any Units are transferred in accordance with this
Agreement, the transferee shall succeed to the Capital Account of the
transferring Member to the extent that it relates to the interest of the
transferring Member.
(f) If the Fund makes an election under Section 754 of the
Code (which decision shall be made in the sole discretion of the Board), the
amounts of any adjustments to the basis of the assets of the Fund made pursuant
to Section 743 of the Code shall be reflected in the Capital Account of the
Members. In addition, the amounts of any adjustment to the basis of the assets
of the Fund made pursuant to Section 734 of the Code as a result of the
distribution of property by the Fund to a Member (to the extent that such
adjustments have not previously been reflected in the Members' Capital Accounts)
shall (i) be reflected in the Capital Account of the Member receiving such
distribution in the case of a distribution and liquidation of such Member's
Units and (ii) otherwise be reflected in the Capital Accounts of the Members in
a manner in which the unrealized income and gain that is displaced by such
adjustments would have been shared had the property been sold at its Carrying
Value immediately prior to such adjustments.
(g) Nothing in this Section 4.2 shall be construed to impose
upon any Member any additional obligation to contribute additional capital to
the Company or to restore a deficit Capital Account upon liquidation or
dissolution of the Company.
(h) Subsequent to the date of this Agreement, immediately
before (i) a contribution of cash or property (other than a de minimis amount)
by a new or existing Member, (ii) the distribution of Fund assets (other than a
de minimis amount), or (iii) the liquidation of the Fund (within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), the Board, in
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consultation with the Fund's independent accountants, shall determine whether
the Capital Accounts of all Members and the Carrying Values of all Fund
properties shall be increased or decreased (consistent with the provisions
hereof) to reflect any unrealized gain or loss attributable to each Fund
property, in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f).
For purposes of this paragraph (h), the fair market value of Fund property shall
be determined by the Board acting in good faith.
ARTICLE 5
ALLOCATION OF PROFITS AND LOSSES
AND DISTRIBUTIONS TO MEMBERS
5.1 Allocations of Profits and Losses. Except as provided in Section
5.2, for each taxable year or period, Profits and Losses shall be allocated to
the Members pro rata in accordance with their Percentage Interests.
5.2 Additional Allocations.
(a) Allocation of Member Nonrecourse Deductions When Member
Bears Economic Risk of Loss. Notwithstanding the provisions of Section 5.1 and
subject to the provisions of Section 5.2(c), items of loss and deduction and
Section 705(a)(2)(B) Expenditures attributable, under Treasury Regulation
Section 1.704-2(i), to Member Nonrecourse Debt shall be allocated to the Members
in accordance with the ratios in which they bear the economic risk of loss for
such debt (as determined pursuant to Treasury Regulation Section 1.752-3).
(b) Chargebacks and Offsets. This Agreement shall be
considered to include a Company minimum gain chargeback provision (within the
meaning of Treasury Regulation Section 1.704-2(f)), a qualified income offset
provision (within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d)) and a Member nonrecourse debt minimum gain chargeback
(within the meaning of Treasury Regulation Section 1.704-2(i)). Items of Company
income and gain (as determined for purposes of computing Profits and Losses)
shall be allocated to the Members upon the occurrence of the conditions or
events triggering such provisions in accordance with such provisions. Such
provisions shall be applied, prior to any allocations pursuant to Section 5.1 in
the following order of priority; first, the Company minimum gain chargeback,
second, the Member nonrecourse minimum gain chargeback and third, the qualified
income offset.
(c) Limitations on Loss Allocation. Notwithstanding the
provisions of Sections 5.1 or 5.3, in no event shall Losses (or items of loss,
deduction or Section 705(a)(2)(B) Expenditure) of the Company be allocated to a
Member to the extent such allocation would result in such Member having a
Qualified Income Offset Amount. Any allocation (in whole or in part) to a Member
which is prevented by the operation of the preceding sentence shall be
reallocated to Members having positive Capital Account balances pro rata in
accordance with such Members' Percentage Interests; provided, however, that if
there is no Member to which such Losses (or items of loss, deduction or Section
705(a)(2)(B) Expenditure) can be allocated
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without causing such Member to have a Qualified Income Offset Amount, then such
Losses shall be allocated to all the Members pro rata in accordance with their
Percentage Interests.
(d) Curative Allocations. If any items of income, gain, loss,
deduction or Section 705(a)(2)(B) Expenditures are allocated to a Member
pursuant to Section 5.2(a), (b) or (c), then, prior to any allocation pursuant
to Sections 5.1 and 5.3 and subject to all of the provisions of this Section
5.2, items of income, gain, loss, deduction and Section 705(a)(2)(B)
Expenditures for subsequent years or periods shall be allocated to the Members
in a manner designed to result in each Member having a Capital Account balance
equal to what it would have been had such allocation of items of income, gain,
loss, deduction and Section 705(a)(2)(B) Expenditures not occurred.
(e) Income, Gain, Loss, Deduction or Credit. For tax purposes,
all items of income, gain, loss, deduction or credit, other than tax items
properly corresponding to the items allocated pursuant to Sections 5.2(a), (b),
(c) and (d) shall be allocated to the Members consistent with Sections 5.1 and
5.3; provided, however, that if the Carrying Value of any property of the
Company differs from its adjusted basis for tax purposes, then items of income,
gain, loss, deduction or credit for tax purposes (and not for purposes of
computing Profits or Losses) shall be allocated among the Members in a manner
that takes account of the variations between the adjusted tax basis and fair
market value of property contributed to the Company in determining the Members'
shares of tax items under Section 704(c) of the Code, and, consistent therewith,
in the case of property deemed contributed to the Company, in accordance with
Treasury Regulations Sections 1.704-1(b)(4)(i) and 1.704-1(b)(2)(iv)(f); and
provided, further, that allocations pursuant to Section 5.2(b) of items of
income and gain of the Company shall, except as otherwise required by Treasury
Regulations under Section 704(b) of the Code, consist of a pro rata portion of
each item of income and gain of the Company, as appropriate, for such year.
5.3 Allocation of Organizational Expenses.
(a) As of the first Expense Allocation Date, Organizational
Expenses shall be allocated among and debited against the Capital Accounts of
the Members in accordance with their respective Percentage Interests on such
Expense Allocation Date.
(b) As of each Expense Allocation Date following the first
Expense Allocation Date, all amounts previously debited against the Capital
Account of a Member pursuant to this Section 5.3 on the preceding Expense
Allocation Date will be credited to the Capital Account of such Member, and
Organizational Expenses as of such Expense Allocation Date shall then be
re-allocated among and debited against the Capital Accounts of all Members in
accordance with their respective Percentage Interests on such Expense Allocation
Date.
5.4 Calculations.
(a) Calculations and allocations of Profits and Losses and
Organizational Expenses shall be made by the independent accountants regularly
employed by
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the Company, but at least annually and in conformity with the current
requirements of the Internal Revenue Code.
(b) Profits and Losses and items of income, gain, loss,
deduction or credit for any year in which a Member transfers his Units shall be
divided between the transferring Member and his transferee in proportion to the
number of months in the year that each is recognized as a Member according to
the terms of this Agreement. For example, if a transfer becomes effective as of
May 1, the transferee would receive two-thirds (2/3) and the former Member would
receive (1/3) of the Profit or Losses for that year.
5.5 Distributions.
(a) Distributions. To the extent the Board determines to make
distributions of cash and/or property, such distributions shall be made to the
Members pro rata in accordance with their Percentage Interests.
(b) Withholding. Notwithstanding anything to the contrary
contained in this Agreement, in order to comply with Section 1446 of the Code
and the regulations, revenue rulings, revenue procedures and administrative
announcements promulgated thereunder ("Section 1446"), the Company shall
withhold an amount in cash equal to 20% of the cash (and of the fair market
value of property) otherwise distributed to a Member hereunder, and shall apply
the amount so withheld as required by Section 1446, unless such Member shall
have delivered to the Company a current affidavit setting forth that such person
is a "United States person" as such term is defined in Section 7701(a)(30) of
the Code ("Section 7701") and is not subject to the withholding requirements of
Section 1446. Notwithstanding the preceding sentence, a certification properly
delivered to the Company shall not be effective to prevent withholding if the
Company shall have received the certification more than three years preceding
the date of a distribution or if the Company has actual knowledge that the
Member is not a "United States person" as that term is defined in Section 7701.
In addition, if the Company assumes any individual liability of a Member or any
liability encumbering property that a Member contributes to the Company, the
Company shall be permitted to charge the distributions due such Member or any
other amount due such Member to the extent of 20% of such liability in order to
fulfill the Company's obligations under Section 1446, unless such Member shall
have furnished a certification as aforesaid (i.e., the same certification which
would have been effective to prevent withholding if such assumption or
contribution had constituted an actual distribution hereunder). If a
distribution is to be made with property other than money, the Company shall not
release such property until it has funds sufficient to enable it to satisfy its
obligations under Section 1446, which funds shall be provided by the Member or
Members who have not delivered an effective certification. Any amounts withheld
under the provisions of this Section 5.5(b) from a Member shall be released to
such Member to the extent such amount need not be disbursed to a government
agency to satisfy the Company's obligations under Section 1446. The Company
shall retain each certification received by it until the end of the fifth
taxable year after the last taxable year in which the Company relied upon such
certification.
(c) Limitation on Distributions. Notwithstanding anything to
the contrary set forth in this Section 5.5, the Board shall not make any
distribution to any Member
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(including themselves) if, immediately following such distribution, such
Member's Capital Account would have a Qualified Income Offset Amount.
5.6 Contingency Reserves. The Board shall have the right to set aside
Company funds in such reserves as it in its discretion determines to be prudent
for the operation of the Company's business, including sums the Board deems
necessary to reserve for the future payment or reduction of any Company
obligations.
5.7 Additional Allocation Rules. Notwithstanding the foregoing, in the
event any Member's Percentage Interest changes during a Fiscal Year for any
reason, including without limitation, the transfer of any Units, the allocations
of taxable income or loss described above shall be adjusted as necessary to
reflect the varying interests of the Members during such year.
5.8 Limitation of Liability. Nothing contained in this Article 5 shall
be construed to make any Member liable for any losses of the Company.
ARTICLE 6
DEPOSIT AND USE OF COMPANY FUNDS
6.1 Deposit of Company Funds. Upon formation of the Company, all
Capital Contributions shall be transferred to a separate Company account or
accounts in such banks or other financial institutions as may be selected by the
Officers. Such account or accounts shall be maintained in the name of or for the
benefit of the Company. Thereafter, all revenues, bank loans, proceeds and other
receipts will be deposited and maintained in such account or accounts, which may
or may not bear interest, and all expenses, costs and similar items payable by
the Company will be paid from such accounts. The Company's funds, including, but
not limited to, the Member's Capital Contributions, Company revenue and the
proceeds of any borrowing by the Company, may be invested as the Officers deem
advisable. Any interest or other income generated by such deposits or
investments will be considered part of the Company's account. Company funds from
any of the various sources mentioned above may be commingled with other Company
funds, but not with the separate funds of the Board or any other Person and may
be withdrawn, expended and distributed as authorized by the terms and provisions
of this Agreement.
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 The Board of Directors
(a) General Authority; Number. The governing body of the Fund
shall be the Board of Directors, which shall constitute "managers" within the
meaning of the Act and shall consist of such number of Independent Directors as
is fixed pursuant to Section 7.1(b), and three Affiliated Directors, who shall
initially be Xxxxxx X. Xxxx, S. Xxxxxxx Xxxxxxxx, Xx. and
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Xxxxxx X. Xxxxxxxx. By signing the Operating Agreement Signature Page and Power
of Attorney or the Fund's subscription agreement, a Member admitted to the Fund
shall be deemed to have voted for the election of each of the initial Affiliated
and Independent Directors. Subject to the provisions of this Agreement, the
Board shall have complete responsibility for the management and supervision of
the Fund and may take or cause to be taken any action which may be necessary or
appropriate for or incidental to the management or operation of the Fund. No
Person in his capacity as a Member shall take part in the management or
supervision of the Fund, nor shall he have the power to act for or on behalf of
the Fund.
(b) Independent Directors. The number of Independent Directors
shall initially be four and shall be fixed from time to time thereafter by the
Directors as then constituted; provided, however, that the number of Independent
Directors shall in no event be less than a majority of the members of the Board
of Directors. If at any time the number of Independent Directors is less than a
majority, action shall be taken within 90 days thereafter to restore the number
of Independent Directors to a majority. The initial Independent Directors shall
be Xxxxxxx X. Xxxxxxx, III, Xxxxx X. Xxxxxxxx, Xxxxx X. Xxxx and Xxxxxxxxxxx X.
Xxxxx.
(c) Action. A majority of the Directors shall constitute a
quorum for the transaction of any business at a meeting of the Board. Actions of
the Board shall be taken (i) upon the affirmative vote of a majority of the
Directors (which majority shall include any requisite number of Independent
Directors required by the 0000 Xxx) present at any meeting of the Board at which
a quorum is present; or (ii) by unanimous written consent of all the Directors
without a meeting, if permissible under the 1940 Act.
(d) Nomination, Approval and Election of Independent
Directors. The Independent Directors shall hold office for a term of two years
from their election and until their successors are elected, or, if sooner, until
their death, Incapacity, resignation or removal pursuant to Article 11. The
Independent Directors shall nominate their successors who shall be elected at
the Biannual Meeting pursuant to the provisions of Section 3.8 hereof.
Independent Directors may succeed themselves in office. A majority of
Independent Directors may designate Independent Directors to fill any vacancies
created by any increase in the number of Independent Directors or by the
Incapacity, death, withdrawal or removal of an Independent Director. In the
event that the Independent Directors fail to designate a successor Independent
Director, or no Independent Directors remain, the Affiliated Directors shall
continue the business of the Fund and shall perform all duties of the Directors
under this Agreement and shall, within 90 days, call a special meeting of
Members for the purpose of approving and electing Independent Directors. Subject
to Section 11.5(a), each Member other than a Director hereby consents to the
appointment of any successor Independent Directors pursuant hereto, and no
further consent shall be required. Any successor Independent Director shall hold
office until the next Biannual Meeting of Members and until his or her successor
has been approved and elected or, if sooner, until his or her death, Incapacity,
resignation or removal.
(e) Nomination, Approval and Election of Affiliated Directors.
The Affiliated Directors shall hold office for a term of two years from their
election and until their successors are elected, or, if sooner, until their
death, Incapacity, resignation or removal pursuant to Article 11. The Affiliated
Directors shall nominate their successors who shall be elected at the
-17-
Biannual Meeting pursuant to the provisions of Section 3.8 hereof. Affiliated
Directors may succeed themselves in office. A majority of Affiliated Directors
may designate Affiliated Directors to fill any vacancies created by any increase
in the number of Affiliated Directors or by the death, Incapacity, withdrawal or
removal of an Affiliated Director. Subject to Section 11.5(a), each Member other
than a Director hereby consents to the appointment of any successor Affiliated
Directors pursuant hereto, and no further consent shall be required. Any
successor Affiliated Director shall hold office until the next Biannual Meeting
of Members and until his or her successor has been approved and elected or, if
sooner, until his or her death, Incapacity, resignation or removal pursuant to
this Agreement. In the event that the Affiliated Directors fail to designate a
successor Affiliated Director, or no Affiliated Directors remain, the
Independent Directors shall continue the business of the Fund and shall perform
all duties of the Directors under this Agreement, and shall, within 90 days,
designate Independent Directors to fill each such vacancy. Any such Independent
Director who succeeds an Affiliated Director shall hold office until the next
Biannual Meeting of Members and until his or her successor has been approved and
elected or, if sooner, until his or her death, Incapacity, resignation or
removal pursuant to this Agreement.
(f) Restrictions On The Directors' Authority. The Directors
shall not have authority to do any of the following:
(i) act in contravention of this Agreement or of the
1940 Act;
(ii) possess Fund property or assign the rights of
the Fund in specific property for other than a Fund purpose;
(iii) admit any other Person as a Director of the
Fund without the approval of the Members except as otherwise
provided herein;
(iv) commingle or permit the commingling of the
assets of the Fund with the assets of any other Person except
as otherwise provided herein;
(v) permit any Person who makes a nonrecourse loan to
the Fund to acquire, at the time and as a result of making the
loan, any direct or indirect interest in the profits, capital
or property of the Fund other than as a secured creditor;
(vi) without the consent of a Majority-in-Interest of
the Members sell or otherwise dispose of at any one time all
or substantially all of the assets of the Fund; or
(vii) invest in a company in which any Director has
an equity interest other than through another company that it
manages or except as otherwise permitted by the 1940 Act.
(g) Contracts with Affiliates of the Directors. The Fund may
enter into contracts for goods or services with any Affiliate of a Director
provided that the charges for such goods or services are the lower of (i) cost,
including a reasonable allocation of cost of
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capital, or (ii) those charged by unaffiliated Persons in the area for similar
goods and services. Any such contract shall be subject to termination by a
majority of the Independent Directors following 60 days' prior notice thereof.
(h) Obligations of the Directors. The Directors shall devote
such time and effort to the Fund business as, in their judgment, may be
necessary or appropriate to manage the affairs of the Fund. The Directors are
under a duty and obligation to conduct the affairs of the Fund in the best
interests of the Fund, including the safekeeping and the use of all Fund assets
(whether or not in the immediate possession or control of the Directors) and the
use thereof for the benefit of the Fund. Neither the Directors nor any of their
Affiliates shall enter into any transaction with the Fund that will
significantly benefit the Directors or such Affiliates in their independent
capacities unless the transaction is expressly permitted hereunder and under the
1940 Act or any exemptive order issued by the Securities and Exchange Commission
thereunder, or is entered into principally for the benefit of the Fund in the
ordinary course of Fund business.
(i) Compensation of Independent Directors. Each Independent
Director will receive $2,000 per meeting. The Board of Directors, subject to the
approval of Unit holders, to the extent required by law, may approve
supplemental compensation for the Independent Directors.
(j) Meetings. Meetings of the Board of Directors may be called
by the Chief Executive Officer or by any two Directors, and may be held on such
date and at such time and place as the Board of Directors shall determine. Each
Director shall be entitled to receive written notice of the date, time or place
of such meeting within a reasonable time in advance of the meeting. Notice may
not be give to any Directors who shall attend a meeting without objecting to the
lack of notice or who shall execute a written waiver of notice with respect to
the meeting. Directors may attend and participate in any meeting by telephone
except when in person attendance at a meeting is required by the 1940 Act. A
majority of Directors shall constitute a quorum at any meeting.
7.2 Officers. The Fund shall have the following officers: a Chief
Executive Officer, a President, and a Chief Financial Officer. The officers of
the Fund shall be chosen by the Board and may also consist of such other
officers as the Board shall deem necessary. The officers of the Fund shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. The salaries of all
officers of the Fund shall be fixed by the Board of Directors, provided,
however, that each of the Chief Executive Officer, the President and the Chief
Financial Officer shall be compensated $150,000 annually unless otherwise
agreed.
7.3 Investment Manager.
(a) Authority. The Investment Manager is hereby granted the
exclusive power and authority from time to time, subject to the supervision of
the Board, to manage the day-to-day business and affairs of the Fund and to
manage and control the
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investments of the Fund, including, but not limited to, the power to make all
decisions regarding the Fund's venture capital investment portfolio and, among
other things, to find, evaluate, structure, monitor, sell, and liquidate, upon
dissolution or otherwise, such investments, to provide, or arrange for the
provision of, managerial assistance to companies in which the Fund invests and
in connection therewith to enter into, execute, amend, supplement, acknowledge,
and deliver any and all contracts, agreements, or other instruments for the
performance of such functions, including the investment and reinvestment of all
or part of the Fund's assets, execution of portfolio transactions, and any or
all administrative functions. The Fund shall enter into an agreement (the
"Investment Advisory Agreement") with the Investment Manager or any successor
Investment Manager.
In furtherance of and subject to the foregoing, the Investment Manager,
except as otherwise provided in this Agreement, to the extent permitted under
the 1940 Act, and with the approval of a majority of the Independent Directors
where required under the 1940 Act, shall have full power and authority on behalf
of the Fund:
(1) to purchase, sell, exchange, trade and otherwise deal in
and with securities and other property of the Fund;
(2) to open, maintain and close accounts with brokers and
dealers, to make all decisions relating to investment transactions;
(3) to borrow from banks or other financial institutions and
to pledge Fund assets as collateral therefore, to trade on margin,
exercise or refrain from exercising all rights regarding the Fund's
investments, and to instruct custodians regarding the settlement of
transactions, the disbursement of payments to Members with respect to
repurchases of Units and the payment of Fund expenses, including those
relating to the organization and registration of the Fund;
(4) to issue to any Member an instrument certifying that such
Member is the owner of an Interest;
(5) to assist the Board in calling and conducting meetings of
the Board;
(6) to engage and terminate such attorneys, accountants and
other professional advisers and consultants as the Investment Manager
may deem necessary or advisable in connection with the affairs of the
Fund or as may be directed by the Board;
(7) to engage and terminate the services of others to assist
the Investment Manager in providing, or to provide under the Investment
Manager's control and supervision, advice and management to the Fund at
the expense of the Investment Manager;
-20-
(8) to assist in the preparation and filing of any required
tax or information returns to be made by the Fund;
(9) as directed by the Board, to commence, defend and conclude
any action, suit, investigation or other proceeding that pertains to
the Fund or any assets of the Fund;
(10) if directed by the Board, to arrange for the purchase of
(A) insurance, or (B) any insurance covering the potential liabilities
of the Fund or relating to the performance of the Board or the
Investment Manager, or any of their principals, directors, officers,
members, employees and agents; and
(11) to execute, deliver and perform such contracts,
agreements and other undertakings, and to engage in such activities and
transactions as are, in the opinion of the Investment Manager,
necessary and appropriate for the conduct of the business of the Fund,
without the act, vote or approval of any other Member or person, except
where such vote or approval is required under the 1940 Act or other
applicable law.
(b) Compensation Of Investment Manager. The Investment Manager
shall receive the following amounts from the Fund:
(i) Management Fee. The Fund shall pay the Investment Manager
a fee for supervising the venture capital operations of the Fund in
accordance with the Investment Advisory Agreement (the "Management
Fee").
To the extent permitted by applicable law, the Management Fee
shall be allocated among each Member whose subscription is accepted by
the Fund without proration for the amount of time a Member was a Member
during the Offering Period. To the extent Fund cash reserves are
insufficient to pay the entire Management Fee when due, the unpaid fee
shall be carried forward and paid when cash reserves are sufficient to
allow the payment.
(ii) Reimbursement Of Costs and Expenses. The Fund shall
reimburse the Investment Manager or its Affiliates for actual
organizational and operational costs and expenses incurred by the
Investment Manager or its Affiliates for the benefit or on behalf of
the Fund, including without limitation expenses related to the
selection of investments or proposed investments, even if the proposed
investments ultimately are not undertaken by the Fund. The Management
Fee is in addition to the reimbursement of actual costs.
7.4 Expenses. Except as otherwise provided herein, or in any other
agreement between the Fund and a third party, the Fund shall pay all expenses
related to its investments and potential investments, whether or not such
potential investments are actually made by the Fund. Such expenses, whether
billed directly to the Fund or reimbursed to the Investment Manager, may
include, but are not limited to: (i) finders' fees, (ii) legal, auditing,
accounting, investment
-21-
banking, consulting, brokerage and other fees (including fees incurred in
connection with the annual audit of the Fund's financial statements), (iii)
expenses in connection with the acquisition and/or disposition of securities,
including, without limitation, filing and registration fees, (iv) all travel and
other expenses incurred in the investigation of an investment opportunity, (v)
the cost of preparing information relating to the Fund's potential acquisition
or sale of any security, and (vi) other out-of-pocket costs of the Fund. The
Fund shall also be responsible for costs incurred in connection with any
litigation relating to specific investments or investment opportunities, whether
or not made, including, without limitation, examinations, investigations or
other proceedings conducted by any regulatory agency, legal and accounting fees
incurred in connection therewith and any judgments, fines, penalties, damages,
and amounts paid in settlement payable as a result thereof.
7.5 Appointment Of Auditors Subject to the ratification
by a Majority-In-Interest of Members as provided in Section 3.8(d), the
Directors, in the name and on behalf of the Fund, are authorized to appoint
independent certified public accountants for the Fund.
7.6 [Intentionally omitted]
7.7 Prohibited Transactions. Except to the extent
expressly permitted by this Agreement and except as permitted by the 1940 Act or
any exemptive order issued by the Securities and Exchange Commission thereunder:
(a) the Fund shall not lend money or other property to the
Investment Manager or any Affiliate of the Investment Manager;
(b) the Fund shall not sell to or purchase any security or any
other property from a Director, Investment Manager, or any Affiliate of either,
or effect any transaction in which a Director, Investment Manager, or any
Affiliate of either is a joint or several participant;
(c) the Fund shall not purchase or sell commodities or
commodity contracts, participate on a joint or a joint and several basis in any
trading account in securities, or purchase any securities on margin, except such
short-term credits as are necessary for clearance of transactions;
(d) no reimbursement for expenses of the Fund shall be made to
the Directors or any Affiliate of a Director;
(e) the Fund shall not issue any of its Units for services or
for property other than cash or securities;
(f) the Fund shall not sell any Units at a price below the
current net asset value of such Units;
(g) the Fund shall not engage in any transaction or make any
investment not permitted by the 1940 Act; and
-22-
(h) the Fund shall not withdraw its election to be treated as
a business development company under the 1940 Act without approval of a
Majority-In-Interest of the Members.
7.8 Limitations on Liability of Directors and Investment Manager;
Indemnification.
(a) The Board shall not be liable for the return of any
Capital Contribution to a Member, and shall not be liable to the Members because
any taxing authorities disallow or adjust any income tax allocations, deductions
or credits.
(b) The members of the Board and the Officers and any person
who serves at the request of the Board or on behalf of the Fund as a partner,
officer, director, employee or agent of any other entity (hereinafter an
"Indemnified Person") shall not be personally liable to the Fund or to the
Members for damages for breach of any duty owed to the Fund or its Members
provided that such act or omission (a) was not in breach of such person's duty
of loyalty to the Fund or the Members, (b) was made in good faith and not
involving a knowing violation of law and (c) did not result in the receipt of an
improper personal benefit.
(c) The Fund shall indemnify and hold an Indemnified Person
harmless from any loss, damage, fine, penalty, expense, judgment or amount paid
in settlement, including attorneys' fees reasonably incurred, which such
Indemnified Person incurs by reason of his performance or nonperformance of any
act concerning the activities of the Fund or in furtherance of the Fund's
interests or purposes; provided, however, that an Indemnified Person shall not
be indemnified for any matters as to which he is adjudged to have (a) breached
his duty of loyalty to the Fund or the Members, (b) not acted in good faith or
knowingly violated the law or (c) received an improper personal benefit. If an
Indemnified Person is adjudged to have committed any of the foregoing, he shall
reimburse the Fund for any funds advanced or expended on his behalf. To the
extent possible, the Fund shall arrange that an Indemnified Person need not
expend or advance any of his own funds.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Fund in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of an
Indemnified Person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Fund as authorized herein.
The indemnification provided by this subsection (c) of this Section 7.8
shall not be deemed exclusive of any other rights to which an Indemnified Person
may be entitled under any agreement, vote of Members or otherwise, and shall
continue as to a Person who has ceased to be an Indemnified Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
The Fund shall have power at any time to purchase and maintain
insurance on behalf of any Person who is or was an Indemnified Person against
any liability asserted against
-23-
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the Fund would have the power to indemnify him against such
liability under the provisions of this subsection.
The Indemnification provided by this subsection (c) of this Section 7.8
shall apply to any action in the right of the Fund, to the fullest extent
permitted by law.
(d) No Member shall have any liability or responsibility to
contribute funds in excess of its Capital Contribution to satisfy any obligation
of the Fund under this Section 7.8. All such obligations shall be satisfied
solely from and to the extent of Fund assets.
7.9 Limitations on Liability of Investment Manager. In the absence of:
(i) willful misfeasance, bad faith or gross negligence on the part of the
Investment Manager in performance of its obligations and duties hereunder; (ii)
reckless disregard by the Investment Manager of its obligations and duties
hereunder; (iii) a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act, as amended), the Investment Manager shall not be subject to any
liability whatsoever to the Fund, or to any shareholder of the Fund, for any
error of judgment, mistake of law or any other act or omission in the course of,
or connected with, rendering services hereunder including, without limitation,
for any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
ARTICLE 8
OTHER BUSINESS
8.1 Other Business. Any Member, any Affiliate of a Member, and any
officer, director, employee, shareholder or other person holding a legal or
beneficial interest in any entity which is a Member or Affiliate, may engage in,
or possess an interest in, other business ventures of every nature and
description, independently or with others, whether or not such other enterprises
shall be in competition with or operating the same or similar businesses as the
Fund. This Agreement shall not, however, confer upon the Fund or the other
Members any right or opportunity to participate in any such independent ventures
of a Member or Affiliate or any right to the income or profits derived
therefrom. The members of the Investment Manager may retain personally any fees
paid to them by any Person. Neither the Directors nor any Affiliate of the
Directors shall be obligated to present any particular investment opportunity to
the Fund, except with respect to opportunities that are suitable for the Fund,
which must first be made available to the Fund before any of the Directors may
invest, and the Directors and their Affiliates shall each have the right to take
for their own account (individually or as a trustee, partner, or fiduciary) or
to recommend to others any such particular investment opportunity. The
Investment Manager and Affiliated Directors hereby consent and agree promptly to
furnish the Independent Directors, upon request, with information on a
confidential basis as to any venture capital investments made by them, or any of
their Affiliates, for their own account or for others.
-24-
ARTICLE 9
TRANSFERABILITY OF MEMBER'S INTEREST;
WITHDRAWALS OF CAPITAL BY MEMBERS
9.1 Transfer of Units.
(a) Approval. No sale, exchange, transfer, or assignment of
Units (in whole or in part) may be made by a Member unless such sale, exchange,
transfer or assignment has been approved by the Board or at least two of the
Officers described in Section 7.2 hereof.
(b) Opinion of Counsel. Notwithstanding any other provisions
of this Article 9, no sale, exchange, transfer, or assignment of Units (in whole
or in part) may be made by a Member unless in the opinion of counsel for the
Fund, satisfactory in form and substance to the Board (which opinion may be
waived, in whole or in part, at the discretion of the Board), that:
(i) such sale, exchange, transfer, or assignment,
when added to the total of all other sales, exchanges,
transfers, or assignments of Units within the preceding twelve
months, would not result in a termination of the Fund within
the meaning of Section 708 of the Code;
(ii) such sale, exchange, transfer or assignment
would not violate any federal securities laws or any state
securities or "Blue Sky" laws (including any investor
suitability standards) applicable to the Fund or the Units to
be sold, exchanged, transferred, or assigned; and
(iii) such sale, exchange, transfer, or assignment
could not cause the Fund to be treated as a publicly traded
partnership taxable as a corporation for federal income tax
purposes or to lose its status as a partnership for state
income tax purposes.
Any such opinion of counsel shall be delivered in writing to the Fund
prior to the date of the proposed sale, exchange, transfer, or assignment.
(c) Minors. In no event shall all or any part of a Unit be
assigned or transferred by a Member to a minor or an incompetent except in
trust, pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to
Minors Act, or by will or intestate succession.
(d) Fractional Interests. No purported sale, exchange,
assignment, or transfer by a Member of, or after which the transferor and each
transferee would hold, Units representing less than ten Units or including a
fractional Unit will be permitted or recognized for any purpose without the
consent of the Board, which consent shall be granted only for good cause shown.
-25-
(e) Documentation. Each Member other than a Director agrees,
upon request of the Directors, to execute such certificates or other documents
and perform such acts as the Board deems appropriate after an assignment of a
Unit by that Member to preserve the limited liability of the Members under the
laws of the jurisdiction in which the Fund is doing business.
(f) Void ab initio. Any purported assignment of a Unit that is
not made in compliance with this Agreement is hereby declared to be null and
void and of no force or effect whatsoever.
(g) Expense. Each Member other than a Director agrees to pay
all reasonable expenses, including attorneys' fees, incurred by the Fund in
connection with any assignment.
(h) Assignment. For purposes of this Article 9, any transfer
of a Unit, whether voluntary or by operation of law, shall be considered an
assignment.
9.2 Assignees.
(a) Notification Required and Effective Date. The Fund shall
not recognize for any purpose any purported sale, assignment, or transfer of all
or any fraction of the Units of a Member unless the provisions of Section 9.1
shall have been complied with and there shall have been filed with the Fund a
dated notification of such sale, assignment, or transfer, in form satisfactory
to the Directors, executed and acknowledged by both the seller, assignor, or
transferor and the purchaser, assignee, or transferee and such notification (i)
contains the acceptance by the purchaser, assignee, or transferee of all of the
terms and provisions of this Agreement and (ii) represents that such sale,
assignment, or transfer was made in accordance with all applicable laws and
regulations. Any sale, assignment, or transfer shall be recognized by the Fund
effective on the first day of the fiscal quarter following the fiscal quarter in
which such notification is filed with the Fund. If a Unit is sold, assigned, or
transferred more than once during a fiscal quarter, the last purchaser,
assignee, or transferee with respect to whom notification is received shall be
recognized by the Fund.
(b) Voting. Unless and until an assignee of a Unit becomes a
Substituted Member, such assignee shall not be entitled to vote or to give
consents with respect to such Unit.
(c) Assignor Rights. Any Member who shall assign all of such
Member's Units shall cease to be a Member and shall not retain any statutory
rights as a Member.
(d) Written Assignments. Anything herein to the contrary
notwithstanding, both the Fund and the Directors shall be entitled to treat the
assignor of a Unit as the absolute owner thereof in all respects, and shall
incur no liability for distributions made in good faith to such assignor until
such time as a written assignment that conforms to the requirements of this
Section 9.2 has been received by the Fund and accepted by the Board.
-26-
(e) Assignee Not Substituted Member. A person who is the
assignee of all or any fraction of the Units of a Member, but does not become a
Substituted Member and desires to make a further assignment of such Units, shall
be subject to all the provisions of this Article 9 to the same extent and in the
same manner as any Member desiring to make an assignment of such Member's Units.
9.3 Substituted Members.
(a) Approval. No Member shall have the right to substitute a
purchaser, assignee, transferee, donee, heir, legatee, distributee, or other
recipient of all or any fraction of such Member's Units as a Member in the
transferring Member's place. Any such purchaser, assignee, transferee, donee,
heir, or other recipient of a Unit (whether pursuant to a voluntary or
involuntary transfer) shall be admitted to the Fund as a Substituted Member only
(i) with the consent of the Directors, which consent shall be granted or
withheld in the absolute discretion of the Directors; (ii) by satisfying the
requirements of Sections 9.1 and/or 9.2; and (iii) if necessary, upon an
amendment to this Agreement executed by all necessary parties and filed or
recorded in the proper records of each jurisdiction in which such recordation is
necessary to qualify the Fund to conduct business or to preserve the limited
liability of the Members and Directors. Any such consent by the Directors may be
evidenced, if necessary, by the execution by the Directors of an amendment to
this Agreement evidencing the admission of such Person as a Member. The
admission of a Substituted Member shall be recorded on the books and records of
the Fund. The Members hereby consent and agree to such admission of a
Substituted Member by the Board. The Directors agree to process such amendments
not less frequently than quarterly.
(b) Admission. Each Substituted Member, as a condition to
admission as a Member, shall execute and acknowledge such instruments, in form
and substance satisfactory to the Directors, as the Directors deem necessary or
desirable to effectuate such admission and to confirm the agreement of the
Substituted Member to be bound by all the terms and provisions of this Agreement
with respect to the Units acquired. All reasonable expenses, including
attorneys' fees, incurred by the Fund in this connection shall be borne by such
Substituted Member.
(c) Rights of Assignee. Unless and until an assignee shall
have been admitted to the Fund as a Substituted Member pursuant to this Section
9.3, such assignee shall be entitled only to the rights of an assignee of a
limited liability company interest under the Act.
9.4 Indemnification. Each Member shall indemnify and hold harmless the
Company, the Directors, and every Member who was or is a party to any pending or
completed action, suit, or proceeding whether civil, criminal, administrative,
or investigative, by reason of or arising from any actual misrepresentation or
misstatement of facts or omission to state facts made (or omitted to be made) by
such Member in connection with any assignment, transfer, encumbrance, or other
disposition of such Member's Unit(s), or the admission of a Substituted Member
to the Fund, against expenses for which the Fund or such other Person has not
otherwise been reimbursed (including attorneys fees, judgments, fines, and
amounts paid in settlement)
-27-
actually and reasonably incurred by the Fund or such other Person in connection
with such action, suit, or proceeding.
9.5 Incapacity of a Member. If a Member dies, such Member's executor,
administrator, or trustee, or, if such Member is adjudicated incompetent, such
Member's committee, guardian or conservator, or, if such Member becomes
bankrupt, the trustee or receiver of such Member's estate, shall have all the
rights of a Member for the purpose of settling or managing the estate of such
Member, and such power as the Incapacitated Member possessed to assign all or
any part of the Incapacitated Member's Units and to join with such assignee in
satisfying conditions precedent to such assignee's becoming a Substituted
Member. The Incapacity or death of a Member shall not dissolve the Fund.
9.6 Withholding of Distributions. From the date of the receipt of any
instrument relating to the transfer of a Unit or at any time the Directors are
in doubt regarding the person entitled to receive distributions in respect of a
Unit, the Directors may withhold any such distributions until the transfer is
completed or abandoned or the dispute is resolved.
9.7 Transferor-Transferee Allocations. If a Unit is transferred in
compliance with the provisions of this Article 9, the income, gains, losses,
deductions, and credits allocable in respect of that Unit shall be allocated
between the transferor and transferee in accordance with Section 5.7.
9.8 No Withdrawal. No Member shall be permitted to withdraw or resign
from the Fund without the express written consent of the Board. Any withdrawal
or attempted withdrawal of a Member in violation of this Section 9.8 shall be
null and void.
9.9 Notices. Any Member who, in accordance with this Article 9, shall
acquire or succeed to the interest of any other Member, shall promptly notify
the Board of his name, mailing address and the date of acquisition or transfer
of the applicable Units.
9.10 Optional Adjustment to Basis of Fund Property. In the event of the
transfer of the interest of a Member in the Fund during the life of the Member
or upon the death of the Member, the Board may, at its sole discretion, make an
election on behalf of the Fund as provided in Section 754 of the Code (if such
an election is not already in effect for the Fund) and cause the Fund to make
the adjustments to the basis of the property of the Fund (with regard to the
transferee Member only) as provided in Section 754 of the Code.
ARTICLE 10
DISSOLUTION AND LIQUIDATION
10.1 Dissolution.
(a) The Company shall be dissolved and its business terminated
upon the happening of the earliest of the following:
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(i) the return of all Capital Contributions to the
Members pursuant to Article 4 hereof;
(ii) a sale or disposition of all or substantially
all of its assets;
(iii) the expiration of its term as herein provided;
(iv) consent of a Majority-In-Interest of Members;
and
(v) the occurrence of any other event which, under
the mandatory provisions of the laws of the State of New
Jersey, would cause a termination or dissolution of the
Company.
(b) The death, dissolution, expulsion, Bankruptcy, Incapacity
or withdrawal of any Member will not cause the dissolution of the Company.
10.2 Liquidation.
(a) In the event of the dissolution of the Company, which
dissolution (if applicable) is not followed by actions of the Members to
continue the Company, the assets of the Company shall be sold or distributed as
promptly as possible, but in an orderly and businesslike manner, as the Board in
its discretion shall determine. All assets of the Company which are sold shall
be sold at such price and upon such terms as the Board in its sole discretion
may deem advisable. The Board may retain the Investment Manager (or another
Person) to assist in the liquidation of the Company. The Investment Manager (or
the Person charged with the liquidation of the Company) shall be entitled to a
fee for its services as the liquidator of the Company, the amount of such fee to
be determined by mutual agreement of the liquidator and the Board. Any Member
may purchase the assets of the Company at such sale.
(b) The proceeds of any sale described in Section 10.2(a), in
addition to the cash and securities on hand, shall be applied and distributed in
the following order of priority:
(i) to the payment of debts and liabilities of the
Fund, including, without limitation, loans payable to Members
and the liquidator fee described in Section 10.2(a) above;
then
(ii) to the setting up of such reserves as the Board
may deem necessary for any contingent liabilities or
obligations of the Company, provided that any such reserves
shall be paid over to an independent escrow agent, to be held
by such agent or his successor for such period as such person
shall deem advisable for the purpose of applying such reserves
to the payment of such liabilities or obligations and, at the
expiration of such period, the balance of such reserves, if
any, shall be distributed; then
-29-
(iii) to the Members, in proportion to the positive
balances of their respective Capital Accounts after all
Profits and Losses resulting from the liquidation and/or
distribution of all assets of the Company have been allocated
pursuant to Section 5.1.
(c) The Board may in its discretion distribute any or all of
the Company's assets in kind and in varying amounts (including a percentage of
one or more such assets which exceeds the percentage of such asset(s) which is
equal to the percentage in which a Member shares in distributions from the
Company) to the Members.
(d) The Board, in making distributions upon liquidation, shall
value the Company's publicly traded assets by reference to the values of same
reported by the securities exchange or quotation system upon which such
securities are listed or quoted on the day prior to distribution of the same,
and shall value the Company's remaining assets according to their fair market
value as determined by the Board, acting in good faith. The determination of
fair market value of each of the assets by the Board shall be conclusive and
binding on the parties.
10.3 Return of Capital Contribution. The return of all or any part of
the Capital Contributions of the Members in connection with the liquidation of
the Company shall be made solely from Company assets and the Members shall have
no right to demand either cash or property other than cash.
ARTICLE 11
RESIGNATION OR REMOVAL OF DIRECTORS OR INVESTMENT MANAGER
11.1 Resignation of a Director. Subject to Section 11.5, a
Director may voluntarily resign or withdraw from the Fund, but only upon
compliance with all of the following procedures:
(a) the Director shall give notification to the Board of
Directors that he or she proposes to withdraw;
(b) subject to Section 7.1(b), the remaining members of the
Board shall designate a successor Director pursuant to Section 7.1(d) who shall
hold such office until such Director's successor has been approved and elected
by the Members as required under the 1940 Act;
(c) the Board shall designate only an Independent Director to
replace a withdrawing or retiring Independent Director; and
(d) the withdrawing Director shall cooperate fully with the
successor Director so that the responsibilities of the withdrawing Director may
be transferred to the successor Director with as little disruption of the Fund's
business and affairs as practicable.
-30-
11.2 Resignation of the Investment Manager. The Investment Manager may
voluntarily resign or withdraw from the Fund, but only upon compliance with all
of the following procedures:
(a) the Investment Manager shall, at least 60 days prior to
such withdrawal, give notification to all Investors that it proposes to withdraw
and that there be substituted in its place a Person or Persons designated and
described in such notification;
(b) enclosed with the notification shall be a certificate,
duly executed by or on behalf of each proposed successor Investment Manager, to
the effect that: (i) it is experienced in performing (or employs sufficient
personnel who are experienced in performing) functions that the Investment
Manager is required to perform under this Agreement; (ii) it has a net worth
that meets the requirements of any statute or the courts applicable to a manager
of a limited liability company in order to ensure that the Fund will not fail to
be classified for state income tax purposes as a limited liability company
rather than as an association taxable as a corporation; and (iii) it is willing
to become the Investment Manager under this Agreement and will assume all duties
and responsibilities thereunder, without receiving any compensation for services
from the Fund in excess of that payable under this Agreement and/or the
Investment Advisory Agreement to the withdrawing Investment Manager;
(c) if the Investment Manager resigns or withdraws, there
shall be on file at the principal office of the Fund, prior to such withdrawal,
audited financial statements of each proposed successor Investment Manager, as
of a date not earlier than twelve months prior to the date of the notification
required by this Section 11.2, certified by a nationally or regionally
recognized firm of independent certified public accountants, together with a
certificate, duly executed on behalf of each proposed successor Investment
Manager by its principal financial officer, to the effect that no material
adverse change in its financial condition has occurred since the date of such
audited financial statements that has caused its net worth to be reduced to less
than the amount under Subsection 11.2(b). Such audited financial statements and
certificates shall be available for examination by any Member during normal
business hours;
(d) to the extent required by and in accordance with the 1940
Act, a Majority-In-Interest of Members has consented to the appointment of, or
the approval of an Investment Advisory Agreement with, any successor Investment
Manager; and
(e) the withdrawing Investment Manager shall cooperate fully
with each successor Investment Manager so that the responsibilities of the
withdrawing Investment Manager may be transferred to each successor Investment
Manager with as little disruption of the Fund's business and affairs as
practicable.
11.3 Removal of a Director or Investment Manager, Designation of a
Successor Director or Investment Manager
(a) Any of the Directors may be removed either: (i) for cause
by the action of at least two-thirds of the remaining Directors, including a
majority of the remaining
-31-
Independent Directors; (ii) by failure to be approved and re-elected by the
Members in accordance with this Agreement; or (iii) with the consent of a
Majority-In-Interest of the Members. The removal of a Director shall in no way
derogate from any rights or powers of such Director, or the exercise thereof, or
the validity of any actions taken pursuant thereto, prior to the date of such
removal. The Investment Manager may be removed (and/or the Investment Advisory
Agreement may be terminated): (i) by a majority of the Directors; (ii) by
failure to be approved by the Members in accordance with this Agreement; (iii)
by the vote of a Majority-In-Interest of the Members; or (iv) automatically upon
assignment of the Investment Manager's Units.
(b) Subject to Section 7.1(b) and in accordance with Section
7.1(d), the remaining members of the Board may designate one or more Persons to
fill any vacancy existing in the number of Directors fixed pursuant to Sections
7.1(a) or 7.1(b) resulting from removal of a Director pursuant to Section
11.3(a). Remaining members of the Board may (x) designate one or more Persons to
be successors to the Investment Manager removed; and/or (y) approve an
Investment Advisory Agreement terminated, as the case may be, by the Directors
pursuant to Section 11.3(a), and each Member other than a Director hereby
consents to the admission of such successor or successors and/or the approval of
such Investment Advisory Agreement, no further consent being required until the
next Biannual Meeting. Any such successor Director or Investment Manager
designated hereunder (or under Section 7.1(d)) shall hold office until the next
Biannual Meeting and until his or her successor has been approved and elected.
With the consent of such number of Members other than a Director (but not in any
event less than a Majority-In-Interest of the Members) as are then required
under the 1940 Act, the Act and the laws of the other jurisdictions in which the
Fund is then formed or qualified, to consent to the admission of a Director,
such Members may, subject to the provisions hereof, at any time admit a Person
to be successor to a Director concurrently therewith being removed by the
Members pursuant to Section 11.3(a).
(c) Any removal of a Director shall not affect any rights or
liabilities of the removed Director that matured prior to such removal.
11.4 [Intentionally Omitted].
11.5 Admission of a Successor Director.
(a) The appointment of any successor Director (whether
pursuant to section 11.3 and/or 7.1(d)) shall be effective only if and after the
following conditions are satisfied:
(i) the designation of such Person as successor
Director shall occur, and for all purposes, shall be deemed to
have occurred, prior to the withdrawal or removal of the
withdrawing or removed Director;
(ii) the Units of the Members shall not be affected
by the admission of such successor Director or the transfer of
the Director's Units; and
-32-
(iii) to the extent required by and in accordance
with the 1940 Act, a Majority-In-Interest of Members has
consented to the appointment of such successor Director.
(b) Notwithstanding anything to the contrary in this Article
11, a Director's Units shall at all times be subject to the restrictions on
transfer set forth in Article 9 regardless of whether such Person continues to
be a Director of the Fund.
11.6 Liability of a Withdrawn or Removed Director Any Director who
shall withdraw or be removed from the Fund, or who shall sell, transfer, or
assign his Units shall remain liable for obligations and liabilities incurred by
him as Director prior to the time such withdrawal, removal, sale, transfer, or
assignment shall have become effective, but he shall be free of any obligation
or liability incurred on account of the activities of the Fund from and after
the time such withdrawal, removal, sale, transfer, or assignment shall have
become effective.
11.7 Consent of Members to Admission of Successor Directors. Each
Member other than a Director hereby consents, pursuant to Section 11.3, to the
admission of any Person as a successor Director meeting the requirements of
Section 11.3 to whose admission as such a Majority-In-Interest of the Investors
have expressly consented, and no further express consent or approval shall be
required.
11.8 Continuation. In the event of the withdrawal, removal, Incapacity
or death of a Director, the Fund shall not be dissolved and the business of the
Fund shall be continued by the remaining Directors.
ARTICLE 12
ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS
12.1 Annual Accounting Period. The annual accounting period of the Fund
shall be January 1 through December 31.
12.2 Records.
(a) The Investment Manager shall maintain, or cause to be
maintained, the Certificate of Formation and all amendments thereto, this
Agreement and all amendments hereto, complete and accurate records of all
transactions of the Fund, copies of the Fund's tax returns, and full and true
books of account in accordance with the accounting method followed by the Fund
for Federal income tax purposes.
(b) All of such books and records shall, at all times, be kept
at the principal office of the Fund and during regular business hours shall be
opened upon reasonable notice for inspection, examination and copying by a
Member or his authorized representative(s). Members shall be given reasonable
access during business hours to the information regarding the Fund.
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12.3 Income Tax Returns.
(a) The Investment Manager shall be the "tax matters partner"
under the Code.
(b) With respect to the preparation of federal, state and
local income tax returns of the Fund, the tax matters partner shall see to the
preparation and filing of all such returns in a timely manner and shall make, in
his sole discretion, unless otherwise provided herein, such elections or
determinations as may be desirable and available under current provisions of the
Code. In the event that the Internal Revenue Service audits the return of any
Member with respect to his or its participation in the Fund, the Fund shall have
the right, but not the obligation, to participate at its own expense in such
audit in matters affecting the Fund's tax return. The Members shall take such
steps and execute such instruments as may be required to accomplish this,
including without limitation the execution of powers of attorney. In the event
of an income tax audit of any Fund tax return, to the extent the Fund is treated
as an entity for purposes of the audit, including administrative settlement and
judicial review, the tax matters partner shall be authorized to act for, and its
decisions shall be final and binding upon, the Fund and the Members. The tax
matters partner shall keep the other Members apprised of the status of any
income tax audit.
12.4 Reports. The Board shall cause to be delivered to the Members the
following:
(a) By March 31st of each year, a statement which shall
include, as of the end of and for the previous Fiscal Year, the following:
(i) A financial statement of the Fund and a status
report of the Fund's investments prepared by an accounting
firm selected by the Board;
(ii) Such other information as is required under the
1940 Act or other relevant law or, in the opinion of the
Board, shall reasonably be necessary for the Members to be
currently aware of the operating and business results of the
Fund, including a valuation of the Company's investment
portfolio which has been approved the Advisory Committee.
(b) Not later than the sixtieth (60th) day following the end
of each of the first three (3) fiscal quarters of each Fiscal Year, a quarterly
review of the Fund's operations, including unaudited financial statements of the
Fund and a valuation of the Fund's investment portfolio which has been approved
by a majority of Directors.
(c) Any information reasonably necessary for the preparation
by any Member of his federal, state and local income or other tax returns. The
Board shall use its best efforts to cause the Investment Manager to provide the
appropriate Forms K-1 to each Member by March 31 of each year, however, it
cannot guarantee that such forms shall be provided to each Member by such date.
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(d) By March 31 of each year the Fund will also distribute to
the Members an annual report containing a balance sheet and statements of
operations, changes in members' equity and cash flows (which would be prepared
on a GAAP basis of accounting and will be examined and reported upon by an
independent public accountant) and a report on the Fund's activities during the
period reported upon. Such annual report will describe all reimbursements to the
Investment Manager and its affiliates and all distributions to investors,
including the source of such payments.
12.5 Biannual Meeting. Pursuant to Section 3.8(d) hereof, the Company
will hold a Biannual Meeting at which additional information about the
activities and investments of the Company shall be provided to the Members.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any offer, acceptance, election, approval, consent,
request, waiver, notice or other document required or permitted to be given
pursuant to any provision of this Agreement shall be deemed duly given only when
in writing, signed by or on behalf of the person giving same, and either
personally delivered (with receipt acknowledged by the recipient) or deposited
in a designated United States mail depository, registered or certified mail,
return receipt requested, postage prepaid, addressed to the person or persons to
whom such offer, acceptance, election, approval, consent, request, waiver or
notice is to be given at their respective addresses indicated herein or in the
Company's records, or at such other address as shall have been set forth in a
notice sent pursuant to the provisions of this Section 13.1.
13.2 Binding Effect. Subject in all respects to the limitations
concerning the transferability of Units contained herein and except as otherwise
herein expressly provided, the provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto, their respective personal
representatives, heirs, successors and permitted assigns.
13.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall for all purposes constitute one agreement
which is binding on all of the parties hereto.
13.4 Section Headings. Section titles or captions contained in this
Agreement are inserted as a matter of convenience and for reference only, and
shall not be construed in any way to define, limit or extend or describe the
scope of this Agreement or the intention of the provisions hereof.
13.5 Exhibits. All exhibits and schedules annexed hereto are expressly
made a part of this Agreement, as fully as though completely set forth herein,
and all references to this Agreement herein or in any of such exhibits or
schedules shall be deemed to refer to and include all such exhibits or
schedules.
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13.6 Variation in Pronouns. All pronouns and variations thereof shall
be deemed to refer to masculine, feminine, neuter, singular or plural, as the
identity of the person, persons, or entities may require.
13.7 Severability. Each provision hereof is intended to be severable
and the invalidity or illegality of any portion of this Agreement shall not
effect the validity or legality of the remainder.
13.8 Qualification in Other States. In the event the business of the
Company is carried on or conducted in states in addition to New Jersey, then the
Members agree that the Company shall qualify to do business under the laws of
each state in which business is actually conducted by the Company, and they
severally agree to execute such other and further documents as may be required
or requested in order that the Board legally may qualify the Company in such
states to the extent possible. A Company office or principal place of business
in any state may be designated from time to time by the Board.
13.9 Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the matters set forth herein and
supersedes any prior understanding or agreement, oral or written.
13.10 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
13.11 Forum. Any action by one or more Members against the Company or
the Directors, Investment Manager or Members, or by the Company against the
Directors, Investment Manager or Members, which arises under or in any way
relates to this Agreement, the sale of Units or actions taken or failed to be
taken or determinations made or failed to be made by the Investment Manager or
Directors or relating to the Company or services provided for it or joint
activities or other transactions in which it engages, including, without
limitation, transactions permitted hereunder or otherwise related in any way to
the Company, may be brought only in the state courts of the State of New Jersey
or the United States District Court for the District of New Jersey. Without
limitation, any action by the Investment Manager or Members which he or they may
have from time to time against one or more of the Members may be brought by such
Investment Manager or Members, or the Company, as the case may be, in any of the
courts mentioned in the preceding sentence. Each Member hereby consents to the
exclusive jurisdiction of such courts to decide any and all such actions and to
such venue.
IN WITNESS WHEREOF, the undersigned, intending to be legally
bound hereby, have duly executed this Agreement as of the date first above
written.
C.J.M. ASSET MANAGEMENT, LLC,
Member
By:
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Name: S. Xxxxxxx Xxxxxxxx, Xx.
Title: Director
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