1
EXHIBIT 99.2A-2
TECHNOLOGY FUNDING VENTURE CAPITAL FUND VI, LLC
FORM OF OPERATING AGREEMENT
This OPERATING AGREEMENT ("Agreement") is entered into by Technology Funding
Inc. and Technology Funding Ltd. (the "Investment Managers"), and Xxxxxxx X.
Xxxxxx and Xxxxxxx X. Xxxxxx (the "Affiliated Directors"), and
_________________, ________________, and _________________ (the "Independent
Directors"), and each of those Persons who shall hereafter be admitted as
Investors. Collectively, the Investment Managers, the Affiliated Directors,
and the Independent Directors are the managing members of the limited liability
company.
The Parties to this Agreement hereby agree as follows:
ARTICLE 1
INTRODUCTION
1.01 FORMATION. Technology Funding Venture Capital Fund VI, LLC (the
"Fund") has been formed as a limited liability company under the laws of the
State of Delaware by the filing of the Certificate of Formation pursuant to the
Act (as defined herein), on behalf of the parties and any and all Substituted
Investors (as defined herein). Except as expressly provided herein to the
contrary, the rights and obligations of the Investors and the administration
and termination of the Fund shall be governed by the Act.
1.02 NAME. The name of the Fund is "Technology Funding Venture Capital
Fund VI, LLC." If considered necessary in the opinion of counsel to the Fund to
preserve the limited liability of the Investors and Directors, property
acquired and business conducted by the Fund shall be in such other name as is
necessary to preserve such limited liability.
1.03 PURPOSE. The Fund is authorized and empowered to elect to operate,
and to operate, as a business development company under the Investment Company
Act of 1940, as amended. The Fund's principal investment objective is to
generate long-term capital appreciation of its assets through investment in
venture capital opportunities. The Fund will seek to accomplish this objective
by making venture capital investments in new and developing companies that the
Investment Managers believe offer significant long-term growth possibilities
and by providing those companies with active
Page 1
2
management assistance where warranted. The Fund will also seek to achieve this
objective by investing in established companies that the Investment Managers
believe offer special opportunities for growth. The Fund will also seek to
preserve the Investors' capital through risk management and active
participation with Portfolio Companies. Generation of current income or tax
benefits will not be primary factors in the selection of investments.
1.04 PLACE OF BUSINESS AND OFFICE; REGISTERED AGENT. The Fund shall
maintain its principal office c/o Technology Funding Inc., 2000 Xxxxxxx xx xxx
Xxxxxx, Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000. The Management Committee (as
hereinafter defined), may at any time change the location of the Fund's offices
and may establish additional offices if it deems it advisable. Notification of
any such change shall be given to the Investors on or before the date of any
such change. The name and address of the Fund's registered agent for service
of process on the Fund is The Corporation Trust Fund, Corporation Trust Center,
0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxx Xxxxxx Xxxxxx, Xxxxxxxx 00000.
1.05 TERM. The operation of the Fund shall commence on the Commencement
Date (as hereinafter defined), and shall continue in full force and effect until
December 31, 2007, unless further extended for up to two additional two-year
periods from such date if the Management Committee determines that such an
extension is in the best interest of the Fund or until dissolution prior
thereto pursuant to the provisions hereof.
1.06 THE INVESTORS. The names, addresses, and Capital Contributions (as
hereinafter defined), of the Investors are set forth in the books and records
of the Fund, as amended from time to time.
1.07 TITLE TO FUND PROPERTY. All property owned by the Fund, whether
real or personal, tangible or intangible, shall be owned by the Fund as an
entity, and no Investor, individually, shall have title to or any interest in
such property.
ARTICLE 2
DEFINITIONS
Unless otherwise provided herein or unless the context otherwise requires, the
terms with initial capital letters in this Agreement are defined as follows:
(a) "ACT" means the Delaware Limited Liability Company Act, as
at any time now existing or in the future.
Page 2
3
(b) "ADJUSTED CAPITAL CONTRIBUTIONS" means total Investor
Capital Contributions raised in the offering reduced by the cost
basis of any Portfolio Company securities (i) distributed to, or
liquidated and the proceeds distributed to, the Investors, or (ii)
written off with no further attempt being made by the Investment
Managers to aid the Portfolio Company but not reduced by net
operating losses of the Fund.
(c) "AFFILIATE" means, when used with reference to a
specific Person, an "affiliated person" of such specified Person as
defined in Section 2(a)(3) of the 1940 Act.
(d) "AFFILIATED DIRECTORS" shall mean Xxxxxxx X. Xxxxxx and
Xxxxxxx X. Xxxxxx and/or any other individual who becomes a successor
or additional Affiliated Director of the Fund as provided herein, in
such individual's capacity as an Affiliated Director of the Fund.
(e) "AGREEMENT" means this Operating Agreement as originally
executed and as amended, modified, supplemented, or restated from
time to time.
(f) "CAPITAL ACCOUNT" means a capital account for an Investor
calculated as set forth in Section 11.03.
(g) "CAPITAL CONTRIBUTION" means the total amount of cash
that each Investor has contributed to the capital of the Fund in
consideration for such Investor's Shares, without reduction for
selling, organizational, or other expenses, less any amounts returned
pursuant to Section 7.05.
(h) "CASH AND SECURITIES AVAILABLE FOR DISTRIBUTION" means
all Fund cash from whatever sources derived, less such reserves as the
Management Committee shall deem reasonable for the Fund's business,
plus any securities held by the Fund that the Management Committee
deems available for distribution.
Page 3
4
(i) "CLOSING DATE" means the fifth business day after the Fund
has terminated the offering of Shares.
(j) "COMMENCEMENT DATE" means the effective date of the
Prospectus and the commencement of Fund operations.
(k) "CONSENT" or "CONSENT" means either (i) the approval given
by vote at a meeting called and held pursuant to this Agreement or
(ii) the written approval required or permitted to be given pursuant
to this Agreement, or (iii) the act of granting such an approval, as
the context requires.
(l) "CONVERSION" means that point in time when the amount of
cash plus the value of all securities distributed valued at the time
of distribution to the Investors equals the aggregate Capital
Contributions of all Investors reduced by any returns of Capital
Contributions pursuant to Section 7.05.
(m) "DIRECTOR" shall mean the Affiliated Directors and the
Independent Directors in their capacities as Directors of the Fund;
collectively, the governing body of the Fund.
(n) "FUND" is defined in Section 1.01.
(o) "FUND INTEREST" means all of the interests of an Investor
in the Fund, including, without limitation, the Investor's: (i)
right to a distributive share of profits and losses; (ii) right to a
distributive share of the assets of the Fund; and (iii) right, if a
Director or Investment Manager, to participate in the management of
the Fund.
(p) "INCAPACITY" shall mean, as to any Person, the entry of an
order for relief in a bankruptcy proceeding ("bankruptcy"), entry of
an order of incompetence or insanity, or the death, dissolution, or
termination (other than by merger or consolidation), as the case may
be, of such Person.
Page 4
5
(q) "INDEPENDENT" shall mean any individual who is not an
"Interested Person" of the Fund, as defined in the 1940 Act.
(r) "INDEPENDENT DIRECTORS" shall mean ________________,
_________________, and _________________, and/or any other individual
who becomes a successor or additional Independent Director of the
Fund as provided herein, in such individual's capacity as an
Independent Director of the Fund.
(s) "INVESTMENT MANAGERS" means Technology Funding Inc.
("TFI") and Technology Funding Ltd. ("TFL") and/or any other Person
who becomes an Investment Manager of the Fund as provided herein, in
such Person's capacity as Investment Manager of the Fund.
(t) "INVESTMENT MANAGER OVERHEAD" means those customary and
routine expenses incurred by the Investment Managers (excluding all
Organizational Expenses and Offering Expenses) that are of a general
and administrative nature that are specifically incurred by the
Investment Managers for their own accounts and are not attributable
in any way to performing their investment management activities for
the Fund. Investment Manager Overhead does not include direct or
indirect expenses incurred by the Investment Managers or their
Affiliates in performing or related to performing their investment
management activities including but not limited to appropriate
allocations of: (i) rent or depreciation, utilities, property taxes,
and the cost of capital equipment unless acquired primarily for the
benefit of the Fund; (ii) salaries and other compensation of
partners, officers, directors, and employees of or contractors to the
Investment Managers or their Affiliates; and (iii) expenses of a
general and administrative nature that are incurred by the Investment
Managers on behalf of the Fund.
(u) "INVESTOR" means any Person, including a Substituted
Investor or an Investment Manager, who is an Investor shown on the
books and records of the Fund at the time of reference thereto, in
such Person's capacity as an Investor of the Fund.
(v) "IRC" means the Internal Revenue Code of 1986, as amended.
(w) "MAJORITY IN INTEREST OF THE INVESTORS" means Investors
who in the aggregate own, at the time of the determination, more than
50% of the Shares owned by all such Investors.
Page 5
6
(x) "MANAGEMENT COMMITTEE" means the Affiliated Directors to
whom the Board of Directors has delegated the responsibility for the
day to day management and operation of the Fund.
(y) "NET LOSS" means for any Taxable Period the aggregate sum,
if negative, of all items of Fund income, gain, deduction, and loss
including tax-exempt income and nondeductible expenses.
(z) "NET PROFIT" means for any Taxable Period the aggregate
sum, if positive, of all items of Fund income, gain, deduction, and
loss including tax-exempt income and nondeductible expenses.
(aa) "OFFERING EXPENSES" means those offering expenses
actually incurred and directly related to the offering and sale of
the Shares including but not limited to the costs of qualifying and
printing sales materials used in connection with the offering of
Shares.
(bb) "OFFERING PERIOD" means that period commencing with the
effective date of the Prospectus when the Fund began offering Shares
and ending when such offering is terminated.
(cc) "OPERATIONAL COSTS" means all expenses of the Fund except
Organizational Expenses and Offering Expenses including but not
limited to: (i) the costs of operations (e.g., documentation,
securities filings, other direct and indirect costs of selecting,
negotiating, monitoring, and liquidating Portfolio Company
investments including consultants, attorneys, accountants,
appraisers, due diligence expenses, industry trade shows and
conferences, travel, investment banking fees and commissions or
preparation of status reports); (ii) the Fund's accounting costs
(e.g., maintenance of Fund books and records, audit fees, preparation
of regulatory and tax reports, costs of computer equipment or
services used by or charged to the Fund); (iii) the costs of
investor communications (e.g., design, production, and mailing of all
reports and communications to Investors, including those required by
regulatory agencies); (iv) the costs of investor documentation
and services; (v) legal, tax, and other professional services; (vi)
salaries, benefits, and other compensation plus an appropriate
allocation of overhead burden for partners, officers, directors,
employees of and contractors to the Investment Managers or their
Affiliates attributable to performing any of the foregoing
activities, and (vii) any other related operational or administrative
expenses necessary for the operation of the Fund.
Page 6
7
(dd) "ORGANIZATIONAL EXPENSES" means those organizational
expenses incurred in connection with the formation of the Fund and in
qualifying Shares under applicable federal and state laws, and any
other expenses actually incurred and related to the organization of
the Fund, including but not limited to: (i) accounting and legal
fees incurred in connection therewith; (ii) registration fees and
Blue Sky filing fees; (iii) the cost of preparing, printing,
amending, and supplementing the Prospectus, registration statement,
and related filings; and (iv) salaries earned and reasonable and
necessary expenses incurred by the partners, officers, directors, and
employees of or contractors to the Investment Managers or their
Affiliates for organizational activities.
(ee) "PERSON" shall mean any individual, company, corporation,
unincorporated organization or association, trust, or other entity.
(ff) "PORTFOLIO COMPANY" means any Person in which the Fund
makes an investment, other than a Short-Term Investment.
(gg) "PROSPECTUS" means that prospectus dated April ____,
1997, offering Shares in the Fund, as supplemented and amended.
(hh) "SHARE" means a portion of the Fund Interest held by any
Investor, including the Investment Managers to the extent of their
capital contributions, representing a Capital Contribution equal to
$100 for each Share.
(ii) "SHORT-TERM INVESTMENT" means commercial paper, government
obligations, money market instruments, certificates of deposit, or
other similar obligations and securities, or the liquid securities of
issuers which exclusively invest in such securities, in each case
where the maturity or average maturity, as the case may be, is one
year or less at the time of purchase by the Fund.
(jj) "SUBSTITUTED INVESTOR" means a Person admitted as an
Investor to the Fund other than a Director pursuant to Section 13.03
in place of and with all of the rights of the Investor who has
transferred or assigned such Investor's Fund Interest to such Person,
and who is shown as an Investor on the books and records of the Fund.
(kk) "SUBSCRIPTION AGREEMENT" means the contract for the
purchase of Fund shares.
Page 7
8
ll) "TAXABLE PERIOD" means each calendar year.
mm) "TFI" means Technology Funding Inc., a California
corporation.
nn) "TFL" means Technology Funding Ltd., a California limited
partnership.
oo) "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.
ARTICLE 3
MANAGEMENT
3.01 BOARD OF DIRECTORS. The governing body of the Fund shall be the
Directors, which shall consist of such number of Independent Directors
as is fixed pursuant to Section 3.02 and two Affiliated Directors who shall
initially be Xxxxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxx.
3.02 INDEPENDENT DIRECTORS. The number of Independent Directors shall
initially be three (except prior to the initial public offering of Shares) 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 three or more than five. A majority of the members
of the Board of Directors shall at all times be Independent Directors. If at
any time the number of Independent Directors is less than a majority, within 90
days thereafter, action shall be taken pursuant to Section 3.04 to restore the
number of Independent Directors to a majority.
3.03 MANAGEMENT COMMITTEE. The Directors shall delegate to the
Management Committee consisting of the Affiliated Directors the powers
specified in Section 3.04.
Page 8
9
3.04 APPROVAL AND ELECTION OF DIRECTORS. The Directors shall hold office
for a term of two years from their approval and election or until their
successors are approved and elected, unless they are sooner removed pursuant to
Section 12.03 or sooner withdrawn pursuant to Section 12.01 or 12.02, as the
case may be. Directors may succeed themselves in office. The Management
Committee may designate successor Management Committee members to fill
vacancies created by the retirement or withdrawal of a Management Committee
member pursuant to Section 12.01 or 12.02 or by the removal of a member of the
Management Committee pursuant to Section 12.03. The Management Committee may
designate Independent Directors to fill any vacancies created by an increase in
the number of Independent Directors pursuant to Section 3.02 or by the
withdrawal or removal of an Independent Director. In the event that no
Independent Directors remain, the Management Committee 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 Investors for
the purpose of approving and electing Independent Directors. Each Investor
other than a Director hereby consents to the admission of any successor
Independent Directors pursuant to this Section 3.03, and no further consent
shall be required. Any successor Independent Director designated by the
Management Committee shall hold office until the next bi-annual meeting of
Investors or until his or her successor has been approved and elected, unless
he or she is sooner removed pursuant to Section 12.03 or withdraws pursuant to
Section 12.01.
3.05 MANAGEMENT COMMITTEE POWERS. Subject to the terms hereof, including
but not limited to Section 3.06, the Management Committee shall have full,
exclusive, and complete discretion in the management and control of the affairs
of the Fund, shall make all decisions affecting Fund affairs and shall have all
of the rights, powers, and obligations of a managing member of a limited
liability company under the Act and otherwise as provided by law. The members
of the Management Committee shall provide overall guidance and supervision with
respect to the operations of the Fund, shall perform all duties imposed on the
directors of business development companies by the 1940 Act, and shall monitor
the activities of Portfolio Companies in which the Fund has invested. Except
as otherwise expressly provided in this Agreement, the Management Committee is
hereby granted the right, power, and authority to do on behalf of the Fund all
things which, in its sole judgment, are necessary or appropriate to manage the
Fund's affairs and fulfill the purposes of the Fund, including, by way of
illustration and not by way of limitation, the power and authority from time to
time to do the following:
(a) subject to Section 3.14, invest the assets of the Fund in
such investments as are consistent with the Fund's purpose, provided
that such investments do not cause the Fund to fail to comply with
Section 55 of the 1940 Act;
Page 9
10
(b) incur all expenses permitted by this Agreement;
(c) to the extent that funds are available, cause to be paid
all expenses, debts, and obligations of the Fund;
(d) employ and dismiss from employment such agents,
employees, managers, accountants, attorneys, consultants, and other
Persons necessary or appropriate to carry out the business and
affairs of the Fund, whether or not any such Persons so employed are
Affiliates of any Directors or the Investment Managers, and to pay
such compensation to such Persons as is competitive with the
compensation paid to unaffiliated Persons in the area for similar
services, subject to the restrictions set forth in Section 3.11;
(e) subject to the indemnification provisions in this
Agreement, pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend, or settle, upon such terms it deems sufficient,
any obligation, suit, liability, cause of action, or claim, including
tax audits, either in favor of or against the Fund;
(f) enter into any sales, agency, or dealer agreements, and
escrow agreements, with respect to the sale of Shares to Investors
and provide for the distribution of such Shares by the Fund through
one or more broker-dealers (which may be Affiliates of the
Directors), or otherwise;
(g) borrow money and issue multiple classes of senior
indebtedness or a single class of Investor interests senior to the
Shares to the extent permitted by the 1940 Act and repay, in whole or
in part, any such borrowings or indebtedness and repurchase or
retire, in whole or in part, any such interests senior to the Shares;
and in connection with such loans or senior instruments to mortgage,
pledge, assign, or otherwise encumber any or all properties or assets
owned by the Fund, including any income therefrom, to secure such
borrowings or provide repayment thereof;
(h) establish and maintain accounts with financial
institutions, including federal or state banks, brokerage firms,
trust companies, savings and loan institutions, or money market
funds;
(i) make temporary investments of Fund capital in Short-Term
Investments pending final disposition or cash distributions to the
Investors;
Page 10
11
(j) to the extent permitted by the 1940 Act, form or cause to
be formed one or more small business investment companies under the
Small Business Investment Fund Act of 1958, as amended;
(k) establish valuation principles and periodically apply such
principles to the Fund's venture capital investment portfolio;
(l) to the extent permitted by the 1940 Act, designate and
appoint one or more agents for the Fund who shall have such authority
as may be conferred upon them by the Management Committee and who may
perform any of the duties of, and exercise any of the powers and
authority conferred upon, the Management Committee hereunder
including, but not limited to, designation of one or more agents as
authorized signatories on any bank accounts maintained by the Fund;
(m) prosecute, protect, defend, or cause to be protected and
defended, or abandon, any patents, patent rights, copyrights, trade
names, trademarks, and service marks, and any applications with
respect thereto, that may be held by the Fund;
(n) take all reasonable and necessary actions to protect the
secrecy of and the proprietary rights with respect to any know-how,
trade secrets, secret processes, or other proprietary information and
to prosecute and defend all rights of the Fund in connection
therewith;
(o) subject to the other provisions of this Agreement, to
enter into, make, and perform such contracts, agreements, and other
undertakings, and to do such other acts, as it may deem necessary or
advisable for, or as may be incidental to, the conduct of the
business contemplated by this Section 3.05, including, without in any
manner limiting the generality of the foregoing, contracts,
agreements, undertakings, and transactions with any Investor or with
any other person, firm, or corporation having any business,
financial, or other relationship with any Investor, provided,
however, such transactions with such Persons and entities (i) shall
only be entered into to the extent permitted under the 1940 Act and
(ii) shall be on terms no less favorable to the Fund than are
generally afforded to unrelated third parties in comparable
transactions;
(p) purchase, rent, or lease equipment for Fund purposes;
Page 11
12
(q) purchase and maintain, at the Fund's expense, liability
and other insurance to protect the Fund's assets from third party
claims; provided that, in their judgment, such insurance is available
and reasonably priced; and cause the Fund to purchase or bear the
cost of any insurance covering the potential liabilities of the
Investors, or employees or partners of the Fund or Investment
Managers as well as the potential liabilities of any Person serving
at the request of the Investment Managers as a director of or advisor
to a Portfolio Company; provided, however, that the Investment
Managers, shall be required to bear, out of their separate assets,
the portion of the premiums for any such insurance coverages beyond
those for matters against which the Fund is permitted to indemnify
the Directors under Article 10;
(r) cause to be paid any and all taxes, charges, and
assessments that may be levied, assessed or imposed upon any of the
assets of the Fund;
(s) make any election on behalf of the Fund that is or may be
permitted under the IRC and supervise the preparation and filing of
all tax and information returns that the Fund may be required to
file;
(t) take any action that may be necessary or appropriate for
the continuation of the Fund's valid existence as a limited liability
company under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the
limited liability of the Investors or to enable the Fund to conduct
the business in which it is engaged;
(u) admit additional Investors to the Fund in accordance with
Section 7.02; admit an assignee of an Investor's Fund Interest to be
a Substituted Investor in the Fund, pursuant to and subject to the
terms of Section 13.03, without the consent of any Investor; and
(v) perform all normal business functions, and otherwise
operate and manage the business and affairs of the Fund, in
accordance with and as limited by this Agreement.
3.06 INVESTMENT MANAGERS. The Investment Managers are hereby granted the
exclusive power and authority from time to time to do the following:
Page 12
13
(a) subject to the supervision of the Management Committee,
manage and control the venture capital 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
Portfolio Companies 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; and
(b) The Investment Managers, on behalf of the Fund, may also
grant Fund guarantees of Portfolio Company borrowings so long as the
aggregate guarantees outstanding at any time do not, when combined
with Fund borrowings, exceed 50% of Fund's aggregate Capital
Contributions.
The grant of exclusive power and authority to the Investment Managers under
this Section 3.06 in no way limits the rights, powers, or authority of the
Management Committee under this Agreement, the Act, or as otherwise provided by
law.
3.07 TAX MATTERS PARTNER; TAX ELECTIONS. TFI, as one of the managing
members of the Fund, shall perform all duties imposed by Sections 6221 through
6233 of the IRC as "Tax Matters Partner" of the Fund, including, but not
limited to, the following: (i) the power to conduct all audits and other
administrative proceedings with respect to Fund tax items; (ii) the power to
extend the statute of limitations for all Investors with respect to Fund tax
items; (iii) the power to file a petition with an appropriate federal court for
review of a final Fund administrative adjustment; and (iv) the power to enter
into a settlement with the Internal Revenue Service on behalf of, and binding
upon, those Investors having less than a 1% interest in the profits of the Fund
unless an Investor notifies the Internal Revenue Service and TFI that TFI may
not act on such Investor's behalf.
The Management Committee may cause the Fund to make all elections required or
permitted to be made by the Fund under the IRC and not otherwise expressly
provided for in this Agreement, in the manner that the Management Committee
believe will be most advantageous to individual taxpayers who: (i) are married
and filing joint federal income tax returns; (ii) are not "dealers" for federal
income tax purposes; (iii) are not subject to alternative minimum tax; and (iv)
have income at least part of which, without
Page 13
14
giving effect to any additional tax on preference items, is subject to the
maximum federal income tax rate in effect at the time of the election.
3.08 APPOINTMENT OF AUDITORS. Subject to the approval of (i) a Majority
in Interest of the Investors (which approval is subject to Section 14.02) and
(ii) a majority of the Independent Directors, the Management Committee, in the
name and on behalf of the Fund, is authorized to appoint independent certified
public accountants for the Fund.
3.09 GOOD FAITH. The Management Committee shall not cause the Fund to
consent to or join in any waiver, amendment, or modification of the terms of
any company agreement, limited liability company agreement, management
agreement, or investment contract to which it is a party unless, in the good
faith judgment of the Management Committee, such waiver, amendment, or
modification would be in the best interests of the Fund.
3.10 RESTRICTIONS ON THE DIRECTORS' AUTHORITY. The Directors shall not
have authority to do any of the following:
(a) act in contravention of this Agreement or of the 1940 Act;
(b) possess Fund property or assign the rights of the Fund in
specific property for other than a Fund purpose;
(c) admit any other Person as a Director of the Fund without
the approval of the Investors except as otherwise provided herein;
this provision shall not restrict the right of a Majority in Interest
of the Investors to approve and elect a successor Director pursuant
to Section 12.05;
Page 14
15
(d) commingle or permit the commingling of the assets of the
Fund with the assets of any other Person except as otherwise provided
herein;
(e) 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;
(f) without the consent of a Majority in Interest of the
Investors, subject to paragraph 14.02; or
(i) elect to dissolve the Fund; or
(ii) sell or otherwise dispose of at any one time all
or substantially all of the assets of the Fund;
or
(g) invest in a company in which any Director has an equity
interest other than through another company that it manages.
3.11 CONTRACTS WITH AFFILIATES OF THE DIRECTORS. The Management Committee
may, on behalf of the Fund, enter into contracts for goods or services with any
Affiliate of a Director or Investment Manager, provided that the charges for
such goods or services are the lower of (i) actual cost 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.
3.12 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 funds and 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
Page 15
16
and Exchange Commission thereunder, or is entered into principally for the
benefit of the Fund in the ordinary course of Fund business.
3.13 OTHER BUSINESS OF INVESTORS. Any Investor and any Affiliate of any
Investor may engage in or possess any interest in other business ventures of
any kind, nature or description, independently or with others, whether such
ventures are competitive with the Fund or otherwise. Neither the Fund nor any
Investor shall have any rights or obligations by virtue of this Agreement or
the company relationship created hereby in or to such independent ventures or
the income or profits or losses derived therefrom, and the pursuit of such
ventures, even if competitive with the business of the Fund, shall not be
deemed wrongful or improper. 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 Managers 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.
3.14 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 an
Investment Manager or any Investment Manager Affiliate;
(b) the Fund shall not sell to or purchase any security or
any other property from a Director or any Director Affiliate, or
effect any transaction in which a Director 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 Director Affiliate except as permitted under
Article 4;
Page 16
17
(e) the Directors shall not, acting as agent or broker, accept
from any source any compensation other than pursuant to Article 4,
for the purchase or sale of any property to or for the Fund or any
Person controlled by the Fund, or for effecting any such transaction;
(f) the Fund shall not issue any of its Shares for
services or for property other than cash or securities;
(g) the Fund shall not sell any Shares at a price below the
current net asset value of such Shares; and
(h) except as provided in Section 7.06, the Fund shall not
purchase any Shares issued by it.
ARTICLE 4
COMPENSATION
4.01 COMPENSATION. Over and above their distributive share of Fund
profits, losses, and distributions, detailed in Articles 8 and 9, the
Investment Managers shall also receive the following amounts from the Fund:
(a) REIMBURSEMENT FOR OFFERING EXPENSES. The Fund shall
reimburse the Investment Managers for Offering Expenses incurred by
the Investment Managers and their Affiliates, up to a maximum of .25%
of the total Investor Capital Contributions.
(b) REIMBURSEMENT FOR ORGANIZATIONAL EXPENSES. The Fund shall
reimburse the Investment Managers for Organizational Expenses
incurred by the Investment Managers and their Affiliates.
Page 17
18
(c) MANAGEMENT FEE. The Fund shall pay the Investment
Managers a Management Fee for supervising the venture capital
operations of the Fund equal to;
(i) 2% of the total Capital Contributions for each of
the years of Fund operation during the Offering Period; and
(ii) 2% of Adjusted Capital Contributions for each year
of Fund operations after the Closing Date.
A full 2% Management Fee shall be payable for each Investor whose
subscription is accepted by the Fund without proration for the
amount of time such Investor was an Investor during the Offering
Period. To the extent such payment is determined to be a payment in
advance prohibited by regulation, the advance portion of the payment
will be deferred as necessary to avoid such determination. The
Management Fees for years after the Closing Date shall be payable
monthly in arrears, beginning with the month following the Closing
Date. 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.
(d) REIMBURSEMENT OF OPERATIONAL COSTS. The Fund shall
reimburse the Investment Managers or their Affiliates for Operational
Costs incurred by the Investment Managers or their Affiliates in
connection with the business of the Fund, including without
limitation expenses related to the selection of Portfolio Companies
or to 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 Operational Costs.
(e) The Investment Managers will pay all Organizational
Expenses and Offering Expenses (subject to the Fund's reimbursement
of such expenses pursuant to Sections 4.01(a) and (b) above).
4.02 INDEPENDENT DIRECTORS. As compensation for services rendered to the
Fund, the Fund will pay each Independent Director:
(a) the sum of $6,000 annually in quarterly installments
beginning on the Commencement Date;
Page 18
19
(b) the sum of $1,000 for each meeting of the Directors
attended by such Independent Director up to an annual limit of
$4,000;
(c) if appointed to a committee by the Directors, the
sum of $1,000 for each such committee meeting attended; provided,
however, that if such committee meeting is held on the same day as a
meeting of the Directors no additional fee will be paid; and
(d) all out-of-pocket expenses relating to attendance at the
meetings, committee or otherwise, of the Directors.
ARTICLE 5
INVESTORS
5.01 LIMITED LIABILITY. The Investors and Directors shall not be
personally liable for any of the debts or losses of the Fund beyond the amount
of total Investor Capital Contributions to the Fund and the share of assets and
undistributed profits of the Fund allocable to the Investors, except as
otherwise provided by the Act and Section 13.04.
5.02 NO MANAGEMENT RESPONSIBILITY. No Investor other than a Director or
Investment Manager shall participate in the management or control of the
business of or transact any business for the Fund but may exercise the rights
and powers of an Investor 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, Management Committee, and
the Investment Managers contemplated under Article 3.
5.03 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 Fund is vested in the Directors and as expressly
delegated to the Management Committee, and the Investment Managers. The
Investors consent to the exercise by the Directors of the powers conferred on
them by law and this Agreement.
Page 19
20
5.04 RIGHTS OF INVESTORS. The Investors shall have the following rights:
(a) the right to approve and elect or disapprove and remove
Directors;
(b) the right to approve or disapprove proposed changes in the
nature of the Fund's business so as to cause the Fund to cease to be,
or to withdraw its election as, a business development company under
the 1940 Act;
(c) the right to approve or disapprove any proposed investment
advisory contract or management agreement or to disapprove and
terminate any such existing contracts; provided, however, that such
contracts are also approved by a majority of the Independent
Directors;
(d) the right to approve and ratify or disapprove and reject
the appointment of the independent accountants of the Fund; provided,
however, that such appointment is approved by the Management
Committee, including a majority of the Independent Directors;
(e) the right to approve or disapprove the appointment of
successor Investment Managers;
(f) the right to propose and approve an amendment to this
Agreement; provided, however, that no such amendment shall conflict
with the 1940 Act; and
(g) the right to approve any other material matters related to
the business of the Fund that the 1940 Act requires to be approved by
the Investors so long as the Fund is a business development company
subject to the provisions of the 1940 Act; provided, however, that,
prior to the exercise of any such right of approval, the Management
Committee amends this Agreement to reflect such additional voting
right.
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 the Investors.
5.05 NO CONSENT REQUIRED. Notwithstanding the foregoing, no vote,
approvals, or other consent shall be required of the Investors to amend this
Agreement in any of the following respects: (i) to reflect any change in the
amount or character of the Capital Contribution of any Investor; (ii) to admit
an
Page 20
21
additional Investor or a Substituted Investor or withdraw an Investor in
accordance with the terms of this Agreement; or (iii) 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 Investors and
Directors in this Agreement; provided that no such correction or change shall
in any manner adversely affect the Fund Interests of any Investor.
ARTICLE 6
AMENDMENTS
6.01 PROPOSAL OF AMENDMENTS. Except as otherwise specified in this
Agreement, any amendment to this Agreement may be proposed by the Directors or
by Investors other than the Directors who, in aggregate, own not less than 10%
of the Shares owned by all such Investors. The Directors or Investors
proposing such amendment shall submit to the Management Committee: (i) the
text of such amendment; (ii) a statement of the purpose of such amendment; and
(iii) an opinion of counsel obtained by the Directors or Investors proposing
such amendment to the effect that such amendment is permitted by the Act and
the laws of any other jurisdiction where the Fund is qualified to do business,
will not impair the limited liability of the Directors or Investors, and will
not adversely affect the classification of the Fund as a partnership for
federal and state income tax purposes. The Management Committee shall, within
20 days after receipt of any proposal under this Section 6.01, give
notification to all Directors and Investors of such proposed amendment, of such
statement of purpose, and of such opinion of counsel, together, in the case of
an amendment proposed by Investors, with the views, if any, of the Management
Committee and the Investment Managers with respect to such proposed amendment.
All proposed amendments shall be submitted to the Investors for a vote no less
than 10 days nor more than 60 days after the date of mailing of such notice and
will be adopted if approved by a Majority in Interest of the Investors. For
purposes of obtaining a written vote, the Management Committee may require
receipt of written responses within a specified time.
6.02 AMENDMENTS TO BE ADOPTED SOLELY BY THE MANAGEMENT COMMITTEE. The
Management Committee may, without the consent of any Investor, amend any
provision of this Agreement, and execute whatever documents may be required in
connection therewith, to reflect:
(a) a change in the name or the location of the principal
place of business of the Fund;
Page 21
22
(b) the admission of Substituted Investors, additional
Investors, or successor Directors in accordance with this Agreement;
(c) a change that is necessary to qualify the Fund as a
limited liability company under the laws of any state or that is
necessary and advisable in the opinion of the Management Committee to
assure that the Fund will not be treated as a publicly traded
partnership taxable as a corporation for federal income tax purposes
or as a corporation for state income tax purposes; and
(d) any other amendments similar to the foregoing.
6.03 AMENDMENTS NOT ALLOWABLE. Unless approved by Investors holding a
majority of the Shares affected thereby, no amendment to this Agreement shall
be permitted if, in the opinion of counsel to the Fund (unless such counsel is
disapproved by such majority), the effect of such amendment would be to:
(a) increase the duties or liabilities of any Investor;
(b) change the interest of any Investor hereto in the assets,
profits, or losses of the Fund, except as otherwise provided herein;
or
(c) in any way adversely affect the federal income tax status
of the Fund.
ARTICLE 7
CAPITAL CONTRIBUTIONS
7.01 CAPITAL CONTRIBUTIONS OF INVESTORS. The Investors shall make the
following contributions to the capital of the Fund:
(a) INVESTMENT MANAGERS. The Investment Managers shall
contribute an aggregate amount equal to $100,000 payable on the
Commencement Date.
Page 22
23
(b) INVESTORS. The Investors and Investment Managers shall
make Capital Contributions, payable upon subscription, in the
amounts set forth opposite their respective names in the books and
records of the Fund, as amended from time to time.
No Investor other than Investment Managers shall be required to lend any funds
to the Fund or to make any Capital Contribution to the Fund except as set
forth in this Section 7.01.
7.02 ADMISSION OF ADDITIONAL INVESTORS. The Management Committee is
authorized to admit to the Fund, as additional Investors, such Persons as they
deem advisable. The manner of the offering of Shares, the terms and conditions
under which subscriptions for such Shares will be accepted, and the manner of
and conditions to the sale of Shares to subscribers therefor and the admission
of such subscribers as additional Investors 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 an Investor, 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 an
Investor.
7.03 INTEREST ON CAPITAL CONTRIBUTIONS. No Investor shall have the right
to be paid interest on any Capital Contribution or on such Investor's Capital
Account, except as specifically provided in this Agreement.
7.04 WITHDRAWAL AND RETURN OF CAPITAL. No Investor shall have the right
to withdraw or to demand the return of any or all of that Investor's Capital
Contribution except as specifically provided in this Agreement.
7.05 EXCESS CAPITAL CONTRIBUTIONS. To the extent the Management Committee
determines, in its sole discretion, that the Fund has received Capital
Contributions in excess of the Fund's needs, the Management Committee may
return said excess Capital Contributions to the Investors, provided that at the
time of such partial returns (i) all liabilities of the Fund to Persons other
than Investors have been paid or, in the good faith determination of the
Management Committee, there remains property of the Fund sufficient to pay them
and (ii) the Management Committee causes this Agreement to be amended, if
necessary, to reflect a reduction in Capital Contributions. In the event that
the Management Committee elects to make a partial return of Capital
Contributions to Investors, such distribution shall be made pro rata to all of
the Investors based upon the number of Shares held by each Investor. Each
Investor, by becoming such, consents to such pro rata distribution theretofore
or thereafter duly authorized and made in accordance with this Section 7.05.
Without the consent of all Investors, no
Page 23
24
Investor shall have the right to receive property other than cash in return for
such Investor's Capital Contribution.
7.06 REDEMPTION OF SHARES. The Fund may redeem or repurchase Shares to
the extent permitted by the 1940 Act.
ARTICLE 8
PROFIT AND LOSS
8.01 NET PROFIT. Except as provided in Sections 8.03, Net Profit of the
Fund shall be allocated for Fund tax and accounting purposes, in the following
order and priority:
(a) first, to those Investors with deficit Capital Account
balances in proportion to such deficits until such deficits have been
eliminated;
(b) second, to those Investors as necessary to
offset Net Loss previously allocated to such Investors pursuant to
Section 8.02(b) and Offering Expenses charged to their Capital
Account until each Investor has been allocated cumulative Net
Profit pursuant to this Section 8.01(b) equal to the cumulative Net
Loss previously allocated to such Investor pursuant to Section
8.02(b) and its share of Offering Expenses not already offset
pursuant to this Section 8.01(b) or Section 8.01(a); and
(c) third,
(i) 80% to the Investors to be allocated pursuant
to Section 8.04; and
(ii) 20% to the Investment Managers.
Page 24
25
In no event shall the Investment Managers be allocated less than 1% of the Net
Profit of the Fund plus their pro rata share based on capital contributed.
8.02 NET LOSS. Except as provided in Section 8.03, Net Loss of the Fund
shall be allocated for Fund tax and accounting purposes, in the following order
and priority:
(a) first, to the Investors and Investment Managers as
necessary to offset Net Profit previously allocated to such Investors
and Investment Managers pursuant to Section 8.01(c) until each
Investor and Investment Managers has been allocated cumulative Net
Loss pursuant to this Section 8.02(a), equal to the cumulative Net
Profit previously allocated to such Investor and Investment Manager
pursuant to Section 8.01(c) and not already offset by this Section
8.02(a); and
(b) second, 99% to the Investors and 1% to the Investment
Managers.
8.03 ALLOCATION OF LOSSES IN EXCESS OF CAPITAL ACCOUNT. The amount of any
Net Loss in excess of any then positive balance in the Capital Account of an
Investor, which would be allocable to an Investor but for this Section 8.03,
shall be allocated to the Investors that have positive balances in their
Capital Accounts in proportion to the respective amounts of such positive
balances until all such balances have been reduced to zero, and thereafter
solely to the Investment Managers. Thereafter, Net Profit in such manner and
to such extent as may be necessary so that, after such allocation, the
respective balances of the Capital Accounts as nearly as possible will equal
the balances that would have been obtained if the amounts allocated pursuant to
the preceding sentence instead had been allocated under the provisions of this
Article 8 without giving effect to the preceding sentence.
Page 25
26
8.04 ALLOCATIONS AMONG INVESTORS. Any allocations to the Investors other
than the Investment Managers pursuant to Article 8 shall be made among such
Investors as follows:
(a) with respect to any Net Profit or Net Loss allocated to such
Investors as a group pursuant to Article 8, such allocation shall be
made to the extent possible under the IRC, first to equalize the
Capital Account balance per Share of each such Investor, and then in
the proportion that the number of Shares held by each such Investor
bears to the total number of Shares held by all such Investors.
8.05 ALLOCATIONS AMONG INVESTMENT MANAGERS. All allocations to the
Investment Managers pursuant to this Article 8, as well as allocations of
compensation, fees, or reimbursements paid to the Investment Managers, shall be
determined by the Investment Managers in their sole discretion.
8.06 QUALIFIED INCOME OFFSET. In the event any Investor unexpectedly
receives an adjustment, allocation, or distribution that results in a deficit
balance in such Investor's Capital Account, there shall be allocated to such
Investor items of Fund income and gain in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible.
8.07 ALLOCATIONS OF OFFERING PERIOD INCOME. Income earned during the
Offering Period or Short-Term Investments shall be allocated monthly 99% to
the Investors and 1% to the Investment Managers.
Page 26
27
ARTICLE 9
DISTRIBUTIONS
9.01 DISTRIBUTIONS GENERALLY. Except as provided in Section 9.02, Cash
and Securities Available for Distribution shall be distributed 99% to the
Investors, and 1% to the Investment Managers until Conversion. After
Conversion, Cash and Securities Available for Distribution shall be distributed
80% to the Investors in proportion to the Investors' Capital Account Balances
and 20% to the Investment Managers. Securities distributed in kind to
Investors shall be treated as if sold at the value determined under Section
9.04, and the gain or loss shall be allocated in accordance with Article 8.
Distributions to Investors shall be made only to the extent they are not
prohibited by any applicable restrictions set forth in the 1940 Act. On
liquidation, distributions shall be made in accordance with the provisions of
Article 15.
9.02 MINIMUM DISTRIBUTION. Notwithstanding Section 9.01 and to the extent
there are funds available, if Net Profit is allocated to the Investors under
Article 8 for any Taxable Period, the Directors shall endeavor, within ninety
(90) days following the close of the Taxable Period for which the Net Profit is
allocated, to make a distribution out of Cash and Securities Available for
Distribution to all Investors and the Investment Manager that, when added to
all other distributions made to such Investors during such Taxable Period
(exclusive of distributions under this Section 9.02 for the previous Taxable
Periods), will be in an amount sufficient to meet the federal and state tax
liability of each Investor, calculated for purposes of this Section 9.02 as if
such Investor were taxable on the Net Profit allocated for the Taxable Period
at the highest combined federal and California income tax rates applicable to
individuals, assuming that California income taxes are deductible for federal
income tax purposes, and taking into account any special rates that apply to
ordinary income and capital gains included in Fund taxable income for the
Taxable Period.
9.03 MANDATORY REINVESTMENT. For a period of four years after the Closing
Date, any cash received from liquidation of Portfolio Company investments
(except those utilized as provided in Section 7.04) shall be retained by the
Fund and reinvested at the discretion of the Investment Managers.
9.04 DISTRIBUTIONS AMONG INVESTORS. Except for distributions attributable
to income on Short-Term Investments earned during the Offering Period, which
shall be made not less than quarterly in the amount and order that such income
was allocated pursuant to Sections 8.07 and 8.04, distributions made to the
Investors other than the Investment Managers as a group pursuant to Sections
9.01 and 9.02 shall be made among such Investors in the proportion that their
respective Capital Accounts represent of the total of all Capital Accounts
of the group. Distributions to the Investment Managers shall be allocated
amongst the two entities solely at the Investment Managers' discretion.
9.05 VALUATION. The value of securities distributed in kind to the
Investors that cannot be valued on the basis of either (i) available market
quotations or (ii) third party transactions involving actual transactions or
actual firm offers by investors who are not Affiliates of the Fund shall be
valued by an appraisal made in accordance with the appraisal procedure
described in Section 12.03(b) provided,
Page 27
28
however, that such appraisal need be made in connection with securities
distributed in kind to the Investors upon the dissolution of the Fund only if
the value of the securities distributed in kind to the Investors upon such
dissolution exceeds 10% of the Capital Contributions of all Investors.
ARTICLE 10
RESPONSIBILITIES OF THE INVESTORS AMONG THEMSELVES
10.01 INDEMNIFICATION OF THE DIRECTORS BY THE FUND. Neither the Directors
nor any of their Affiliates shall be liable, responsible, or accountable in
damages or otherwise to the Fund or any Investor for any loss or damage
incurred by reason of any act performed by or omission of the Directors or such
Affiliates in good faith in the furtherance of the interests of the Fund and in
a manner reasonably believed by them to be within the scope of the authority
granted to the Directors by this Agreement or by the Investors, provided that
the Directors or such Affiliates were not guilty of negligence, misconduct, or
any other breach of fiduciary duty with respect to such acts or omissions. The
Fund, out of its assets and, subject to Section l 0.02, not out of the assets
of the Directors, shall, to the full extent permitted by law, indemnify and
hold harmless any Director and any Director Affiliate who was or is a party or
is threatened to be made a party to any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (including any action by or in the right of the Fund), by reason
of any acts or omissions or alleged acts or omissions arising out of such
Person's activities as a Director or as an Affiliate of a Director, if such
activities were performed in good faith in furtherance of the interests of the
Fund and in a manner reasonably believed by such Person to be within the scope
of the authority conferred to the Directors by this Agreement or by the
Investors against losses, damages, or expenses for which such Person has not
otherwise been reimbursed (including attorneys' fees, judgments, fines, and
amounts paid in settlements) actually and reasonably incurred by such Person in
connection with such action, suit, or proceeding, so long as such Person was
not guilty of negligence, misconduct, or any other breach of fiduciary duty
with respect to such acts or omissions and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such Person's conduct was
unlawful, and provided that the satisfaction of any indemnification and any
holding harmless shall be from and limited to Fund assets and no Investor shall
have any personal liability on account thereof.
Notwithstanding the foregoing, none of the indemnified parties shall be
indemnified for any loss or damage incurred by them in connection with any
judgment entered in or settlement of any lawsuit for
Page 28
29
violations of federal or state securities laws by the indemnified parties in
connection with the offer or sale of Fund Interests unless: (i) there has been
a successful adjudication on the merits as a result of a trial; or (ii) such
claim has been dismissed with prejudice on the merits by a court of competent
jurisdiction that has been apprised of the Securities and Exchange Commission's
position on indemnification. In addition, any such indemnification for
securities law violations must be approved by a court of competent
jurisdiction.
The Fund may purchase liability insurance that insures the indemnified parties
against any liabilities as to which such parties are permitted to be
indemnified pursuant to the provisions of this Section 10.01. However, the
Fund may not incur the cost of that portion of liability insurance which
insures the indemnified parties for any liability as to which the indemnified
parties are prohibited from being indemnified under this Section 10.01.
10.02 FUND LOANS. The Directors or any Affiliate of any Director may lend
funds to the Fund for such period of time as the Management Committee may
determine, and with interest payable in an amount equal to the lesser of (i)
the interest rate at which the Directors or such Director Affiliate could then
borrow such amount or (ii) the maximum amount of interest then permitted under
any applicable usury laws; provided, however, that if the Fund is able to
obtain comparable financing from an unrelated lending institution, the amount
of interest and similar charges or fees paid to the Directors or such Affiliate
would not exceed those charged by such unrelated lending institution on
comparable loans for the same purpose. Any such amounts shall be repaid to the
Directors or any Director Affiliate before any distributions may be made
pursuant to Article 9. In no event shall a loan made to the Fund by any Person
be deemed to be a part of any Fund Interest that such Person may hold, nor
shall the Directors or their Affiliates provide the Fund with permanent
financing.
10.03 INVESTORS LOOK SOLELY TO FUND ASSETS. Neither the Directors nor any
of their Affiliates shall have any personal liability to any Investor for the
repayment of any amounts outstanding in the Capital Account of an Investor
including, but not limited to, Capital Contributions. Any such payment shall
be solely from the assets of the Fund. The Directors shall not be liable to
any Investor by reason of any change in the federal income tax laws as they
apply to the Fund and the Investors, whether such change occurs through
legislative, judicial, or administrative action, so long as the Directors have
acted in good faith and in a manner reasonably believed to be in the best
interests of the Investors. Neither the Directors nor any of their Affiliates
shall have any personal liability to repay to the Fund any portion or all of
any negative amount of the Director's Capital Account except as otherwise
provided in Section 15.03.
Page 29
30
ARTICLE 11
ACCOUNTING, RECORDS, AND REPORTS
11.01 METHOD OF ACCOUNTING. The Fund's books and records shall be kept on
an accrual basis in accordance with generally accepted accounting principles;
however, for purposes of tax reporting, the Management Committee may choose
either the cash or accrual method with the filing of the Fund's first tax
return.
11.02 FISCAL YEAR. The fiscal year of the Fund shall be the calendar year.
The admission of additional Investors shall be deemed to have been on the first
day of the month if the Investor was admitted to the Fund during the first 15
days of a month and the 16th day of the month if Investor was admitted to the
Fund after the 15th day of a month.
11.03 CAPITAL ACCOUNTS. An individual Capital Account shall be maintained
for each Investor. The initial balance of each such Capital Account shall be
zero and shall be increased by: (i) the amount of any cash and the fair market
value of any property (net of liabilities) contributed to the Fund by such
Investor valued as of the time of such contribution and (ii) any Net Profit of
the Fund for a Taxable Period (or specially allocated items of income or gain)
allocated to the Investor pursuant to Article 8 (as of the end of such Taxable
Period) including gains deemed realized upon the distribution of securities
under Sections 9.01 and 9.02. An Investor's Capital Account shall be decreased
by: (i) the amount of any cash distributed to such Investor; (ii) the fair
market value of any securities or other property (net of liabilities)
distributed to such Investor (valued as of the time of distribution); and (iii)
the Net Loss of the Fund for a Taxable Period (or specially allocated items of
deduction or loss) allocated to the Investor pursuant to Article 8 (as of the
end of such Taxable Period) including losses deemed realized upon the
distribution of securities under Sections 9.01 and 9.02, such decrease occurring
as of the time of the distribution.
11.04 MAINTENANCE OF INFORMATION. The Fund will maintain, or cause to be
maintained, such books and records as are required under Section 31 of the 1940
Act and as shall enable it to be reasonably responsive to requests for
information pursuant to Section
11.05 ACCESS TO INFORMATION. Each Investor may obtain from the Fund from
time to time upon written demand to the Directors, for a purpose clearly
related to such Investor's interest as an Investor, including any suit by such
Investor against the Fund, provided that such purpose is set forth in
Page 30
31
such written demand, the following: (i) true and full information regarding
the status of the business and financial condition of the Fund, which shall be
deemed satisfied if the Management Committee provide a copy of the most recent
audited financial statements of the Fund; (ii) promptly after becoming
available, a copy of that Investor's federal, state, and local income tax
information statement for each of the last two fiscal years; (iii) a current
list of the names and last known business, residence, or mailing address of
each Investor except for those Investors who have requested that their names
not be disclosed(1); (iv) a copy of this Agreement and all amendments and
restatements; and (v) such other information as is just and reasonable in the
discretion of the Management Committee. All such information may be obtained
by the Investor's compliance with such procedures as the Management Committee,
from time to time, shall reasonably establish, including without limitation
with respect to payment of copying, mailing, and other administrative costs
occasioned hereby. The Management Committee may condition the provision of
information on the execution of an acknowledgment by the requesting party that
the information provided will be held in confidence, will not be disclosed to
any other persons, will not be used for commercial purposes, will not be used
in such a fashion that the Fund's tax status may be jeopardized, and that the
requesting party will indemnify the Fund and the Management Committee for any
failure to honor such commitments.
11.06 BANKING. The Investment Managers shall open and thereafter maintain
separate accounts in the name of the Fund in which there shall be deposited all
of the funds of the Fund. No other funds shall be deposited in the accounts.
The funds in said accounts shall be used solely for the business of the Fund,
including, without limitation, such investments as authorized in Sections
3.04(i) and 3.05.
11.07 AUDIT. At the expense of the Fund, an annual audit of the Fund's
books of account shall be made by a firm of independent certified public
accountants selected by the Directors and approved by a Majority in Interest of
the Investors. In the determination of the profits or losses of the Fund to be
reflected by its books and records, such certified public accountants shall be
governed by the provisions of this Agreement and the 1940 Act. In any
Page 31
32
circumstances where no provision under the IRC and regulations thereunder may
be applicable to the determination of any item, the accountants shall act in
their discretion in such manner as may, most consistently with prior practices,
properly reflect that item. If required by any governmental agency or by
principles of accounting, the accountants may cause adjustments to be made to
the statements of the Fund for reporting purposes. The annual certified
financial report of the Fund shall include a balance sheet, an income
statement, a statement of equity for Investors, and a statement of changes in
financial position. The report also shall include the amount of any
reimbursement made by the Fund to the Investment Managers, Directors or their
Affiliates. Copies of the annual certified financial report of the accountants
for each year shall be transmitted to all Investors within 120 days after the
end of that year. Such copies shall be accompanied by a statement of the risks
involved in investments in the Fund to the extent required under Section
64(b)(1) of the 1940 Act.
11.08 STATUS REPORTS. Within 75 days after the end of each of the first
three quarters of the Fund's fiscal year, the Directors shall have prepared and
distributed to the Investors, at the expense of the Fund, a quarterly report
containing the same financial information contained in the Fund's Quarterly
Report on Form 10-Q filed by the Fund with the Securities and Exchange
Commission under the Securities Exchange Act of 1934. Within 120 days after
the end of each fiscal year, the Investment Managers shall have prepared and
distributed to the Investors, at the expense of the Fund, an annual report
containing a summary of the year's activity and the financial information set
forth in Section 11.07.
11.09 TAX RETURNS. The Directors shall use their best efforts to cause the
Fund to file all tax and information returns required of the Fund in a timely
manner. The Directors will cause to be delivered within 75 days after the
end of each year to each Person who was an Investor at any time during such
year a statement setting forth all information relating to the Fund's
operations for such fiscal year as is reasonably required to complete federal
and state income tax or information returns.
ARTICLE 12
REMOVAL OR RETIREMENT OF DIRECTOR'S AND INVESTMENT MANAGERS
12.01 WITHDRAWAL OR RETIREMENT BY A DIRECTOR. Subject to Section 12.05, 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;
Page 32
33
(b) subject to Section 3.02, the remaining members of the
Management Committee shall designate a successor Director who shall
hold such office until such Director's successor has been approved
and elected;
(c) the Management Committee 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.
12.02 WITHDRAWAL OR RETIREMENT BY THE INVESTMENT MANAGERS. Subject to
Section 12.05, the Investment Managers may voluntarily resign or withdraw from
the Fund, but only upon compliance with all of the following procedures:
(a) the Investment Managers shall, at least 60 days prior to
such withdrawal, give notification to all Investors that they propose
to withdraw and that there be substituted in their 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 such proposed successor
Investment Managers, to the effect that: (i) it is experienced in
performing (or employs sufficient personnel who are experienced in
performing) functions that a Investment Managers 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 a 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 to the
withdrawing Investment Managers and without receiving any
participation in the withdrawing Investment Manager's Fund Interest
other than that agreed upon by the withdrawing Investment Managers
and the successor Investment Manager;
(c) if the Investment Managers resign or withdraw, 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,
Page 33
34
as of a date not earlier than twelve months prior to the date of the
notification required by this Section 12.02, 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, excluding the
purchase price of its Fund Interest, to be reduced to less than the
amount under Subsection l 2.02(b). Such audited financial statements
and certificates shall be available for examination by any Investor
during normal business hours;
(d) subject to Section 14.02, a Majority in Interest of the
Investors has consented to the appointment of 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.
12.03 REMOVAL OF A DIRECTOR; DESIGNATION OF A SUCCESSOR DIRECTOR.
(a) Any of the Independent 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 Independent
Directors; (ii) subject to Section 14.02, by failure to be approved
and re-elected by the Investors pursuant to Section 14.04; or (iii)
subject to Section 14.02, with the consent of a Majority in Interest
of the Investors. The Investment Managers may be removed either:
(i) by a majority of the Directors; (ii) subject to Section 14.02, by
failure to be approved and re-elected by the Investors pursuant to
Section 14.04; or (iii) subject to Section 14.02, with the consent of
a Majority in Interest of the Investors. 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.
(b) In the event of the removal of the Investment Managers and
continuation of the Fund, the venture capital investments held by the
Fund at the time of removal shall be appraised by two independent
appraisers, one jointly selected by the Investment Managers and one
by the Independent Directors. In the event that such two appraisers
are unable to agree on the value of the Fund's venture capital
investment portfolio, they shall jointly appoint a third independent
appraiser whose determination shall be final and binding. The cost
of the appraisal conducted by the appraiser selected by the
Investment Managers shall be borne jointly and severally by the
Investment Managers, and the cost of the appraisal conducted by the
appraiser selected by the
Page 34
35
Independent Directors shall be borne by the Fund. The cost of the
appraisal conducted by a third appraiser shall be borne equally by
the Fund and, jointly and severally, by the Investment Managers. All
unrealized capital gains and losses of the Fund shall be deemed
realized at that time solely for purposes of making a final
allocation to the Investment Managers. With respect to their Fund
Interests pursuant to Article 8, the Investment Managers shall
receive a final allocation of Net Profit or Net Loss equal to the Net
Profit or Net Loss that they would have been allocated pursuant to
Article 8, if all unrealized capital gains and losses of the Fund
were deemed realized, an allocation of Net Profit or Net Loss was
made at such time, and such time were deemed to be the end of a
Taxable Period. If the Capital Accounts of the Investment Managers
have a positive balance after such allocation, the Fund shall deliver
a promissory note of the Fund to the Investment Managers, the
principal amount of which shall be equal to the amount, if any, by
which the positive amount of the Investment Managers' Capital
Accounts exceeds the amount of their Capital Contributions and which
bears interest at a rate per annum equal to 100% of the prime rate in
effect at Bank of America N.T. & S.A. at the time of removal, with
interest payable annually and principal payable, if at all, only from
20% of any available cash before any distributions thereof are made
to the Investors pursuant to Article 9. If the Capital Accounts of
the Investment Managers have a negative balance after such
allocation, the Investment Managers shall contribute cash to the
capital of the Fund in an amount equal to the negative balance in
their Capital Accounts. The Fund Interests of the Investment
Managers shall convert to those of Investors, and the Investment
Managers shall continue to receive, as Investors, only those
allocations of the Net Profits and Net Losses pursuant to Article 8
and related distributions. In the event that any of the foregoing
requires an exemptive order from the SEC that is not granted, the
Investment Managers shall not receive a final allocation of Net
Profits and Net Losses and their interest shall convert to that of
Investors, and the Investment Managers shall continue to receive, as
Investors, only those allocations of Net Profits and Net Losses
pursuant to Sections 8.01(c)(i) and 8.02(a) and (b).
(c) Subject to Section 3.02, the remaining members of the
Management Committee may designate one or more Persons to fill any
vacancy existing in the number of Independent Directors fixed
pursuant to Section 3.02 resulting from removal of an Independent
Director by the Directors pursuant to Section 12.03(a). Remaining
members of the Management Committee may designate one or more Persons
to be successors to the Investment Managers removed by the
Independent Directors pursuant to Section 12.03(a), and each Investor
other than a Director hereby consents to the admission of such
successor or successors, no further consent being required. Any such
successor Director or Investment Manager shall hold office until the
next annual meeting of Investors or until his or her successor has
been approved and elected. With the consent of such number of
Investors other than a Director (but not in any event less than a
Majority in Interest of the Investors) as are then required under the
Act, and under the laws of the other jurisdictions in which the Fund
is then formed or qualified, to consent to the admission of a
Director, such Investors may, subject to the provisions of Sections
3.02, 12.05, 13.01 and 14.02, at any time admit a Person to be
successor to a Director concurrently therewith being removed by the
Investors pursuant to Section 12.03(a).
Page 35
36
(d) Any removal of a Director shall not affect any rights or
liabilities of the removed Director that matured prior to such
removal.
12.04 INCAPACITY OF A DIRECTOR.
(a) In the event of the incapacity of a Director, the business
of the Fund shall be continued with the Fund property by the
remaining Directors. Subject to Section 3.04, the remaining
Directors shall give notification to the Investors of such event and
shall, within 90 days, call a meeting of the Management Committee for
the purpose of designating a successor Director. Any such successor
Director shall hold such office until the next bi-annual meeting of
Investors or until his or her successor has been approved and
elected. The Directors shall make such amendments to the certificate
of formation and execute and file for recordation such amendments or
other documents or instruments as are necessary and required by the
Act or this Agreement to reflect the termination of the Fund Interest
of the Incapacitated Director, the fact that such Incapacitated
Director has ceased to be a Director, and the appointment of such
successor Director.
(b) In the event of the Incapacity of all Directors, the Fund
shall be dissolved. Upon the Incapacity of all Directors, a
Director shall immediately cease to be a Director and its Fund
Interest, as such, shall continue only for the purpose of determining
the amount, if any, that it is entitled to receive upon any
dissolution pursuant to Section 15.01.
(c) Any such termination of a Director shall not affect any
rights or liabilities of the Incapacitated Director that matured
prior to such Incapacity.
12.05 ADMISSION OF A SUCCESSOR DIRECTOR.
(a) The admission of any successor Director pursuant to
Sections 12.01, 12.02, or 12.03, as the case may be, 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
Page 36
37
Director, or transfer of the withdrawing or removed Director's Fund
Interest pursuant to Sections 12.01, 12.02, or 12.03, as the case may
be; and
(ii) the Fund Interests of the Investors shall
not be affected by the admission of such successor Director or the
transfer of the Director's Fund Interest.
(b) A Director shall not have the right to transfer or assign
its Fund Interest, except that a Director may: (i) transfer its Fund
Interest to a successor Director pursuant to Section 12.01 or 12.02;
(ii) substitute instead as a successor Director any Person that has,
by merger, consolidation, or otherwise, acquired substantially all of
its assets and continued its business; and (iii) pledge or grant an
interest in its right to receive payments and distributions under
this Agreement. Each Investor other than a Director hereby consents
to the admission of any additional or successor Director pursuant to
this Section 12.05(b), and no further consent or approval shall be
required; and
(c) Notwithstanding anything to the contrary in this Article
12, a Director's Fund Interest shall at all times be subject to the
restrictions on transfer set forth in Section 13.01.
12.06 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
its Fund Interest shall remain liable for obligations and liabilities incurred
by it as Director prior to the time such withdrawal, removal, sale, transfer,
or assignment shall have become effective, but it 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.
12.07 CONSENT OF INVESTORS TO ADMISSION OF SUCCESSOR DIRECTORS. Subject to
Section 14.02, each Investor other than a Director hereby consents pursuant to
Section 12.02 to the admission of any Person as a successor Director meeting
the requirements of Section 12.02 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.
12.08 CONTINUATION. In the event of the withdrawal, removal, or retirement
of a Director, or the transfer or assignment by a Director of its Fund
Interest, the Fund shall not be dissolved and the business of the Fund shall be
continued by the remaining Directors.
Page 37
38
ARTICLE 13
TRANSFERABILITY OF AN INVESTOR'S FUND INTEREST
13.01 RESTRICTIONS ON TRANSFERS.
(a) OPINION OF COUNSEL. Notwithstanding any other provisions
of this Section 13.01, no sale, exchange, transfer, or assignment of
a Fund Interest may be made by an Investor unless in the opinion of
counsel for the Fund, satisfactory in form and substance to the
Management Committee, (which opinion may be waived, in whole or in
part, at the discretion of the Management Committee), that:
(i) such sale, exchange, transfer, or assignment, when
added to the total of all other sales, exchanges, transfers, or
assignments of Fund Interests within the preceding twelve months,
would not result in the Fund's being considered to have terminated
within the meaning of Section 708 of the IRC;
(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 Fund interest 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 sale, exchange, transfer, or assignment.
Page 38
39
(b) MINORS. In no event shall all or any part of a Fund
Interest be assigned or transferred by an Investor 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.
(c) FRACTIONAL INTERESTS. No purported sale, exchange,
assignment, or transfer by an Investor of, or after which the
transferor and each transferee would hold, a Fund Interest
representing less than ten Shares or including a fractional Share
will be permitted or recognized for any purpose without the consent
of the Management Committee, which consent shall be granted only for
good cause shown.
(d) DOCUMENTATION. Each Investor other than a Director
agrees, upon request of the Directors, to execute such certificates
or other documents and perform such acts as the Management Committee
deem appropriate after an assignment of a Fund Interest by that
Investor to preserve the limited liability of the Investors under the
laws of the jurisdiction in which the Fund is doing business. For
purpose of this Section 13.01(d), any transfer of a Fund Interest,
whether voluntary or by operation of law, shall be considered an
assignment.
(e) VOID AB INITIO. Any purported assignment of a Fund
Interest that is not made in compliance with this Agreement is hereby
declared to be null and void and of no force or effect whatsoever.
(f) EXPENSE. Each Investor other than a Director agrees,
prior to the time the Directors consent to an assignment of Fund
Interest by that Investor, to pay all reasonable expenses, including
attorneys' fees, incurred by the Fund in connection with such
assignment.
13.02 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 Fund Interest of an Investor
other than a Director unless the provisions of Section 13.01 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,
Page 39
40
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 as effective
on the first day of the fiscal quarter following the fiscal quarter
in which such notification is filed with the Fund. If a Fund
Interest 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 Fund Interest
becomes a Substituted Investor, such assignee shall not be entitled
to vote or to give consents with respect to such Fund Interest.
(c) ASSIGNOR RIGHTS. Any Investor other than a Director who
shall assign all of such Investor's Fund Interest shall cease to be
an Investor and shall not retain any statutory rights as an Investor.
(d) WRITTEN ASSIGNMENTS. Anything herein to the contrary
notwithstanding, both the Fund and the Directors shall be entitled to
treat the assignor of a Fund Interest 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 13.03
has been received by the Fund and accepted by the Management
Committee.
(e) ASSIGNEE NOT SUBSTITUTED INVESTOR. A person who is the
assignee of all or any fraction of the Fund Interest of an Investor
other than a Director, but does not become a Substituted Investor and
desires to make a further assignment of such Fund Interest, shall be
subject to all the provisions of this Article 13 to the same extent
and in the same manner as any Investor desiring to make an assignment
of such Investor's Fund Interest.
13.03 SUBSTITUTED INVESTORS.
Page 40
41
(a) APPROVAL. No Investor other than a Director shall have
the right to substitute a purchaser, assignee, transferee, donee,
heir, legatee, distributee, or other recipient of all or any fraction
of such Investor's Interest as an Investor in the transferring
Investor's place. Any such purchaser, assignee, transferee, donee,
heir, or other recipient of a Fund Interest (whether pursuant to a
voluntary or involuntary transfer) shall be admitted to the Fund as a
Substituted Investor 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
13.01 or 13.02; 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 Investors 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 an Investor. The admission of a Substituted
Investor shall be recorded on the books and records of the Fund. The
Investors hereby consent and agree to such admission of a Substituted
Investor by the Management Committee. The Directors agree to process
such amendments not less frequently than quarterly.
(b) ADMISSION. Each Substituted Investor, as a condition to
admission as an Investor, 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 Investor
to be bound by all the terms and provisions of this Agreement with
respect to the Fund Interest acquired. All reasonable expenses,
including attorneys' fees, incurred by the Fund in this connection
shall be borne by such Substituted Investor.
(c) RIGHTS OF ASSIGNEE. Until an assignee shall have been
admitted to the Fund as a Substituted Investor pursuant to this
Section 13.03, such assignee shall be entitled to all of the rights
of an assignee of a limited liability company interest under the Act.
13.04 INDEMNIFICATION. Each Investor shall indemnify and hold harmless the
Fund, the Directors, and every Investor 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 Investor in connection with any assignment, transfer, encumbrance, or
other disposition of all or and part of a Fund Interest, or the admission of a
Substituted Investor to the Fund, against expenses for which the Fund or such
other Person has not otherwise been reimbursed (including attorneys fees,
Page 41
42
judgments, fines, and amounts paid in settlement) actually and reasonably
incurred by the Fund or such other Person in connection with such action, suit,
or proceeding.
13.05 INCAPACITY OF AN INVESTOR. If an Investor other than a Director
dies, such Investor's executor, administrator, or trustee, or, if such Investor
is adjudicated incompetent, such Investor's committee, guardian or conservator,
or, if such Investor becomes bankrupt, the trustee or receiver of such
Investor's estate, shall have all the rights of an Investor for the purpose of
settling or managing the estate of such Investor, and such power as the
Incapacitated Investor possessed to assign all or any part of the Incapacitated
Investor's Fund Interest and to join with such assignee in satisfying
conditions precedent to such assignee's becoming a Substituted Investor. The
Incapacity of an Investor shall not dissolve the Fund.
13.06 WITHHOLDING OF DISTRIBUTIONS. From the date of the receipt of any
instrument relating to the transfer of a Share or at any time the Investment
Managers are in doubt regarding the Person entitled to receive distributions in
respect of a Share, the Directors may withhold any such distributions until the
transfer is completed or abandoned or the dispute is resolved.
13.07 TRANSFEROR-TRANSFEREE ALLOCATIONS. If a Share is transferred in
compliance with the provisions of this Article 13, the income, gains, losses,
deductions, and credits allocable in respect of that Share shall be allocated
to the days of the Taxable Period to which they are economically attributable,
and then prorated between the transferor and the transferee on the basis of the
number of days in the Taxable Period that each was the holder of that interest.
ARTICLE 14
CONSENTS, VOTING, AND MEETINGS
14.01 METHOD OF GIVING CONSENT. Any consent required by this Agreement may
be given as follows:
(a) by a written consent pursuant to Section 14.06 given by
the consenting Investor at or prior to the doing of the act or thing
for which the consent is solicited, provided that such consent shall
not have been nullified by either (i) notification to the Directors
by the consenting Investor at or prior to the time of, or the
negative vote by such consenting Investor at, any meeting held to
consider the doing of such act or thing or (ii) notification to the
Director prior to the doing of any act or thing the doing of which is
not subject to approval at such meeting; or
Page 42
43
(b) by the affirmative vote by the consenting Investor to the
doing of the act or thing for which the consent is solicited at any
meeting called and held pursuant to Sections 14.04 or 14.05 to
consider the doing of such act or thing.
14.02 LIMITATIONS ON REQUIREMENTS FOR CONSENTS. Notwithstanding any other
provisions of this Agreement unless, prior to the exercise by the Investors
other than the Directors of the rights of such Investors: (i) to approve
actions of the Directors pursuant to Section 3.09; (ii) to vote to remove a
Director pursuant to Section 12.03 or to approve the appointment of a successor
Director pursuant to Section 12.05; (ii) to approve and elect or remove
Directors and to approve certain Fund matters pursuant to Section 5.04; (iv) to
approve and elect to dissolve the Fund pursuant to Section 15.01(c); or (v) to
amend this Agreement pursuant to Section 6.03, as the case may be, counsel for
the Fund or counsel designated by not less that 10% of the Shares owned by all
Investors shall have delivered to the Fund an opinion to the effect that
neither the existence of such right or rights nor the exercise thereof will
violate the provisions of the Act or the laws of the other jurisdictions in
which the Fund is then formed or qualified, will adversely affect the limited
liability of the Investors and Directors, or will adversely affect the
classification of the Fund as a partnership for federal or state income tax
purposes, then:
(a) notwithstanding the provisions of Section 3.09, the
Directors shall be prohibited from taking an action, performing an
act, or entering into a transaction, as the case may be;
(b) notwithstanding the provisions of Sections 12.03 and
12.05, the Investors other than the Directors shall be prohibited
from removing a Director or from approving the appointment of a
successor Director;
(c) notwithstanding the provisions of Section 5.04, the
Investors other than the Directors shall be prohibited from approving
and electing or removing Directors and approving certain Fund
matters, as the case may be;
(d) notwithstanding the provisions of Section 15.01(c), the
Investors other than the Directors shall be prohibited from electing
to dissolve the Fund; and
(e) notwithstanding the provisions of Section 6.03, the
Investors other than the Directors shall be prohibited from amending
this Agreement.
Such counsel may rely as to the law of any jurisdiction, other than a
jurisdiction in which such counsel's principal office is located, on an opinion
of counsel in such other jurisdiction in form and substance satisfactory to
such counsel.
Page 43
44
14.03 ACTION BY THE DIRECTORS. The Directors shall act by majority vote
at a meeting duly called, or by unanimous written consent without a meeting,
unless the 1940 Act requires that a particular action be taken only at a
meeting. Meetings of the Directors may be called by any two Directors.
Subject to the requirements of the 1940 Act, the Directors by majority vote
may delegate to any one of its number, or a committee thereof, its authority to
approve particular matters or take particular actions on behalf of the Fund. A
quorum for all meetings of the Directors shall be a majority of the Directors.
14.04 SPECIAL MEETINGS. The dissolution of the Fund, the removal of
Directors, and any other matter requiring the consent of all or any of the
Investors other than the Investment Managers pursuant to this Agreement may be
considered at a meeting of the Investors held not less than 20 nor more than 60
days after notification thereof shall be given to all Investors. Such
notification (i) may be given by the Directors, in its discretion, at any time
and (ii) shall be given by the Directors within 30 days after receipt by the
Directors of a request for such a meeting made by Investors who own, in
aggregate, not less than 10% of the Shares owned by all Investors. Any such
notification shall state briefly the purpose, time, and place of the meeting.
All such meetings shall be held within or outside the State of Delaware at such
reasonable place as the Directors shall designate and during normal business
hours. Investors may vote in Person or by proxy at any such meeting. If
Proxies are solicited for a specific meeting and an Investor other than a
Director does not return a proxy, that Investor shall be deemed to have granted
to the Management Committee a proxy solely for those matters noticed for and
acted upon at that meeting. Such proxy shall be voted by a majority of the
members of the Management Committee.
14.05 ACTION WITHOUT A MEETING. Any action that may be taken at a Fund
meeting may be taken without a meeting if consent in writing setting forth the
action to be taken is signed by the Investors holding not less than the minimum
percentage of Shares that would be necessary to authorize or take such action
at a meeting at which all the Investors were present and voted. Each Investor
shall be given notice of the matters to be voted upon in the same manner as
described in Sections 14.04 and 14.05. The date on which votes will be counted
shall be not less than 10 or more than 60 days following mailing of the notice.
14.06 APPROVAL AND ELECTION OF DIRECTORS. In the approval and election of
Independent Directors, those candidates receiving the highest number of votes
cast, at a meeting at which a Majority in Interest of the Investors is present
in person or by proxy, up to the number of Independent Directors proposed to be
approved and elected, shall be approved and elected to serve until the next
Investor
Page 44
45
meeting or until their successors are duly approved, elected and qualified; and
each Investor shall have one vote for each Share owned by such Investor. In
the approval and election of the Investment Managers, the two candidates
receiving the highest numbers of votes cast shall be approved and elected
pursuant to the foregoing provision. Any vote for the approval and election of
Directors shall be subject to the limitations of Section 14.02.
14.07 RECORD DATES. The Directors may set in advance a date for
determining the Investors other than the Directors entitled to notification of
and to vote at any meeting. All record dates shall not be more than 60 days
prior to the date of the meeting to which such record date relates.
14.08 SUBMISSIONS TO INVESTORS. The Directors shall give all Investors
notification of any proposal or other matter required by any provision of this
Agreement or by law to be submitted for the consideration and approval of the
Investors. Such notification shall include any information required by the
relevant provision of this Agreement or by law.
14.09 INVESTOR MEETINGS. The Directors shall call an Investor Meeting
no less often than every two years with the first such meeting to be held
within two years from the Closing Date.
ARTICLE 15
DISSOLUTION AND TERMINATION
15.01 DISSOLUTION. The Fund shall be dissolved upon the occurrence of any
of the following:
(a) the expiration of its term, except to the extent extended
pursuant to Section 1.05;
(b) the Incapacity of all Directors;
(c) the election to dissolve the Fund by a Majority in Interest
of the Investors;
(d) the withdrawal, retirement or removal of a Director, or the
transfer or assignment by a Director of its Fund Interest without the
designation of a successor Director under Section 12.05;
(e) the sale or other disposition at any one time of all or
substantially all of the assets of the Fund; and
Page 45
46
(f) dissolution required by operation of law.
Dissolution of the Fund shall be effective on the day on which the event occurs
giving rise to the dissolution, but the Fund shall not terminate until the
assets of the Fund have been distributed as provided in Section 15.02 and the
certificate of formation of the Fund has been canceled.
15.02 LIQUIDATION. On dissolution of the Fund, a liquidating trustee (who
shall be the Management Committee, if still constituted, and otherwise shall be
a Person proposed and approved by a Majority in Interest of the Investors)
shall cause to be prepared a statement setting forth the assets and liabilities
of the Fund as of the date of dissolution, and such statement shall be
furnished to all of the Investors. Then, those Fund assets that the
liquidating trustee determines should be liquidated shall be liquidated as
promptly as possible, but in an orderly and business-like manner to minimize
loss. If the liquidating trustee determines that an immediate sale at the time
of liquidation of all or part of the Fund assets would cause undue loss to the
Investors, the liquidating trustee may, in order to avoid such loss, either
defer liquidation and retain the assets for a reasonable time, or distribute
the assets to the Investors in kind. The liquidating trustee shall then wind
up the affairs of the Fund and distribute the proceeds of the Fund by the end
of the Taxable Period of the liquidation (or, if later, within 90 days after the
date of such liquidation) in the following order or priority:
(a) to the payment of the expenses of liquidation and to
creditors (including Investors who are creditors, to the extent
permitted by law) in satisfaction of liabilities of the Fund other
than liabilities for distributions to Investors, in the order of
priority as provided by law;
(b) to the setting up of any reserves that the liquidating
trustee may deem necessary or appropriate for any anticipated
obligations or contingencies of the Fund or of the liquidating
trustee arising out of or in connection with the operation or
business of the Fund. Such reserves may be paid over by the
liquidating trustee to an escrow agent or trustee proposed and
approved by the liquidating trustee to be disbursed by such escrow
agent or trustee in payment of any of the aforementioned obligations
or contingencies and, if any balance remains at the expiration of
such period as the liquidating trustee shall deem advisable, to be
distributed by such escrow agent or trustee in the manner hereinafter
provided;
(c) to the payment of liabilities for distributions to
Investors other than the Investment Managers in order of
priority as provided by law;
(d) to the payment of liabilities for distributions to
Independent Directors in order of priority as provided by law;
Page 46
47
(e) to the payment of liabilities for distributions to the
Investment Managers in order of priority as provided by law; then
(f) to those Investors with positive Capital Account balances
in proportion to the respective amounts of such positive balances.
For purposes of determining the amounts and allocation of such distribution,
all Fund assets shall be valued by the liquidating trustee at their then fair
market value, and any gains or losses that would arise from their sale at such
valuation or, in the event of distributions to be made in kind, that would
arise assuming such a sale were made, shall be allocated as specified in
Article 8. For the purposes of calculating if and when Conversion occurs in
liquidation, amounts credited to the Investors' Capital Accounts, pursuant to
this Section 15.02 shall be deemed to have been distributed.
15.03 NEGATIVE CAPITAL ACCOUNTS. At such time during liquidation as all
assets of the Fund have been sold, all liabilities and expenses have been paid,
all income, gains, losses and deductions have been allocated in accordance with
Article 8, all distributions have been deemed distributed, and all adjustments
to the Capital Accounts have been made, if an Investment Manager than has a
negative balance in that Investment Manager's Capital Account, such Investment
Manager shall by the end of the Taxable Period year of the liquidation (or, if
later, within 90 days after the date of such liquidation) contribute to the
capital of the Fund an amount equal to the deficit amount of its Capital
Account. Any amount so contributed shall be distributed as provided for in
Section 15.02 to the other Investors. The Investors shall not be required to
make any further contribution to the company on dissolution except as required
by this Section 15.03.
15.04 TERMINATION. The liquidating trustee shall comply with any
requirements of the Act or other applicable law pertaining to the winding up of
a limited liability company, at which time the Fund shall stand terminated.
ARTICLE 16
COVENANTS OF INVESTORS
Each Investor covenants, warrants, and agrees with the Fund and each of the
Investors that:
Page 47
48
(a) such Investor shall not transfer, sell, or offer to sell
such Investor's Shares without compliance with the conditions and
provisions of this Agreement;
(b) if such Investor assigns all or any part of such
Investor's Shares, then until such time as one or more assignees
thereof are admitted to the Fund as a Substituted Investor with
respect to the entire Fund Interest so assigned, the matters to which
any holder thereof would covenant and agree if such holder were to
execute this Agreement as an Investor shall be and remain true; and
(c) such Investor shall notify the Directors immediately if any
representations or warranties made herein or in any subscription
agreement should be or become untrue.
ARTICLE 17
REPRESENTATIONS AND WARRANTIES OF INVESTMENT MANAGERS
THE INVESTMENT MANAGERS REPRESENT AND WARRANT TO THE FUND AND EACH OF THE
INVESTORS THAT:
(a) the Investment Managers shall not assign all or any part
of their interest in the Fund if, such assignment would cause a
termination of the Fund within the meaning of IRC Section 708(b).
ARTICLE 18
ARBITRATION
IN THE EVENT A DISPUTE BETWEEN THE PARTIES HERETO ARISES OUT OF, IN CONNECTION
WITH, OR WITH RESPECT TO THIS AGREEMENT, OR ANY BREACH THEREOF (OTHER THAN
CLAIMS ARISING UNDER FEDERAL AND STATE SECURITIES LAWS), SUCH DISPUTE SHALL, ON
THE WRITTEN REQUEST OF ONE PARTY DELIVERED TO THE OTHER PARTY, BE SUBMITTED TO
AND SETTLED BY ARBITRATION IN THE COUNTY OF SAN MATEO IN ACCORDANCE WITH THE
RULES OF THE AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT AND WITH THE
CALIFORNIA ARBITRATION ACT (SECTIONS 1280 THROUGH 1294.2 OF THE CALIFORNIA CODE
OF CIVIL PROCEDURE), EXCEPT AS HEREIN SPECIFICALLY PROVIDED. JUDGMENT UPON
THE AWARD RENDERED BY THE
Page 48
49
ARBITRATORS MAY BE ENTERED IN ANY COURT HAVING JURISDICTION THEREOF. THE
PARTIES HEREBY SUBMIT TO THE IN PERSONAM JURISDICTION OF THE SUPERIOR COURT OF
THE STATE OF CALIFORNIA FOR THE PURPOSE OF CONFIRMING ANY SUCH AWARD AND
ENTERING JUDGMENT THEREON. NOTWITHSTANDING ANYTHING TO THE CONTRARY THAT MAY
NOW OR HEREAFTER BE CONTAINED IN THE RULES OF THE AMERICAN ARBITRATION
ASSOCIATION, THE PARTIES AGREE AS FOLLOWS:
(a) Within 10 days after receipt of notice of arbitration from
the noticing party, each party shall propose and approve one person
approved by the American Arbitration Association to hear and
determine the dispute. If more than two parties are involved, they
shall together propose and approve two persons. The two persons so
chosen shall propose and approve a third impartial arbitrator. The
majority decision of the arbitrators shall be final and conclusive
upon both parties hereto. If either party fails to approve its
arbitrator within 10 days after delivery of the notice provided for
herein, then the arbitrator approved by the one party shall act as
the sole arbitrator and shall be deemed to be the single, mutually
approved arbitrator to resolve the controversy. In the event the
parties are unable to agree upon a rate of compensation for the
arbitrators, they shall be compensated for their services at a rate
to be determined by the American Arbitration Association;
(b) the parties shall enjoy, but are not to be limited to, the
same rights to discovery as they would in the federal District Court
for the Northern District of California;
(c) the costs of the arbitration including attorneys' fees
shall be paid by the losing party or will be allocated between the
parties in such proportions as the arbitrators decide;
(d) the arbitrators shall, upon the request of either party,
issue a written opinion of their findings of fact and conclusions of
law; and
(e) upon receipt by the requesting party of said written
opinion, said party shall have the right within 10 days thereof to
file with the arbitrators a motion to reconsider, and the arbitrators
thereupon shall reconsider the issues raised by said motion and
either confirm or change their majority decision, which shall then be
final and conclusive upon both parties hereto. The costs of such a
motion for reconsideration and written opinion of the arbitrators
including attorneys' fees shall be paid by the moving party.
Page 49
50
ARTICLE 19
POWER OF ATTORNEY
19.01 POWER OF ATTORNEY. Each Investor other than a Director hereby
irrevocably constitutes and appoints the Management Committee, or either of
them, as such Investor's true and lawful agents and attorneys-in-fact, with
full power and authority in such Investor's name, place, and stead, to make,
execute, acknowledge, deliver, file, and record the following documents and
instruments in accordance with the other provisions of this Agreement;
(a) this Agreement and a certificate of formation, a
certificate of doing business under fictitious name, and any other
instrument that may be required to be filed in connection with the
formation and operation of the Fund under the laws of Delaware or
other laws of any other state;
(b) any and all amendments, restatements, cancellations, or
modifications of the instruments described in Section 19.01(a);
(c) any and all instruments related to the admission of any
successor Director or any Investor; and
(d) all documents and instruments that may be necessary
or appropriate to effect the dissolution and termination of the Fund,
pursuant to the terms hereof.
19.02 IRREVOCABILITY. The foregoing power of attorney is coupled with an
interest and such grant shall be irrevocable. Such power of attorney shall
survive the subsequent Incapacity of any such Investor or the transfer of any
or all of such Investor's Shares.
19.03 PRIORITY OF AGREEMENT. In the event of any conflict between
provisions of this Agreement or any amendment hereto and any documents
executed, acknowledged, sworn to, or filed by the Management Committee under
this power of attorney, this Agreement and its amendments shall govern.
19.04 EXERCISE OF POWER. This power of attorney may be exercised by a
Management Committee either by signing separately as attorney-in-fact for each
such Investor or by a single signature of a Management Committee acting as
attorney-in-fact for all of them.
Page 50
51
ARTICLE 20
MISCELLANEOUS
20.01 CERTIFICATE OF FORMATION. On each subsequent change in the Fund
specified in the Act, the Directors shall cause to be executed and acknowledged
an amended certificate of formation pursuant to the provisions of the Act,
which will be duly filed as prescribed by Delaware law.
20.02 DELAWARE LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by, and construed and interpreted according
to, the laws of Delaware.
20.03 COUNTERPARTS. This Agreement may be executed in counterparts, and
all counterparts so executed shall constitute one agreement that shall be
binding on all the parties hereto. Any counterpart of either this Agreement
that has attached to it separate signature pages which altogether contain the
signatures of all Directors or Investors or their attorneys-in-fact shall for
all purposes be deemed a fully executed instrument.
20.04 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to and unless otherwise
provided in this Agreement, each and all of the covenants, terms, provisions,
and agreements herein contained shall be binding upon and inure to the benefit
of the successors, successors-in-title, heirs, and assigns of the respective
parties hereto.
20.05 NOTICES. Any notice, offer, consent, or demand permitted or required
to be made under this Agreement to any party hereto shall be given in writing
signed by the Investor giving such notice either by (i) personal delivery or
(ii) by registered or certified mail, postage prepaid, addressed to that party
at the respective address shown on the Fund's books and records, or to such
other address as that party shall indicate by proper notice to the Management
Committee, in the same manner as provided above. All notices shall be deemed
effective upon receipt or five days after the date of mailing in accordance
with the above provisions.
20.06 SEVERABILITY. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable,
the remainder of this Agreement and the application of such provision to other
Persons or circumstances shall not be effected thereby, but shall be enforced
to the maximum extent possible under applicable law.
20.07 ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
hereof and supersedes all prior agreements or understandings, written or oral,
between the parties with respect thereto.
Page 51
52
20.08 HEADINGS, ETC. The headings in this Agreement are inserted for
convenience of reference only and shall not affect interpretation of this
Agreement. Wherever from the context it appears appropriate, each term stated
in either the singular or the plural shall include the singular and the plural,
and pronouns stated either the masculine or the neuter genders shall include
the masculine, the feminine and the neuter.
20.09 LEGENDS. If certificates are issued evidencing an Investor's Shares,
each such certificate shall bear such legends as may be required by applicable
federal and state laws, or as may be deemed necessary or appropriate by the
Management Committee to reflect restrictions upon transfer contemplated herein.
Page 52
53
EXECUTED ______________ at _________ THE INVESTMENT MANAGERS
TECHNOLOGY FUNDING INC.
Investment Manager
By:
Xxxxxxx X. Xxxxxx, President
TECHNOLOGY FUNDING LTD.
Investment Manager
By:
Xxxxxxx X. Xxxxxx,
General Partner
THE AFFILIATED DIRECTORS
[Xxxxxxx X. Xxxxxx]
[Xxxxxxx X. Xxxxxx]
THE INDEPENDENT DIRECTORS
[ ]
[ ]
[ ]
THE INVESTORS
(All Investors now and hereafter
admitted as Investors of the Fund
pursuant to powers of attorney now
and hereafter executed in favor of,
and delivered to, the Investment
Managers or either with them)
By: The Management Committee,
Attorney-in-Fact
Page 53
