ACP STRATEGIC OPPORTUNITIES FUND II, LLC
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
JANUARY 28, 2002
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS....................................................1
ARTICLE II ORGANIZATION; ADMISSION OF MEMBERS.............................4
2.1 FORMATION OF LIMITED LIABILITY COMPANY.............................5
2.2 NAME...............................................................5
2.3 PRINCIPAL AND REGISTERED OFFICE....................................5
2.4 DURATION...........................................................5
2.5 OBJECTIVE AND BUSINESS OF THE COMPANY..............................5
2.6 BOARD OF DIRECTORS.................................................5
2.7 MEMBERS............................................................6
2.8 ORGANIZATIONAL MEMBER..............................................6
2.9 BOTH DIRECTORS AND MEMBERS.........................................7
2.10 LIMITED LIABILITY..................................................7
ARTICLE III MANAGEMENT.....................................................7
3.1 MANAGEMENT AND CONTROL.............................................7
3.2 ACTIONS BY THE BOARD OF DIRECTORS..................................8
3.3 MEETINGS OF MEMBERS................................................8
3.4 CUSTODY OF ASSETS OF THE COMPANY...................................9
3.5 OTHER ACTIVITIES OF MEMBERS AND DIRECTORS..........................9
3.6 DUTY OF CARE......................................................10
3.7 INDEMNIFICATION...................................................10
3.8 FEES, EXPENSES AND REIMBURSEMENT..................................12
ARTICLE IV TERMINATION OF STATUS OF INVESTMENT MANAGER AND
DIRECTORS, TRANSFERS AND REPURCHASES..........................12
4.1 TERMINATION OF STATUS OF THE INVESTMENT MANAGER...................12
4.2 TERMINATION OF STATUS OF A DIRECTOR...............................13
4.3 REMOVAL OF THE DIRECTORS..........................................13
4.4 TRANSFER OF UNITS OF MEMBERS......................................13
4.5 REPURCHASE OF UNITS...............................................14
ARTICLE V CAPITAL.......................................................15
5.1 CONTRIBUTIONS TO CAPITAL..........................................15
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TABLE OF CONTENTS
(continued)
PAGE
5.2 RIGHTS OF MEMBERS TO CAPITAL......................................16
5.3 CAPITAL ACCOUNTS..................................................17
5.4 ALLOCATION OF NET PROFIT AND NET LOSS.............................17
5.5 ALLOCATION OF CERTAIN EXPENDITURES................................17
5.6 RESERVES..........................................................17
5.7 TAX ALLOCATIONS...................................................18
5.8 DISTRIBUTIONS.....................................................20
5.9 WITHHOLDING.......................................................20
ARTICLE VI DISSOLUTION AND LIQUIDATION...................................20
6.1 DISSOLUTION.......................................................20
6.2 LIQUIDATION OF ASSETS.............................................21
ARTICLE VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS..................22
7.1 ACCOUNTING AND REPORTS............................................22
7.2 DETERMINATIONS BY THE BOARD OF DIRECTORS..........................22
7.3 VALUATION OF ASSETS...............................................22
ARTICLE VIII MISCELLANEOUS PROVISIONS......................................23
8.1 AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT..................23
8.2 SPECIAL POWER OF ATTORNEY.........................................23
8.3 NOTICES...........................................................24
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.....................25
8.5 APPLICABILITY OF INVESTMENT COMPANY ACT AND FORM N-2..............25
8.6 CHOICE OF LAW; ARBITRATION........................................25
8.7 NOT FOR BENEFIT OF CREDITORS......................................26
8.8 CONSENTS..........................................................26
8.9 MERGER AND CONSOLIDATION..........................................27
8.10 PRONOUNS..........................................................27
8.11 CONFIDENTIALITY...................................................27
8.12 CERTIFICATION OF NON-FOREIGN STATUS...............................28
8.13 SEVERABILITY......................................................28
8.14 FILING OF RETURNS.................................................28
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TABLE OF CONTENTS
(continued)
PAGE
8.15 TAX MATTERS PARTNER...............................................28
8.16 SECTION 754 ELECTION..............................................29
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ACP STRATEGIC OPPORTUNITIES FUND II, LLC
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT of ACP Strategic
Opportunities Fund II, LLC (the "Company") is dated as of __________, 2002 by
and among Xxxxxx Xxxxxx and Xxxx Xxxxxxx as the Directors, Ascendant Capital
Partners, LLC (the "Organizational Member") and those persons hereinafter
admitted as Members.
W I T N E S S E T H:
WHEREAS, the Company has heretofore been formed as a limited liability
company under the Delaware Limited Liability Company Act pursuant to an initial
Certificate of Formation (the "Certificate") dated and filed with the Secretary
of State of Delaware on January 28, 2002;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants hereinafter set forth, it is hereby agreed as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement:
ADMINISTRATOR The person who provides administrative
services to the Company pursuant to an
administrative services agreement.
ADVISERS ACT The Investment Advisers Act of 1940 and
the rules, regulations and orders
thereunder, as amended from time to
time, or any successor law.
AFFILIATE An affiliated person of a person as such
term is defined in the Investment
Company Act.
AGREEMENT This Limited Liability Company Operating
Agreement, as amended from time to time.
ALLOCATION PERIOD The period commencing on the Initial
Closing Date, and thereafter each period
commencing on the day immediately
following the last day of the preceding
Allocation Period, and ending at the
close of business on the first to occur
of the following dates: (1) the last day
of each month; (2) the last day of each
Taxable Year; (3) the day preceding each
day on which Units are purchased
pursuant to Section 5.1; (4) each day on
which Units are repurchased; and (5) any
day as of which this Agreement provides
for any amount to be credited to or
debited against the Capital
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Account of any Member, other than an
amount to be credited to or debited
against the Capital Accounts of all
Members in accordance with their
respective Investment Percentages.
BOARD OF DIRECTORS The Board of Directors established
pursuant to Section 2.6.
CAPITAL ACCOUNT With respect to each Member, the capital
account established and maintained on
behalf of each Member pursuant to
Section 5.3 hereof.
CERTIFICATE The Certificate of Formation of the
Company and any amendments thereto as
filed with the office of the Secretary
of the State of Delaware.
CODE The United States Internal Revenue Code
of 1986, as amended from time to time,
or any successor law.
COMPANY The limited liability company governed
hereby, as such limited liability
company may from time to time be
constituted.
DELAWARE ACT The Delaware Limited Liability Company
Act as in effect on the date hereof and
as amended from time to time, or any
successor law.
DIRECTOR An individual designated as a director
of the Company pursuant to the
provisions of Section 2.6 of the
Agreement and who serves on the Board of
Directors of the Company. Each Director
of the Company shall serve in the
capacity of a "Manager" as such term is
defined under the Delaware Act.
FISCAL YEAR The period commencing on the Initial
Closing Date and ending on December 31,
2002, and thereafter each period
commencing on January 1 of each year and
ending on December 31 of each year (or
on the date of a final distribution
pursuant to Section 6.2 hereof), unless
the Board of Directors shall elect
another fiscal year for the Company.
FORM N-2 The Company's Registration Statement on
Form N-2 filed with the Securities and
Exchange Commission, as amended from
time to time.
INDEPENDENT DIRECTORS Those Directors who are not "interested
persons" of the Company as such term is
defined in the Investment Company Act.
INITIAL CLOSING DATE The first date on or as of which a
Member other than the Organizational
Member is admitted to the Company.
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INTERESTED DIRECTORS Those Directors who are "interested
persons" of the Company as such term is
defined in the Investment Company Act.
INVESTMENT MANAGEMENT AGREEMENT A separate written agreement entered
into by the Company pursuant to which
the Investment Manager provides
Management Services to the Company.
INVESTMENT COMPANY ACT The Investment Company Act of 1940 and
the rules, regulations and orders
thereunder, as amended from time to
time, or any successor law.
INVESTMENT MANAGER Ascendant Capital Partners, LLC and any
other investment adviser who enters into
an Investment Management Agreement to
manage the portfolio of investments for
the Company from time to time.
INVESTMENT PERCENTAGE A percentage established for each Member
on the Company's books as of the first
day of each Allocation Period. The
Investment Percentage of a Member for an
Allocation Period shall be determined by
dividing the balance of the Member's
Capital Account as of the commencement
of such Allocation Period by the sum of
the Capital Accounts of all the Members
as of the commencement of such
Allocation Period. The sum of the
Investment Percentages of all Members
for each Allocation Period shall equal
100%.
MANAGEMENT SERVICES Such investment advisory and other
services as the Investment Manager is
required to provide to the Company
pursuant to the Investment Management
Agreement.
MEMBER Any person who shall have been admitted
to the Company as a member (including
any Director in such person's capacity
as a member of the Company but excluding
any Director in such person's capacity
as a Director of the Company) until the
Company repurchases the Units of such
person as a member pursuant to Section
4.5 hereof or a substituted Member or
Members are admitted with respect to any
such person's Units as a member pursuant
to Section 4.4 hereof; such term
includes the Investment Manager to the
extent the Investment Manager makes a
capital contribution to the Company and
shall have been admitted to the Company
as a member.
NET ASSETS The total value of all assets of the
Company, less an amount equal to all
accrued debts, liabilities and
obligations of the Company, calculated
before giving effect to any repurchases
of Units.
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NET PROFIT OR NET LOSS The amount by which the Net Assets as of
the close of business on the last day of
an Allocation Period exceed (in the case
of Net Profit) or are less than (in the
case of Net Loss) the Net Assets as of
the commencement of the same Allocation
Period (or, with respect to the initial
Allocation Period of the Company, at the
close of business on the Initial Closing
Date), such amount to be adjusted to
exclude any items to be allocated among
the Capital Accounts of the Members on a
basis which is not in accordance with
the respective Investment Percentages of
all Members as of the commencement of
such Allocation Period pursuant to
Sections 5.5 and 5.6 hereof.
ORGANIZATIONAL MEMBER Ascendant Capital Partners, LLC
SECURITIES Securities (including, without
limitation, U.S. and non-U.S. equities,
debt obligations, options, and other
"securities" as that term is defined in
Section 2(a)(36) of the Investment
Company Act) and any contracts for
forward or future delivery of any
security, debt obligation or currency,
all manner of derivative instruments and
any contracts based on any index or
group of securities, debt obligations or
currencies, and any options thereon, as
well as investments in registered
investment companies and private
investment funds.
TAXABLE YEAR The 12-month period ending December 31
of each year.
TRANSFER The assignment, transfer, sale,
encumbrance, pledge or other disposition
of all Units or any individual Unit,
including any right to receive any
allocations and distributions
attributable to a Unit or Units.
UNDERLYING FUNDS Investment funds in which the Company
may invest.
UNITS An ownership interest in the Company of
a Member, or other person to whom Units
of a Member or any portion thereof has
been transferred pursuant to Section 4.4
hereof, including the rights and
obligations of such Member or other
person under this Agreement and the
Delaware Act.
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ARTICLE II.
ORGANIZATION; ADMISSION OF MEMBERS
2.1 FORMATION OF LIMITED LIABILITY COMPANY.
The Board of Directors shall execute and file in accordance with the
Delaware Act any amendment to the Certificate and shall execute and file with
applicable governmental authorities any other instruments, documents and
certificates which, in the opinion of the Company's legal counsel, may from time
to time be required by the laws of the United States of America, the State of
Delaware or any other jurisdiction in which the Company shall determine to do
business, or any political subdivision or agency thereof, or which such legal
counsel may deem necessary or appropriate to effectuate, implement and continue
the valid existence and business of the Company.
2.2 NAME.
The name of the Company shall be "ACP Strategic Opportunities Fund II, LLC"
or such other name as the Board of Directors may hereafter adopt upon (i)
causing an appropriate amendment to the Certificate to be filed in accordance
with the Delaware Act and (ii) sending notice thereof to each Member.
2.3 PRINCIPAL AND REGISTERED OFFICE.
The Company shall have its principal office at 0000 Xxxxxxxxx Xxxxx, Xxxxx
000, Xxxxxx, Xxxxxxxxxxxx 00000, or at such other place designated from time to
time by the Board of Directors. The Company shall have its registered office in
Delaware at 0000 Xxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxx 00000-0000, and shall have
Corporation Service Company as its registered agent for service of process in
Delaware, unless a different registered office or agent is designated from time
to time by the Board of Directors.
2.4 DURATION.
The term of the Company commenced on the filing of the Certificate with the
Secretary of State of Delaware and shall continue until the Company is dissolved
pursuant to Section 6.1 hereof.
2.5 OBJECTIVE AND BUSINESS OF THE COMPANY.
(a) The objective and business of the Company is to purchase, sell
(including short sales), invest and trade in Securities, on margin or
otherwise, and to engage in any financial or derivative transactions
relating thereto or otherwise. The Company may execute, deliver and perform
all contracts, agreements, subscription documents and other undertakings
and engage in all activities and transactions as may in the opinion of the
Board of Directors be necessary or advisable to carry out its objective or
business.
(b) The Company shall operate as a closed-end, non-diversified,
management investment company in accordance with the Investment Company Act
and subject to any fundamental policies and investment restrictions set
forth in the Form N-2.
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2.6 BOARD OF DIRECTORS.
(a) Prior to the Initial Closing Date, the Organizational Member shall
designate one person who shall agree to be bound by all of the
terms of this Agreement to serve as the initial Independent Director on
the Board of Directors and the Investment Manager shall designate one
person to serve as the initial Interested Director on the Board of
Directors, subject to the election of such persons prior to the Initial
Closing Date by the Organizational Member. By signing this Agreement or the
signature page of the Company's subscription agreement, a Member admitted
on the Initial Closing Date shall be deemed to have voted for the election
of each of the initial Directors to the Board of Directors. After the
Initial Closing Date, the Board of Directors may, subject to the provisions
of paragraphs (a) and (b) of this Section 2.6 with respect to the number of
and vacancies in the position of Director of and the provisions of Section
3.3 hereof with respect to the election of Directors to the Board of
Directors by Members, designate any person who shall agree to be bound by
all of the terms of this Agreement as a Director. The names and mailing
addresses of the Directors shall be set forth in the books and records of
the Company. The number of Directors shall be fixed from time to time by
the Board of Directors.
(b) Each Director shall serve on the Board of Directors for the
duration of the term of the Company, unless his or her status as a Director
shall be sooner terminated pursuant to Section 4.2 hereof. In the event of
any vacancy in the position of Director, the remaining Directors may
appoint an individual to serve in such capacity, so long as immediately
after such appointment at least two-thirds (2/3) of the Directors then
serving would have been elected by the Members. The Board of Directors may
call a meeting of Members to fill any vacancy in the position of a
Director, and shall do so within 60 days after any date on which Directors
who were elected by the Members cease to constitute a majority of the
Directors then serving on the Board of Directors.
(c) In the event that no Director remains to continue the business of
the Company, the Investment Manager shall promptly call a meeting of the
Members, to be held within 60 days after the date on which the last
Director ceased to act in that capacity, for the purpose of determining
whether to continue the business of the Company and, if the business shall
be continued, of electing the required number of Directors to the Board of
Directors. If the Members shall determine at such meeting not to continue
the business of the Company or if the required number of Directors is not
elected within 60 days after the date on which the last Director ceased to
act in that capacity, then the Company shall be dissolved pursuant to
Section 6.1 hereof and the assets of the Company shall be liquidated and
distributed pursuant to Section 6.2 hereof.
2.7 MEMBERS.
The Board of Directors may admit one or more Members as of the first day of
each calendar month; provided, however, that upon delivery to the Board of
Directors of a letter of advice from counsel to the Investment Manager that the
admission of Members more often than monthly will not cause the Company to be
taxed as a corporation, the Company may, in the discretion of the Board of
Directors, admit Members more frequently. Subject to the foregoing terms,
Members may be admitted to the Company subject to the condition that each such
Member shall execute an appropriate signature page of this Agreement or of the
Company's subscription agreement pursuant to which such Member agrees to be
bound by all the terms and provisions hereof. The Board of Directors may in its
absolute discretion reject any subscription for Units. The admission of any
6
person as a Member shall be effective upon the revision of the books and records
of the Company to reflect the name and the contribution to the capital of the
Company of such additional Member.
2.8 ORGANIZATIONAL MEMBER.
Upon the admission of any Member, the Organizational Member shall withdraw
from the Company as the Organizational Member and shall be entitled to the
return of his or her Capital Contribution, if any, without interest or
deduction.
2.9 BOTH DIRECTORS AND MEMBERS.
A Member may at the same time be a Director and a Member, in which event
such Member's rights and obligations in each capacity shall be determined
separately in accordance with the terms and provisions hereof or as provided in
the Delaware Act.
2.10 LIMITED LIABILITY.
Except as provided under applicable law, a Member shall not be liable for
the Company's debts, obligations and liabilities solely by reason of being a
Member, except that the Member may be obligated to make capital contributions to
the Company to repay any funds wrongfully distributed to the Member. A Member
may be required to contribute to the Company, whether before or after the
Company's dissolution or after the Member ceases to be a Member, such amounts as
the Company deems necessary to meet the Company's debts, obligations or
liabilities (not to exceed for any Member, the aggregate amount of any
distributions, amounts in connection with the repurchase of all or a portion of
the Member's Units and any other amounts received by the Member from the Company
during or after the fiscal year to which any debt, obligation or liability of
the Company is incurred). Except as provided under applicable law, a Director
shall not be liable for the Company's debts, obligations and liabilities.
ARTICLE III
MANAGEMENT
3.1 MANAGEMENT AND CONTROL.
(a) Management and control of the business of the Company shall be
vested in the Board of Directors, which shall have the right, power and
authority, on behalf of the Company and in its name, to exercise all
rights, powers and authority of Directors under the Delaware Act and to do
all things necessary and proper to carry out the objective and business of
the Company and their duties hereunder including, but not limited to, the
hiring of outside consultants and other persons to assist or advise the
Board of Directors. No Director shall have the authority individually to
act on behalf of or to bind the Company except within the scope of such
Director's authority as delegated by the Board of Directors. The parties
hereto intend that, except to the extent otherwise expressly provided
herein, (i) each Director shall be vested with the same powers, authority
and responsibilities on behalf of the Company as are customarily vested in
each director of a Delaware corporation and (ii) each Independent Director
shall be vested with the same powers, authority and responsibilities on
behalf of the Company as are customarily vested in each director of a
closed-end management investment company registered under the Investment
Company Act that is organized
7
as a Delaware corporation who is not an "interested person" of such company
as such term is defined in the Investment Company Act. During any period in
which the Company shall have no Directors, the Investment Manager shall
continue to serve as the Investment Manager to the Company and to provide
the Management Services to the Company.
(b) Each Member agrees not to treat, on his personal income tax return
or in any claim for a tax refund, any item of income, gain, loss, deduction
or credit in a manner inconsistent with the treatment of such item by the
Company. The Board of Directors shall have the exclusive authority and
discretion to make any elections required or permitted to be made by the
Company under any provisions of the Code or any other revenue laws.
(c) Members shall have no right to participate in and shall take no
part in the management or control of the Company's business and shall have
no right, power or authority to act for or bind the Company. Members shall
have the right to vote on any matters only as provided in this Agreement or
on any matters that require the approval of the holders of voting
securities under the Investment Company Act or as otherwise required in the
Delaware Act.
(d) The Board of Directors may delegate to any other person any
rights, power and authority vested by this Agreement in the Board of
Directors to the extent permissible under applicable law.
3.2 ACTIONS BY THE BOARD OF DIRECTORS.
(a) Unless provided otherwise in this Agreement, the Board of
Directors shall act only: (i) by the affirmative vote of a majority of the
Directors (including the vote of a majority of the Independent Directors if
required by the Investment Company Act) present at a meeting duly called at
which a quorum of the Directors shall be present (in person or, if in
person attendance is not required by the Investment Company Act, by
telephone) or (ii) by unanimous written consent of all of the Directors
without a meeting, if permissible under the Investment Company Act.
(b) The Board of Directors may designate certain powers from time to
time a Principal Director who shall preside at all meetings. Meetings of
the Board of Directors may be called by the Principal Director or by any
two Directors, and may be held on such date and at such time and place as
the Board of Directors shall determine. Each Director shall be entitled to
receive written notice of the date, time and place of such meeting within a
reasonable time in advance of the meeting. Notice need not be given to any
Director who shall attend a meeting without objecting to the lack of notice
or who shall execute a written waiver of notice with respect to the
meeting. Directors may attend and participate in any meeting by telephone
except where in person attendance at a meeting is required by the
Investment Company Act. A majority of the Directors shall constitute a
quorum at any meeting.
3.3 MEETINGS OF MEMBERS.
(a) Actions requiring the vote of the Members may be taken at any duly
constituted meeting of the Members at which a quorum is present. Meetings
of the Members may be called by the Board of Directors or by Members
holding 25% or more of the total number of votes eligible to be cast by all
Members, and may be held at such time, date and place as the Board of
Directors shall determine. The Board of Directors shall arrange to provide
written notice of the
8
meeting, stating the date, time and place of the meeting and the record
date therefor, to each Member entitled to vote at the meeting within a
reasonable time prior thereto. Failure to receive notice of a meeting on
the part of any Member shall not affect the validity of any act or
proceeding of the meeting, so long as a quorum shall be present at the
meeting, except as otherwise required by applicable law. Only matters set
forth in the notice of a meeting may be voted on by the Members at a
meeting. The presence in person or by proxy of Members holding a majority
of the total number of votes eligible to be cast by all Members as of the
record date shall constitute a quorum at any meeting. In the absence of a
quorum, a meeting of the Members may be adjourned by action of a majority
of the Members present in person or by proxy without additional notice to
the Members. Except as otherwise required by any provision of this
Agreement or of the Investment Company Act, (i) those candidates receiving
a plurality of the votes cast at any meeting of Members shall be elected as
Directors and (ii) all other actions of the Members taken at a meeting
shall require the affirmative vote of Members holding a majority of the
total number of votes eligible to be cast by those Members who are present
in person or by proxy at such meeting.
(b) Each Member shall be entitled to cast at any meeting of Members a
number of votes equivalent to such Member's Investment Percentage as of the
record date for such meeting. The Board of Directors shall establish a
record date not less than 10 nor more than 60 days prior to the date of any
meeting of Members to determine eligibility to vote at such meeting and the
number of votes that each Member will be entitled to cast thereat, and
shall maintain for each such record date a list setting forth the name of
each Member and the number of votes that each Member will be entitled to
cast at the meeting.
(c) A Member may vote at any meeting of Members by a proxy properly
executed in writing by the Member and filed with the Company before or at
the time of the meeting. A proxy may be suspended or revoked, as the case
may be, by the Member executing the proxy by a later writing delivered to
the Company at any time prior to exercise of the proxy or if the Member
executing the proxy shall be present at the meeting and decide to vote in
person. Any action of the Members that is permitted to be taken at a
meeting of the Members may be taken without a meeting if consents in
writing, setting forth the action taken, are signed by Members holding a
majority of the total number of votes eligible to be cast or such greater
percentage as may be required in order to approve such action.
3.4 CUSTODY OF ASSETS OF THE COMPANY.
The physical possession of all funds, Securities or other properties of the
Company shall at all times, be held, controlled and administered by one or more
custodians retained by the Company in accordance with the requirements of the
Investment Company Act and the rules thereunder.
3.5 OTHER ACTIVITIES OF MEMBERS AND DIRECTORS.
(a) The Directors shall not be required to devote full time to the
affairs of the Company, but shall devote such time as may reasonably be
required to perform their obligations under this Agreement.
(b) Any Member or Director, and any Affiliate of any Member or
Director, may engage in or possess an interest in other business ventures
or commercial dealings of every kind
9
and description, independently or with others, including, but not limited
to, acquisition and disposition of Securities, provision of investment
advisory or brokerage services, serving as directors, officers, employees,
advisors or agents of other companies, partners of any partnership, members
of any limited liability company, or trustees of any trust, or entering
into any other commercial arrangements. No Member or Director shall have
any rights in or to such activities of any other Member or Director, or any
profits derived therefrom.
3.6 DUTY OF CARE.
(a) A Director shall not be liable to the Company or to any of its
Members for any loss or damage occasioned by any act or omission in the
performance of his or her services under this Agreement, unless it shall be
determined by final judicial decision on the merits from which there is no
further right to appeal that such loss is due to an act or omission of such
Director constituting willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Director's
office.
(b) Members not in breach of any obligation hereunder or under any
agreement pursuant to which the Member subscribed for a Unit or Units shall
be liable to the Company, any Member or third parties only as provided
under the Delaware Act.
3.7 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Company shall, subject
to Section 3.7(b) hereof, indemnify each Director (including for this
purpose his or her executors, heirs, assigns, successors or other legal
representatives), against all losses, claims, damages, liabilities, costs
and expenses, including, but not limited to, amounts paid in satisfaction
of judgments, in compromise, or as fines or penalties, and reasonable
counsel fees, incurred in connection with the defense or disposition of any
action, suit, investigation or other proceeding, whether civil or criminal,
before any judicial, arbitral, administrative or legislative body, in which
such indemnitee may be or may have been involved as a party or otherwise,
or with which such indemnitee may be or may have been threatened, while in
office or thereafter, by reason of being or having been a Director of the
Company or the past or present performance of services to the Company by
such indemnitee, except to the extent such loss, claim, damage, liability,
cost or expense shall have been finally determined in a decision on the
merits in any such action, suit, investigation or other proceeding to have
been incurred or suffered by such indemnitee by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office. The rights of
indemnification provided under this Section 3.7 shall not be construed so
as to provide for indemnification of a Director for any liability
(including liability under federal securities laws which, under certain
circumstances, impose liability even on persons that act in good faith) to
the extent (but only to the extent) that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
applicable provisions of this Section 3.7 to the fullest extent permitted
by law.
(b) Expenses, including reasonable counsel fees, so incurred by any
such indemnitee (but excluding amounts paid in satisfaction of judgments,
in compromise, or as fines or penalties), may be paid from time to time by
the Company in advance of the final disposition of any such action, suit,
investigation or proceeding upon receipt of an undertaking by or on behalf
of
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such indemnitee to repay to the Company amounts so paid if it shall
ultimately be determined that indemnification of such expenses is not
authorized under Section 3.7(a) hereof; provided, however, that (i) such
indemnitee shall provide security for such undertaking, (ii) the Company
shall be insured by or on behalf of such indemnitee against losses arising
by reason of such indemnitee's failure to fulfill such undertaking, or
(iii) a majority of the Directors (excluding any Director who is either
seeking advancement of expenses hereunder or is or has been a party to any
other action, suit, investigation or proceeding involving claims similar to
those involved in the action, suit, investigation or proceeding giving rise
to a claim for advancement of expenses hereunder) or independent legal
counsel in a written opinion shall determine based on a review of readily
available facts (as opposed to a full trial-type inquiry) that there is
reason to believe such indemnitee ultimately will be entitled to
indemnification.
(c) As to the disposition of any action, suit, investigation or
proceeding (whether by a compromise payment, pursuant to a consent decree
or otherwise) without an adjudication or a decision on the merits by a
court, or by any other body before which the proceeding shall have been
brought, that an indemnitee is liable to the Company or its Members by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such indemnitee's
office, indemnification shall be provided pursuant to Section 3.7(a) hereof
if (i) it is approved as in the best interests of the Company by a majority
of the Directors (excluding any Director who is either seeking
indemnification hereunder or is or has been a party to any other action,
suit, investigation or proceeding involving claims similar to those
involved in the action, suit, investigation or proceeding giving rise to a
claim for indemnification hereunder) upon a determination based upon a
review of readily available facts (as opposed to a full trial-type inquiry)
that such indemnitee acted in good faith and in the reasonable belief that
such actions were in the best interests of the Company and that such
indemnitee is not liable to the Company or its Members by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office, or (ii) the
Board of Directors secures a written opinion of independent legal counsel
based upon a review of readily available facts (as opposed to a full
trial-type inquiry) to the effect that such indemnification would not
protect such indemnitee against any liability to the Company or its Members
to which such indemnitee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office.
(d) Any indemnification or advancement of expenses made pursuant to
this Section 3.7 shall not prevent the recovery from any indemnitee of any
such amount if such indemnitee subsequently shall be determined in a
decision on the merits in any action, suit, investigation or proceeding
involving the liability or expense that gave rise to such indemnification
or advancement of expenses to be liable to the Company or its Members by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such indemnitee's
office. In (i) any suit brought by a Director (or other person entitled to
indemnification hereunder) to enforce a right to indemnification under this
Section 3.7 it shall be a defense that, and (ii) in any suit in the name of
the Company to recover any indemnification or advancement of expenses made
pursuant to this Section 3.7 the Company shall be entitled to recover such
expenses upon a final adjudication that, the Director or other person
claiming a right to indemnification under this Section 3.7 has not met the
applicable standard of conduct set forth in this Section 3.7. In any such
suit brought to enforce a right to indemnification or to recover any
indemnification or advancement of expenses made pursuant to this Section
3.7, the burden of
11
proving that the Director or other person claiming a right to
indemnification is not entitled to be indemnified, or to any
indemnification or advancement of expenses, under this Section 3.7 shall be
on the Company (or any Member acting derivatively or otherwise on behalf of
the Company or its Members).
(e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 3.7 or to which such
indemnitee may otherwise be entitled except out of the assets of the
Company, and no Member shall be personally liable with respect to any such
claim for indemnification or advancement of expenses.
(f) The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be entitled
by contract or otherwise under law. Nothing contained in this Section 3.7
shall affect the power of the Company to purchase and maintain liability
insurance on behalf of any Director or other person.
3.8 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as the Investment Manager provides Management Services to
the Company, it shall be entitled to receive fees for such services as may
be agreed to by the Investment Manager and the Company pursuant to the
Investment Management Agreement.
(b) The Board of Directors may cause the Company to compensate each
Director for his or her services as such. In addition, the Directors shall
be reimbursed by the Company for reasonable out-of-pocket expenses incurred
by them in performing their duties under this Agreement.
(c) The Company shall bear all of its own operating expenses other
than those specifically required to be borne by the Investment Manager or
another party pursuant to the Investment Management Agreement or another
agreement with the Company. The Investment Manager shall be entitled to
reimbursement from the Company for any expenses that it pays on behalf of
the Company.
(d) For purposes of maintaining the Members' Capital Accounts, the
Company's organizational expenses shall be allocated by the Managing Member
among the Members based on each Member's Investment Percentage as of the
allocation date that next follows the Initial Closing Date and the date
organizational expenses are incurred. These allocations will thereafter be
adjusted, together with allocations of any subsequently incurred
organizational expenses, on subsequent allocation dates through and
including the date which is twelve months after the Initial Closing Date.
(e) Subject to procuring any required regulatory approvals, from time
to time the Company may, alone or in conjunction with other accounts for
which the Investment Manager, or any Affiliate of the Investment Manager,
acts as general partner or investment adviser, purchase Insurance in such
amounts, from such insurers and on such terms as the Board of Directors
shall determine.
12
ARTICLE IV.
TERMINATION OF STATUS OF INVESTMENT MANAGER
AND DIRECTORS, TRANSFERS AND REPURCHASES
4.1 TERMINATION OF STATUS OF THE INVESTMENT MANAGER.
The status of the Investment Manager shall terminate if the Investment
Management Agreement with the Investment Manager terminates and the Company does
not enter into a new Investment Management Agreement with the Investment
Manager, effective as of the date of such termination.
4.2 TERMINATION OF STATUS OF A DIRECTOR.
The status of a Director shall terminate if the Director (i) shall die;
(ii) shall be adjudicated incompetent; (iii) shall voluntarily withdraw as a
Director (upon not less than 90 days' prior written notice to the other
Directors); (iv) shall be removed; (v) shall be certified by a physician to be
mentally or physically unable to perform his duties hereunder; (vi) shall be
declared bankrupt by a court with appropriate jurisdiction, file a petition
commencing a voluntary case under any bankruptcy law or make an assignment for
the benefit of creditors; (vii) shall have a receiver appointed to administer
the property or affairs of such Director; or (viii) shall otherwise cease to be
a Director of the Company under the Delaware Act.
4.3 REMOVAL OF THE DIRECTORS.
Any Director may be removed either by (a) the vote or written consent of at
least two-thirds (2/3) of the Directors not subject to the removal vote or (b)
the vote or written consent of Members holding not less than two-thirds (2/3) of
the total number of votes eligible to be cast by all Members.
4.4 TRANSFER OF UNITS OF MEMBERS.
(a) Units of a Member may be Transferred only (i) by operation of law
pursuant to the death, divorce, bankruptcy, insolvency or dissolution of
such Member or (ii) with the written consent of the Board of Directors
(which may be withheld in its sole discretion); provided, however, that the
Board of Directors may not consent to any Transfer other than a Transfer
(i) in which the tax basis of the Units in the hands of the transferee is
determined, in whole or in part, by reference to its tax basis in the hands
of the transferor (e.g., certain Transfers to affiliates, gifts and
contributions to family partnerships), (ii) to members of the Member's
immediate family (brothers, sisters, spouse, parents and children), or
(iii) a distribution from a qualified retirement plan or an individual
retirement account, unless it consults with counsel to the Company and
counsel to the Company confirms that such Transfer will not cause the
Company to be treated as a "publicly traded partnership" taxable as a
corporation.
(b) The Board of Directors may not consent to a Transfer of Units
unless: (i) the person to whom such Units are Transferred is a person whom
the Company believes is an accredited investor, as such term is defined in
Regulation D under the Securities Act of 1933 or any successor thereto;
(ii) the person to whom such Units are Transferred (or each of such
person's beneficial owners if such person is a "private investment company"
as defined in paragraph (d)(3) of Rule 205-3 under the Advisers Act) is a
person whom the Company believes meets the
13
requirements of paragraph (d)(1) of Rule 205-3 under the Advisers Act; and
(iii) all of the Units of the Member are Transferred to a single transferee
or, after the Transfer of Units, the balance of the Capital Account of each
of the transferee and transferor is not less than $25,000. Any transferee
that acquires Units by operation of law as the result of the death,
divorce, bankruptcy, insolvency or dissolution of a Member or otherwise,
shall be entitled to the allocations and distributions allocable to the
Unit or Units so acquired and to Transfer such Unit or Units in accordance
with the terms of this Agreement, but shall not be entitled to the other
rights of a Member unless and until such transferee becomes a substituted
Member. If a Member transfers Units with the approval of the Board of
Directors, the Board of Directors shall promptly take all necessary actions
so that the transferee to whom such Units are transferred is admitted to
the Company as a Member. Each Member effecting a Transfer and its
transferee agree to pay all expenses, including attorneys' and accountants'
fees, incurred by the Company in connection with such Transfer.
(c) Each Member shall indemnify and hold harmless the Company, the
Directors, the Investment Manager, each other Member and any Affiliate of
the foregoing against all losses, claims, damages, liabilities, costs and
expenses (including legal or other expenses incurred in investigating or
defending against any such losses, claims, damages, liabilities, costs and
expenses or any judgments, fines and amounts paid in settlement), joint or
several, to which such persons may become subject by reason of or arising
from (i) any Transfer made by such Member in violation of this Section 4.4
and (ii) any misrepresentation by such Member in connection with any such
Transfer.
4.5 REPURCHASE OF UNITS.
(a) Except as otherwise provided in this Agreement, no Member or other
person holding a Unit or Units shall have the right to withdraw or tender
to the Company for repurchase that person's Units or any portion thereof.
The Board of Directors from time to time, in its complete and exclusive
discretion and on such terms and conditions as it may determine, may cause
the Company to repurchase Units or portions thereof pursuant to written
tenders. However, the Company shall not offer to repurchase Units on more
than two occasions during any one Fiscal Year unless it has been advised by
counsel to the Company to the effect that such more frequent offers would
not cause any adverse tax consequences to the Company or the Members. In
determining whether to cause the Company to repurchase Units or portions
thereof pursuant to written tenders, the Board of Directors shall consider
the recommendation of the Investment Manager, and shall also consider the
following factors, among others:
(1) whether any Members have requested to tender Units or
portions thereof to the Company;
(2) the liquidity of the Company's assets;
(3) the investment plans and working capital requirements of the
Company;
(4) the relative economies of scale with respect to the size of
the Company;
(5) the history of the Company in repurchasing Units or portions
thereof;
14
(6) the economic condition of the securities markets; and
(7) the anticipated tax consequences of any proposed repurchases
of Units or portions thereof.
(b) The Investment Manager may tender its Units or any portion thereof
as a Member under Section 4.5(a) hereof.
(c) The Board of Directors, in its sole discretion, may require the
Company to repurchase, and any Member or any person acquiring a Unit or
Units from or through a Member, to sell, a Unit or Units for any reason
whatsoever.
(d) Repurchases of Units or portions thereof by the Company shall be
payable promptly after the date of each such repurchase or, in the case of
an offer by the Company to repurchase Units, promptly after the expiration
date of such repurchase offer in accordance with the terms of the Company's
repurchase offer and the repurchase procedures adopted by the Board of
Directors, as the same may be amended from time to time. Payment of the
purchase price of Units may consist of cash or a promissory note, which
need not bear interest. Notwithstanding anything in the foregoing to the
contrary, the Board of Directors, in its discretion, may pay all or any
portion of the repurchase price in marketable or non-marketable Securities
(or any combination of Securities and cash) having a value, determined as
of the date of repurchase, equal to the amount to be repurchased. All
repurchases of Units shall be subject to any and all conditions as the
Board of Directors may impose in its sole discretion. The amount due to any
Member whose Units are repurchased shall be equal to the value of such
Member's Capital Account or portion thereof, as applicable, as of the
effective date of repurchase, after giving effect to all allocations to be
made to such Member's Capital Account as of the close of business on such
date.
ARTICLE V.
CAPITAL
5.1 CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Member to the capital of
the Company shall be such amount as the Board of Directors, in its
discretion, may determine from time to time, but in no event shall be less
than $25,000. The amount of the initial contribution of each Member on the
Initial Closing Date shall be recorded on the books and records of the
Company upon acceptance as a purchase of Units with an initial net asset
value of $5,000 per Unit. Thereafter contributions of capital shall be
recorded on the books and records of the Company upon acceptance as a
purchase of Units at the then-existing net asset value per Unit. The
Directors shall not be entitled to make voluntary contributions of capital
to the Company as Directors of the Company, but may make voluntary
contributions to the capital of the Company as Members. The Investment
Manager may make voluntary contributions to the capital of the Company as a
Member.
(b) The Members may make additional contributions to the capital of
the Company of at least $10,000, effective as of such times as the Board of
Directors in its discretion may permit, subject to the limitations
applicable to the admission of Members pursuant to Section
15
2.7 hereof, but no Member shall be obligated to make any additional
contribution to the capital of the Company except to the extent provided in
Section 5.6 hereof.
(c) Except as otherwise permitted by the Board of Directors, (i)
initial and any additional contributions to the capital of the Company by
any Member shall be payable in cash or in such Securities that the Board of
Directors, in its absolute discretion, may agree to accept on behalf of the
Company, and (ii) initial and any additional contributions in cash shall be
payable in readily available funds at the date of the proposed acceptance
of the contribution. The Company shall charge each Member making a
contribution in Securities to the capital of the Company such amount as may
be determined by the Board of Directors not exceeding 2% of the value of
such contribution in order to reimburse the Company for any costs incurred
by the Company by reason of accepting such Securities, and any such charge
shall be due and payable by the contributing Member in full at the time the
contribution to the capital of the Company to which such charges relate is
due. The value of contributed Securities shall be determined in accordance
with Section 7.3 hereof as of the date of contribution.
(d) The minimum initial and additional contributions set forth in (a)
and (b) of this Section 5.1 may be reduced by the Board of Directors in
accordance with such schedule of reductions as may be adopted by the Board
of Directors it its sole discretion.
5.2 RIGHTS OF MEMBERS TO CAPITAL.
No Member shall be entitled to interest on any contribution to the capital
of the Company, nor shall any Member be entitled to the return of any capital of
the Company except (i) upon the repurchase by the Company at the discretion of
The Board of Directors of a Unit or all of such Member's Units pursuant to
Section 4.5 hereof, (ii) pursuant to the provisions of Section 5.6(c) hereof or
(iii) upon the liquidation of the Company's assets pursuant to Section 6.2
hereof. No Member shall be liable for the return of any amounts distributed
under this Section 5.2. No Member shall have the right to require partition of
the Company's property or to compel any sale or appraisal of the Company's
assets.
5.3 CAPITAL ACCOUNTS.
(a) The Company shall maintain a separate Capital Account for each
Member.
(b) Each Member's Capital Account shall have an initial balance equal
to the amount of cash and the value of any Securities (determined in
accordance with Section 7.3 hereof) (net of any liabilities secured by such
Securities that the Company is considered to assume or take subject to
under Section 752 of the Code) constituting such Member's initial
contribution to the capital of the Company.
(c) Each Member's Capital Account shall be increased by the sum of (i)
the amount of cash and the value of any Securities (determined in
accordance with Section 7.3 hereof) (net of any liabilities secured by such
Securities that the Company is considered to assume or take subject to
under Section 752 of the Code) constituting additional contributions by
such Member to the capital of the Company permitted pursuant to Section 5.1
hereof, plus (ii) all amounts credited to such Member's Capital Account
pursuant to Sections 5.4 through 5.6.
16
(d) Each Member's Capital Account shall be reduced by the sum of (i)
the amount of any repurchase of any Units of such Member or distributions
to such Member pursuant to Sections 4.5, 5.8 or 6.2 hereof which are not
reinvested (net of any liabilities secured by any asset distributed that
such Member is deemed to assume or take subject to under Section 752 of the
Code), plus (ii) any amounts debited against such Capital Account pursuant
to Sections 5.4 through 5.6 hereof.
5.4 ALLOCATION OF NET PROFIT AND NET LOSS.
As of the last day of each Allocation Period, any Net Profit or Net Loss
for the Allocation Period shall be allocated among and credited to or debited
against the Capital Accounts of the Members in accordance with their respective
Investment Percentages for such Allocation Period.
5.5 ALLOCATION OF CERTAIN EXPENDITURES.
Except as otherwise provided for in this Agreement and unless prohibited by
the Investment Company Act, any expenditures payable by the Company, to the
extent determined by the Board of Directors to have been paid or withheld on
behalf of, or by reason of particular circumstances applicable to, one or more
but fewer than all of the Members, shall be charged to only those Members on
whose behalf such payments are made or whose particular circumstances gave rise
to such payments. Such charges shall be debited from the Capital Accounts of
such Members as of the close of the Allocation Period during which any such
items were paid or accrued by the Company.
5.6 RESERVES.
(a) Appropriate reserves may be created, accrued and charged against
Net Assets and proportionately against the Capital Accounts of the Members
for contingent liabilities, if any, as of the date any such contingent
liability becomes known to the Investment Manager or the Board of
Directors, such reserves to be in the amounts that the Board of Directors
in its sole discretion deems necessary or appropriate. The Board of
Directors may increase or reduce any such reserves from time to time by
such amounts as the Board of Directors in its sole discretion deems
necessary or appropriate. The amount of any such reserve, or any increase
or decrease therein, shall be proportionately charged or credited, as
appropriate, to the Capital Accounts of those parties who are Members at
the time when such reserve is created, increased or decreased, as the case
may be; provided, however, that if any such individual reserve item,
adjusted by any increase therein, exceeds the lesser of $500,000 or 1% of
the aggregate value of the Capital Accounts of all such Members, the amount
of such reserve, increase, or decrease shall instead be charged or credited
to those parties who were Members at the time, as determined by the Board
of Directors in its sole discretion, of the act or omission giving rise to
the contingent liability for which the reserve was established, increased
or decreased in proportion to their Capital Accounts at that time.
(b) If at any time an amount is paid or received by the Company (other
than contributions to the capital of the Company, distributions or
repurchases of Units or portions thereof) and such amount exceeds the
lesser of $500,000 or 1% of the aggregate value of the Capital Accounts of
all Members at the time of payment or receipt and such amount was not
17
accrued or reserved for but would nevertheless, in accordance with the
Company's accounting practices, be treated as applicable to one or more
prior Allocation Periods, then such amount shall be proportionately charged
or credited, as appropriate, to those parties who were Members during such
prior Allocation Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this Section
5.6 to be charged or credited to a party who is no longer a Member, such
amount shall be paid by or to such party, as the case may be, in cash, with
interest from the date on which the Board of Directors determines that such
charge or credit is required. In the case of a charge, the former Member
shall be obligated to pay the amount of the charge, plus interest as
provided above, to the Company on demand; provided, however, that (i) in no
event shall a former Member be obligated to make a payment exceeding the
amount of such Member's Capital Account at the time to which the charge
relates; and (ii) no such demand shall be made after the expiration of
three years since the date on which such party ceased to be a Member. To
the extent that a former Member fails to pay to the Company, in full, any
amount required to be charged to such former Member pursuant to paragraph
(a) or (b), whether due to the expiration of the applicable limitation
period or for any other reason whatsoever, the deficiency shall be charged
proportionately to the Capital Accounts of the Members at the time of the
act or omission giving rise to the charge to the extent feasible, and
otherwise proportionately to the Capital Accounts of the current Members.
5.7 TAX ALLOCATIONS.
For each Taxable Year, items of income, deduction, gain, loss or credit
shall be allocated for income tax purposes among the Members in such manner as
to reflect equitably amounts credited or debited to each Member's Capital
Account for the current and prior fiscal years (or relevant portions thereof).
Allocations under this Section 5.7 shall be made pursuant to the principles of
Sections 704(b) and 704(c) of the Code and in conformity with Regulations
Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e) promulgated
thereunder, as applicable, or the successor provisions to such Section and
Regulations. Notwithstanding anything to the contrary in this Agreement, there
shall be allocated to the Members such gains or income as shall be necessary to
satisfy the "qualified income offset" requirement of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
If the Company realizes net capital gains (including net short-term capital
gains) for Federal income tax purposes ("gains") for any Taxable Year during or
as of the end of which all the Units of one or more Positive Basis Members (as
hereinafter defined) are repurchased by the Company pursuant to Article IV, the
Board of Directors,
18
in its sole discretion, may allocate such net gains as follows: (i) to allocate
such gains among such Positive Basis Members, PRO RATA in proportion to the
respective Positive Basis (as hereinafter defined) of each such Positive Basis
Member, until either the full amount of such net gains shall have been so
allocated or the Positive Basis of each such Positive Basis Member shall have
been eliminated and (ii) to allocate any net gains not so allocated to Positive
Basis Members to the other Members in such manner as shall equitably reflect the
amounts allocated to such Members' Capital Accounts pursuant to Section 5.4.
As used herein, (i) the term "Positive Basis" shall mean, with respect to
any Member and as of any time of calculation, the excess of the amount such
Member is entitled to receive upon repurchase of his Units or liquidation of the
Company, over such Member's "adjusted tax basis," for Federal income tax
purposes, in its Units as of such time (determined without regard to any
adjustments made to such "adjusted tax basis" by reason of any transfer or
assignment of such Units, including by reason of death, and without regard to
such Member's share of the liabilities of the Company under Section 752 of the
Code), (ii) the term "Positive Basis Member" shall mean any Member whose Units
are repurchased by the Company and who has Positive Basis as of the effective
date of such repurchase, but such Member shall cease to be a Positive Basis
Member at such time as it shall have received allocations pursuant to clause (i)
of the second paragraph of this Section 5.7 equal to its Positive Basis as of
the effective date of such repurchase, (iii) the term "Negative Basis" means,
with respect to any Member and as of any time of calculation the excess of such
Member's "adjusted tax basis" in its Units (determined without regard to any
adjustments made to such adjusted tax basis by reason of any transfer or
assignment of such Units, including by reason of death and without regard to
such Member's share of the liabilities of the Company under section 752 of the
Code) over the amount which such Member is entitled to receive upon repurchase
of his Units or liquidation of the Company, and (iv) the term "Negative Basis
Member" shall mean any Member whose Units are repurchased by the Company and who
has a Negative Basis as of the effective date of such repurchase, but such
Member shall cease to be a Negative Basis Member at such time if it shall have
received allocations equal to such Member's Negative Basis as of the effective
date of the repurchase.
5.8 DISTRIBUTIONS.
The Board of Directors, in its sole discretion, may authorize the Company
to make distributions in cash at any time to all of the Members on a pro rata
basis in accordance with the Members' Investment Percentages.
5.9 WITHHOLDING.
(a) The Board of Directors may withhold and pay over to the Internal
Revenue Service (or any other relevant taxing authority) taxes from any
distribution to any Member to the extent required by the Code or any other
applicable law.
(b) For purposes of this Agreement, any taxes so withheld by the
Company with respect to any amount distributed by the Company to any Member
shall be deemed to be a distribution or payment to such Member, reducing
the amount otherwise distributable to such Member pursuant to this
Agreement and reducing the Capital Account of such Member. If the amount of
such taxes is greater than any such distributable amounts, then such Member
and any
19
successor to such Member's Units shall pay to the Company as a contribution
to the capital of the Company, upon demand of the Board of Directors, the
amount of such excess.
(c) The Board of Directors shall not be obligated to apply for or
obtain a reduction of or exemption from withholding tax on behalf of any
Member that may be eligible for such reduction or exemption. To the extent
that a Member claims to be entitled to a reduced rate of, or exemption
from, a withholding tax pursuant to an applicable income tax treaty, or
otherwise, the Member shall furnish the Board of Directors with such
information and forms as such Member may be required to complete where
necessary to comply with any and all laws and regulations governing the
obligations of withholding tax agents. Each Member represents and warrants
that any such information and forms furnished by such Member shall be true
and accurate and agrees to indemnify the Company and each of the Members
from any and all damages, costs and expenses resulting from the filing of
inaccurate or incomplete information or forms relating to such withholding
taxes.
ARTICLE VI.
DISSOLUTION AND LIQUIDATION
6.1 DISSOLUTION.
The Company shall be dissolved:
(a) upon the affirmative vote to dissolve the Company by: (i) the
Board of Directors or (ii) Members holding at least two-thirds (2/3) of the
total number of votes eligible to be cast by all Members;
(b) upon the failure of Members to elect a successor Director at a
meeting called by the Investment Manager in accordance with Section 2.6(c)
hereof when no Director remains to continue the business of the Company;
(c) upon the expiration of any two year period that commences on the
date on which any Member has submitted a written notice to the Company
requesting to tender its Units for repurchase by the Company if such Units
have not been repurchased by the Company; or
(d) as required by operation of law.
Dissolution of the Company shall be effective on the later of the day on
which the event giving rise to the dissolution shall occur or the conclusion of
any applicable 60 day period during which the Board of Directors and Members may
elect to continue the business of the Company as provided above, but the Company
shall not terminate until the assets of the Company have been liquidated in
accordance with Section 6.2 hereof and the Certificate has been canceled.
6.2 LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Company as provided in Section 6.1
hereof, the Board of Directors shall promptly appoint the Administrator as
the liquidator and the Administrator
20
shall liquidate the business and administrative affairs of the Company,
except that if the Board of Directors does not appoint the Administrator as
the liquidator or the Administrator is unable to perform this function, a
liquidator elected by Members holding a majority of the total number of
votes eligible to be cast by all Members shall promptly liquidate the
business and administrative affairs of the Company. Net Profit and Net Loss
during the period of liquidation shall be allocated pursuant to Section 5.4
hereof. The proceeds from liquidation (after establishment of appropriate
reserves for contingencies in such amount as the Board of Directors or
liquidator shall deem appropriate in its sole discretion as applicable)
shall be distributed in the following manner:
(1) the debts of the Company, other than debts, liabilities or
obligations to Members, and the expenses of liquidation (including
legal and accounting expenses incurred in connection therewith), up to
and including the date that distribution of the Company's assets to
the Members has been completed, shall first be paid on a pro rata
basis;
(2) such debts, liabilities or obligations as are owing to the
Members shall next be paid in their order of seniority and on a pro
rata basis; and
(3) the Members shall next be paid on a pro rata basis in
accordance with their respective Capital Accounts after giving effect
to all allocations to be made to such Members' Capital Accounts for
the Allocation Period ending as of the close of business on the date
of the distributions under this Section 6.2(a)(3).
(b) Anything in this Section 6.2 to the contrary notwithstanding, upon
dissolution of the Company, the Board of Directors or other liquidator may
distribute ratably in kind any assets of the Company; provided, however,
that if any in-kind distribution is to be made (i) the assets distributed
in kind shall be valued pursuant to Section 7.3 hereof as of the actual
date of their distribution and charged as so valued and distributed against
amounts to be paid under Section 6.2(a) above, and (ii) any profit or loss
attributable to property distributed in-kind shall be included in the Net
Profit or Net Loss for the Allocation Period ending on the date of such
distribution.
ARTICLE VII.
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
7.1 ACCOUNTING AND REPORTS.
(a) The Company shall adopt for tax accounting purposes any accounting
method that the Board of Directors shall decide in its sole discretion is
in the best interests of the Company. The Company's accounts shall be
maintained in U.S. currency.
(b) As soon as practicable after the end of each Taxable Year, the
Company shall furnish to each Member such information regarding the
operation of the Company and such Member's Units as is necessary for
Members to complete Federal, state and local income tax or information
returns and any other tax information required by Federal, state or local
law.
(c) Except as otherwise required by the Investment Company Act, or as
may otherwise be permitted by rule, regulation or order, within 60 days
after the close of the period for which a report required under this
Section 7.1(c) is being made, the Company shall furnish to each
21
Member a quarterly report and an annual report containing the information
required by such rule, regulation or order. The Company shall cause
financial statements contained in each annual report furnished hereunder to
be accompanied by a certificate of independent public accountants based
upon an audit performed in accordance with generally accepted accounting
principles. The Company may furnish to each Member such other periodic
reports as it deems necessary or appropriate in its discretion.
7.2 DETERMINATIONS BY THE BOARD OF DIRECTORS.
(a) All matters concerning the determination and allocation among the
Members of the amounts to be determined and allocated pursuant to Article V
hereof, including any taxes thereon and accounting procedures applicable
thereto, shall be determined by the Board of Directors unless specifically
and expressly otherwise provided for by the provisions of this Agreement or
required by law, and such determinations and allocations shall be final and
binding on all the Members.
(b) The Board of Directors may make such adjustments to the
computation of Net Profit, Net Loss or any components comprising either of
the foregoing as it considers appropriate to reflect fairly and accurately
the financial results of the Company and the intended allocation thereof
among the Members.
7.3 VALUATION OF ASSETS.
(a) Except as may be required by the Investment Company Act, the Board
of Directors shall value or have valued any Securities or other assets and
liabilities of the Company as of the close of business on the last day of
each Allocation Period in accordance with such valuation procedures as
shall be established from time to time by the Board of Directors and which
conform to the requirements of the Investment Company Act. In determining
the value of the assets of the Company, no value shall be placed on the
goodwill or name of the Company, or the office records, files, statistical
data or any similar intangible assets of the Company not normally reflected
in the Company's accounting records, but there shall be taken into
consideration any items of income earned but not received, expenses
incurred but not yet paid, liabilities, fixed or contingent, and any other
prepaid expenses to the extent not otherwise reflected in the books of
account, and the value of options or commitments to purchase or sell
Securities or commodities pursuant to agreements entered into prior to such
valuation date.
(b) The Company will value interests in Underlying Funds at fair
value, which ordinarily will be the value determined by their investment
managers in accordance with the policies established by the relevant
Underlying Fund.
(c) The value of Securities and other assets of the Company and the
net worth of the Company as a whole determined pursuant to this Section 7.3
shall be conclusive and binding on all of the Members and all parties
claiming through or under them.
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ARTICLE VIII.
MISCELLANEOUS PROVISIONS
8.1 AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this Agreement
may be amended, in whole or in part, with the approval of (i) the Board of
Directors or (ii) a majority of the outstanding Units of the Company.
(b) Any amendment that would:
(1) increase the obligation of a Member to make any contribution
to the capital of the Company;
(2) reduce the Capital Account of a Member other than in
accordance with Article V; or
(3) modify the events causing the dissolution of the Company; may
be made only if (i) the written consent of each Member adversely
affected thereby is obtained prior to the effectiveness thereof or
(ii) such amendment does not become effective until (A) each Member
has received written notice of such amendment and (B) any Member
objecting to such amendment has been afforded a reasonable opportunity
(pursuant to such procedures as may be prescribed by the Board of
Directors) to tender its Units for repurchase by the Company.
(c) The Board of Directors shall cause written notice to be given of
any amendment to this Agreement to each Member, which notice shall set
forth (i) the text of the amendment or (ii) a summary thereof and a
statement that the text thereof will be furnished to any Member upon
request.
8.2 SPECIAL POWER OF ATTORNEY.
(a) Each Member hereby irrevocably makes, constitutes and appoints
each Director, acting severally, and any liquidator of the Company's assets
appointed pursuant to Section 6.2 hereof with full power of substitution,
the true and lawful representatives and attorneys-in-fact of, and in the
name, place and stead of, such Member, with the power from time to time to
make, execute, sign, acknowledge, swear to, verify, deliver, record, file
and/or publish:
(1) any amendment to this Agreement that complies with the
provisions of this Agreement (including the provisions of Section 8.1
hereof);
(2) any amendment to the Certificate required because this
Agreement is amended, including, without limitation, an amendment to
effectuate any change in the membership of the Company; and
(3) all such other instruments, documents and certificates that,
in the opinion of legal counsel to the Company, may from time to time
be required by the laws of the United States of America, the State of
Delaware or any other jurisdiction in which the Company
23
shall determine to do business, or any political subdivision or agency
thereof, or that such legal counsel may deem necessary or appropriate
to effectuate, implement and continue the valid existence and business
of the Company as a limited liability company under the Delaware Act.
(b) Each Member is aware that the terms of this Agreement permit
certain amendments to this Agreement to be effected and certain other
actions to be taken or omitted by or with respect to the Company without
such Member's consent. If an amendment to the Certificate or this Agreement
or any action by or with respect to the Company is taken in the manner
contemplated by this Agreement, each Member agrees that, notwithstanding
any objection that such Member may assert with respect to such action, the
attorneys-in-fact appointed hereby are authorized and empowered, with full
power of substitution, to exercise the authority granted above in any
manner that may be necessary or appropriate to permit such amendment to be
made or action lawfully taken or omitted. Each Member is fully aware that
each Member will rely on the effectiveness of this special
power-of-attorney with a view to the orderly administration of the affairs
of the Company.
(c) This power-of-attorney is a special power-of-attorney and is
coupled with an interest in favor of each of the Directors and as such:
(1) shall be irrevocable and continue in full force and effect
notwithstanding the subsequent death or incapacity of any party
granting this power-of-attorney, regardless of whether the Company or
Board of Directors shall have had notice thereof; and
(2) shall survive the delivery of a Transfer by a Member of the
whole or any portion of such Member's Units, except that where the
transferee thereof has been approved by the Board of Directors for
admission to the Company as a substituted Member, this
power-of-attorney given by the transferor shall survive the delivery
of such assignment for the sole purpose of enabling the Board of
Directors to execute, acknowledge and file any instrument necessary to
effect such substitution.
8.3 NOTICES.
Notices that may be or are required to be provided under this Agreement
shall be made, if to a Member, by regular mail, or if to the Board of Directors
or the Investment Manager, by hand delivery, registered or certified mail return
receipt requested, commercial courier service, telex or telecopier, and shall be
addressed to the respective parties hereto at their addresses as set forth in
the books and records of the Company. Notices shall be deemed to have been
provided when delivered by hand, on the date indicated as the date of receipt on
a return receipt or when received if sent by regular mail, commercial courier
service, telex or telecopier. A document that is not a notice and that is
required to be provided under this Agreement by any party to another party may
be delivered by any reasonable means.
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, assigns, executors,
trustees or other legal representatives, but the rights
24
and obligations of the parties hereunder may not be Transferred or delegated
except as provided in this Agreement and any attempted Transfer or delegation
thereof that is not made pursuant to the terms of this Agreement shall be void.
8.5 APPLICABILITY OF INVESTMENT COMPANY ACT AND FORM N-2.
The parties hereto acknowledge that this Agreement is not intended to, and
does not, set forth the substantive provisions contained in the Investment
Company Act and the Form N-2 that affect numerous aspects of the conduct of the
Company's business and of the rights, privileges and obligations of the Members.
Each provision of this Agreement shall be subject to and interpreted in a manner
consistent with the applicable provisions of the Investment Company Act and the
Form N-2.
8.6 CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, the parties expressly agree that all the terms
and provisions hereof shall be construed under the laws of the State of
Delaware, including the Delaware Act without regard to the conflict of law
principles of such State.
(b) UNLESS OTHERWISE AGREED IN WRITING, EACH MEMBER AGREES TO SUBMIT
ALL CONTROVERSIES ARISING BETWEEN MEMBERS OR ONE OR MORE MEMBERS AND THE
COMPANY TO ARBITRATION IN ACCORDANCE WITH THE PROVISIONS SET FORTH BELOW
AND UNDERSTANDS THAT:
(1) ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
(2) THEY ARE WAIVING THEIR RIGHT TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO A JURY TRIAL;
(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND
DIFFERENT FROM COURT PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND A PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY ARBITRATORS IS STRICTLY LIMITED; AND
(5) THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES INDUSTRY.
(c) ALL CONTROVERSIES THAT MAY ARISE AMONG MEMBERS AND ONE OR MORE
MEMBERS AND THE COMPANY CONCERNING THIS AGREEMENT SHALL BE DETERMINED BY
ARBITRATION IN BERWYN, PENNSYLVANIA IN ACCORDANCE WITH THE THEN EXISTING
RULES OF THE AMERICAN ARBITRATION ASSOCIATION TO THE FULLEST EXTENT
PERMITTED BY LAW. JUDGMENT ON ANY AWARD OF ANY SUCH ARBITRATION MAY BE
ENTERED IN THE COURTS OF THE
25
COMMONWEALTH OF PENNSYLVANIA OR IN ANY OTHER COURT HAVING JURISDICTION OF
THE PERSON OR PERSONS AGAINST WHOM SUCH AWARD IS RENDERED. ANY NOTICE OF
SUCH ARBITRATION OR FOR THE CONFIRMATION OF ANY AWARD IN ANY ARBITRATION
SHALL BE SUFFICIENT IF GIVEN IN ACCORDANCE WITH THE PROVISIONS OF THIS
AGREEMENT. EACH MEMBER AGREES THAT THE DETERMINATION OF THE ARBITRATORS
SHALL BE BINDING AND CONCLUSIVE UPON THEM.
(d) NO MEMBER SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT
AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; OR
WHO IS A MEMBER OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH
RESPECT TO ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (I)
THE CLASS CERTIFICATION IS DENIED; OR (II) THE CLASS IS DECERTIFIED; OR
(III) THE MEMBER IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE
TO ENFORCE AN AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY
RIGHTS UNDER THIS AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the regulation of
relations among past, present and future Members, Directors and the Company.
This Agreement is not intended for the benefit of non-Member creditors and no
rights are granted to non-Member creditors under this Agreement.
8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or permitted by
this Agreement shall be in writing and a signed copy thereof shall be filed and
kept with the books of the Company.
8.9 MERGER AND CONSOLIDATION.
(a) The Company may merge or consolidate with or into one or more
limited liability companies formed under the Delaware Act or other business
entities pursuant to an agreement of merger or consolidation that has been
approved in the manner contemplated by Section 18-209(b) of the Delaware
Act.
(b) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, an agreement of merger or consolidation approved in
accordance with Section 18-209(b) of the Delaware Act may, to the extent
permitted by Section 18-209(f) of the Delaware Act, (i) effect any
amendment to this Agreement, (ii) effect the adoption of a new limited
liability company agreement for the Company if it is the surviving or
resulting limited liability company in the merger or consolidation, or
(iii) provide that the limited liability company agreement of any other
constituent limited liability company to the merger or consolidation
(including a limited liability company formed for the purpose of
consummating the merger or consolidation) shall be the limited liability
company agreement of the surviving or resulting limited liability company.
26
8.10 PRONOUNS.
All pronouns shall be deemed to refer to the masculine, feminine, neuter,
singular or plural, as the identity of the person or persons, firm or
corporation may require in the context thereof.
8.11 CONFIDENTIALITY.
(a) A Member may obtain from the Company such information regarding
the affairs of the Company as is just and reasonable under the Delaware
Act, subject to reasonable standards (including standards governing what
information and documents are to be furnished, at what time and location
and at whose expense) established by the Board of Directors.
(b) Each Member covenants that, except as required by applicable law
or any regulatory body, it will not divulge, furnish or make accessible to
any other person the name and/or address (whether business, residence or
mailing) of any Member (collectively, "Confidential Information") without
the prior written consent of the Board of Directors, which consent may be
withheld in its sole discretion.
(c) Each Member recognizes that in the event that this Section 8.11 is
breached by any Member or any of its principals, partners, members,
directors, officers, employees or agents or any of its affiliates,
including any of such affiliates' principals, partners, members, directors,
officers, employees or agents, irreparable injury may result to the
non-breaching Members and the Company. Accordingly, in addition to any and
all other remedies at law or in equity to which the non-breaching Members
and the Company may be entitled, such Members shall also have the right to
obtain equitable relief, including, without limitation, injunctive relief,
to prevent any disclosure of Confidential Information, plus reasonable
attorneys' fees and other litigation expenses incurred in connection
therewith. In the event that any non-breaching Member or the Company
determines that any of the other Members or any of its principals,
partners, members, directors, officers, employees or agents or any of its
affiliates, including any of such affiliates' principals, partners,
members, directors, officers, employees or agents should be enjoined from
or required to take any action to prevent the disclosure of Confidential
Information, each of the other non-breaching Members agrees to pursue in a
court of appropriate jurisdiction such injunctive relief.
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Member or transferee of Units from a Member shall certify, upon
admission to the Company and at such other times thereafter as the Board of
Directors may request, whether such Member is a "United States Person" within
the meaning of Section 7701(a)(30) of the Code on forms to be provided by the
Company, and shall notify the Company within 30 days of any change in such
Member's status. Any Member who shall fail to provide such certification when
requested to do so by the Board of Directors may be treated as a non-United
States Person for purposes of U.S. federal tax withholding.
8.13 SEVERABILITY.
If any provision of this Agreement is determined by a court of competent
jurisdiction not to be enforceable in the manner set forth in this Agreement,
each Member agrees that it is the intention of the Members that such provision
should be enforceable to the maximum extent
27
possible under applicable law. If any provisions of this Agreement are held to
be invalid or unenforceable, such invalidation or unenforceability shall not
affect the validity or enforceability of any other provision of this Agreement
(or portion thereof).
8.14 FILING OF RETURNS.
The Board of Directors or its designated agent shall prepare and file, or
cause the Administrator or accountants of the Company to prepare and file, a
Federal information tax return in compliance with Section 6031 of the Code and
any required state and local income tax and information returns for each Taxable
Year of the Company.
8.15 TAX MATTERS PARTNER.
(a) A Director who is a Member shall be designated on the Company's
annual Federal income tax return, and have full powers and
responsibilities, as the Tax Matters Partner of the Company for purposes of
Section 6231(a)(7) of the Code. In the event that no Director is a Member,
a Member shall be so designated. Should any Member be designated as the Tax
Matters Partner for the Company pursuant to Section 6231(a)(7) of the Code,
it shall, and each Member hereby does, to the fullest extent permitted by
law, delegate to a Director selected by the Board of Directors all of its
rights, powers and authority to act as such Tax Matters Partner and hereby
constitutes and appoints such Director as its true and lawful
attorney-in-fact, with power to act in its name and on its behalf,
including the power to act through such agents or attorneys as it shall
elect or appoint, to receive notices, to make, execute and deliver, swear
to, acknowledge and file any and all reports, responses and notices and to
do any and all things required or advisable, in the Director's judgment, to
be done by such a Tax Matters Partner. Any Member designated as the Tax
Matters Partner for the Company under Section 6231(a)(7) of the Code shall
be indemnified and held harmless by the Company from any and all
liabilities and obligations that arise from or by reason of such
designation.
(b) Each person (for purposes of this Section 8.15, called a
"Pass-Thru Member") that holds or controls an interest as a Member on
behalf of, or for the benefit of, another person or persons, or which
Pass-Thru Member is beneficially owned (directly or indirectly) by another
person or persons, shall, within 30 days following receipt from the Tax
Matters Partner of any notice, demand, request for information or similar
document, convey such notice or other document in writing to all holders of
beneficial interests in the Company holding such interests through such
Pass-Thru Member. In the event the Company shall be the subject of an
income tax audit by any Federal, state or local authority, to the extent
the Company is treated as an entity for purposes of such audit, including
administrative settlement and judicial review, the Tax Matters Partner
shall be authorized to act for, and its decision shall be final and binding
upon, the Company and each Member thereof. All expenses incurred in
connection with any such audit, investigation, settlement or review shall
be borne by the Company.
8.16 SECTION 754 ELECTION.
In the event of a distribution of Company property to a Member or an
assignment or other transfer (including by reason of death) of all or part of
the interest of a Member in the Company, the Board of Directors, in its
discretion, may cause the Company to elect, pursuant to Section 754
28
of the Code, or the corresponding provision of subsequent law, to adjust the
basis of the Company property as provided by Sections 734 and 743 of the Code.
29
EACH OF THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS ENTIRETY
BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSE SET FORTH IN
SECTION 8.6 AND THE CONFIDENTIALITY CLAUSE SET FORTH IN SECTION 8.11.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
DIRECTORS:
----------------------------
Name:
----------------------------
Name:
----------------------------
Name:
ORGANIZATIONAL MEMBER:
----------------------------
Name:
MEMBERS:
Each person who shall sign a Member Signature Page in the Subscription Agreement
shall be deemed to have agreed to each of the provisions found herein and shall
become a Member upon acceptance by the Board of Directors.
30
