EXHIBIT a(2)
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
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TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS......................................................1
1.1 Act..............................................................1
1.2 Adjusted Capital Account.........................................1
1.3 Adjusted Capital Contribution....................................1
1.4 Affiliate........................................................1
1.5 Affiliated Director..............................................1
1.6 Bankruptcy.......................................................1
1.7 Board............................................................2
1.8 Biannual Meeting.................................................2
1.9 Business Day.....................................................2
1.10 Capital Account..................................................2
1.11 Capital Contribution.............................................2
1.12 Carrying Value...................................................2
1.13 Certificate or Certificate of Formation..........................2
1.14 Closing Date.....................................................2
1.15 Code or Internal Revenue Code....................................2
1.16 Depreciation.....................................................3
1.17 Director or Directors............................................3
1.18 Effective Date...................................................3
1.19 Fiscal Year......................................................3
1.20 Fund.............................................................3
1.21 Fund Interest....................................................3
1.22 Incapacity.......................................................3
1.23 Indemnified Person...............................................3
1.24 Independent Director.............................................3
1.25 Initial Capital Contribution.....................................3
1.26 Investors........................................................3
1.27 Investment Manager...............................................3
1.28 Majority-In-Interest of Members..................................4
1.29 Management Fee...................................................4
1.30 Member...........................................................4
1.31 Member Nonrecourse Debt..........................................4
1.32 Member Nonrecourse Deductions....................................4
1.33 Nonrecourse Deductions...........................................4
1.34 Offering.........................................................4
1.35 Percentage Interest..............................................4
1.36 Person...........................................................4
1.37 Portfolio Company................................................4
1.38 Profits and Losses...............................................4
1.39 Prospectus.......................................................5
1.40 Qualified Income Offset Amount...................................5
1.41 Section 705(a)(2)(B) Expenditure.................................5
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1.42 Short-Term Investment............................................5
1.43 Substituted Member...............................................5
1.44 Taxable Period...................................................5
1.45 Unit.............................................................5
1.46 1940 Act.........................................................6
ARTICLE 2 THE COMPANY.......................................................6
2.1 Formation of Limited Liability Company; Members..................6
2.2 Name of Fund.....................................................6
2.3 Purpose of Company...............................................6
2.4 Principal and Registered Office..................................6
2.5 Duration of Company..............................................7
2.6 Further Assurances...............................................7
2.7 Accordance With the Act; Ownership...............................7
2.8 Formation Costs..................................................7
ARTICLE 3 MEMBERS...........................................................7
3.1 Members..........................................................7
3.2 Admission of Members.............................................8
3.3 Limitation of Liability of Members...............................8
3.4 No Management Responsibility.....................................8
3.5 No Authority To Act..............................................9
3.6 Rights Of Members................................................9
3.7 No Consent Required..............................................9
3.8 Meetings of Members; Biannual Meeting............................9
ARTICLE 4 CAPITAL CONTRIBUTIONS...........................................11
4.1 Capital Contributions of the Members............................11
4.2 Capital Account.................................................11
ARTICLE 5 ALLOCATION OF PROFITS AND LOSSES
AND DISTRIBUTIONS TO MEMBERS.........................13
5.1 Allocations.....................................................13
5.2 Additional Allocations..........................................13
5.3 Calculations....................................................15
5.4 Distributions...................................................15
5.5 Contingency Reserves............................................16
5.6 Additional Allocation Rules.....................................16
5.7 Limitation of Liability.........................................16
ARTICLE 6 DEPOSIT AND USE OF COMPANY FUNDS.................................16
6.1 Deposit of Company Funds........................................16
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ARTICLE 7 MANAGEMENT OF THE COMPANY........................................17
7.1 The Board of Directors..........................................17
7.2 Officers........................................................17
7.3 Investment Manager..............................................20
7.4 Expenses........................................................22
7.5 Appointment Of Auditors.........................................22
7.6 [Intentionally omitted].........................................22
7.7 Prohibited Transactions.........................................22
7.8 Limitations on Liability of Directors and Investment
Manager; Indemnification........................................23
7.9 Limitations on Liability of Investment Manager..................24
ARTICLE 8 OTHER BUSINESS...................................................24
8.1. Other Business..................................................24
ARTICLE 9 TRANSFERABILITY OF MEMBER'S INTEREST;
WITHDRAWALS OF CAPITAL BY MEMBERS...........................................26
ARTICLE 9 TRANSFERABILITY OF MEMBER'S INTERST; WITHDRAWALS OF CAPITAL
BY MEMBERS......................................................25
9.1 Transfer of Units...............................................25
9.2 Assignees.......................................................26
9.3 Substituted Members.............................................27
9.4 Indemnification.................................................27
9.5 Incapacity of a Member..........................................28
9.6 Withholding of Distributions....................................28
9.7 Transferor-Transferee Allocations...............................28
9.8 No Withdrawal...................................................28
9.9 Notices.........................................................28
9.10 Optional Adjustment to Basis of Fund Property...................28
ARTICLE 10 DISSOLUTION AND LIQUIDATION.....................................29
10.1 Dissolution.....................................................29
10.2 Liquidation.....................................................29
10.3 Return of Capital Contribution..................................30
ARTICLE 11 RESIGNATION OR REMOVAL OF DIRECTORS OR INVESTMENT MANAGER.......30
11.1 Resignation of a Director.......................................30
11.2 Resignation of the Investment Manager...........................31
11.3 Removal of a Director or Investment Manager, Designation of
a Successor Director............................................31
11.4 Incapacity of a Director........................................33
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11.5 Admission of a Successor Director...............................34
11.6 Liability of a Withdrawn or Removed Director....................34
11.7 Consent of Members to Admission of Successor Directors..........34
11.8 Continuation....................................................34
ARTICLE 12 ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS..................35
12.1 Annual Accounting Period........................................35
12.2 Records.........................................................35
12.3 Income Tax Returns..............................................35
12.4 Reports.........................................................36
12.5 Biannual Meeting................................................36
ARTICLE 13 MISCELLANEOUS...................................................36
13.1 Notices.........................................................36
13.2 Binding Effect..................................................37
13.3 Counterparts....................................................37
13.4 Section Headings................................................37
13.5 Exhibits........................................................37
13.6 Variation in Pronouns...........................................37
13.7 Severability....................................................37
13.8 Qualification in Other States...................................37
13.9 Entire Agreement................................................37
13.10 Applicable Law..................................................38
13.11 Forum...........................................................38
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
This Operating Agreement (the "Agreement") of THE OXBOW FUND, LLC (the
"Fund" or "Company"), dated as of , 2000 is made by and among C.J.M.
Asset Management, LLC, as initial Member and any Person admitted as an
additional Member.
ARTICLE 1
DEFINITIONS
1.1 "Act" refers to the State of New Jersey Limited Liability Company Act.
1.2 "Adjusted Capital Account" means, as of any day, a Member's Initial
Capital Contribution, (x) reduced by the sum of (i) the aggregate amount of cash
and the Carrying Value of any Company property distributed to such Member
pursuant to Section 5.4(a)(i) plus (ii) Losses allocated to such Member pursuant
to Section 5.1(b) and (z) increased by Profits allocated to such Member pursuant
to Section 5.1(a)(i). In the event any Member transfers all or any portion of
his Membership Interest in accordance with the terms of this Agreement, his
transferee shall succeed to the Adjusted Capital Account of the transferor to
the extent it relates to the Member's transferred interest in the Company.
1.3 "Adjusted Capital Contribution" means, as of any day, a Member's
Initial Capital Contribution, reduced by the amount of cash and Carrying Value
of any Company property distributed to such Member pursuant to Section
5.4(a)(i).
1.4 "Affiliate" means a Person or entity included within the definition of
"affiliate" set forth in Securities and Exchange Commission Rule 405, as amended
from time to time.
1.5 "Affiliated Director" means a Director of the fund who is an
"interested person" as such term is defined in Section 2(a)(19) of the 0000 Xxx.
1.6 "Bankruptcy" when used with reference to any Person, shall be deemed to
occur (1) when a Person (a) makes an assignment for the benefit of creditors, or
(b) files a voluntary petition in bankruptcy, or (c) is adjudged a bankrupt or
insolvent, or has entered against it an order for relief in any bankruptcy or
insolvency proceeding, or (d) files a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation, or (e) files an answer
or other pleading admitting or failing to contest the material allegations of a
petition filed against it in any proceeding seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief, or (f)
seeks, consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of such Person or of all or any substantial part of its properties,
or (2) (a) 120 days after the commencement of any proceeding against such Person
seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation, the proceeding has not
been dismissed, or (b) 90 days after the appointment without its consent or
acquiescence of a trustee, receiver or liquidator of such Person or of all or
any substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the appointment
is not vacated.
1.7 "Biannual Meeting" is defined in Section 3.8(d) of this Agreement.
1.8 "Board" means the Board of Directors of the Company having such powers
as described herein.
1.9 "Business Day" shall mean any day upon which banking institutions are
required or permitted to be open for the transaction of business in New York
City, New York.
1.10 "Capital Account" is defined in Section 4.2 of this Agreement.
1.11 "Capital Contribution" for each Member means the aggregate cash and
the fair market value of any property contributed by such Member pursuant to
Article 4 hereof.
1.12 "Carrying Value" means, with respect to any asset, the asset's
adjusted basis for Federal income tax purposes, except as follows:
(a) the Carrying Value of any asset of the Company on the date
of this Agreement shall be such asset's gross fair market value on such date,
and the Carrying Value of any asset contributed to the Company subsequent to the
date of this Agreement shall be such asset's gross fair market value at the time
of such contribution, in each case determined pursuant to the terms of this
Agreement, or if no such value is determined herein, by the Company's
independent accountants;
(b) upon adjustment (if any) of the Members' Capital Accounts
pursuant to Section 4.2(h), the Carrying Value of all Company assets shall be
adjusted to equal their respective gross fair market values at the time of such
adjustment; and
(c) if the Carrying Value of an asset has been determined
pursuant to Sections 1.12(a) or (b) above, such Carrying Value shall thereafter
be adjusted for Depreciation, rather than depreciation or amortization or other
cost recovery deduction as determined for Federal income tax purposes.
1.13 "Certificate" or "Certificate of Formation" means the Certificate of
Formation of the Company, as the same may be amended or restated as provided
herein or required by law, which was duly filed in accordance with (and which,
in all respects, shall be sufficient in form and substance under) the laws of
the State of New Jersey, and recorded with the Treasurer of the State of New
Jersey.
1.14 "Closing Date" means the third business day after the Fund has
terminated the Offering.
1.15 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as
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amended, and the regulations and interpretations thereof promulgated by the
Internal Revenue Service.
1.16 "Depreciation" means for each tax year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Carrying
Value of an asset differs from its adjusted basis for Federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
Federal income tax depreciation, amortization, or other cost recovery deduction
for such year or other periods bears to such beginning adjusted tax basis;
provided, however that if the Federal income tax depreciation, amortization or
other cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Carrying Value using any method
approved by the Board with the advice of the Company's independent accountants.
1.17 "Director" or "Directors" means each Affiliated Director or
Independent Director in his or her capacity as a Director of the Fund or,
collectively, the Affiliated Directors and Independent Directors.
1.18 "Effective Date" means the date on which the Company's Certificate of
Formation was duly filed in the office of the Treasurer of the State of New
Jersey.
1.19 "Fiscal Year" means the calendar year ending December 31.
1.20 "Fund" means The Oxbow Fund, LLC, a limited liability company
organized under the laws of the State of New Jersey.
1.21 "Fund Interest" means all of the interests of a Member in the Fund,
including, without limitation, the Member's: (i) right to a distributive share
of profits and losses; (ii) right to a distributive share of any distribution of
the assets of the Fund; (iii) right, if a Director or the Investment Manager, to
participate in the management of the Fund; and (iv) right to vote on certain
matters as more particularly provided in this Agreement.
1.22 "Incapacity" means, 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.
1.23 "Indemnified Person" is defined in Section 7.8 of this Agreement.
1.24 "Independent Director" means a Director of the Fund who is not an
"interested person" as such term is defined in Section 2(a)(19) of the 0000 Xxx.
1.25 "Initial Capital Contribution" is defined in Section 4.1(a) of this
Agreement.
1.26 "Investors" means the Members, other than the Investment Manager.
1.27 "Investment Manager" means C.J.M. Asset Management, LLC.
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1.28 "Majority-In-Interest of Members" means (a) sixty-seven percent (67%)
or more of the Members holding outstanding Units present at a meeting of Members
duly called, if more than fifty percent (50%) of all Members holding outstanding
Units are present of represented by proxy at such meeting; or (b) Members
holding Units which, in the aggregate, exceed fifty percent (50%) of the
outstanding Units of the Fund, whichever is less.
1.29 "Management Fee" is defined in Section 7.3(b) of this Agreement.
1.30 "Member" means the Investment Manager and any additional Members
admitted to the Fund in accordance with Section 3.2 hereof.
1.31 "Member Nonrecourse Debt" means partner nonrecourse debt, as defined
in Treasury Regulation Section 1.704-2(b)(4).
1.32 "Member Nonrecourse Deductions" means, for a taxable year or other
period, the amount of partner nonrecourse deductions as set forth in Treasury
Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2).
1.33 "Nonrecourse Deductions" means, for a taxable year or other period,
the amount of nonrecourse deductions as determined under Treasury Regulation
Section 1.704-2(c).
1.34 "Offering" means the offering of Units by the Fund pursuant to that
certain Prospectus which forms a part of the Fund's Registration Statement on
Form N-2 as filed with the Securities and Exchange Commission on or about
____________, 2000.
1.35 "Percentage Interest" of a Member shall mean a fraction, the numerator
of which is the sum of all Units held by such Member and the denominator of
which is the aggregate sum of the Units held by all Members.
1.36 "Person" mean individuals, partnerships, corporations, trusts,
estates, limited liability companies and other associations.
1.37 "Portfolio Company" shall mean any Person in which the Fund has made
an investment.
1.38 "Profits" and "Losses" mean the Company's taxable income or loss,
respectively, for a period as determined for Federal income tax purposes in
accordance with Code Section 703(a), computed with the following adjustments:
(a) items of gain, loss and deduction relating to assets shall
be computed based upon the Carrying Values of the Fund's assets rather than upon
the assets' adjusted bases for Federal income tax purposes;
(b) tax-exempt income received by the Fund shall be deemed,
for purposes of this definition only, to be gross income;
(c) the amount of any adjustment to the Carrying Value of any
assets of the Fund pursuant to Section 743 of the Code shall not be taken into
account in computing
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Profits and Losses;
(d) Section 705(a)(2)(B) Expenditures shall be treated as
deductible expenses;
(e) any items of gross income, gain, loss, deduction or
Section 705(a)(2)(B) Expenditures allocated pursuant to any provision of Section
5 (other than Section 5.2(c)), shall be excluded from the computation of Profits
and Losses; and
(f) Nonrecourse Deductions and Member Nonrecourse Deductions
shall be excluded from the computation of Profits and Losses.
1.39 "Prospectus" means that certain Prospectus which forms a part of the
Fund's Registration Statement on Form N-2 as filed with the Securities and
Exchange Commission on or about _____, 2000.
1.40 "Qualified Income Offset Amount" for a Member means the excess, if
any, of (i) the negative balance a Member has in his Capital Account (after
reducing such account by any adjustments, allocations or distributions of items
specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6)
that, as of the end of the taxable year, are reasonably expected to be made to
the Member) over (ii) the sum of (A) the amount, if any, of such Member's
unconditional obligation to make subsequent contributions to the Company within
the time period specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(c),
and (B) such Member's share of Company minimum gain and Member Nonrecourse Debt
minimum gain.
1.41 "Section 705(a)(2)(B) Expenditure" means an expenditure of the Company
(as described in Section 705(a)(2)(B) of the Code) which is neither deductible
in computing taxable income nor properly chargeable to a capital account, and
any other expenditure considered to be such an expenditure pursuant to Treasury
Regulation Section 1.704-1(b)(2)(iv)(i).
1.42 "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.
1.43 "Substituted Member" means a Person admitted as a Member to the Fund,
other than a Director, pursuant to Section 9.3 in place of and with all of the
rights of the Member who has transferred or assigned such Member's Fund Interest
to such Person, and who is shown as a Member on the books and records of the
Fund.
1.44 "Taxable Period" means each fiscal year.
1.45 "Unit" means an interest in the Company and represents a Member's
rights and obligations as a Member pursuant to this Agreement and under the Act,
including but not limited to, voting rights and the right to share in Profits
and Losses. Each Unit represents a Capital Contribution of $100.
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1.46 "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 2
THE COMPANY
2.1 Formation of Limited Liability Company; Members. The Oxbow
Fund, LLC has been formed as a limited liability company under the laws of the
State of New Jersey by the filing of the Certificate of Formation pursuant to
the Act, on behalf of the Members. The terms and provisions hereof will be
construed and interpreted in accordance with the terms and provisions of such
laws.
2.2 Name of Fund. The name of the Fund is "THE OXBOW FUND, LLC."
If considered necessary in the opinion of counsel to the Fund to preserve the
limited liability of the Members, Directors, and Investment Managers, property
acquired and business conducted by the Fund shall be in such other name as is
necessary to preserve such limited liability. The Board shall have the power to
change the name of the Fund at any time and shall give prompt notice of any such
change to each Member.
2.3 Purpose of Company. The Fund is authorized and empowered to
elect to operate and to operate, as a business development company under Section
55, et. al. of the Investment Company Act of 1940, as amended. The Fund's
principal investment objective is to seek long term capital appreciation by
investing primarily in equity securities of private U.S. companies seeking
capital for start-up operations, business expansion, product development and/or
strategy acquisition opportunities. The Fund may invest in companies of any
size, but generally expects to invest in small to medium-sized companies with
annual revenues or projected annual revenues in the $2 million to $100 million
range. In addition, the Fund may invest in the equity, debt or assets of
companies of any size which are in reorganization or seeking capital for debt or
equity restructuring. Generating current income for distribution to Members will
not be a factor in the selection of investments by the Fund.
2.4 Principal and Registered Office.
(a) The principal office of the Fund shall be at:
000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, X.X. 00000
(b) The registered office of the Fund shall be at:
c/o C.J.M. Planning Corporation
000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, X.X. 00000
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(c) The name of the registered agent at such address is
S. Xxxxxxx Xxxxxxxx, Xx.
2.5 Duration of Fund. The operation of the Fund will commence on
the Effective Date and shall continue in existence until (i) March 31, 2010,
unless further extended for up to two (2) additional two (2) year periods from
such date if the Board of Directors of the Fund determines that such an
extension is in the best interest of the Fund; or (ii) it is terminated pursuant
to any provisions of this Agreement or as otherwise provided by law.
2.6 Further Assurances. The Board will execute and cause to be
filed, recorded and published such certificates and documents, which are
required to form and operate a limited liability company under the laws of New
Jersey. The Board will execute and cause to be filed, recorded and published,
such certificates and documents as Board may deem necessary or appropriate to
comply with other applicable laws governing the formation and operation of a
limited liability company.
2.7 Accordance With the Act; Ownership. Except as expressly set
forth in this Agreement to the contrary, the rights and obligations of the
Members, and the administration, operation and termination of the Fund shall be
governed by the Act, as it may be amended. The interest of each Member in the
Fund shall be personal property for all purposes. All real and other property
owned by the Fund shall be deemed owned by the Fund as an entity, and no Member,
individually, shall have any ownership interest in such property.
2.8 Formation Costs.
(a) Each Member shall bear his own expenses in connection with
his or her consideration of an investment in the Fund and his acquisition of
Units, including without limitation the fees of any attorney, financial advisor,
or other consultant, except as this Agreement may otherwise expressly provide.
(b) The Fund shall pay for or reimburse the initial Member for
all other expenses of formation of every nature and description including,
without limitation, reproduction, printing and stenographic costs, filing,
recording and qualifying fees, taxes and costs of legal publication, expenses of
registration, qualification or obtaining exemptions under any federal or state
securities laws and legal and accounting fees incident to the formation of the
Fund and the offering and sale of Units.
ARTICLE 3
MEMBERS
3.1 Members; Initial Member.
(a) A record of the names and addresses of Members of the Fund
shall be maintained by the Fund and said list shall be amended from time to time
by the Fund to
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reflect the withdrawal of Members or the admission of additional and/or
substitute Members pursuant to this Agreement. Such record of Members shall also
set forth the number of Units which each Member holds. The Members shall
constitute a single class or group of Members of the Company for all purposes of
the Act, unless otherwise explicitly provided herein.
(b) On or prior to the date hereof, the Investment Manager, as
initial Member of the Fund, has made a Capital Contribution to the Fund in the
amount of $100,000.
3.2 Admission of Members. Persons who invest in the Fund in
accordance with the terms and conditions of the Prospectus and who satisfy the
requirements set forth in the Prospectus for an investment in Units may be
admitted to the Fund as Members based upon the determination of the Board or any
two of the Fund's Officers described in Section 7.2 hereof and, upon admission,
shall participate in the Profits, Losses, distributions and allocations of the
Fund in accordance with the terms and conditions of this Agreement. Admission of
a new Member shall be effective when reflected on the books and records of the
Fund. The manner of the offering of Units, the terms and conditions under which
subscriptions for such Units will be accepted, and the manner of and conditions
to the sale of Units to subscribers therefore and the admission of such
subscribers as Members will be as provided in the Prospectus in all material
respects and subject to any provisions hereof. Before any Person is admitted to
the Fund as a Member, such Person or such Person's attorney-in-fact shall
execute a counterpart of this Agreement and thereby agree in writing to be bound
by all of the provisions hereof as a Member.
3.3 Limitation of Liability of Members. Except as otherwise
provided in the Act, no Member of the Fund shall be obligated personally beyond
the amount of his Capital Contribution for any debt, obligation or liability of
the Fund, whether arising in contract, tort or otherwise, solely by reason of
being a Member of the Fund. No Member shall be liable to the Fund or any other
Member for acting in good faith reliance upon the provisions of this Agreement.
No Member shall have any responsibility to restore any negative balance in his
Capital Account or to contribute to or in respect of the liabilities or
obligations of the Fund or return distributions made by the Fund except as
required by the Act or other applicable law. The failure of the Fund to observe
any formalities or requirements relating to the exercise of its powers or the
management of its business or affairs under this Agreement or the Act shall not
be grounds for making its Members or the Investment Manager responsible for the
liabilities of the Fund. Notwithstanding the foregoing, a Member will be liable
for any distributions made to it, if, after such distribution, the outstanding
liabilities of the Company (other than liabilities to Members on account of
their interests in the Company and liabilities for which the recourse of
creditors is limited to specific Company property) exceed the fair value of the
Company's assets (provided that the fair value of Company property that secures
recourse liability shall be included only to the extent its fair value exceeds
such liability) and the Member had knowledge of this fact at the time the
distribution was received.
3.4 No Management Responsibility. No Investor, other than a
Director, shall participate in the management or the control of the business of
or transact any business for the Fund but may exercise the rights and powers of
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, the Officers, and the Investment
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Manager contemplated under Article 7.
3.5 No Authority To Act. No Investor other than a Director shall
have the power to represent, act for, sign for, or to bind the Fund. All
authority to act on behalf of the Fund is vested in the Directors, the Officers
and the Investment Managers. The Investors consent to the exercise by the
Directors of the powers conferred on them by law and this Agreement.
3.6 Rights Of Members. The Members shall have the following
rights subject to the terms and conditions of this Agreement:
(a) the right to elect and remove Directors;
(b) the right to approve or reject the appointment of the
independent accountants of the Fund; provided, however, that such appointment is
approved by the Board, including a majority of the Independent Directors;
(c) the right to propose and approve an amendment to this
Agreement; provided, however, that no such amendment shall conflict with the
1940 Act;
(d) the right to approve any other matters related to the
business of the Fund that the 1940 Act requires to be approved by the Members
pursuant to the provisions of the 1940 Act; and
(e) the right to cause the Fund to withdraw its election to be
treated as a Business Development Company under the 1940 Act.
Each of the foregoing matters shall be approved or disapproved, as the
case may be, upon the vote or consent of a Majority-in-Interest of the Members.
3.7 No Consent Required. Notwithstanding the foregoing, no vote,
approvals, or other consent shall be required of the Members to amend this
Agreement in any of the following respects: (i) to admit an additional Member or
a Substituted Member or remove a Member in accordance with the terms of this
Agreement; or (ii) to correct any false or erroneous statement, or to make a
change in any statement in order that such statement shall accurately represent
the agreement among the Members and Directors in this Agreement; provided that
no such correction or change shall in any manner adversely affect the Fund
Interests of any Member.
3.8 Meetings of Members; Biannual Meeting.
(a) Actions requiring the vote of the Members may be taken at
any duly constituted meeting of the Members at which a quorum is present.
Meetings of the Members may be called by the Board of Directors or by Members
holding at least 10% of the Units and may be held at such time, date and place
as the Board of Directors shall determine. The Board of Directors shall arrange
to provide written notice of the meeting, stating the date,
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time and place of the meeting and the record date therefore, to each Member
entitled to vote at the meeting within a reasonable time prior thereto. Such
notifications shall include any information required by this Agreement or by
law. Failure to receive notice of a meeting on the part of any Member shall not
affect the validity of any act or proceeding of the meeting, so long as a quorum
shall be present at the meeting, except as otherwise required by applicable law.
Only matters set forth in the notice of a meeting may be voted on by the Members
at a meeting. A Majority-In-Interest of the Members shall constitute a quorum
for the transaction of any business at a meeting of Members. In the absence of a
quorum, a meeting of the Members may be adjourned by action of the Board without
additional notice to the Members. When an adjourned meeting is reconvened, any
business may be transacted that might have been transacted at the original
meeting. Except as otherwise required by any provision of this Agreement or of
the 1940 Act, (i) those candidates receiving a plurality of the votes cast at
any meeting of Members shall be elected as Directors and (ii) all other actions
of the Members taken at a meeting shall require the affirmative vote of a
Majority-In-Interest of the Members in person or by proxy at such meeting.
(b) Each Member shall be entitled to cast at any meeting of
Members a number of votes equivalent to the number of Units held by such Member
as of the record date for such meeting. The Board of Directors shall establish a
record date not less than 10 nor more than 60 days prior to the date of any
meeting of Members to determine eligibility to vote at such meeting and the
number of votes which each Member will be entitled to cast thereat, and shall
maintain for each such record date a list setting forth the name of each Member
and the number of votes that each Member will be entitled to cast at the
meeting. Members shall not be entitled to cumulative voting.
(c) A Member may vote at any meeting of Members by a proxy
properly executed in writing by the Member and filed with the Fund before or at
the time of the meeting. A proxy may be suspended or revoked, as the case may
be, by the Member executing the proxy by a later writing delivered to the Fund
at any time prior to exercise of the proxy or if the Member executing the proxy
shall be present at the meeting and decide to vote in person. Any action of the
Members that is permitted to be taken at a meeting of the Members may be taken
without a meeting if consents in writing, setting forth the action taken, are
signed by Members holding not less than the minimum percentage of Units that
would be necessary to authorize or take such action at a meeting of Members.
(d) The Directors shall call a meeting of Members no less
often than every two years (the "Biannual Meeting") with the first such Biannual
Meeting to be held within two years from the Closing Date.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions of the Members.
(a) Capital Contributions. The amount of cash and/or the fair
market value of property contributed by each Member shall be credited to such
Member's Capital Account pursuant to Section 4.2. The amount of cash and fair
market value of property contributed to the Fund upon admission to the Fund by a
Member is referred to herein as the Member's "Initial Capital Contribution." The
required minimum amount of an Initial Capital Contribution is two thousand five
hundred dollars ($2,500).
(b) Maximum Aggregate Investment from Members. The Fund will
not accept any additional Capital Contributions if or when the total Capital
Contributions of the Company equals or exceeds $25,000,000.
(c) Capital Contribution of Investment Manager. The Investment
Manager as initial Member, has made an Initial Capital Contribution of $100,000
and in exchange has received one thousand (1,000) Units. In its discretion, from
time to time, but subject to Section 4.1(b), the Investment Manager may make
additional Capital Contributions to the Fund.
(d) No Right to Withdraw Capital Contribution. The
Members have no right to withdraw any portion of their respective Capital
Contributions.
(e) No Additional Contributions Required. No Member shall be
required to contribute any capital to the Company other than as provided in this
Section 4.1 hereof or to lend any funds to the Fund; however, subject to Section
4.1(b), any Member may make an additional Capital Contribution to the Fund at
any time.
(f) Cut-Off Date for Investment from Members. The Fund
will not accept any additional Capital Contributions after
[____________________].
4.2 Capital Account.
(a) A Capital Account shall be established for each Member.
Each Member's Capital Account shall equal the amount of its Initial Capital
Contribution and shall thereafter be adjusted as provided in Section 4.2(b).
(b) Each Member's Capital Account shall be maintained and
adjusted in accordance with Treasury Regulation Sections 1.704-1(b) and 1.704-2.
With respect to events or periods after the date hereof and consistent with such
Regulations, (a) there shall be credited to each Member's Capital Account: (i)
the amount of any cash contributed by such Member to the capital of the Company,
(ii) the fair market value of any property contributed by such Member to the
capital of the Company (net of all liabilities secured by such property that the
-11-
Company is considered to assume or take subject to under Section 752 of the
Code), (iii) such Member's allocable share of Profits, as determined in
accordance with Section 5.1, and (iv) any items of income or gain allocated to
such Member pursuant to Section 5.2; and (b) there shall be charged against each
Member's Capital Account: (i) the amount of all cash distributions to such
Member pursuant to Article 5, (ii) the fair market value of any property
distributed to such Member by the Company (net of any liability secured by such
property that the Member is considered to assume or take subject to under
Section 752 of the Code), (iii) such Member's allocable share of Losses (as
determined in accordance with Section 5.1), and (iv) any items of loss,
deduction or Section 705(a)(2)(b) Expenditures allocated to such Member pursuant
to Section 5.2.
(c) Except as otherwise provided in this Agreement, whenever
it is necessary to determine the Capital Account of any Member, the Capital
Account of such Member shall be determined after giving effect to allocations
pursuant to Sections 5.1 and 5.2 and all distributions in respect to
transactions effected prior to the time as of which such determination is to be
made.
(d) No Member with a negative balance in his Capital Account
shall have any obligation to the Fund, the other Members or any other Person to
restore such negative balance.
(e) If any Units are transferred in accordance with this
Agreement, the transferee shall succeed to the Capital Account of the
transferring Member to the extent that it relates to the interest of the
transferring Member.
(f) If the Fund makes an election under Section 754 of the
Code (which decision shall be made in the sole discretion of the Board), the
amounts of any adjustments to the basis of the assets of the Fund made pursuant
to Section 743 of the Code shall be reflected in the Capital Account of the
Members. In addition, the amounts of any adjustment to the basis of the assets
of the Fund made pursuant to Section 734 of the Code as a result of the
distribution of property by the Fund to a Member (to the extent that such
adjustments have not previously been reflected in the Members' Capital Accounts)
shall (i) be reflected in the Capital Account of the Member receiving such
distribution in the case of a distribution and liquidation of such Member's
Interest and (ii) otherwise be reflected in the Capital Accounts of the Members
in a manner in which the unrealized income and gain that is displaced by such
adjustments would have been shared had the property been sold at its Carrying
Value immediately prior to such adjustments.
(g) Nothing in this Section 4.2 shall be construed to impose
upon any Member any additional obligation to contribute additional capital to
the Company or to restore a deficit Capital Account upon liquidation or
dissolution of the Company.
(h) Subsequent to the date of this Agreement, immediately
before (i) a contribution of cash or property (other than a de minimis amount)
by a new or existing Member, (ii) the distribution of fund assets (other than a
de minimis amount), or (iii) the liquidation of the Fund (within the meaning of
Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), the Board, in
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consultation with the Fund's independent accountants, shall determine whether
the Capital Accounts of all Members and the Carrying Values of all Fund
properties shall be increased or decreased (consistent with the provisions
hereof) to reflect any unrealized gain or loss attributable to each Fund
property, in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f).
For purposes of this paragraph (h), the fair market value of Fund property shall
be determined by the Board acting in good faith.
ARTICLE 5
ALLOCATION OF PROFITS AND LOSSES
AND DISTRIBUTIONS TO MEMBERS
5.1 Allocations.
(a) Profits. Except as provided in Section 5.2, for each
taxable year or period, Profits shall be allocated as follows:
(i) First, to the Members pro rata in accordance with
their Percentage Interests to the extent of any Losses allocated to the
Members during prior periods or Fiscal Years, less Profits previously
allocated to the Members in prior Fiscal Years pursuant to this Section
5.1(a)(i); and
(ii) Second, eighty percent (80%) to the Investors as a
class and twenty percent (20%) to the Investment Manager.
(b) Losses. Except as provided in Section 5.2, for each
taxable year or period, Losses shall be allocated to the Members pro rata in
accordance with their Percentage Interests.
(c) Class Allocations. Allocations to Investors as a class
shall be further allocated among the Investors in accordance with each
Investor's Percentage Interest in such class, taking into account the date each
Investor became a Member of the Fund (if applicable in determining the
allocation).
5.2 Additional Allocations.
(a) Allocation of Member Nonrecourse Deductions When Member
Bears Economic Risk of Loss. Notwithstanding the provisions of Section 5.1 and
subject to the provisions of Section 5.2(c), items of loss and deduction and
Section 705(a)(2)(B) Expenditures attributable, under Treasury Regulation
Section 1.704-2(i), to Member Nonrecourse Debt shall be allocated to the Members
in accordance with the ratios in which they bear the economic risk of loss for
such debt (as determined pursuant to Treasury Regulation Section 1.752-3).
(b) Chargebacks and Offsets. This Agreement shall be
considered to include a Company minimum gain chargeback provision (within the
meaning of Treasury
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Regulation Section 1.704-2(f)), a qualified income offset provision (within the
meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(d)) and a Member
nonrecourse debt minimum gain chargeback (within the meaning of Treasury
Regulation Section 1.704-2(i)). Items of Company income and gain (as determined
for purposes of computing Profits and Losses) shall be allocated to the Members
upon the occurrence of the conditions or events triggering such provisions in
accordance with such provisions. Such provisions shall be applied, prior to any
allocations pursuant to Section 5.1 in the following order of priority; first,
the Company minimum gain chargeback, second, the Member nonrecourse minimum gain
chargeback and third, the qualified income offset.
(c) Limitations on Loss Allocation. Notwithstanding the
provisions of Section 5.1, in no event shall Losses (or items of loss, deduction
or Section 705(a)(2)(B) Expenditure) of the Company be allocated to a Member if
such allocation would result in such Member having a Qualified Income Offset
Amount. Any allocation to a Member which is prevented by the operation of the
preceding sentence shall be reallocated to the other Members in accordance with
Section 5.1 and subject to this Section 5.2(c); provided, however, that if there
is no Member to which such Losses (or items of loss, deduction or Section
705(a)(2)(B) Expenditure) can be allocated without causing such Member to have a
Qualified Income Offset Amount, then such Losses shall be allocated to the
Members pro rata in accordance with their Percentage Interests.
(d) Curative Allocations. If any items of income, gain, loss,
deduction or Section 705(a)(2)(B) Expenditures are allocated to a Member
pursuant to Section 5.2(a), (b) or (c), then, prior to any allocation pursuant
to Section 5.1 and subject to all of the provisions of this Section 5.2, items
of income, gain, loss, deduction and Section 705(a)(2)(B) Expenditures for
subsequent years or periods shall be allocated to the Members in a manner
designed to result in each Member having a Capital Account balance equal to what
it would have been had such allocation of items of income, gain, loss, deduction
and Section 705(a)(2)(B) Expenditures not occurred.
(e) Income, Gain, Loss, Deduction or Credit. For tax purposes,
all items of income, gain, loss, deduction or credit, other than tax items
properly corresponding to the items allocated pursuant to Sections 5.2(a), (b),
(c) and (d) shall be allocated to the Members in the same manner as are Profits
and Losses; provided, however, that if the Carrying Value of any property of the
Company differs from its adjusted basis for tax purposes, then items of income,
gain, loss, deduction or credit for tax purposes (and not for purposes of
computing Profits or Losses) shall be allocated among the Members in a manner
that takes account of the variations between the adjusted tax basis and fair
market value of property contributed to the Company in determining the Members'
shares of tax items under Section 704(c) of the Code, and, consistent therewith,
in the case of property deemed contributed to the Company, in accordance with
Treasury Regulations Sections 1.704-1(b)(4)(i) and 1.704-1(b)(2)(iv)(f); and
provided, further, that allocations pursuant to Section 5.2(b) of items of
income and gain of the Company shall, except as otherwise required by Treasury
Regulations under Section 704(b) of the Code, consist of a pro rata portion of
each item of income and gain of the Company, as appropriate, for such year.
-14-
5.3 Calculations.
(a) Calculations and allocations of Profits and Losses shall
be made by accountants regularly employed by the Company, but at least annually
and in conformity with the current requirements of the Internal Revenue Code.
(b) Profits and Losses and items of income, gain, loss,
deduction or credit for any year in which a Member transfers his Units shall be
divided between the transferring Member and his transferee in proportion to the
number of months in the year that each is recognized as a Member according to
the terms of this Agreement. For example, if a transfer becomes effective as of
May 1, the transferee would receive two-thirds (2/3) and the former Member would
receive (1/3) of the Profit or Losses for that year.
5.4 Distributions.
(a) Distributions. To the extent the Board determines to make
distributions of cash and/or property, such distributions shall be made in the
following manner:
(i) First, to the Members, in accordance with their
Percentage Interests, until the Members have received aggregate
distributions in an amount equal to their Adjusted Capital Accounts; and
(ii) Second, eighty percent (80%) to the Investors as a
class, and twenty percent (20%) to the Investment Manager.
(b) Class Distributions. Distributions to the Investors as a
class shall be further distributed among the Investors in accordance with each
Investor's Percentage Interest in such class, taking into account the date each
Investor became a Member of the Fund (if applicable in determining the
distribution).
(c) Withholding. Notwithstanding anything to the contrary
contained in this Agreement, in order to comply with Section 1446 of the Code
and the regulations, revenue rulings, revenue procedures and administrative
announcements promulgated thereunder ("Section 1446"), the Company shall
withhold an amount in cash equal to 20% of the cash (and of the fair market
value of property) otherwise distributed to a Member hereunder, and shall apply
the amount so withheld as required by Section 1446, unless such Member shall
have delivered to the Company a current affidavit setting forth that such person
is a "United States person" as such term is defined in Section 7701(a)(30) of
the Code ("Section 7701") and is not subject to the withholding requirements of
Section 1446. Notwithstanding the preceding sentence, a certification properly
delivered to the Company shall not be effective to prevent withholding if the
Company shall have received the certification more than three years preceding
the date of a distribution or if the Company has actual knowledge that the
Member is not a "United States person" as that term is defined in Section 7701.
In addition, if the Company assumes any individual liability of a Member or any
liability encumbering property that a Member contributes to the Company, the
Company shall be permitted to charge the distributions due such Member or any
other amount due such Member to the extent of 20% of such liability in
-15-
order to fulfill the Company's obligations under Section 1446, unless such
Member shall have furnished a certification as aforesaid (i.e., the same
certification which would have been effective to prevent withholding if such
assumption or contribution had constituted an actual distribution hereunder). If
a distribution is to be made with property other than money, the Company shall
not release such property until it has funds sufficient to enable it to satisfy
its obligations under Section 1446, which funds shall be provided by the Member
or Members who have not delivered an effective certification. Any amounts
withheld under the provisions of this Section 5.4(c) from a Member shall be
released to such Member to the extent such amount need not be disbursed to a
government agency to satisfy the Company's obligations under Section 1446. The
Company shall retain each certification received by it until the end of the
fifth taxable year after the last taxable year in which the Company relied upon
such certification.
(d) Limitation on Distributions. Notwithstanding anything to
the contrary set forth in this Section 5.4, the Board shall not make any
distribution to any Member (including themselves) if, immediately following such
distribution, such Member's Capital Account would have a Qualified Income Offset
Amount.
5.5 Contingency Reserves. The Board shall have the right to set
aside Company funds in such reserves as it in its discretion determines to be
prudent for the operation of the Company's business, including sums the Board
deems necessary to reserve for the future payment or reduction of any Company
obligations.
5.6 Additional Allocation Rules. Notwithstanding the foregoing, in
the event any Member's Percentage Interest changes during a Fiscal Year for any
reason, including without limitation, the transfer of any Units, the allocations
of taxable income or loss described above shall be adjusted as necessary to
reflect the varying interests of the Members during such year.
5.7 Limitation of Liability. Nothing contained in this Article 5
shall be construed to make any Member liable for any losses of the Company.
ARTICLE 6
DEPOSIT AND USE OF COMPANY FUNDS
6.1 Deposit of Company Funds. Upon formation of the Company, all
Capital Contributions shall be transferred to a separate Company account or
accounts in such banks or other financial institutions as may be selected by the
Officers. Such account or accounts shall be maintained in the name of or for the
benefit of the Company. Thereafter, all revenues, bank loans, proceeds and other
receipts will be deposited and maintained in such account or accounts, which may
or may not bear interest, and all expenses, costs and similar items payable by
the Company will be paid from such accounts. The Company's funds, including, but
not limited to, the Member's Capital Contributions, Company revenue and the
proceeds of any borrowing by the Company, may be invested as the Officers deems
advisable. Any interest or other income generated by such deposits or
investments will be considered part of the Company's account. Company funds from
any of the various sources mentioned above may be commingled with other Company
funds, but not with the separate funds of the Board or any other Person and may
-16-
be withdrawn, expended and distributed as authorized by the terms and provisions
of this Agreement.
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 The Board of Directors
(a) General Authority; Number. The governing body of the Fund
shall be the Board of Directors, which shall consist of such number of
Independent Directors as is fixed pursuant to Section 7.1(b), and three
Affiliated Directors, who shall initially be Xxxxxx X. Xxxx, S. Xxxxxxx
Xxxxxxxx, Xx. and Xxxxxx X. Xxxxxxxx. By signing the Operating Agreement
Signature Page and Power of Attorney or the Fund's subscription agreement, a
Member admitted to the Fund shall be deemed to have voted for the election of
each of the initial Affiliated and Independent Directors. Subject to the
provisions of this Agreement, the Board shall have complete responsibility for
the management and supervision of the Fund and may take or cause to be taken any
action which may be necessary or appropriate for or incidental to the management
or operation of the Fund. No Person in his capacity as a Member shall take part
in the management or supervision of the Fund, nor shall he have the power to act
for or on behalf of the Fund.
(b) Independent Directors. The number of Independent Directors
shall initially be four and shall be fixed from time to time thereafter by the
Directors as then constituted; provided, however, that the number of Independent
Directors shall in no event be less than a majority of the members of the Board
of Directors. If at any time the number of Independent Directors is less than a
majority, action shall be taken within 90 days thereafter to restore the number
of Independent Directors to a majority. The initial Independent Directors shall
be Xxxxxxx X. Xxxxxxx, III, Xxxxx X. Xxxxxxxx, Xxxxx X. Xxxx and Xxxxxxxxxxx X.
Xxxxx.
(c) Action. A majority of the Directors shall constitute a
quorum for the transaction of any business at a meeting of the Board. Actions of
the Board shall be taken (i) upon the affirmative vote of a majority of the
Directors (which majority shall include any requisite number of Independent
Directors required by the 0000 Xxx) present at any meeting of the Board at which
a quorum is present; or (ii) by unanimous written consent of all the Directors
without a meeting, if permissible under the 1940 Act.
(d) Nomination, Approval and Election of Independent
Directors. The Independent Directors shall hold office for a term of two years
from their election and until their successors are elected, unless they resign
or withdraw sooner or are removed pursuant to Article 11. The Independent
Directors shall nominate their successors who shall be elected at the Biannual
Meeting pursuant to the provisions of Section 3.8 hereof. Independent Directors
may succeed themselves in office. A majority of Independent Directors may
designate Independent Directors to fill any vacancies created by any increase in
the number of Independent Directors or by the withdrawal or removal of an
Independent Director. In the event that the Independent
-17-
Directors fail to designate a successor Independent Director, or no Independent
Directors remain, the Board shall continue the business of the Fund and shall
perform all duties of the Directors under this Agreement and shall, within 90
days, call a special meeting of Members for the purpose of approving and
electing Independent Directors. Each Member other than a Director hereby
consents to the admission of any successor Independent Directors pursuant
hereto, and no further consent shall be required. Any successor Independent
Director shall hold office until the next Biannual Meeting of Members and until
his or her successor has been approved and elected, unless he or she is sooner
removed or withdraws pursuant to this Agreement.
(e) Nomination, Approval and Election of Affiliated Directors.
The Affiliated Directors shall hold office for a term of two years from their
election and until their successors are elected, unless they resign or withdraw
sooner or are removed pursuant to Article 11. The Affiliated Directors shall
nominate their successors who shall be elected at the Biannual Meeting pursuant
to the provisions of Section 3.8 hereof. Affiliated Directors may succeed
themselves in office. A majority of Affiliated Directors may designate
Affiliated Directors to fill any vacancies created by any increase in the number
of Affiliated Directors or by the withdrawal or removal of an Affiliated
Director. Each Member other than a Director hereby consents to the admission of
any successor Affiliated Directors pursuant hereto, and no further consent shall
be required. Any successor Affiliated Director shall hold office until the next
Biannual Meeting of Members and until his or her successor has been approved and
elected, unless he or she is sooner removed or withdraws pursuant to this
Agreement. In the event that the Affiliated Directors fail to designate a
successor Affiliated Director, or no Affiliated Directors remain, the Board
shall continue the business of the Fund and shall perform all duties of the
Directors under this Agreement, and shall, within 90 days, designate Independent
Directors to fill each such vacancy. Any such Independent Director who succeeds
an Affiliated Director shall hold office until the next Biannual Meeting of
Members and until his or her successor has been approved and elected, unless he
or she is sooner removed or withdraws pursuant to this Agreement.
(f) Restrictions On The Directors' Authority. The
Directors shall not have authority to do any of the following:
(i) act in contravention of this Agreement or of
the 1940 Act;
(ii) possess Fund property or assign the rights of
the Fund in specific property for other than a Fund purpose;
(iii) admit any other Person as a Director of the
Fund without the approval of the Members except as otherwise provided
herein;
(iv) commingle or permit the commingling of the assets
of the Fund with the assets of any other Person except as otherwise
provided herein;
(v) permit any Person who makes a nonrecourse loan to
the Fund to acquire, at the time and as a result of making the loan, any
direct or indirect interest in the profits, capital or property of the
Fund other than as a secured creditor;
-18-
(vi) without the consent of a Majority-in-Interest of
the Members, subject to Section 7.2, sell or otherwise dispose of at any
one time all or substantially all of the assets of the Fund; or
(vii) invest in a company in which any Director has an
equity interest other than through another company that it manages or
except as otherwise permitted by the 1940 Act.
(g) Contracts with Affiliates of the Directors. The Fund may
enter into contracts for goods or services with any Affiliate of a Director
provided that the charges for such goods or services are the lower of (i) cost,
including a reasonable allocation of cost of capital, or (ii) those charged by
unaffiliated Persons in the area for similar goods and services. Any such
contract shall be subject to termination by a majority of the Independent
Directors following 60 days' prior notice thereof.
(h) Obligations of the Directors. The Directors shall devote
such time and effort to the Fund business as, in their judgment, may be
necessary or appropriate to manage the affairs of the Fund The Directors are
under a duty and obligation to conduct the affairs of the Fund in the best
interests of the Fund, including the safekeeping and the use of all Fund assets
(whether or not in the immediate possession or control of the Directors) and the
use thereof for the benefit of the Fund. Neither the Directors nor any of their
Affiliates shall enter into any transaction with the Fund that will
significantly benefit the Directors or such Affiliates in their independent
capacities unless the transaction is expressly permitted hereunder and under the
1940 Act or any exemptive order issued by the Securities and Exchange Commission
thereunder, or is entered into principally for the benefit of the Fund in the
ordinary course of Fund business.
(i) Compensation of Independent Directors. Each Independent
Director will receive $2,000 per meeting. The Board of Directors, subject to the
approval of Unit holders, to the extent required by law, may approve
supplemental compensation for the Independent Directors.
(j) Meetings. Meetings of the Board of Directors may be called
by the Chief Executive Officer or by any two Directors, and may be held on such
date and at such time and place as the Board of Directors shall determine. Each
Director shall be entitled to receive written notice of the date, time or place
of such meeting within a reasonable time in advance of the meeting. Notice may
not be give to any Directors who shall attend a meeting without objecting to the
lack of notice or who shall execute a written waiver of notice with respect to
the meeting. Directors may attend and participate in any meeting by telephone
except when in person attendance at a meeting is required by the 1940 Act. A
majority of Directors shall constitute a quorum at any meeting.
7.2 Officers.
(a) The Fund shall have the following officers: a Chief
Executive Officer, a President, and a Chief Financial Officer. The officers of
the Fund shall be chosen by
-19-
the Board and may also consist of such other officers as the Board shall deem
necessary. The officers of the Fund shall hold office until their successors are
chosen and qualify. Any officer elected or appointed by the Board of Directors
may be removed at any time by the affirmative vote of a majority of the Board of
Directors. The salaries of all officers of the Fund shall be fixed by the Board
of Directors, provided, however, that each of the Chief Executive Officer, the
President and the Chief Financial Officer shall be compensated $150,000 annually
unless otherwise agreed.
7.3 Investment Manager.
(a) Authority. The Investment Manager is hereby granted the
exclusive power and authority from time to time, subject to the supervision of
the Board, to manage the day-to-day business and affairs of the Fund and to
manage and control the investments of the Fund, including, but not limited to,
the power to make all decisions regarding the Fund's venture capital investment
portfolio and, among other things, to find, evaluate, structure, monitor, sell,
and liquidate, upon dissolution or otherwise, such investments, to provide, or
arrange for the provision of, managerial assistance to companies in which the
Fund invests and in connection therewith to enter into, execute, amend,
supplement, acknowledge, and deliver any and all contracts, agreements, or other
instruments for the performance of such functions, including the investment and
reinvestment of all or part of the Fund's assets, execution of portfolio
transactions, and any or all administrative functions.
In furtherance of and subject to the foregoing, the Investment Manager,
except as otherwise provided in this Agreement, to the extent permitted under
the 1940 Act, and with the approval of a majority of the Independent Directors
where required under the 1940 Act, shall have full power and authority on behalf
of the Fund:
(1) to purchase, sell, exchange, trade and otherwise deal in
and with securities and other property of the Fund;
(2) to open, maintain and close accounts with brokers and
dealers, to make all decisions relating to investment transactions;
(3) to borrow from banks or other financial institutions and to
pledge Fund assets as collateral therefore, to trade on margin, exercise or
refrain from exercising all rights regarding the Fund's investments, and to
instruct custodians regarding the settlement of transactions, the disbursement
of payments to Members with respect to repurchases of Interests and the payment
of Fund expenses, including those relating to the organization and registration
of the Fund;
(4) to issue to any Member an instrument certifying that such
Member is the owner of an Interest;
(5) to assist the Board in calling and conducting meetings of
the Board;
(6) to engage and terminate such attorneys, accountants and other
professional
-20-
advisers and consultants as the Investment Manager may deem necessary or
advisable in connection with the affairs of the Fund or as may be directed by
the Board;
(7) to engage and terminate the services of others to assist the
Investment Manager in providing, or to provide under the Investment Manager's
control and supervision, advice and management to the Fund at the expense of the
Investment Manager;
(8) to assist in the preparation and filing of any required tax
or information returns to be made by the Fund;
(9) as directed by the Board, to commence, defend and conclude any
action, suit, investigation or other proceeding that pertains to the Fund or any
assets of the Fund;
(10) if directed by the Board, to arrange for the purchase of (A)
insurance, or (B) any insurance covering the potential liabilities of the Fund
or relating to the performance of the Board or the Investment Manager, or any of
their principals, directors, officers, members, employees and agents; and
(11) to execute, deliver and perform such contracts, agreements and
other undertakings, and to engage in such activities and transactions as are, in
the opinion of the Investment Manager, necessary and appropriate for the conduct
of the business of the Fund, without the act, vote or approval of any other
Member or person, except where such vote or approval is required under the 1940
Act or other applicable law.
(b) Compensation Of Investment Manager. Over and above its
distributive share of Fund profits, losses, and distributions as provided in
Article 5, the Investment Manager shall also receive the following amounts from
the Fund:
(i) Management Fee. The Fund shall pay the Investment
Manager a quarterly fee for supervising the venture capital operations of
the Fund equal to .625 percent of Adjusted Capital Contributions (i.e.,
2.5% annually multiplied by the Adjusted Capital Contributions of the
Fund, as determined on the last day of the immediately preceding quarterly
period ("Management Fee")).
To the extent permitted by applicable law, the Management Fee shall
be allocated among each Member whose subscription is accepted by the Fund
without proration for the amount of time a Member was a Member during the
Offering Period. All Management Fees shall be due and payable quarterly in
arrears. To the extent Fund cash reserves are insufficient to pay the
entire Management Fee when due, the unpaid fee shall be carried forward
and paid when cash reserves are sufficient to allow the payment.
(ii) Reimbursement Of Operational Costs. The Fund shall
reimburse the Investment Manager or its Affiliates for actual costs and
expenses incurred by the Investment Manager or its Affiliates in
connection with the business of the Fund, including without limitation
expenses related to the selection of investments or proposed investments,
even if the proposed investments ultimately are not undertaken by the
Fund.
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The Management Fee is in addition to the reimbursement of actual costs.
7.4 Expenses. Except as otherwise provided herein, or in any other
agreement between the Fund and a third party, the Fund shall pay all expenses
related to its investments and potential investments, whether or not such
potential investments are actually made by the Fund. Such expenses, whether
billed directly to the Fund or reimbursed to the Investment Manager, may
include, but are not limited to: (i) finders' fees, (ii) legal, auditing,
accounting, investment banking, consulting, brokerage and other fees (including
fees incurred in connection with the annual audit of the Fund's financial
statements), (iii) expenses in connection with the acquisition and/or
disposition of securities, including, without limitation, filing and
registration fees, (iv) all travel and other expenses incurred in the
investigation of an investment opportunity, (v) the cost of preparing
information relating to the Fund's potential acquisition or sale of any
security, and (vi) other out-of-pocket costs of the Fund. The Fund shall also be
responsible for costs incurred in connection with any litigation relating to
specific investments or investment opportunities, whether or not made,
including, without limitation, examinations, investigations or other proceedings
conducted by any regulatory agency, legal and accounting fees incurred in
connection therewith and any judgments, fines, penalties, damages, and amounts
paid in settlement payable as a result thereof.
7.5 Appointment Of Auditors Subject to the approval of (i) a
Majority-In-Interest of Members to the extent required by law and (ii) a
majority of the Independent Directors, the Investment Manager, in the name and
on behalf of the Fund, is authorized to appoint independent certified public
accountants for the Fund.
7.6 [Intentionally omitted]
7.7 Prohibited Transactions. Except to the extent expressly
permitted by this Agreement and except as permitted by the 1940 Act or any
exemptive order issued by the Securities and Exchange Commission thereunder:
(a) the Fund shall not lend money or other property to the Investment
Manager or any Investment Manager Affiliate;
(b) the Fund shall not sell to or purchase any security or any
other property from a Director, Investment Manager, or any Affiliate of either,
or effect any transaction in which a Director, Investment Manager, or any
Affiliate of either is a joint or several participant;
(c) the Fund shall not purchase or sell commodities or
commodity contracts, participate on a joint or a joint and several basis in any
trading account in securities, or purchase any securities on margin, except such
short-term credits as are necessary for clearance of transactions;
(d) no reimbursement for expenses of the Fund shall be
made to the Directors or any Affiliate of a Director;
-22-
(e) the Fund shall not issue any of its Units for
services or for property other than cash or securities;
(f) the Fund shall not sell any Units at a price below
the current net asset value of such Units;
(g) the Fund shall not engage in any transaction or make any investment not
permitted by the 1940 Act; and
(h) the Fund shall not withdraw its election to be treated as
a business development company under the 1940 Act without approval of a
Majority-In-Interest of the Members.
7.8 Limitations on Liability of Directors and Investment
Manager; Indemnification.
(a) The Board shall not be liable for the return of any
Capital Contribution made to the Fund by a Member, and shall not be liable to
the Members because any taxing authorities disallow or adjust any income tax
allocations, deductions or credits.
(b) The members of the Board and the Officers and any person
who serves at the request of the Board or on behalf of the Fund as a partner,
officer, director, employee or agent of any other entity (hereinafter an
"Indemnified Person") shall not be personally liable to the Fund or to the
Members for damages for breach of any duty owed to the Fund or its Members
provided that such act or omission (a) was not in breach of such person's duty
of loyalty to the Fund or the Members, (b) was made in good faith and not
involving a knowing violation of law and (c) did not result in the receipt of an
improper personal benefit.
(c) The Fund shall indemnify and hold an Indemnified Person
harmless from any loss, damage, fine, penalty, expense, judgment or amount paid
in settlement, including attorneys' fees reasonably incurred, which such
Indemnified Person incurs by reason of his performance or nonperformance of any
act concerning the activities of the Fund or in furtherance of the Fund's
interests or purposes; provided, however, that an Indemnified Person shall not
be indemnified for any matters as to which he is adjudged to have (a) breached
his duty of loyalty to the Fund or the Members, (b) not acted in good faith or
knowingly violated the law or (c) received an improper personal benefit. If an
Indemnified Person is adjudged to have committed any of the foregoing, he shall
reimburse the Fund for any funds advanced or expended on his behalf. To the
extent possible, the Fund shall arrange that an Indemnified Person need not
expend or advance any of his own funds.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Fund in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of an
Indemnified Person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Fund as authorized herein.
-23-
The indemnification provided by this subsection (c) of this Section
7.8 shall not be deemed exclusive of any other rights to which an Indemnified
Person may be entitled under any agreement, vote of Members or otherwise, and
shall continue as to a Person who has ceased to be an Indemnified Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
The Fund shall have power at any time to purchase and maintain
insurance on behalf of any Person who is or was an Indemnified Person against
any liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Fund would have the power
to indemnify him against such liability under the provisions of this subsection.
The Indemnification provided by this subsection (c) of this Section
7.8 shall apply to any action in the right of the Fund, to the fullest extent
permitted by law.
(d) No Member shall have any liability or responsibility to
contribute funds in excess of its Capital Contribution to satisfy any obligation
of the Fund under this Section 7.8. All such obligations shall be satisfied
solely from and to the extent of Fund assets.
7.9 Limitations on Liability of Investment Manager In the absence
of: (i) willful misfeasance, bad faith or gross negligence on the part of the
Investment Manager in performance of its obligations and duties hereunder; (ii)
reckless disregard by the Investment Manager of its obligations and duties
hereunder; (iii) a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act, as amended), the Investment Manager shall not be subject to any
liability whatsoever to the Fund, or to any shareholder of the Fund, for any
error of judgment, mistake of law or any other act or omission in the course of,
or connected with, rendering services hereunder including, without limitation,
for any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
ARTICLE 8
OTHER BUSINESS
8.1 Other Business. Any Member, any Affiliate of a Member, and any
officer, director, employee, shareholder or other person holding a legal or
beneficial interest in any entity which is a Member or Affiliate, may engage in,
or possess an interest in, other business ventures of every nature and
description, independently or with others, whether or not such other enterprises
shall be in competition with or operating the same or similar businesses as the
Fund. This Agreement shall not, however, confer upon the Fund or the other
Members any right or opportunity to participate in any such independent ventures
of a Member or Affiliate or any right to the income or profits derived
therefrom. The members of the Investment Manager may retain personally any fees
paid to them by any Person. Neither the Directors nor any Affiliate of the
Directors shall be obligated to present any particular investment opportunity to
the Fund, except
-24-
with respect to opportunities that are suitable for the Fund, which must first
be made available to the Fund before any of the Directors may invest, and the
Directors and their Affiliates shall each have the right to take for their own
account (individually or as a trustee, partner, or fiduciary) or to recommend to
others any such particular investment opportunity. The Investment Manager and
Affiliated Directors hereby consent and agree promptly to furnish the
Independent Directors, upon request, with information on a confidential basis as
to any venture capital investments made by them, or any of their Affiliates, for
their own account or for others.
ARTICLE 9
TRANSFERABILITY OF MEMBER'S INTEREST;
WITHDRAWALS OF CAPITAL BY MEMBERS
9.1 Transfer of Units.
(a) Approval. No sale, exchange, transfer, or assignment of
Units may be made by a Member unless such sale, exchange, transfer or assignment
has been approved by the Board or at least two of the Officers described in
Section 7.2 hereof.
(b) Opinion of Counsel. Notwithstanding any other provisions
of this Article 9, no sale, exchange, transfer, or assignment of Units may be
made by a Member unless in the opinion of counsel for the Fund, satisfactory in
form and substance to the Board, (which opinion may be waived, in whole or in
part, at the discretion of the Board), that:
(i) such sale, exchange, transfer, or assignment, when
added to the total of all other sales, exchanges, transfers, or
assignments of Units within the preceding twelve months, would not result
in the Fund's being considered to have terminated within the meaning of
Section 708 of the Code;
(ii) such sale, exchange, transfer or assignment would
not violate any federal securities laws or any state securities or "Blue
Sky" laws (including any investor suitability standards) applicable to the
Fund or the Units to be sold, exchanged, transferred, or assigned; and
(iii) such sale, exchange, transfer, or assignment could
not cause the Fund to be treated as a publicly traded partnership taxable
as a corporation for federal income tax purposes or to lose its status as
a partnership for state income tax purposes.
Any such opinion of counsel shall be delivered in writing to the Fund
prior to the date of the sale, exchange, transfer, or assignment.
(c) Minors. In no event shall all or any part of a Unit be
assigned or transferred by a Member to a minor or an incompetent except in
trust, pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to
Minors Act, or by will or intestate succession.
-25-
(d) Fractional Interests. No purported sale, exchange,
assignment, or transfer by a Member of, or after which the transferor and each
transferee would hold, Units representing less than ten Units or including a
fractional Unit will be permitted or recognized for any purpose without the
consent of the Board, which consent shall be granted only for good cause shown.
(e) Documentation. Each Member other than a Director agrees,
upon request of the Directors, to execute such certificates or other documents
and perform such acts as the Board deem appropriate after an assignment of a
Unit by that Member to preserve the limited liability of the Members under the
laws of the jurisdiction in which the Fund is doing business. For purpose of
this Section 9.1(e), any transfer of a Unit, whether voluntary or by operation
of law, shall be considered an assignment.
(f) Void ab initio. Any purported assignment of a Unit that is
not made in compliance with this Agreement is hereby declared to be null and
void and of no force or effect whatsoever.
(g) Expense. Each Member other than a Director agrees to pay
all reasonable expenses, including attorneys' fees, incurred by the Fund in
connection with such assignment.
9.2 Assignees.
(a) Notification Required and Effective Date. The Fund shall
not recognize for any purpose any purported sale, assignment, or transfer of all
or any fraction of the Units of a Member other than a Director unless the
provisions of Section 9.1 shall have been complied with and there shall have
been filed with the Fund a dated notification of such sale, assignment, or
transfer, in form satisfactory to the Directors, executed and acknowledged by
both the seller, assignor, or transferor and the purchaser, assignee, or
transferee and such notification (i) contains the acceptance by the purchaser,
assignee, or transferee of all of the terms and provisions of this Agreement and
(ii) represents that such sale, assignment, or transfer was made in accordance
with all applicable laws and regulations. Any sale, assignment, or transfer
shall be recognized by the Fund effective on the first day of the fiscal quarter
following the fiscal quarter in which such notification is filed with the Fund.
If a Unit is sold, assigned, or transferred more than once during a fiscal
quarter, the last purchaser, assignee, or transferee with respect to whom
notification is received shall be recognized by the Fund.
(b) Voting. Unless and until an assignee of a Unit becomes a
Substituted Member, such assignee shall not be entitled to vote or to give
consents with respect to such Unit.
(c) Assignor Rights. Any Member who shall assign all of
such Member's Units shall cease to be a Member and shall not retain any
statutory rights as a Member.
-26-
(d) Written Assignments. Anything herein to the contrary
notwithstanding, both the Fund and the Directors shall be entitled to treat the
assignor of a Unit as the absolute owner thereof in all respects, and shall
incur no liability for distributions made in good faith to such assignor until
such time as a written assignment that conforms to the requirements of this
Section 9.2 has been received by the Fund and accepted by the Board.
(e) Assignee Not Substituted Member. A person who is the
assignee of all or any fraction of the Units of a Member, but does not become a
Substituted Member and desires to make a further assignment of such Units, shall
be subject to all the provisions of this Article 9 to the same extent and in the
same manner as any Member desiring to make an assignment of such Member's Units.
9.3 Substituted Members.
(a) Approval. No Member 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 Member's Interest
as a Member in the transferring Member's place. Any such purchaser, assignee,
transferee, donee, heir, or other recipient of a Unit (whether pursuant to a
voluntary or involuntary transfer) shall be admitted to the Fund as a
Substituted Member only (i) with the consent of the Directors, which consent
shall be granted or withheld in the absolute discretion of the Directors; (ii)
by satisfying the requirements of Sections 9.1 and/or 9.2; and (iii) if
necessary, upon an amendment to this Agreement executed by all necessary parties
and filed or recorded in the proper records of each jurisdiction in which such
recordation is necessary to qualify the Fund to conduct business or to preserve
the limited liability of the Members and Directors. Any such consent by the
Directors may be evidenced, if necessary, by the execution by the Directors of
an amendment to this Agreement evidencing the admission of such Person as a
Member. The admission of a Substituted Member shall be recorded on the books and
records of the Fund. The Members hereby consent and agree to such admission of a
Substituted Member by the Board. The Directors agree to process such amendments
not less frequently than quarterly.
(b) Admission. Each Substituted Member, as a condition to
admission as a Member, shall execute and acknowledge such instruments, in form
and substance satisfactory to the Directors, as the Directors deem necessary or
desirable to effectuate such admission and to confirm the agreement of the
Substituted Member to be bound by all the terms and provisions of this Agreement
with respect to the Units acquired. All reasonable expenses, including
attorneys' fees, incurred by the Fund in this connection shall be borne by such
Substituted Member.
(c) Rights of Assignee. Until an assignee shall have been
admitted to the Fund as a Substituted Member pursuant to this Section 9.3, such
assignee shall be entitled to all of the rights of an assignee of a limited
liability company interest under the Act.
9.4 Indemnification. Each Member shall indemnify and hold harmless
the Company, the Directors, and every Member who was or is a party to any
pending or completed action, suit, or proceeding whether civil, criminal,
administrative, or investigative, by reason of
-27-
or arising from any actual misrepresentation or misstatement of facts or
omission to state facts made (or omitted to be made) by such Member in
connection with any assignment, transfer, encumbrance, or other disposition of
all or and part of a Unit, or the admission of a Substituted Member to the Fund,
against expenses for which the Fund or such other Person has not otherwise been
reimbursed (including attorneys fees, judgments, fines, and amounts paid in
settlement) actually and reasonably incurred by the Fund or such other Person in
connection with such action, suit, or proceeding.
9.5 Incapacity of a Member. If a Member other than a Director
dies, such Member's executor, administrator, or trustee, or, if such Member is
adjudicated incompetent, such Member's committee, guardian or conservator, or,
if such Member becomes bankrupt, the trustee or receiver of such Member's
estate, shall have all the rights of an Member for the purpose of settling or
managing the estate of such Member, and such power as the Incapacitated Member
possessed to assign all or any part of the Incapacitated Member's Units and to
join with such assignee in satisfying conditions precedent to such assignee's
becoming a Substituted Member. The Incapacity of a Member shall not dissolve the
Fund.
9.6 Withholding of Distributions. From the date of the receipt of
any instrument relating to the transfer of a Unit or at any time the Directors
are in doubt regarding the person entitled to receive distributions in respect
of a Unit, the Directors may withhold any such distributions until the transfer
is completed or abandoned or the dispute is resolved.
9.7 Transferor-Transferee Allocations. If a Unit is transferred in
compliance with the provisions of this Article 9, the income, gains, losses,
deductions, and credits allocable in respect of that Unit shall be allocated in
accordance with Section 5.6.
9.8 No Withdrawal. No Member shall be permitted to withdraw or
resign from the Fund without the express written consent of the Board. Any
withdrawal or attempted withdrawal of a Member in violation of this Section 9.8
shall be null and void.
9.9 Notices. Any Member who, in accordance with this Article 9,
shall acquire or succeed to the interest of any other Member, shall promptly
notify the Board of his name, mailing address and the date of acquisition or
transfer of the applicable Fund interest.
9.10 Optional Adjustment to Basis of Fund Property. In the event of
the transfer of the interest of a Member in the Fund during the life of the
Member or upon the death of the Member, the Board may, at its sole discretion,
make an election on behalf of the Fund as provided in Section 754 of the Code
(if such an election is not already in effect for the Fund) and cause the Fund
to make the adjustments to the basis of the property of the Fund (with regard to
the transferee Member only) as provided in Section 754 of the Code.
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ARTICLE 10
DISSOLUTION AND LIQUIDATION
10.1 Dissolution.
(a) The Company shall be dissolved and its business terminated
upon the happening of the earliest of the following:
(i) the return of all Capital Contributions to the
Members pursuant to Article 4 hereof;
(ii) a sale or disposition of all its assets;
(iii) the expiration of its term as herein provided;
(iv) consent of a Majority-In-Interest of Members;
and
(v) the occurrence of any other event which, under the
mandatory provisions of the laws of the State of New Jersey, would cause a
termination or dissolution of the Company.
(b) The death, dissolution, expulsion, bankruptcy, Incapacity
or withdrawal of any Member will not cause the dissolution of the Company.
10.2 Liquidation.
(a) In the event of the dissolution of the Company, which
dissolution (if applicable) is not followed by actions of the Members to
continue the Company, the assets of the Company shall be sold or distributed as
promptly as possible, but in an orderly and businesslike manner, as the Board in
its discretion shall determine. All assets of the Company which are sold shall
be sold at such price and upon such terms as the Board in its sole discretion
may deem advisable. The Investment Manager (or the Person charged with the
liquidation of the Company) shall be entitled to a fee for its services as the
liquidator of the Company equal to the lesser of (i) the management fee that
would have been payable to the Investment Manager during the period encompassing
the liquidation of the Company or (ii) one percent (1%) of the fair market value
of the Company's assets in liquidation. Any Member thereof may purchase the
assets of the Company at such sale.
(b) The proceeds of any sale described in Section 10.2(a), in
addition to the cash and securities on hand, shall be applied and distributed in
the following order of priority:
(i) to the payment of debts and liabilities of the Fund,
including, without limitation, loans payable to Members and the liquidator
fee described in Section 10.2(a) above; then
-29-
(ii) to the setting up of such reserves as the Board may
deem necessary for any contingent liabilities or obligations of the
Company, provided that any such reserves shall be paid over to an
independent escrow agent, to be held by such agent or his successor for
such period as such person shall deem advisable for the purpose of
applying such reserves to the payment of such liabilities or obligations
and, at the expiration of such period, the balance of such reserves, if
any, shall be distributed; then
(iii) to the Members, in proportion to the positive
balances of their respective Capital Accounts after all Profits and Losses
resulting from the liquidation and/or distribution of all assets of the
Company have been allocated pursuant to Section 5.1.
(c) The Board may in its discretion distribute any or all of
the Company's assets in kind and in varying amounts (including a percentage of
one or more such assets which exceeds the percentage of such asset(s) which is
equal to the percentage in which a Member shares in distributions from the
Company) to the Members.
(d) The Board, in making distributions upon liquidation, shall
value the Company's publicly traded assets by reference to the values of same
reported by the securities exchange or quotation system upon which such
securities are listed or quoted on the day prior to distribution of the same,
and shall value the Company's remaining assets according to their fair market
value as determined by the Board, acting in good faith. The determination of
fair market value of each of the assets by the Board shall be conclusive and
binding on the parties.
10.3 Return of Capital Contribution. The return of all or any part
of the Capital Contributions of the Members in connection with the liquidation
of the Company shall be made solely from Company assets and the Members shall
have no right to demand either cash or property other than cash.
ARTICLE 11
RESIGNATION OR REMOVAL OF DIRECTORS OR INVESTMENT MANAGER
11.1 Resignation of a Director. Subject to Section 11.5, a Director
may voluntarily resign or withdraw from the Fund, but only upon compliance with
all of the following procedures:
(a) the Director shall give notification to the Board of
Directors that he or she proposes to withdraw;
(b) subject to Section 7.1(b), the remaining members of
the Board shall designate a successor Director who shall hold such office
until such Director's successor has been approved and elected;
-30-
(c) the Board shall designate only an Independent
Director to replace a withdrawing or retiring Independent Director; and
(d) the withdrawing Director shall cooperate fully with
the successor Director so that the responsibilities of the withdrawing
Director may be transferred to the successor Director with as little
disruption of the Fund's business and affairs as practicable.
11.2 Resignation of the Investment Manager. The Investment Manager
may voluntarily resign or withdraw from the Fund, but only upon compliance with
all of the following procedures:
(a) the Investment Manager shall, at least 60 days prior
to such withdrawal, give notification to all Investors that it proposes to
withdraw and that there be substituted its place a Person or Persons
designated and described in such notification;
(b) enclosed with the notification shall be a certificate,
duly executed by or on behalf of each proposed successor Investment Manager, to
the effect that: (i) it is experienced in performing (or employs sufficient
personnel who are experienced in performing) functions that an Investment
Manager is required to perform under this Agreement; (ii) it has a net worth
that meets the requirements of any statute or the courts applicable to a manager
of a limited liability company in order to ensure that the Fund will not fail to
be classified for state income tax purposes as a limited liability company
rather than as an association taxable as a corporation; and (iii) it is willing
to become an 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 Manager and without receiving any participation in the withdrawing
Investment Manager's Fund Interest other than that agreed upon by the
withdrawing Investment Manager and the successor Investment Manager;
(c) if the Investment Manager resigns or withdraws, there
shall be on file at the principal office of the Fund, prior to such
withdrawal, audited financial statements of each proposed successor
Investment Manager, as of a date not earlier than twelve months prior to the
date of the notification required by this Section 11.2, certified by a
nationally or regionally recognized firm of independent certified public
accountants, together with a certificate, duly executed on behalf of each
proposed successor Investment Manager by its principal financial officer, to
the effect that no material adverse change in its financial condition has
occurred since the date of such audited financial statements that has caused
its net worth, excluding the purchase price of its Fund Interest, to be
reduced to less than the amount under Subsection 11.2(b). Such audited
financial statements and certificates shall be available for examination by
any Member during normal business hours;
(d) to the extent required by and in accordance with the
1940 Act, a Majority-In-Interest of the Members has consented to the
appointment of any successor Investment Manager; and
-31-
(e) the withdrawing Investment Manager shall cooperate fully
with each successor Investment Manager so that the responsibilities of the
withdrawing Investment Manager may be transferred to each successor Investment
Manager with as little disruption of the Fund's business and affairs as
practicable.
11.3 Removal of a Director or Investment Manager, Designation of
a Successor Director
(a) Any of the Directors may be removed either: (i) for
cause by the action of at least two-thirds of the remaining Directors,
including a majority of the remaining Independent Directors; (ii) by failure
to be approved and re-elected by the Members in accordance with this
Agreement; or (iii) with the consent of a Majority-In-Interest of the
Members. The Investment Manager may be removed either: (i) by a majority of
the Directors; (ii) by failure to be approved and re-elected by the Members
in accordance with this Agreement; (iii) by the vote of a
Majority-In-Interest of the Members; or (iv) automatically upon assignment of
its Units. 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 Manager 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
selected by the Investment Manager 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 Manager
shall be borne by the Investment Manager, and the cost of the appraisal
conducted by the appraiser selected by the 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 by the Investment Manager. 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 Manager. With respect to
its Fund Interests, the Investment Manager shall receive a final allocation of
Net Profit or Net Loss equal to the Net Profit or Net Loss that it would have
been allocated pursuant to Article 5, 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 Account of the Investment Manager has a positive balance after
such allocation, in partial redemption of its Fund Interest, the Fund shall
deliver a promissory note of the Fund to the Investment Manager, the principal
amount of which shall be equal to the amount, if any, by which the positive
amount of the Investment Manager's Capital Account exceeds the amount of its
Adjusted Capital Account and which bears interest at a rate per annum equal to
100% of the prime rate in effect at CitiBank, N.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 Members pursuant
to Article 5. If the Capital Account of the Investment Manager has a negative
balance after such allocation, the Investment Manager shall contribute cash to
the capital of the Fund in an amount equal to the negative balance in its
Capital Account. After such partial redemption, the Investment Manager shall
thereafter be treated solely as an
-32-
Investor with respect to the Units owned by it, and the Investment Manager shall
continue to receive, as an Investor, only those allocations of the Net Profits
and the Net Losses allocated pursuant to Article 5 and related distributions
that are made to Investors. In the event that any of the foregoing requires an
exemptive order from the SEC that is not granted, the Investment Manager shall
not receive a final allocation of Net Profits and Net Losses and its interest in
the Company shall thereafter be treated as held by an Investor with respect to
the Units owned by the Investment Manager, and the Investment Manager shall
continue to receive, as an Investor, only those allocations of Net Profits and
Net Losses pursuant to Article 5 and related distributions that are made to
Investors.
(c) Subject to Section 7.1(b), the remaining members of the
Board may designate one or more Persons to fill any vacancy existing in the
number of Directors fixed pursuant to Sections 7.1(a) or 7.1(b) resulting from
removal of a Director pursuant to Section 11.3(a). Remaining members of the
Board may designate one or more Persons to be successors to the Investment
Manager removed by the Independent Directors pursuant to Section 11.3(a), and
each Member other than a Director hereby consents to the admission of such
successor or successors, no further consent being required until the next
Biannual Meeting. Any such successor Director or Investment Manager shall hold
office until the next Biannual Meeting and until his or her successor has been
approved and elected. With the consent of such number of members other than a
Director (but not in any event less than a Majority-In-Interest of the Members)
as are then required under the 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 Members may, subject to the provisions hereof, at
any time admit a Person to be successor to a Director concurrently therewith
being removed by the Investors pursuant to Section 11.3(a).
(d) Any removal of a Director shall not affect any rights
or liabilities of the removed Director that matured prior to such removal.
11.4 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 7.1, the remaining Directors shall
give notification to the Members of such event and shall, within 90 days,
call a meeting of the Board for the purpose of designating a successor
Director. Any such successor Director shall hold such office until the next
Biannual Meeting 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 10.
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(c) Any such termination of a Director shall not affect
any rights or liabilities of the Incapacitated Director that matured prior to
such Incapacity.
11.5 Admission of a Successor Director.
(a) The admission of any successor Director, 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 Director, or
transfer of the withdrawing or removed Director's Fund Interest, as the
case may be; and
(ii) the Fund Interests of the Members 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 his Fund Interest, except that a Director may: (i) transfer his Fund
Interest to a successor Director pursuant to Section 11.1 or 11.3; (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 Member other
than a Director hereby consents to the admission of any additional or
successor Director pursuant to this Section 11.5(b), and no further consent
or approval shall be required; and
(c) Notwithstanding anything to the contrary in this
Article 11 a Director's Fund Interest shall at all times be subject to the
restrictions on transfer set forth in Article 9
11.6 Liability of a Withdrawn or Removed Director Any Director who
shall withdraw or be removed from the Fund, or who shall sell, transfer, or
assign his Fund Interest shall remain liable for obligations and liabilities
incurred by him as Director prior to the time such withdrawal, removal, sale,
transfer, or assignment shall have become effective, but he shall be free of any
obligation or liability incurred on account of the activities of the Fund from
and after the time such withdrawal, removal, sale, transfer, or assignment shall
have become effective.
11.7 Consent of Members to Admission of Successor Directors. Each
Member other than a Director hereby consents, pursuant to Section 11.3, to the
admission of any Person as a successor Director meeting the requirements of
Section 11.3 to whose admission as such a Majority-In-Interest of the Investors
have expressly consented, and no further express consent or approval shall be
required.
11.8 Continuation. In the event of the withdrawal, removal, or
retirement of a Director, or the transfer or assignment by a Director of his
Fund Interest, the Fund shall not be
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dissolved and the business of the Fund shall be continued by the remaining
Directors.
ARTICLE 12
ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS
12.1 Annual Accounting Period. The annual accounting period of
the Fund shall be January 1 through December 31.
12.2 Records.
(a) The Investment Manager shall maintain, or cause to be
maintained, the Certificate of Formation and all amendments thereto, this
Agreement and all amendments hereto, complete and accurate records of all
transactions of the Fund, copies of the Fund's tax returns, and full and true
books of account in accordance with the accounting method followed by the Fund
for Federal income tax purposes.
(b) All of such books and records shall, at all times, be kept
at the principal office of the Fund and during regular business hours shall be
opened upon reasonable notice for inspection, examination and copying by a
Member or his authorized representative(s). Members shall be given reasonable
access during business hours to the information regarding the Fund.
12.3 Income Tax Returns.
(a) The Investment Manager shall be the "tax matters partner"
under the Code.
(b) With respect to the preparation of federal, state and
local income tax returns of the Fund, the tax matters partner shall see to the
preparation and filing of all such returns in a timely manner and shall make, in
his sole discretion, unless otherwise provided herein, such elections or
determinations as may be desirable and available under current provisions of the
Code. In the event that the Internal Revenue Service audits the return of any
Member with respect to his or its participation in the Fund, the Fund shall have
the right, but not the obligation, to participate at its own expense in such
audit in matters affecting the Fund's tax return. The Members shall take such
steps and execute such instruments as may be required to accomplish this,
including without limitation the execution of powers of attorney. In the event
of an income tax audit of any Fund tax return, to the extent the Fund is treated
as an entity for purposes of the audit, including administrative settlement and
judicial review, the tax matters partner shall be authorized to act for, and its
decisions shall be final and binding upon, the Fund and the Members. The tax
matters partner shall keep the other Members apprised of the status of any
income tax audit.
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12.4 Reports. The Board shall cause to be delivered to the
Members the following:
(a) By March 31st of each year, a statement which shall
include, as of the end of and for the previous Fiscal Year, the following:
(i) A financial statement of the Fund and a status
report of the Fund's investments prepared by an accounting firm
selected by the Board;
(ii) Such other information as is required under the
1940 Act or other relevant law or, in the opinion of the Board, shall
reasonably be necessary for the Members to be currently aware of the
operating and business results of the Fund, including a valuation of the
Company's investment portfolio which has been approved the Advisory
Committee.
(b) Not later than the sixtieth (60th) day following the end
of each of the first three (3) fiscal quarters of each Fiscal Year, a quarterly
review of the Fund's operations, including unaudited financial statements of the
Fund and a valuation of the Fund's investment portfolio which has been approved
by a majority of Directors.
(c) Any information reasonably necessary for the preparation
by any Member of his federal, state and local income or other tax returns. The
Board shall use its best efforts to cause the Investment Manager to provide the
appropriate Forms K-1 to each Member by March 31 of each year, however, it
cannot guarantee that such forms shall be provided to each Member by such date.
(d) By April 30 of each year the Fund will also distribute to
the Investors an annual report containing a balance sheet and statements of
operations, changes in members' equity and cash flows (which would be prepared
on a GAAP basis of accounting and will be examined and reported upon by an
independent public accountant) and a report on the Fund's activities during the
period reported upon. Such annual report will describe all reimbursements to the
Investment Manager and its affiliates and all distributions to investors,
including the source of such payments.
12.5 Biannual Meeting. Pursuant to Section 3.8(d) hereof, the
Company will hold a Biannual Meeting at which additional information about the
activities and investments of the Company shall be provided to the Members.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any offer, acceptance, election, approval, consent,
request, waiver, notice or other document required or permitted to be given
pursuant to any provision of this Agreement shall be deemed duly given only when
in writing, signed by or on behalf of the
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person giving same, and either personally delivered (with receipt acknowledged
by the recipient) or deposited in a designated United States mail depository,
registered or certified mail, return receipt requested, postage prepaid,
addressed to the person or persons to whom such offer, acceptance, election,
approval, consent, request, waiver or notice is to be given at their respective
addresses indicated herein or in the Company's records, or at such other address
as shall have been set forth in a notice sent pursuant to the provisions of this
Section 13.1.
13.2 Binding Effect. Subject in all respects to the limitations
concerning the transferability of Units contained herein and except as otherwise
herein expressly provided, the provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto, their respective personal
representatives, heirs, successors and permitted assigns.
13.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall for all purposes constitute one agreement
which is binding on all of the parties hereto.
13.4 Section Headings. Section titles or captions contained in this
Agreement are inserted as a matter of convenience and for reference only, and
shall not be construed in any way to define, limit or extend or describe the
scope of this Agreement or the intention of the provisions hereof.
13.5 Exhibits. All exhibits and schedules annexed hereto are
expressly made a part of this Agreement, as fully as though completely set forth
herein, and all references to this Agreement herein or in any of such exhibits
or schedules shall be deemed to refer to and include all such exhibits or
schedules.
13.6 Variation in Pronouns. All pronouns and variations thereof
shall be deemed to refer to masculine, feminine, neuter, singular or plural, as
the identity of the person, persons, or entities may require.
13.7 Severability. Each provision hereof is intended to be
severable and the invalidity or illegality of any portion of this Agreement
shall not effect the validity or legality of the remainder.
13.8 Qualification in Other States. In the event the business of
the Company is carried on or conducted in states in addition to New Jersey, then
the Members agree that the Company shall qualify to do business under the laws
of each state in which business is actually conducted by the Company, and they
severally agree to execute such other and further documents as may be required
or requested in order that the Board legally may qualify the Company in such
states to the extent possible. A Company office or principal place of business
in any state may be designated from time to time by the Board.
13.9 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the matters set forth herein and
supersedes any prior understanding or agreement, oral or written.
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13.10 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
13.11 Forum. Any action by one or more Members against the Company
or the Directors, Investment Manager or Members, or by the Company against the
Directors, Investment Manager or Members, which arises under or in any way
relates to this Agreement, the sale of Units or actions taken or failed to be
taken or determinations made or failed to be made by the Investment Manager or
Directors or relating to the Company or services provided for it or joint
activities or other transactions in which it engages, including, without
limitation, transactions permitted hereunder or otherwise related in any way to
the Company, may be brought only in the state courts of the State of New Jersey
or the United States District Court for the District of New Jersey. Without
limitation, any action by the Investment Manager or Members which he or they may
have from time to time against one or more of the Members may be brought by such
Investment Manager or Members, or the Company, as the case may be, in any of the
courts mentioned in the preceding sentence. Each Member hereby consents to the
exclusive jurisdiction of such courts to decide any and all such actions and to
such venue.
IN WITNESS WHEREOF, the undersigned, intending to be legally
bound hereby, have duly executed this Agreement as of the date first above
written.
THE OXBOW FUND, LLC
By: C.J.M. ASSET MANAGEMENT, LLC,
Investment Manager
By:
-----------------------------------
Name: S. Xxxxxxx Xxxxxxxx, Xx.
Title: Director
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