EXHIBIT a(2)
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
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TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS...................................................................................1
Act ..............................................................................................1
Affiliate ..............................................................................................1
Affiliated Director......................................................................................1
Bankruptcy ..............................................................................................1
Board ..............................................................................................1
Business Day.............................................................................................1
Capital Account..........................................................................................2
Capital Contribution.....................................................................................2
Carrying Value...........................................................................................2
Certificate or Certificate of Formation..................................................................2
Closing Date.............................................................................................2
Code or Internal Revenue Code............................................................................2
Depreciation.............................................................................................2
Director or Directors....................................................................................3
Effective Date...........................................................................................3
Expense Allocation Date..................................................................................3
Fiscal Year..............................................................................................3
Fund ..............................................................................................3
Incapacity ..............................................................................................3
Indemnified Person.......................................................................................3
Independent Director.....................................................................................3
Initial Capital Contribution.............................................................................3
Investment Advisory Agreement............................................................................3
Investment Manager.......................................................................................3
Investors ..............................................................................................3
Majority-In-Interest of Members..........................................................................3
Management Fee...........................................................................................3
Member ..............................................................................................3
Member Nonrecourse Debt..................................................................................4
Member Nonrecourse Deductions............................................................................4
Nonrecourse Deductions...................................................................................4
Offering ..............................................................................................4
Organizational Expenses..................................................................................4
Percentage Interest......................................................................................4
Person ..............................................................................................4
Portfolio Company........................................................................................4
Profits and Losses.......................................................................................4
Prospectus ..............................................................................................5
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Qualified Income Offset Amount...........................................................................5
Section 705(a)(2)(B) Expenditure.........................................................................5
Substituted Member.......................................................................................5
Taxable Period...........................................................................................5
Unit ..............................................................................................5
1940 Act ..............................................................................................5
ARTICLE 2 THE COMPANY...................................................................................5
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...........................................................................9
ARTICLE 4 CAPITAL CONTRIBUTIONS........................................................................11
4.1 Capital Contributions of the Members.........................................................11
4.2 Capital Account..............................................................................11
ARTICLE 5 ALLOCATION OF PROFITS AND LOSSES AND DISTRIBUTIONS TO MEMBERS................................13
5.1 Allocations of Profits and Losses............................................................13
5.2 Additional Allocations.......................................................................13
5.3 Allocation of Organizational Expenses........................................................14
5.4 Calculations.................................................................................15
5.5 Distributions................................................................................15
5.6 Contingency Reserves.........................................................................16
5.7 Additional Allocation Rules..................................................................16
5.8 Limitation of Liability......................................................................16
ARTICLE 6 DEPOSIT AND USE OF COMPANY FUNDS.............................................................16
6.1 Deposit of Company Funds....................................................................16
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ARTICLE 7 MANAGEMENT OF THE COMPANY....................................................................17
7.1 The Board of Directors.......................................................................17
7.2 Officers.....................................................................................19
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......................25
9.1 Transfer of Units............................................................................25
9.2 Assignees....................................................................................26
9.3 Substituted Members..........................................................................27
9.4 Indemnification..............................................................................28
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
or Investment Manager........................................................................32
11.4 [Intentionally Omitted]......................................................................32
11.5 Admission of a Successor Director............................................................33
11.6 Liability of a Withdrawn or Removed Director.................................................33
11.7 Consent of Members to Admission of Successor Directors.......................................33
11.8 Continuation.................................................................................33
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ARTICLE 12 ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS...............................................33
12.1 Annual Accounting Period.....................................................................33
12.2 Records......................................................................................34
12.3 Income Tax Returns...........................................................................34
12.4 Reports......................................................................................34
12.5 Annual Meeting...............................................................................35
ARTICLE 13 MISCELLANEOUS................................................................................35
13.1 Notices......................................................................................35
13.2 Binding Effect...............................................................................35
13.3 Counterparts.................................................................................36
13.4 Section Headings.............................................................................36
13.5 Exhibits.....................................................................................36
13.6 Variation in Pronouns........................................................................36
13.7 Severability.................................................................................36
13.8 Qualification in Other States................................................................36
13.9 Entire Agreement.............................................................................36
13.10 Applicable Law...............................................................................36
13.11 Forum........................................................................................36
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
This Operating Agreement (the "Agreement") of THE OXBOW FUND, LLC (the
"Fund" or "Company"), dated as of [ ], 2000 is made by and among
C.J.M. Asset Management, LLC, as initial Member and any Person admitted as an
additional Member.
ARTICLE 1
DEFINITIONS
1.1 "Act" refers to the State of New Jersey Limited Liability Company
Act.
1.2 "Affiliate" means a Person or entity included within the definition
of "affiliate" set forth in Securities and Exchange Commission Rule 405, as
amended from time to time.
1.3 "Affiliated Director" means a Director of the fund who is an
"interested person" as such term is defined in Section 2(a)(19) of the 0000 Xxx.
1.4 "Bankruptcy" when used with reference to any Person, shall be
deemed to occur (1) when a Person (a) makes an assignment for the benefit of
creditors, or (b) files a voluntary petition in bankruptcy, or (c) is adjudged a
bankrupt or insolvent, or has entered against it an order for relief in any
bankruptcy or insolvency proceeding, or (d) files a petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
or (e) files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief, or (f) seeks, consents to or acquiesces in the appointment of
a trustee, receiver or liquidator of such Person or of all or any substantial
part of its properties, or (2) (a) 120 days after the commencement of any
proceeding against such Person seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any statute, law
or regulation, the proceeding has not been dismissed, or (b) 90 days after the
appointment without its consent or acquiescence of a trustee, receiver or
liquidator of such Person or of all or any substantial part of its properties,
the appointment is not vacated or stayed, or within 90 days after the expiration
of any such stay, the appointment is not vacated.
1.5 "Biannual Meeting" is defined in Section 3.8(d) of this Agreement.
1.6 "Board" means the Board of Directors of the Company having such
powers as described herein.
1.7 "Business Day" shall mean any day upon which banking institutions
are required or permitted to be open for the transaction of business in New York
City, New York.
1.8 "Capital Account" is defined in Section 4.2 of this Agreement.
1.9 "Capital Contribution" for each Member means the aggregate cash and
the fair market value of any property contributed by such Member pursuant to
Article 4 hereof.
1.10 "Carrying Value" means, with respect to any asset, the asset's
adjusted basis for Federal income tax purposes, except as follows:
(a) the Carrying Value of any asset of the Company on the date of this
Agreement shall be such asset's gross fair market value on such date, and the
Carrying Value of any asset contributed to the Company subsequent to the date of
this Agreement shall be such asset's gross fair market value at the time of such
contribution, in each case determined pursuant to the terms of this Agreement,
or if no such value is determined herein, by the Company's independent
accountants;
(b) upon adjustment (if any) of the Members' Capital Accounts pursuant
to Section 4.2(h), the Carrying Value of all Company assets shall be adjusted to
equal their respective gross fair market values at the time of such adjustment;
and
(c) if the Carrying Value of an asset has been determined pursuant to
Sections 1.10(a) or (b) above, such Carrying Value shall thereafter be adjusted
for Depreciation, rather than depreciation or amortization or other cost
recovery deduction as determined for Federal income tax purposes. 1.11
"Certificate" or "Certificate of Formation" means the Certificate of Formation
of the Company, as the same may be amended or restated as provided herein or
required by law, which was duly filed in accordance with (and which, in all
respects, shall be sufficient in form and substance under) the laws of the State
of New Jersey, and recorded with the Treasurer of the State of New Jersey.
1.12 "Closing Date" means the third business day after the Fund has
terminated the Offering.
1.13 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, and the regulations and interpretations thereof promulgated
by the Internal Revenue Service.
1.14 "Depreciation" means for each tax year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Carrying
Value of an asset differs from its adjusted basis for Federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
Federal income tax depreciation, amortization, or other cost recovery deduction
for such year or other periods bears to such beginning adjusted tax basis;
provided, however that if the Federal income tax depreciation, amortization or
other cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Carrying Value using any method
approved by the Board with the advice of the Company's independent accountants.
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1.15 "Director" or "Directors" means each Affiliated Director or
Independent Director in his or her capacity as a Director of the Fund or,
collectively, the Affiliated Directors and Independent Directors.
1.16 "Effective Date" means the date on which the Company's Certificate
of Formation was duly filed in the office of the Treasurer of the State of New
Jersey.
1.17 "Expense Allocation Date" means the date of the first Capital
Contribution by a Member to the Company, and thereafter shall mean the last day
of each Fiscal Year through and including the year ending December 31, 2001
(unless, the Board determines in consultation with the Company's accountants
that such Expense Allocation Date should occur more often than annually), in
which a Capital Contribution is made to the Company pursuant to Section 4.1.
1.18 "Fiscal Year" means the calendar year ending December 31.
1.19 "Fund" means The Oxbow Fund, LLC, a limited liability company
organized under the laws of the State of New Jersey.
1.20 "Incapacity" means, as to any Person, the entry of an order for
relief in a bankruptcy proceeding or entry of an order of incompetence or
insanity, as the case may be, of such Person.
1.21 "Indemnified Person" is defined in Section 7.8 of this Agreement
1.22 "Independent Director" means a Director of the Fund who is not an
"interested person" as such term is defined in Section 2(a)(19) of the 0000 Xxx.
1.23 "Initial Capital Contribution" is defined in Section 4.1(a) of
this Agreement.
1.24 "Investment Advisory Agreement" is defined in Section 7.3(a) of
this Agreement.
1.25 "Investment Manager" means C.J.M. Asset Management, LLC or any
Person appointed as a successor Investment Manager as provided in this
Agreement.
1.26 "Investors" means the Members, other than the Investment Manager.
1.27 "Majority-In-Interest of Members" means (a) the vote of
sixty-seven percent (67%) or more of the Units present at a meeting of Members
duly called, if more than fifty percent (50%) of the outstanding Units are
present or represented by proxy at such meeting; or (b) the vote of more than
fifty percent (50%) of the outstanding Units of the Fund, whichever is less.
1.28 "Management Fee" is defined in Section 7.3(b) of this Agreement.
1.29 "Member" means the Investment Manager and any other Members
admitted to the Fund in accordance with Section 3.2 hereof.
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1.30 "Member Nonrecourse Debt" means partner nonrecourse debt, as
defined in Treasury Regulation Section 1.704-2(b)(4).
1.31 "Member Nonrecourse Deductions" means, for a taxable year or other
period, the amount of partner nonrecourse deductions as set forth in Treasury
Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2).
1.32 "Nonrecourse Deductions" means, for a taxable year or other
period, the amount of nonrecourse deductions as determined under Treasury
Regulation Section 1.704-2(c).
1.33 "Offering" means the offering of Units by the Fund pursuant to
that certain Prospectus, dated _____________, 2000, which forms a part of the
Fund's Registration Statement on Form N-2 as initially filed with the Securities
and Exchange Commission on or about November 15, 1999.
1.34 "Organizational Expenses" means the aggregate expenses incurred by
the Company in connection with its formation, initial registration as an
Investment Company under the 1940 Act and the offering of Units.
1.35 "Percentage Interest" of a Member shall mean a fraction, the
numerator of which is the sum of all Units held by such Member and the
denominator of which is the aggregate sum of the Units held by all Members.
1.36 "Person" mean individuals, partnerships, corporations, trusts,
estates, limited liability companies and other associations.
1.37 "Portfolio Company" shall mean any Person in which the Fund has
made an investment.
1.38 "Profits" and "Losses" mean the Company's taxable income or loss,
respectively, for a period as determined for Federal income tax purposes in
accordance with Code Section 703(a), computed with the following adjustments:
(a) items of gain, loss and deduction relating to assets shall be
computed based upon the Carrying Values of the Fund's assets rather than upon
the assets' adjusted bases for Federal income tax purposes;
(b) tax-exempt income received by the Fund shall be deemed, for
purposes of this definition only, to be gross income;
(c) the amount of any adjustment to the Carrying Value of any assets of
the Fund pursuant to Section 743 of the Code shall not be taken into account in
computing Profits and Losses;
(d) Section 705(a)(2)(B) Expenditures shall be treated as deductible
expenses;
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(e) any items of gross income, gain, loss, deduction or Section
705(a)(2)(B) Expenditures (including, without limitation, Organizational
Expenses) allocated pursuant to any provision of Article 5 (other than Section
5.2(c)), shall be excluded from the computation of Profits and Losses; and
(f) Nonrecourse Deductions and Member Nonrecourse Deductions shall be
excluded from the computation of Profits and Losses.
1.39 "Prospectus" means that certain Prospectus, dated ___________,
2000, which forms a part of the Fund's Registration Statement on Form N-2 as
initially filed with the Securities and Exchange Commission on or about November
15, 1999.
1.40 "Qualified Income Offset Amount" for a Member means the excess, if
any, of (i) the negative balance a Member has in his Capital Account (after
reducing such account by any adjustments, allocations or distributions of items
specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6)
that, as of the end of the taxable year, are reasonably expected to be made to
the Member) over (ii) the sum of (A) the amount, if any, of such Member's
unconditional obligation to make subsequent contributions to the Company within
the time period specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(c),
and (B) such Member's share of Company minimum gain and Member Nonrecourse Debt
minimum gain.
1.41 "Section 705(a)(2)(B) Expenditure" means an expenditure of the
Company (as described in Section 705(a)(2)(B) of the Code) which is neither
deductible in computing taxable income nor properly chargeable to a capital
account, and any other expenditure considered to be such an expenditure pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(i).
1.42 "Substituted Member" means a Person admitted as a Member to the
Fund pursuant to Section 9.3 in place of and with all of the rights of the
Member who has transferred or assigned such Member's Fund Interest to such
Person, and who is shown as a Member on the books and records of the Fund.
1.43 "Taxable Period" means each Fiscal Year.
1.44 "Unit" means all of the interests that a Member has in the Company
and represents a Member's rights and obligations as a Member pursuant to this
Agreement and under the Act, including but not limited to, voting rights, the
right to share in Profits and Losses and the right to a share of any
distribution of the assets of the Fund. Each Unit represents an Initial Capital
Contribution of $100.
1.45 "1940 Act" means the Investment Company Act of 1940 and all rules
and regulations promulgated thereunder, as amended by the Small Business
Incentive Act of 1980, and as further amended from time to time.
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ARTICLE 2
THE COMPANY
2.1 Formation of Limited Liability Company; Members. The
Oxbow Fund, LLC has been formed as a limited liability company under the laws of
the State of New Jersey by the filing of the Certificate of Formation pursuant
to the Act, on behalf of the Members. The terms and provisions hereof will be
construed and interpreted in accordance with the terms and provisions of such
laws.
2.2 Name of Fund. The name of the Fund is "THE OXBOW
FUND, LLC." If considered necessary in the opinion of counsel to the Fund to
preserve the limited liability of the Members, Directors, and Investment
Managers, property acquired and business conducted by the Fund shall be in such
other name as is necessary to preserve such limited liability. The Board shall
have the power to change the name of the Fund at any time and shall give prompt
notice of any such change to each Member.
2.3 Purpose of Company. The Fund is authorized and
empowered to elect to operate and to operate, as a business development company
under Section 55, et. al. of the Investment Company Act of 1940, as amended. The
Fund's principal investment objective is to seek long term capital appreciation
by investing primarily in equity securities of private U.S. companies seeking
capital for start-up operations, business expansion, product development and/or
strategic acquisition opportunities. The Fund may invest in companies of any
size, but generally expects to invest in small to medium-sized companies with
annual revenues or projected annual revenues in the $2 million to $100 million
range. In addition, the Fund may acquire the assets of companies, invest in
commercial real estate and invest in the equity, debt or assets of companies of
any size which are facing financial difficulties, reorganizing or seeking
capital for debt or equity restructuring. Generating current income for
distribution to Members will not be a factor in the selection of investments by
the Fund.
2.4 Principal and Registered Office.
(a) The principal office of the Fund shall be at:
000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, X.X. 00000
(b) The registered office of the Fund shall be at:
c/o C.J.M. Planning Corporation
000 Xxxxxxx Xxxxxx
Xxxxxxx Xxxxx, X.X. 00000
(c) The name of the registered agent at such address
is S. Xxxxxxx Xxxxxxxx, Xx.
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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 consideration of an investment in the Fund and his
acquisition of Units, including without limitation the fees of any attorney,
financial advisor, or other consultant, except as this Agreement may otherwise
expressly provide.
(b) The Fund shall pay for or reimburse the initial
Member for all other expenses of formation of every nature and description
including, without limitation, reproduction, printing and stenographic costs,
filing, recording and qualifying fees, taxes and costs of legal publication,
expenses of registration, qualification or obtaining exemptions under any
federal or state securities laws and legal and accounting fees incident to the
formation of the Fund and the offering and sale of Units.
ARTICLE 3
MEMBERS
3.1 Members; Initial Member.
(a) A record of the names and addresses of Members of
the Fund shall be maintained by the Fund and said list shall be amended from
time to time by the Fund to reflect the withdrawal of Members or the admission
of additional and/or Substituted Members pursuant to this Agreement. Such record
of Members shall also set forth the number of Units
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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 therefor and the admission of such
subscribers as Members will be as provided in the Prospectus in all material
respects and subject to any provisions hereof. Before any Person is admitted to
the Fund as a Member, such Person or such Person's attorney-in-fact shall
execute a counterpart of this Agreement and thereby agree in writing to be bound
by all of the provisions hereof as a Member.
3.3 Limitation of Liability of Members. Except as
otherwise provided in the Act, no Member of the Fund shall be obligated
personally beyond the amount of his Capital Contribution for any debt,
obligation or liability of the Fund, whether arising in contract, tort or
otherwise, solely by reason of being a Member of the Fund. No Member shall be
liable to the Fund or any other Member for acting in good faith reliance upon
the provisions of this Agreement. No Member shall have any responsibility to
restore any negative balance in his Capital Account or to contribute to or in
respect of the liabilities or obligations of the Fund or return distributions
made by the Fund except as required by the Act or other applicable law. The
failure of the Fund to observe any formalities or requirements relating to the
exercise of its powers or the management of its business or affairs under this
Agreement or the Act shall not be grounds for making its Members or the
Investment Manager responsible for the liabilities of the Fund. Notwithstanding
the foregoing, a Member will be liable to the Company for any distributions made
to it, if, after such distribution, the outstanding liabilities of the Company
(other than liabilities to Members on account of their interests in the Company
and liabilities for which the recourse of creditors is limited to specific
Company property) exceed the fair value of the Company's assets (provided that
the fair value of Company property that secures recourse liability shall be
included only to the extent its fair value exceeds such liability) and the
Member had knowledge of this fact at the time the distribution was received.
3.4 No Management Responsibility. No Investor, other than
a Director, shall participate in the management or the control of the business
of or transact any business for the Fund but may exercise the rights and powers
of a Member under this Agreement. All management responsibility is vested in the
Directors. The Investors other than the Directors hereby consent to the taking
of any action by the Directors, the Officers, and the Investment Manager
contemplated under Article 7.
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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 Manager. The Investors consent to the exercise by
the Directors of the powers conferred on them by law and this Agreement.
3.6 Rights Of Members. The Members shall have the
following rights subject to the terms and conditions of this Agreement:
(a) the right to approve and elect or disapprove and
remove Directors;
(b) the right to ratify or reject the appointment of
the independent accountants of the Fund selected by the Board,
including a majority of the Independent Directors;
(c) the right to propose and approve an amendment to
this Agreement; provided, however, that no such amendment shall
conflict with the 1940 Act;
(d) the right to approve any other matters related
to the business of the Fund that the 1940 Act requires to be approved
by the Members pursuant to the provisions of the 1940 Act; and
(e) the right to cause the Fund to withdraw its
election to be treated as a Business Development Company under the 1940
Act.
Each of the foregoing matters shall be approved or disapproved, as the
case may be, upon the vote or consent of a Majority-in-Interest of Members.
3.7 No Consent Required. Notwithstanding the foregoing,
no vote, approvals, or other consent shall be required of the Members to amend
this Agreement in any of the following respects: (i) to admit an additional
Member or a Substituted Member or remove a Member in accordance with the terms
of this Agreement; or (ii) to correct any false or erroneous statement, or to
make a change in any statement in order that such statement shall accurately
represent the agreement among the Members and Directors in this Agreement;
provided that no such correction or change shall in any manner adversely affect
the Units of any Member.
3.8 Meetings of Members; Biannual Meeting.
(a) Actions requiring the vote of the Members may be
taken at any duly constituted meeting of the Members at which a quorum is
present. Meetings of the Members may be called by the Board of Directors or by
Members holding at least 10% of the Units and may be held at such time, date and
place as the Board of Directors shall determine. The Board of Directors shall
arrange to provide written notice of the meeting, stating the date, time and
place of the meeting and the record date therefore, to each Member entitled to
vote at the meeting within a reasonable time prior thereto. Such notifications
shall include any information required by this Agreement or by law. Failure to
receive notice of a meeting on the part of any Member shall not affect the
validity of any act or proceeding of the meeting, so long
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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. Members holding Units which, in the aggregate,
exceed fifty percent (50%) of the outstanding Units of the Fund shall constitute
a quorum for the transaction of any business at a meeting of Members. In the
absence of a quorum, a meeting of the Members may be adjourned by action of the
Board without additional notice to the Members. When an adjourned meeting is
reconvened, any business may be transacted that might have been transacted at
the original meeting. Except as otherwise required by any provision of this
Agreement or of the 1940 Act, (i) those candidates receiving a plurality of the
votes cast at any meeting of Members shall be elected as Directors and (ii) all
other actions of the Members taken at a meeting shall require the affirmative
vote of a Majority-In-Interest of the Members in person or by proxy at such
meeting.
(b) Each Member shall be entitled to cast at any
meeting of Members a number of votes equivalent to the number of Units held by
such Member as of the record date for such meeting. The Board of Directors shall
establish a record date not less than 10 nor more than 60 days prior to the date
of any meeting of Members to determine eligibility to vote at such meeting and
the number of votes which each Member will be entitled to cast thereat, and
shall maintain for each such record date a list setting forth the name of each
Member and the number of votes that each Member will be entitled to cast at the
meeting. Members shall not be entitled to cumulative voting.
(c) A Member may vote at any meeting of Members by a
proxy properly executed in writing by the Member and filed with the Fund before
or at the time of the meeting. A proxy may be suspended or revoked, as the case
may be, by the Member executing the proxy by a later writing delivered to the
Fund at any time prior to exercise of the proxy or if the Member executing the
proxy shall be present at the meeting and decide to vote in person. Any action
of the Members that is permitted to be taken at a meeting of the Members may be
taken without a meeting if consents in writing, setting forth the action taken,
are signed by Members holding not less than the minimum percentage of Units that
would be necessary to authorize or take such action at a meeting of Members.
(d) The Directors shall call a meeting of Members no
less often than every two years (the "Biannual Meeting") with the first such
Biannual Meeting to be held within two years from the Closing Date. At the
Biannual Meeting, the following items shall be submitted to a vote of the
Members:
(i) the election of Directors;
(ii) the ratification of the Fund's
independent accountants;
(iii) the approval of the Investment
Advisory Agreement with the
Investment Manager, or any
successor Investment Manager; and
(iv) any other matter required under the
1940 Act to be voted upon by the
Members.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions of the Members.
(a) Capital Contributions. The amount of cash and/or
the fair market value of property contributed by each Member shall be credited
to such Member's Capital Account pursuant to Section 4.2. The amount of cash and
fair market value of property contributed to the Fund by a Member upon admission
to the Fund is referred to herein as the Member's "Initial Capital
Contribution." The required minimum amount of an Initial Capital Contribution is
two thousand dollars ($2,000).
(b) Maximum Aggregate Investment from Members. The
Fund will not accept any additional Capital Contributions if or when the total
Capital Contributions of the Company equals or exceeds $25,000,000.
(c) Capital Contribution of Investment Manager. The
Investment Manager as initial Member, has made an Initial Capital Contribution
of $100,000 and in exchange has received one thousand (1,000) Units. In its
discretion, from time to time, but subject to Section 4.1(b), the Investment
Manager may make additional Capital Contributions to the Fund.
(d) No Right to Withdraw Capital Contribution. The
Members have no right to withdraw any portion of their respective Capital
Contributions.
(e) No Additional Contributions Required. No Member
shall be required to contribute any capital to the Company other than as
provided in this Section 4.1 hereof or to lend any funds to the Fund; however,
subject to Section 4.1(b), any Member may make an additional Capital
Contribution to the Fund at any time.
(f) Cut-Off Date for Investment from Members. The
Fund will not accept any additional Capital Contributions after August 31, 2001.
4.2 Capital Account.
(a) A Capital Account shall be established for each
Member. Each Member's Capital Account shall equal the amount of his Initial
Capital Contribution and shall thereafter be adjusted as provided in Section
4.2(b).
(b) Each Member's Capital Account shall be maintained
and adjusted in accordance with Treasury Regulation Sections 1.704-1(b) and
1.704-2. With respect to events or periods after the date hereof and consistent
with such Regulations, (a) there shall be credited to each Member's Capital
Account: (i) the amount of any cash contributed by such Member to
-11-
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 Company is considered to assume or take
subject to under Section 752 of the Code), (iii) such Member's allocable share
of Profits, as determined in accordance with Section 5.1, and (iv) any items of
income or gain allocated to such Member pursuant to Section 5.2; and (b) there
shall be charged against each Member's Capital Account: (i) the amount of all
cash distributions to such Member pursuant to Article 5, (ii) the fair market
value of any property distributed to such Member by the Company (net of any
liability secured by such property that the Member is considered to assume or
take subject to under Section 752 of the Code), (iii) such Member's allocable
share of Losses (as determined in accordance with Section 5.1), and (iv) any
items of loss, deduction or Section 705(a)(2)(b) Expenditures allocated to such
Member pursuant to Section 5.2.
(c) Except as otherwise provided in this Agreement,
whenever it is necessary to determine the Capital Account of any Member, the
Capital Account of such Member shall be determined after giving effect to
allocations pursuant to Sections 5.1 and 5.2 and all distributions in respect to
transactions effected prior to the time as of which such determination is to be
made.
(d) No Member with a negative balance in his Capital
Account shall have any obligation to the Fund, the other Members or any other
Person to restore such negative balance.
(e) If any Units are transferred in accordance with
this Agreement, the transferee shall succeed to the Capital Account of the
transferring Member to the extent that it relates to the interest of the
transferring Member.
(f) If the Fund makes an election under Section 754
of the Code (which decision shall be made in the sole discretion of the Board),
the amounts of any adjustments to the basis of the assets of the Fund made
pursuant to Section 743 of the Code shall be reflected in the Capital Account of
the Members. In addition, the amounts of any adjustment to the basis of the
assets of the Fund made pursuant to Section 734 of the Code as a result of the
distribution of property by the Fund to a Member (to the extent that such
adjustments have not previously been reflected in the Members' Capital Accounts)
shall (i) be reflected in the Capital Account of the Member receiving such
distribution in the case of a distribution and liquidation of such Member's
Units and (ii) otherwise be reflected in the Capital Accounts of the Members in
a manner in which the unrealized income and gain that is displaced by such
adjustments would have been shared had the property been sold at its Carrying
Value immediately prior to such adjustments.
(g) Nothing in this Section 4.2 shall be construed to
impose upon any Member any additional obligation to contribute additional
capital to the Company or to restore a deficit Capital Account upon liquidation
or dissolution of the Company.
(h) Subsequent to the date of this Agreement,
immediately before (i) a contribution of cash or property (other than a de
minimis amount) by a new or existing Member,
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(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 consultation with the Fund's independent
accountants, shall determine whether the Capital Accounts of all Members and the
Carrying Values of all Fund properties shall be increased or decreased
(consistent with the provisions hereof) to reflect any unrealized gain or loss
attributable to each Fund property, in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv)(f). For purposes of this paragraph (h), the fair
market value of Fund property shall be determined by the Board acting in good
faith.
ARTICLE 5
ALLOCATION OF PROFITS AND LOSSES
AND DISTRIBUTIONS TO MEMBERS
5.1 Allocations of Profits and Losses. Except as provided
in Section 5.2, for each taxable year or period, Profits and Losses shall be
allocated to the Members pro rata in accordance with their Percentage Interests.
5.2 Additional Allocations.
(a) Allocation of Member Nonrecourse Deductions When
Member Bears Economic Risk of Loss. Notwithstanding the provisions of Section
5.1 and subject to the provisions of Section 5.2(c), items of loss and deduction
and Section 705(a)(2)(B) Expenditures attributable, under Treasury Regulation
Section 1.704-2(i), to Member Nonrecourse Debt shall be allocated to the Members
in accordance with the ratios in which they bear the economic risk of loss for
such debt (as determined pursuant to Treasury Regulation Section 1.752-3).
(b) Chargebacks and Offsets. This Agreement shall be
considered to include a Company minimum gain chargeback provision (within the
meaning of Treasury Regulation Section 1.704-2(f)), a qualified income offset
provision (within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d)) and a Member nonrecourse debt minimum gain chargeback
(within the meaning of Treasury Regulation Section 1.704-2(i)). Items of Company
income and gain (as determined for purposes of computing Profits and Losses)
shall be allocated to the Members upon the occurrence of the conditions or
events triggering such provisions in accordance with such provisions. Such
provisions shall be applied, prior to any allocations pursuant to Section 5.1 in
the following order of priority; first, the Company minimum gain chargeback,
second, the Member nonrecourse minimum gain chargeback and third, the qualified
income offset.
(c) Limitations on Loss Allocation. Notwithstanding
the provisions of Sections 5.1 or 5.3, in no event shall Losses (or items of
loss, deduction or Section 705(a)(2)(B) Expenditure) of the Company be allocated
to a Member to the extent such allocation would result in such Member having a
Qualified Income Offset Amount. Any allocation (in whole or in part) to a Member
which is prevented by the operation of the preceding sentence shall be
reallocated to Members having positive Capital Account balances pro rata in
accordance with
-13-
such Members' Percentage Interests; provided, however, that if there is no
Member to which such Losses (or items of loss, deduction or Section 705(a)(2)(B)
Expenditure) can be allocated without causing such Member to have a Qualified
Income Offset Amount, then such Losses shall be allocated to all the Members pro
rata in accordance with their Percentage Interests.
(d) Curative Allocations. If any items of income,
gain, loss, deduction or Section 705(a)(2)(B) Expenditures are allocated to a
Member pursuant to Section 5.2(a), (b) or (c), then, prior to any allocation
pursuant to Sections 5.1 and 5.3 and subject to all of the provisions of this
Section 5.2, items of income, gain, loss, deduction and Section 705(a)(2)(B)
Expenditures for subsequent years or periods shall be allocated to the Members
in a manner designed to result in each Member having a Capital Account balance
equal to what it would have been had such allocation of items of income, gain,
loss, deduction and Section 705(a)(2)(B) Expenditures not occurred.
(e) Income, Gain, Loss, Deduction or Credit. For tax
purposes, all items of income, gain, loss, deduction or credit, other than tax
items properly corresponding to the items allocated pursuant to Sections 5.2(a),
(b), (c) and (d) shall be allocated to the Members consistent with Sections 5.1
and 5.3; provided, however, that if the Carrying Value of any property of the
Company differs from its adjusted basis for tax purposes, then items of income,
gain, loss, deduction or credit for tax purposes (and not for purposes of
computing Profits or Losses) shall be allocated among the Members in a manner
that takes account of the variations between the adjusted tax basis and fair
market value of property contributed to the Company in determining the Members'
shares of tax items under Section 704(c) of the Code, and, consistent therewith,
in the case of property deemed contributed to the Company, in accordance with
Treasury Regulations Sections 1.704-1(b)(4)(i) and 1.704-1(b)(2)(iv)(f); and
provided, further, that allocations pursuant to Section 5.2(b) of items of
income and gain of the Company shall, except as otherwise required by Treasury
Regulations under Section 704(b) of the Code, consist of a pro rata portion of
each item of income and gain of the Company, as appropriate, for such year.
5.3 Allocation of Organizational Expenses.
(a) As of the first Expense Allocation Date,
Organizational Expenses shall be allocated among and debited against the Capital
Accounts of the Members in accordance with their respective Percentage Interests
on such Expense Allocation Date.
(b) As of each Expense Allocation Date following the
first Expense Allocation Date, all amounts previously debited against the
Capital Account of a Member pursuant to this Section 5.3 on the preceding
Expense Allocation Date will be credited to the Capital Account of such Member,
and Organizational Expenses as of such Expense Allocation Date shall then be
re-allocated among and debited against the Capital Accounts of all Members in
accordance with their respective Percentage Interests on such Expense Allocation
Date.
-14-
5.4 Calculations.
(a) Calculations and allocations of Profits and
Losses and Organizational Expenses shall be made by the independent 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.
5.5 Distributions.
(a) Distributions. To the extent the Board determines
to make distributions of cash and/or property, such distributions shall be made
to the Members pro rata in accordance with their Percentage Interests.
(b) Withholding. Notwithstanding anything to the
contrary contained in this Agreement, in order to comply with Section 1446 of
the Code and the regulations, revenue rulings, revenue procedures and
administrative announcements promulgated thereunder ("Section 1446"), the
Company shall withhold an amount in cash equal to 20% of the cash (and of the
fair market value of property) otherwise distributed to a Member hereunder, and
shall apply the amount so withheld as required by Section 1446, unless such
Member shall have delivered to the Company a current affidavit setting forth
that such person is a "United States person" as such term is defined in Section
7701(a)(30) of the Code ("Section 7701") and is not subject to the withholding
requirements of Section 1446. Notwithstanding the preceding sentence, a
certification properly delivered to the Company shall not be effective to
prevent withholding if the Company shall have received the certification more
than three years preceding the date of a distribution or if the Company has
actual knowledge that the Member is not a "United States person" as that term is
defined in Section 7701. In addition, if the Company assumes any individual
liability of a Member or any liability encumbering property that a Member
contributes to the Company, the Company shall be permitted to charge the
distributions due such Member or any other amount due such Member to the extent
of 20% of such liability in order to fulfill the Company's obligations under
Section 1446, unless such Member shall have furnished a certification as
aforesaid (i.e., the same certification which would have been effective to
prevent withholding if such assumption or contribution had constituted an actual
distribution hereunder). If a distribution is to be made with property other
than money, the Company shall not release such property until it has funds
sufficient to enable it to satisfy its obligations under Section 1446, which
funds shall be provided by the Member or Members who have not delivered an
effective certification. Any amounts withheld under the provisions of this
Section 5.5(b) from a Member shall be released to such Member to the extent such
amount need not be disbursed to a government agency to satisfy the Company's
obligations under Section 1446. The Company
-15-
shall retain each certification received by it until the end of the fifth
taxable year after the last taxable year in which the Company relied upon such
certification.
(c) Limitation on Distributions. Notwithstanding
anything to the contrary set forth in this Section 5.5, the Board shall not make
any distribution to any Member (including themselves) if, immediately following
such distribution, such Member's Capital Account would have a Qualified Income
Offset Amount.
5.6 Contingency Reserves. The Board shall have the right
to set aside Company funds in such reserves as it in its discretion determines
to be prudent for the operation of the Company's business, including sums the
Board deems necessary to reserve for the future payment or reduction of any
Company obligations.
5.7 Additional Allocation Rules. Notwithstanding the
foregoing, in the event any Member's Percentage Interest changes during a Fiscal
Year for any reason, including without limitation, the transfer of any Units,
the allocations of taxable income or loss described above shall be adjusted as
necessary to reflect the varying interests of the Members during such year.
5.8 Limitation of Liability. Nothing contained in this
Article 5 shall be construed to make any Member liable for any losses of the
Company.
ARTICLE 6
DEPOSIT AND USE OF COMPANY FUNDS
6.1 Deposit of Company Funds. Upon formation of the
Company, all Capital Contributions shall be transferred to a separate Company
account or accounts in such banks or other financial institutions as may be
selected by the Officers. Such account or accounts shall be maintained in the
name of or for the benefit of the Company. Thereafter, all revenues, bank loans,
proceeds and other receipts will be deposited and maintained in such account or
accounts, which may or may not bear interest, and all expenses, costs and
similar items payable by the Company will be paid from such accounts. The
Company's funds, including, but not limited to, the Member's Capital
Contributions, Company revenue and the proceeds of any borrowing by the Company,
may be invested as the Officers deem advisable. Any interest or other income
generated by such deposits or investments will be considered part of the
Company's account. Company funds from any of the various sources mentioned above
may be commingled with other Company funds, but not with the separate funds of
the Board or any other Person and may be withdrawn, expended and distributed as
authorized by the terms and provisions of this Agreement.
-16-
ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 The Board of Directors
(a) General Authority; Number. The governing body of
the Fund shall be the Board of Directors, which shall constitute "managers"
within the meaning of the Act and shall consist of such number of Independent
Directors as is fixed pursuant to Section 7.1(b), and three Affiliated
Directors, who shall initially be Xxxxxx X. Xxxx, S. Xxxxxxx Xxxxxxxx, Xx. and
Xxxxxx X. Xxxxxxxx. By signing the Operating Agreement Signature Page and Power
of Attorney or the Fund's subscription agreement, a Member admitted to the Fund
shall be deemed to have voted for the election of each of the initial Affiliated
and Independent Directors. Subject to the provisions of this Agreement, the
Board shall have complete responsibility for the management and supervision of
the Fund and may take or cause to be taken any action which may be necessary or
appropriate for or incidental to the management or operation of the Fund. No
Person in his capacity as a Member shall take part in the management or
supervision of the Fund, nor shall he have the power to act for or on behalf of
the Fund.
(b) Independent Directors. The number of Independent
Directors shall initially be four and shall be fixed from time to time
thereafter by the Directors as then constituted; provided, however, that the
number of Independent Directors shall in no event be less than a majority of the
members of the Board of Directors. If at any time the number of Independent
Directors is less than a majority, action shall be taken within 90 days
thereafter to restore the number of Independent Directors to a majority. The
initial Independent Directors shall be Xxxxxxx X. Xxxxxxx, III, Xxxxx X.
Xxxxxxxx, Xxxxx X. Xxxx and Xxxxxxxxxxx X. Xxxxx.
(c) Action. A majority of the Directors shall
constitute a quorum for the transaction of any business at a meeting of the
Board. Actions of the Board shall be taken (i) upon the affirmative vote of a
majority of the Directors (which majority shall include any requisite number of
Independent Directors required by the 0000 Xxx) present at any meeting of the
Board at which a quorum is present; or (ii) by unanimous written consent of all
the Directors without a meeting, if permissible under the 1940 Act.
(d) Nomination, Approval and Election of Independent
Directors. The Independent Directors shall hold office for a term of two years
from their election and until their successors are elected, or, if sooner, until
their death, Incapacity, resignation or removal pursuant to Article 11. The
Independent Directors shall nominate their successors who shall be elected at
the Biannual Meeting pursuant to the provisions of Section 3.8 hereof.
Independent Directors may succeed themselves in office. A majority of
Independent Directors may designate Independent Directors to fill any vacancies
created by any increase in the number of Independent Directors or by the
Incapacity, death, withdrawal or removal of an Independent Director. In the
event that the Independent Directors fail to designate a successor Independent
Director, or no Independent Directors remain, the Affiliated Directors shall
continue the business of the Fund and shall perform all duties of the Directors
under this Agreement and shall, within 90 days, call a special meeting of
Members for the purpose of approving and electing Independent Directors.
-17-
Subject to Section 11.5(a), each Member other than a Director hereby consents to
the appointment of any successor Independent Directors pursuant hereto, and no
further consent shall be required. Any successor Independent Director shall hold
office until the next Biannual Meeting of Members and until his or her successor
has been approved and elected or, if sooner, until his or her death, Incapacity,
resignation or removal.
(e) Nomination, Approval and Election of Affiliated
Directors. The Affiliated Directors shall hold office for a term of two years
from their election and until their successors are elected, or, if sooner, until
their death, Incapacity, resignation or removal pursuant to Article 11. The
Affiliated Directors shall nominate their successors who shall be elected at the
Biannual Meeting pursuant to the provisions of Section 3.8 hereof. Affiliated
Directors may succeed themselves in office. A majority of Affiliated Directors
may designate Affiliated Directors to fill any vacancies created by any increase
in the number of Affiliated Directors or by the death, Incapacity, withdrawal or
removal of an Affiliated Director. Subject to Section 11.5(a), each Member other
than a Director hereby consents to the appointment of any successor Affiliated
Directors pursuant hereto, and no further consent shall be required. Any
successor Affiliated Director shall hold office until the next Biannual Meeting
of Members and until his or her successor has been approved and elected or, if
sooner, until his or her death, Incapacity, resignation or removal pursuant to
this Agreement. In the event that the Affiliated Directors fail to designate a
successor Affiliated Director, or no Affiliated Directors remain, the
Independent Directors shall continue the business of the Fund and shall perform
all duties of the Directors under this Agreement, and shall, within 90 days,
designate Independent Directors to fill each such vacancy. Any such Independent
Director who succeeds an Affiliated Director shall hold office until the next
Biannual Meeting of Members and until his or her successor has been approved and
elected or, if sooner, until his or her death, Incapacity, resignation or
removal pursuant to this Agreement.
(f) Restrictions On The Directors' Authority. The
Directors shall not have authority to do any of the following:
(i) act in contravention of this
Agreement or of the 1940 Act;
(ii) possess Fund property or assign the
rights of the Fund in specific property for other than a Fund purpose;
(iii) admit any other Person as a Director
of the Fund without the approval of the Members except as otherwise
provided herein;
(iv) commingle or permit the commingling
of the assets of the Fund with the assets of any other Person except as
otherwise provided herein;
(v) permit any Person who makes a
nonrecourse loan to the Fund to acquire, at the time and as a result
of making the loan, any direct or indirect interest in the profits,
capital or property of the Fund other
than as a secured creditor;
-18-
(vi) without the consent of a
Majority-in-Interest of the Members sell or otherwise dispose of at
any one time all or substantially all of the assets of the Fund; or
(vii) invest in a company in which any
Director has an equity interest other than through another company
that it manages or except as otherwise permitted by the 1940 Act.
(g) Contracts with Affiliates of the Directors. The
Fund may enter into contracts for goods or services with any Affiliate of a
Director provided that the charges for such goods or services are the lower of
(i) cost, including a reasonable allocation of cost of capital, or (ii) those
charged by unaffiliated Persons in the area for similar goods and services. Any
such contract shall be subject to termination by a majority of the Independent
Directors following 60 days' prior notice thereof.
(h) Obligations of the Directors. The Directors shall
devote such time and effort to the Fund business as, in their judgment, may be
necessary or appropriate to manage the affairs of the Fund. The Directors are
under a duty and obligation to conduct the affairs of the Fund in the best
interests of the Fund, including the safekeeping and the use of all Fund assets
(whether or not in the immediate possession or control of the Directors) and the
use thereof for the benefit of the Fund. Neither the Directors nor any of their
Affiliates shall enter into any transaction with the Fund that will
significantly benefit the Directors or such Affiliates in their independent
capacities unless the transaction is expressly permitted hereunder and under the
1940 Act or any exemptive order issued by the Securities and Exchange Commission
thereunder, or is entered into principally for the benefit of the Fund in the
ordinary course of Fund business.
(i) Compensation of Independent Directors. Each
Independent Director will receive $2,000 per meeting. The Board of Directors,
subject to the approval of Unit holders, to the extent required by law, may
approve supplemental compensation for the Independent Directors.
(j) Meetings. Meetings of the Board of Directors may
be called by the Chief Executive Officer or by any two Directors, and may be
held on such date and at such time and place as the Board of Directors shall
determine. Each Director shall be entitled to receive written notice of the
date, time or place of such meeting within a reasonable time in advance of the
meeting. Notice may not be give to any Directors who shall attend a meeting
without objecting to the lack of notice or who shall execute a written waiver of
notice with respect to the meeting. Directors may attend and participate in any
meeting by telephone except when in person attendance at a meeting is required
by the 1940 Act. A majority of Directors shall constitute a quorum at any
meeting.
7.2 Officers. The Fund shall have the following officers:
a Chief Executive Officer, a President, and a Chief Financial Officer. The
officers of the Fund shall be chosen by the Board and may also consist of such
other officers as the Board shall deem necessary. The officers of the Fund shall
hold office until their successors are chosen and qualify. Any officer
-19-
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. The Fund shall
enter into an agreement (the "Investment Advisory Agreement") with the
Investment Manager or any successor Investment Manager.
In furtherance of and subject to the foregoing, the Investment Manager,
except as otherwise provided in this Agreement, to the extent permitted under
the 1940 Act, and with the approval of a majority of the Independent Directors
where required under the 1940 Act, shall have full power and authority on behalf
of the Fund:
(1) to purchase, sell, exchange, trade and
otherwise deal in and with securities and other property of the Fund;
(2) to open, maintain and close accounts
with brokers and dealers, to make all decisions relating to investment
transactions;
(3) to borrow from banks or other financial
institutions and to pledge Fund assets as collateral therefore, to
trade on margin, exercise or refrain from exercising all rights
regarding the Fund's investments, and to instruct custodians regarding
the settlement of transactions, the disbursement of payments to Members
with respect to repurchases of Units and the payment of Fund expenses,
including those relating to the organization and registration of the
Fund;
(4) to issue to any Member an instrument
certifying that such Member is the owner of an Interest;
(5) to assist the Board in calling and
conducting meetings of the Board;
-20-
(6) to engage and terminate such attorneys,
accountants and other professional advisers and consultants as the
Investment Manager may deem necessary or advisable in connection with
the affairs of the Fund or as may be directed by the Board;
(7) to engage and terminate the services of
others to assist the Investment Manager in providing, or to provide
under the Investment Manager's control and supervision, advice and
management to the Fund at the expense of the Investment Manager;
(8) to assist in the preparation and filing
of any required tax or information returns to be made by the Fund;
(9) as directed by the Board, to commence,
defend and conclude any action, suit, investigation or other proceeding
that pertains to the Fund or any assets of the Fund;
(10) if directed by the Board, to arrange
for the purchase of (A) insurance, or (B) any insurance covering the
potential liabilities of the Fund or relating to the performance of the
Board or the Investment Manager, or any of their principals, directors,
officers, members, employees and agents; and
(11) to execute, deliver and perform such
contracts, agreements and other undertakings, and to engage in such
activities and transactions as are, in the opinion of the Investment
Manager, necessary and appropriate for the conduct of the business of
the Fund, without the act, vote or approval of any other Member or
person, except where such vote or approval is required under the 1940
Act or other applicable law.
(b) Compensation Of Investment Manager. The
Investment Manager shall receive the following amounts from the Fund:
(i) Management Fee. The Fund shall pay
the Investment Manager a fee for supervising the venture capital
operations of the Fund in accordance with the Investment Advisory
Agreement (the "Management Fee").
To the extent permitted by applicable law, the Management Fee
shall be allocated among each Member whose subscription is accepted by
the Fund without proration for the amount of time a Member was a Member
during the Offering Period. To the extent Fund cash reserves are
insufficient to pay the entire Management Fee when due, the unpaid fee
shall be carried forward and paid when cash reserves are sufficient to
allow the payment.
(ii) Reimbursement Of Costs and Expenses.
The Fund shall reimburse the Investment Manager or its Affiliates for
actual organizational and operational costs and expenses incurred by
the Investment Manager or its Affiliates for
-21-
the benefit or on behalf of the Fund, including without limitation
expenses related to the selection of investments or proposed
investments, even if the proposed investments ultimately are not
undertaken by the Fund. The Management Fee is in addition to the
reimbursement of actual costs.
7.4 Expenses. Except as otherwise provided herein, or
in any other agreement between the Fund and a third party, the Fund shall pay
all expenses related to its investments and potential investments, whether or
not such potential investments are actually made by the Fund. Such expenses,
whether billed directly to the Fund or reimbursed to the Investment Manager, may
include, but are not limited to: (i) finders' fees, (ii) legal, auditing,
accounting, investment banking, consulting, brokerage and other fees (including
fees incurred in connection with the annual audit of the Fund's financial
statements), (iii) expenses in connection with the acquisition and/or
disposition of securities, including, without limitation, filing and
registration fees, (iv) all travel and other expenses incurred in the
investigation of an investment opportunity, (v) the cost of preparing
information relating to the Fund's potential acquisition or sale of any
security, and (vi) other out-of-pocket costs of the Fund. The Fund shall also be
responsible for costs incurred in connection with any litigation relating to
specific investments or investment opportunities, whether or not made,
including, without limitation, examinations, investigations or other proceedings
conducted by any regulatory agency, legal and accounting fees incurred in
connection therewith and any judgments, fines, penalties, damages, and amounts
paid in settlement payable as a result thereof.
7.5 Appointment Of Auditors Subject to the
ratification by a Majority-In-Interest of Members as provided in Section 3.8(d),
the Directors, in the name and on behalf of the Fund, are authorized to appoint
independent certified public accountants for the Fund.
7.6 [Intentionally omitted]
7.7 Prohibited Transactions. Except to the extent
expressly permitted by this Agreement and except as permitted by the 1940 Act or
any exemptive order issued by the Securities and Exchange Commission thereunder:
(a) the Fund shall not lend money or other property
to the Investment Manager or any Affiliate of the Investment Manager;
(b) the Fund shall not sell to or purchase any
security or any other property from a Director, Investment Manager, or
any Affiliate of either, or effect any transaction in which a Director,
Investment Manager, or any Affiliate of either is a joint or several
participant;
(c) the Fund shall not purchase or sell commodities
or commodity contracts, participate on a joint or a joint and several
basis in any trading account in securities, or purchase any securities
on margin, except such short-term credits as are necessary for
clearance of transactions;
-22-
(d) no reimbursement for expenses of the Fund shall
be made to the Directors or any Affiliate of a Director;
(e) the Fund shall not issue any of its Units for
services or for property other than cash or securities;
(f) the Fund shall not sell any Units at a price
below the current net asset value of such Units;
(g) the Fund shall not engage in any transaction or
make any investment not permitted by the 1940 Act; and
(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
Officers; Indemnification.
(a) The Board shall not be liable for the return of
any Capital Contribution to a Member, and shall not be liable to the
Members because any taxing authorities disallow or adjust any income
tax allocations, deductions or credits.
(b) The members of the Board and the Officers and any
person who serves at the request of the Board or on behalf of the Fund
as a partner, officer, director, employee or agent of any other entity
(hereinafter an "Indemnified Person") shall not be personally liable to
the Fund or to the Members for damages for breach of any duty owed to
the Fund or its Members provided that such act or omission (a) was not
in breach of such person's duty of loyalty to the Fund or the Members,
(b) was not with willful misfeasance, bad faith, gross negligence, or
reckless disregard for his obligations to the Fund, (c) did not involve
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) acted with willful
misfeasance, bad faith, gross negligence, or reckless disregard for his
obligations to the Fund (c) knowingly violated the law or (d) 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
-23-
receipt of an undertaking by or on behalf of an Indemnified Person to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Fund as authorized herein.
The indemnification provided by this subsection (c) of this
Section 7.8 shall not be deemed exclusive of any other rights to which an
Indemnified Person may be entitled under any agreement, vote of Members or
otherwise, and shall continue as to a Person who has ceased to be an Indemnified
Person and shall inure to the benefit of the heirs, executors and administrators
of such a person.
The Fund shall have power at any time to purchase and maintain
insurance on behalf of any Person who is or was an Indemnified Person against
any liability asserted against 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
-24-
opportunity to participate in any such independent ventures of a Member or
Affiliate or any right to the income or profits derived therefrom. The members
of the Investment Manager may retain personally any fees paid to them by any
Person. Neither the Directors nor any Affiliate of the Directors shall be
obligated to present any particular investment opportunity to the Fund, except
with respect to opportunities that are suitable for the Fund, which must first
be made available to the Fund before any of the Directors may invest, and the
Directors and their Affiliates shall each have the right to take for their own
account (individually or as a trustee, partner, or fiduciary) or to recommend to
others any such particular investment opportunity. The Investment Manager and
Affiliated Directors hereby consent and agree promptly to furnish the
Independent Directors, upon request, with information on a confidential basis as
to any venture capital investments made by them, or any of their Affiliates, for
their own account or for others.
ARTICLE 9
TRANSFERABILITY OF MEMBER'S INTEREST;
WITHDRAWALS OF CAPITAL BY MEMBERS
9.1 Transfer of Units.
(a) Approval. No sale, exchange, transfer, or
assignment of Units (in whole or in part) may be made by a Member unless such
sale, exchange, transfer or assignment has been approved by the Board or at
least two of the Officers described in Section 7.2 hereof.
(b) Opinion of Counsel. Notwithstanding any other
provisions of this Article 9, no sale, exchange, transfer, or assignment of
Units (in whole or in part) may be made by a Member unless in the opinion of
counsel for the Fund, satisfactory in form and substance to the Board (which
opinion may be waived, in whole or in part, at the discretion of the Board),
that:
(i) such sale, exchange, transfer, or
assignment, when added to the total of all other sales, exchanges,
transfers, or assignments of Units within the preceding twelve months,
would not result in a termination of the Fund within the meaning of
Section 708 of the Code;
(ii) such sale, exchange, transfer or
assignment would not violate any federal securities laws or any state
securities or "Blue Sky" laws (including any investor suitability
standards) applicable to the Fund or the Units to be sold, exchanged,
transferred, or assigned; and
(iii) such sale, exchange, transfer, or
assignment could not cause the Fund to be treated as a publicly traded
partnership taxable as a corporation for federal income tax purposes or
to lose its status as a partnership for state income tax purposes.
-25-
Any such opinion of counsel shall be delivered in writing to
the Fund prior to the date of the proposed sale, exchange, transfer, or
assignment.
(c) Minors. In no event shall all or any part of a
Unit be assigned or transferred by a Member to a minor or an incompetent except
in trust, pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers
to Minors Act, or by will or intestate succession.
(d) Fractional Interests. No purported sale,
exchange, assignment, or transfer by a Member of, or after which the transferor
and each transferee would hold, Units representing less than ten Units or
including a fractional Unit will be permitted or recognized for any purpose
without the consent of the Board, which consent shall be granted only for good
cause shown.
(e) Documentation. Each Member other than a Director
agrees, upon request of the Directors, to execute such certificates or other
documents and perform such acts as the Board deems appropriate after an
assignment of a Unit by that Member to preserve the limited liability of the
Members under the laws of the jurisdiction in which the Fund is doing business.
(f) Void ab initio. Any purported assignment of a
Unit that is not made in compliance with this Agreement is hereby declared to be
null and void and of no force or effect whatsoever.
(g) Expense. Each Member other than a Director agrees
to pay all reasonable expenses, including attorneys' fees, incurred by the Fund
in connection with any assignment.
(h) Assignment. For purposes of this Article 9, any
transfer of a Unit, whether voluntary or by operation of law, shall be
considered an assignment.
9.2 Assignees.
(a) Notification Required and Effective Date. The
Fund shall not recognize for any purpose any purported sale, assignment, or
transfer of all or any fraction of the Units of a Member unless the provisions
of Section 9.1 shall have been complied with and there shall have been filed
with the Fund a dated notification of such sale, assignment, or transfer, in
form satisfactory to the Directors, executed and acknowledged by both the
seller, assignor, or transferor and the purchaser, assignee, or transferee and
such notification (i) contains the acceptance by the purchaser, assignee, or
transferee of all of the terms and provisions of this Agreement and (ii)
represents that such sale, assignment, or transfer was made in accordance with
all applicable laws and regulations. Any sale, assignment, or transfer shall be
recognized by the Fund effective on the first day of the fiscal quarter
following the fiscal quarter in which such notification is filed with the Fund.
If a Unit is sold, assigned, or transferred more than once during a fiscal
quarter, the last purchaser, assignee, or transferee with respect to whom
notification is received shall be recognized by the Fund.
-26-
(b) Voting. Unless and until an assignee of a Unit
becomes a Substituted Member, such assignee shall not be entitled to vote or to
give consents with respect to such Unit.
(c) Assignor Rights. Any Member who shall assign all
of such Member's Units shall cease to be a Member and shall not retain any
statutory rights as a Member.
(d) Written Assignments. Anything herein to the
contrary notwithstanding, both the Fund and the Directors shall be entitled to
treat the assignor of a Unit as the absolute owner thereof in all respects, and
shall incur no liability for distributions made in good faith to such assignor
until such time as a written assignment that conforms to the requirements of
this Section 9.2 has been received by the Fund and accepted by the Board.
(e) Assignee Not Substituted Member. A person who is
the assignee of all or any fraction of the Units of a Member, but does not
become a Substituted Member and desires to make a further assignment of such
Units, shall be subject to all the provisions of this Article 9 to the same
extent and in the same manner as any Member desiring to make an assignment of
such Member's Units.
9.3 Substituted Members.
(a) Approval. No Member shall have the right to
substitute a purchaser, assignee, transferee, donee, heir, legatee, distributee,
or other recipient of all or any fraction of such Member's Units as a Member in
the transferring Member's place. Any such purchaser, assignee, transferee,
donee, heir, or other recipient of a Unit (whether pursuant to a voluntary or
involuntary transfer) shall be admitted to the Fund as a Substituted Member only
(i) with the consent of the Directors, which consent shall be granted or
withheld in the absolute discretion of the Directors; (ii) by satisfying the
requirements of Sections 9.1 and/or 9.2; and (iii) if necessary, upon an
amendment to this Agreement executed by all necessary parties and filed or
recorded in the proper records of each jurisdiction in which such recordation is
necessary to qualify the Fund to conduct business or to preserve the limited
liability of the Members and Directors. Any such consent by the Directors may be
evidenced, if necessary, by the execution by the Directors of an amendment to
this Agreement evidencing the admission of such Person as a Member. The
admission of a Substituted Member shall be recorded on the books and records of
the Fund. The Members hereby consent and agree to such admission of a
Substituted Member by the Board. The Directors agree to process such amendments
not less frequently than quarterly.
(b) Admission. Each Substituted Member, as a
condition to admission as a Member, shall execute and acknowledge such
instruments, in form and substance satisfactory to the Directors, as the
Directors deem necessary or desirable to effectuate such admission and to
confirm the agreement of the Substituted Member to be bound by all the terms and
provisions of this Agreement with respect to the Units acquired. All reasonable
expenses, including attorneys' fees, incurred by the Fund in this connection
shall be borne by such Substituted Member.
-27-
(c) Rights of Assignee. Unless and until an assignee
shall have been admitted to the Fund as a Substituted Member pursuant to this
Section 9.3, such assignee shall be entitled only to the rights of an assignee
of a limited liability company interest under the Act.
9.4 Indemnification. Each Member shall indemnify and hold
harmless the Company, the Directors, and every Member who was or is a party to
any pending or completed action, suit, or proceeding whether civil, criminal,
administrative, or investigative, by reason of or arising from any actual
misrepresentation or misstatement of facts or omission to state facts made (or
omitted to be made) by such Member in connection with any assignment, transfer,
encumbrance, or other disposition of such Member's Unit(s), or the admission of
a Substituted Member to the Fund, against expenses for which the Fund or such
other Person has not otherwise been reimbursed (including attorneys fees,
judgments, fines, and amounts paid in settlement) actually and reasonably
incurred by the Fund or such other Person in connection with such action, suit,
or proceeding.
9.5 .Incapacity of a Member. If a Member dies, such
Member's executor, administrator, or trustee, or, if such Member is adjudicated
incompetent, such Member's committee, guardian or conservator, or, if such
Member becomes bankrupt, the trustee or receiver of such Member's estate, shall
have all the rights of a Member for the purpose of settling or managing the
estate of such Member, and such power as the Incapacitated Member possessed to
assign all or any part of the Incapacitated Member's Units and to join with such
assignee in satisfying conditions precedent to such assignee's becoming a
Substituted Member. The Incapacity or death of a Member shall not dissolve the
Fund.
9.6 Withholding of Distributions. From the date of the
receipt of any instrument relating to the transfer of a Unit or at any time the
Directors are in doubt regarding the person entitled to receive distributions in
respect of a Unit, the Directors may withhold any such distributions until the
transfer is completed or abandoned or the dispute is resolved.
9.7 Transferor-Transferee Allocations. If a Unit is
transferred in compliance with the provisions of this Article 9, the income,
gains, losses, deductions, and credits allocable in respect of that Unit shall
be allocated between the transferor and transferee in accordance with Section
5.7.
9.8 No Withdrawal. No Member shall be permitted to
withdraw or resign from the Fund without the express written consent of the
Board. Any withdrawal or attempted withdrawal of a Member in violation of this
Section 9.8 shall be null and void.
9.9 Notices. Any Member who, in accordance with this
Article 9, shall acquire or succeed to the interest of any other Member, shall
promptly notify the Board of his name, mailing address and the date of
acquisition or transfer of the applicable Units.
9.10 Optional Adjustment to Basis of Fund Property. In the
event of the transfer of the interest of a Member in the Fund during the life of
the Member or upon the death of the Member, the Board may, at its sole
discretion, make an election on behalf of the Fund as
-28-
provided in Section 754 of the Code (if such an election is not already in
effect for the Fund) and cause the Fund to make the adjustments to the basis of
the property of the Fund (with regard to the transferee Member only) as provided
in Section 754 of the Code.
ARTICLE 10
DISSOLUTION AND LIQUIDATION
10.1 Dissolution.
(a) The Company shall be dissolved and its
business terminated upon the happening of the earliest of the following:
(i) the return of all Capital
Contributions to the Members pursuant to Article 4 hereof;
(ii) a sale or disposition of all or
substantially all of its assets;
(iii) the expiration of its term as
herein provided;
(iv) consent of a Majority-In-Interest
of Members; and
(v) the occurrence of any other event
which, under the mandatory provisions of the laws of the State of New
Jersey, would cause a termination or dissolution of the Company.
(b) The death, dissolution, expulsion,
Bankruptcy, Incapacity or withdrawal of any Member will not cause the
dissolution of the Company.
10.2 Liquidation.
(a) In the event of the dissolution of the Company,
which dissolution (if applicable) is not followed by actions of the Members to
continue the Company, the assets of the Company shall be sold or distributed as
promptly as possible, but in an orderly and businesslike manner, as the Board in
its discretion shall determine. All assets of the Company which are sold shall
be sold at such price and upon such terms as the Board in its sole discretion
may deem advisable. The Board may retain the Investment Manager (or another
Person) to assist in the liquidation of the Company. The Investment Manager (or
the Person charged with the liquidation of the Company) shall be entitled to a
fee for its services as the liquidator of the Company, the amount of such fee to
be determined by mutual agreement of the liquidator and the Board. Any Member
may purchase the assets of the Company at such sale.
(b) The proceeds of any sale described in Section
10.2(a), in addition to the cash and securities on hand, shall be applied and
distributed in the following order of priority:
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(i) to the payment of debts and liabilities
of the Fund, including, without limitation, loans payable to Members
and the liquidator fee described in Section 10.2(a) above; then
(ii) to the setting up of such reserves as
the Board may deem necessary for any contingent liabilities or
obligations of the Company, provided that any such reserves shall be
paid over to an independent escrow agent, to be held by such agent or
his successor for such period as such person shall deem advisable for
the purpose of applying such reserves to the payment of such
liabilities or obligations and, at the expiration of such period, the
balance of such reserves, if any, shall be distributed; then
(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;
-30-
(b) the remaining members of the Board shall
designate a successor Director pursuant to Section 7.1(d) who shall hold such
office until such Director's successor has been approved and elected by the
Members as required under the 1940 Act;
(c) the Board shall designate only an Independent
Director to replace a withdrawing or retiring Independent Director; and
(d) the withdrawing Director shall cooperate fully
with the successor Director so that the responsibilities of the withdrawing
Director may be transferred to the successor Director with as little disruption
of the Fund's business and affairs as practicable.
11.2 Resignation of the Investment Manager. The Investment
Manager may voluntarily resign or withdraw from the Fund, but only upon
compliance with all of the following procedures:
(a) the Investment Manager shall, at least 60 days
prior to such withdrawal, give notification to all Investors that it proposes to
withdraw and that there be substituted in its place a Person or Persons
designated and described in such notification;
(b) enclosed with the notification shall be a
certificate, duly executed by or on behalf of each proposed successor Investment
Manager, to the effect that: (i) it is experienced in performing (or employs
sufficient personnel who are experienced in performing) functions that the
Investment Manager is required to perform under this Agreement; (ii) it has a
net worth that meets the requirements of any statute or the courts applicable to
a manager of a limited liability company in order to ensure that the Fund will
not fail to be classified for state income tax purposes as a limited liability
company rather than as an association taxable as a corporation; and (iii) it is
willing to become the Investment Manager under this Agreement and will assume
all duties and responsibilities thereunder, without receiving any compensation
for services from the Fund in excess of that payable under this Agreement and/or
the Investment Advisory Agreement to the withdrawing Investment Manager;
(c) if the Investment Manager resigns or withdraws,
there shall be on file at the principal office of the Fund, prior to such
withdrawal, audited financial statements of each proposed successor Investment
Manager, as of a date not earlier than twelve months prior to the date of the
notification required by this Section 11.2, certified by a nationally or
regionally recognized firm of independent certified public accountants, together
with a certificate, duly executed on behalf of each proposed successor
Investment Manager by its principal financial officer, to the effect that no
material adverse change in its financial condition has occurred since the date
of such audited financial statements that has caused its net worth to be reduced
to less than the amount under Subsection 11.2(b). Such audited financial
statements and certificates shall be available for examination by any Member
during normal business hours;
-31-
(d) to the extent required by and in accordance with
the 1940 Act, a Majority-In-Interest of Members has consented to the appointment
of, or the approval of an Investment Advisory Agreement with, any successor
Investment Manager; and
(e) the withdrawing Investment Manager shall
cooperate fully with each successor Investment Manager so that the
responsibilities of the withdrawing Investment Manager may be transferred to
each successor Investment Manager with as little disruption of the Fund's
business and affairs as practicable.
11.3 Removal of a Director or Investment Manager,
Designation of a Successor Director or Investment Manager
(a) Any of the Directors may be removed either: (i)
for cause by the action of at least two-thirds of the remaining Directors,
including a majority of the remaining Independent Directors; (ii) by failure to
be approved and re-elected by the Members in accordance with this Agreement; or
(iii) with the consent of a Majority-In-Interest of the Members. The removal of
a Director shall in no way derogate from any rights or powers of such Director,
or the exercise thereof, or the validity of any actions taken pursuant thereto,
prior to the date of such removal. The Investment Manager may be removed (and/or
the Investment Advisory Agreement may be terminated): (i) by a majority of the
Directors; (ii) by failure to be approved by the Members in accordance with this
Agreement; (iii) by the vote of a Majority-In-Interest of the Members; or (iv)
automatically upon assignment of the Investment Manager's Units.
(b) Subject to Section 7.1, the remaining members of
the Board may designate one or more Persons to fill any vacancy existing in the
number of Directors fixed pursuant to Sections 7.1(a) or 7.1(b) resulting from
removal of a Director pursuant to Section 11.3(a). Remaining members of the
Board may (x) designate one or more Persons to be successors to the Investment
Manager removed; and/or (y) approve an Investment Advisory Agreement terminated,
as the case may be, by the Directors pursuant to Section 11.3(a), and each
Member other than a Director hereby consents to the admission of such successor
or successors and/or the approval of such Investment Advisory Agreement, no
further consent being required until the next Biannual Meeting. Any such
successor Director or Investment Manager designated hereunder (or under Section
7.1) shall hold office until the next Biannual Meeting and until his or her
successor has been approved and elected. With the consent of such number of
Members other than a Director (but not in any event less than a
Majority-In-Interest of the Members) as are then required under the 1940 Act,
the Act and the laws of the other jurisdictions in which the Fund is then formed
or qualified, to consent to the admission of a Director, such Members may,
subject to the provisions hereof, at any time admit a Person to be successor to
a Director concurrently therewith being removed by the Members pursuant to
Section 11.3(a).
(c) Any removal of a Director shall not affect any
rights or liabilities of the removed Director that matured prior to such
removal.
11.4 [Intentionally Omitted].
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11.5 Admission of a Successor Director.
(a) The appointment of any successor Director
(following withdrawal or removal) shall be effective only if and after the
following conditions are satisfied:
(i) the designation of such Person as
successor Director shall occur, and for all purposes, shall be deemed to have
occurred, prior to the withdrawal or removal of the withdrawing or removed
Director;
(ii) the Units of the Members shall not be
affected by the admission of such successor Director or the transfer of the
Director's Units; and
(iii) to the extent required by and in
accordance with the 1940 Act, a Majority-In-Interest of Members has consented to
the appointment of such successor Director.
(b) Notwithstanding anything to the contrary in this
Article 11, a Director's Units shall at all times be subject to the restrictions
on transfer set forth in Article 9 regardless of whether such Person continues
to be a Director of the Fund.
11.6 Liability of a Withdrawn or Removed Director Any
Director who shall withdraw or be removed from the Fund, or who shall sell,
transfer, or assign his Units shall remain liable for obligations and
liabilities incurred by him as Director prior to the time such withdrawal,
removal, sale, transfer, or assignment shall have become effective, but he shall
be free of any obligation or liability incurred on account of the activities of
the Fund from and after the time such withdrawal, removal, sale, transfer, or
assignment shall have become effective.
11.7 Consent of Members to Admission of Successor
Directors. Each Member other than a Director hereby consents, pursuant to
Section 11.3, to the admission of any Person as a successor Director meeting the
requirements of Section 11.3 to whose admission as such a Majority-In-Interest
of the Investors have expressly consented, and no further express consent or
approval shall be required.
11.8 Continuation. In the event of the withdrawal,
removal, Incapacity or death of a Director, the Fund shall not be dissolved and
the business of the Fund shall be continued by the remaining Directors.
ARTICLE 12
ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS
12.1 Annual Accounting Period. The annual accounting
period of the Fund shall be January 1 through December 31.
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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.
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,
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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 March 31 of each year the Fund will also
distribute to the Members an annual report containing a balance sheet and
statements of operations, changes in members' equity and cash flows (which would
be prepared on a GAAP basis of accounting and will be examined and reported upon
by an independent public accountant) and a report on the Fund's activities
during the period reported upon. Such annual report will describe all
reimbursements to the Investment Manager and its affiliates and all
distributions to investors, including the source of such payments.
12.5 Biannual Meeting. Pursuant to Section 3.8(d) hereof,
the Company will hold a Biannual Meeting at which additional information about
the activities and investments of the Company shall be provided to the Members.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any offer, acceptance, election, approval,
consent, request, waiver, notice or other document required or permitted to be
given pursuant to any provision of this Agreement shall be deemed duly given
only when in writing, signed by or on behalf of the person giving same, and
either personally delivered (with receipt acknowledged by the recipient) or
deposited in a designated United States mail depository, registered or certified
mail, return receipt requested, postage prepaid, addressed to the person or
persons to whom such offer, acceptance, election, approval, consent, request,
waiver or notice is to be given at their respective addresses indicated herein
or in the Company's records, or at such other address as shall have been set
forth in a notice sent pursuant to the provisions of this Section 13.1.
13.2 Binding Effect. Subject in all respects to the
limitations concerning the transferability of Units contained herein and except
as otherwise herein expressly provided, the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto, their respective
personal representatives, heirs, successors and permitted assigns.
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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.
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
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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.
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IN WITNESS WHEREOF, the undersigned, intending to be
legally bound hereby, have duly executed this Agreement as of the date first
above written.
C.J.M. ASSET MANAGEMENT, LLC,
Member
By: _______________________________
Name: S. Xxxxxxx Xxxxxxxx, Xx.
Title: Director
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