Exhibit A
PARTNERSHIP AGREEMENT
OF
SPECIAL VALUE CONTINUATION PARTNERS, LP
a Delaware Limited Partnership
Dated as of July 31, 2006
TABLE OF CONTENTS
Page
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SECTION 1. DEFINED TERMS.......................................................1
SECTION 2. LIMITED PARTNERSHIP FORMATION AND IDENTIFICATION...................10
2.1 Formation...................................................10
2.2 Name and Place of Business..................................10
2.3 Records of Partners.........................................10
2.4 Limited Partnership.........................................10
SECTION 3. PURPOSE, NATURE OF BUSINESS AND POWERS.............................11
SECTION 4. TERM...............................................................11
SECTION 5. PARTNERSHIP INTERESTS..............................................11
5.1 Capital Accounts............................................11
5.2 Classes and Series..........................................12
5.3 Issuance of Interests.......................................12
5.4 Rights of Partners..........................................12
SECTION 6. REGISTERED OFFICE AND AGENT FOR SERVICE OF PROCESS.................13
SECTION 7. CAPITAL ACCOUNTS AND ALLOCATIONS...................................13
7.1 Capital Contributions of Partners...........................13
7.2 Withdrawal of Capital.......................................13
7.3 Capital Accounts............................................14
7.4 Allocations in General......................................15
7.5 Allocation of Net Profit and Net Loss.......................15
7.6 Corrective Adjustments......................................17
7.7 Special Allocations.........................................17
7.8 Adjustments to Reflect Changes in Interests.................18
7.9 Allocation of Taxable Income and Loss.......................18
7.10 Guaranteed Payments.........................................19
7.11 Allocation of Nonrecourse Deductions........................19
7.12 Allocation of Partner Nonrecourse Deductions................19
7.13 Excess Nonrecourse Liabilities..............................19
7.14 Treatment of Certain Distributions..........................19
SECTION 8. DISTRIBUTIONS......................................................20
8.1 Distributions...............................................20
8.2 Withholding.................................................21
SECTION 9. MANAGEMENT, GENERAL PARTNER AND BOARD OF DIRECTORS.................22
9.1 Management Generally........................................22
9.2 Board of Directors..........................................23
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9.3 Expenses of the Company.....................................25
9.4 Partners' Consent...........................................26
9.5 Exculpation.................................................27
9.6 Indemnification; No Duty of Investigation; Reliance on
Experts.....................................................27
9.7 Director Limited Liability..................................29
9.8 Certain Other Activities....................................29
9.9 Tax Matters.................................................30
SECTION 10. PARTNERS..........................................................31
10.1 Identity and Contributions..................................31
10.2 No Management Power or Liability............................31
10.3 Amendments..................................................31
10.4 Merger, Consolidation, Liquidation..........................33
10.5 List of Partners............................................34
10.6 Limitations.................................................34
10.7 Meetings....................................................34
10.8 Action Without a Meeting....................................35
10.9 Procedures..................................................35
10.10 Voting......................................................35
10.11 Removal of the General Partner..............................37
SECTION 11. ADMISSION OF ADDITIONAL PARTNERS; ASSIGNMENTS OR TRANSFERS OF
INTERESTS.........................................................37
11.1 Admission of Additional Partners............................37
11.2 Assignments or Transfers of Interests.......................37
SECTION 12. POWER OF ATTORNEY.................................................40
12.1 Appointment of General Partner..............................40
12.2 Nature of Special Power.....................................41
SECTION 13. BOOKS, RECORDS AND REPORTS........................................41
13.1 Books.......................................................41
13.2 Reports.....................................................42
SECTION 14. VALUATION OF ASSETS AND INTERESTS.................................43
SECTION 15. BANK ACCOUNTS; CUSTODIAN..........................................43
15.1 Bank Accounts Generally.....................................43
15.2 Custodian...................................................44
SECTION 16. DISSOLUTION AND TERMINATION OF THE COMPANY........................44
16.1 Dissolution Generally.......................................44
16.2 Continuation of Company.....................................44
16.3 Events Causing Dissolution..................................44
16.4 Distribution of Assets on Liquidation.......................45
16.5 Liquidation Statement.......................................45
16.6 Director's Liability Upon Dissolution or Removal............46
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SECTION 17. GENERAL PROVISIONS................................................46
17.1 Notices and Distributions...................................46
17.2 Survival of Rights..........................................46
17.3 Construction................................................47
17.4 Section Headings............................................47
17.5 Agreement in Counterparts...................................47
17.6 Governing Law...............................................47
17.7 Additional Documents........................................47
17.8 Severability................................................47
17.9 Pronouns....................................................48
17.10 Entire Agreement............................................48
17.11 Arbitration.................................................48
17.12 Waiver of Partition.........................................48
17.13 Non-Petition Covenant.......................................48
17.14 Filing......................................................48
Appendix A Statement of Preferences of Series A Cumulative Preferred
Interests..................................................A-1
Appendix B Form of Notice of Transfer.................................B-1
Appendix C Schedule of Partners.......................................C-1
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SPECIAL VALUE CONTINUATION PARTNERS, LP
A Delaware Limited Partnership
PARTNERSHIP AGREEMENT
This Agreement, dated as of July 31, 2006 (this
"Agreement"), when executed by Special Value Continuation Fund, LLC (the
"Parent") as limited partner and by SVOF/MM, LLC (the "General Partner") as
general partner, shall be the partnership agreement of the Company.
Upon the terms and subject to the conditions described
below, the parties to this Agreement, which shall include all Persons becoming
Partners at any time, as a condition of becoming and for so long as they
remain partners, agree as follows:
SECTION 1.
DEFINED TERMS
The terms set forth below shall have the indicated meanings.
"Accounting Period" means a one year period commencing on
the first day of the Fiscal Year, or any period of shorter duration commencing
upon the day following the last day of the preceding Accounting Period and
terminating upon the earlier of (a) the last day of the then current Fiscal
Year or (b) the day preceding the effective date of any change in the relative
Interests of the Partners, a Transfer by any Partner of its Interest or any
other similar transaction or event, as determined by the General Partner in
its sole discretion; provided, however, that the first Accounting Period shall
extend from the Closing Date until no later than December 31, 2006.
"Adjusted Capital Account" means, with respect to the
Capital Account of any Partner, the balance, if any, in such Partner's Capital
Account as of the end of the relevant Accounting Period, after giving effect
to all allocations made with respect to such Accounting Period under Sections
7.5-7.8 and to the following adjustments:
(i) credit to such Capital Account any amount that
the Partner is obligated to restore pursuant to Treasury Regulations Section
1.704-1(b)(2)(ii)(c) or is deemed to be obligated to restore pursuant to
Treasury Regulations Section 1.704-2(g)(1) or 1.704-2(i)(5); and
(1) debit to such Capital Account the items
described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) that are attributable to
such Capital Account.
The foregoing definition of Adjusted Capital Account is
intended to comply with the provisions of Treasury Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Advisers Act" means the Investment Advisers Act of 1940 and
the rules and regulations promulgated thereunder and applicable exemptions
granted therefrom, as amended from time to time.
"Advisory Agreement" means the Investment Management
Agreement between the Company and the Investment Manager, dated on or about
the Closing Date, as such agreement may be amended, modified, revised or
restated, from time to time, in accordance with the terms hereof and thereof,
and any substantially similar agreement with a successor Investment Manager
permitted by the terms hereof and thereof.
"Advisory Fee" means the fee payable to the Investment
Manager under the Advisory Agreement.
"Affiliated Person" has the meaning set forth in the
Investment Company Act.
"Aggregate Net Loss" means, as calculated from time to
time, the excess (if any) of the aggregate Net Loss for the then current and
all previous Accounting Periods over the aggregate Net Profit for the then
current and all previous Accounting Periods, taking into account adjustments
under Section 7.5(b).
"Aggregate Net Profit" means, as calculated from time to
time, the excess (if any) of the aggregate Net Profit for the then current and
all previous Accounting Periods over the aggregate Net Loss for the then
current and all previous Accounting Periods, taking into account adjustments
under Section 7.5(b).
"Agreement" means this Partnership Agreement, as originally
executed and as amended from time to time.
"Assets" means all cash, Cash Equivalents, securities,
investments and other property and assets of any type of the Company.
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"Board of Directors" means the board of directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday
or any other day on which banks in New York, New York or Los Angeles,
California are required by law to be closed. All references to Business Day
herein shall be based on the time in New York, New York.
"Capital Contribution" means a contribution to the Company
in cash or in kind by a Partner or Person becoming a Partner or by any
predecessor holder of the interests held by such Partner.
"Catch-up Amount" has the meaning set forth in Section
8.1(b)(iii).
"Cash Equivalents" has the meaning assigned to such term in
the Credit Agreement; provided that if the Credit Agreement is terminated
without replacement, such term shall have the meaning assigned to it in the
relevant Statement of Preferences (or if the Statement of Preferences has been
terminated, those provisions in effect on the date of such termination).
"Certificate" means the Certificate of Limited Partnership
of the Company, filed with the Secretary of State on July 17, 2006, and any
and all amendments thereto and restatements thereof filed with the Secretary
of State.
"Closing Date" means the date as of which the transactions
contemplated by the Contribution Agreement among Special Value Bond Fund II,
LLC, Special Value Absolute Return Fund, LLC and the Company shall have
occurred.
"Co-Advisory Agreement" means the Co-Management Agreement
among the Company, the Co-Manager and the Investment Manager, dated on or
about the Closing Date, as such agreement may be amended, modified, revised or
restated, from time to time, in accordance with the terms hereof and thereof.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
"Co-Manager" means Babson Capital Management, LLC in its
capacity as co-investment manager to the Company and any successor thereto
selected in accordance with the Co-Advisory Agreement and the Investment
Company Act.
"Common Partner" means a Partner holding Common Interests of
the Company.
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"Common Interests" means the common limited partner
interests of the Company having the rights and other terms set forth in this
Agreement.
"Company" means Special Value Continuation Partners, LP, a
Delaware limited partnership, as it may from time to time be constituted.
"Cost Basis" means, as of any time of determination with
respect to any Asset, the Company's adjusted tax basis in that Asset at such
time as determined for federal income tax purposes; provided, however, that if
the Company has made an election under Section 754 of the Code, such tax basis
shall be determined after giving effect to adjustments made under Section 734
of the Code but (except as provided in Treasury Regulation Section
1.734-2(b)(1)) without regard to adjustments made under Section 743 of the
Code.
"Credit Agreement" means (a) the Credit Agreement, dated on
or about the Closing Date, by and among the Company, the Parent, certain
lenders party thereto and the arranger and administrative agent therefor, as
the same may be amended, modified, restated, supplemented, refinanced,
extended, refunded or replaced (in whole or in part) (including with lenders
other than the initial lenders) from time to time and (b) any related
agreements or instruments in respect of any amendment, modification,
restatement, supplement, refinancing, extension, refunding or replacement of
senior indebtedness (including one or more replacement credit agreements).
"Custodial Account" means one or more segregated accounts
maintained pursuant to the requirements of the Investment Company Act and
other applicable law to hold the Assets.
"Custodian" means an entity which maintains the Custodial
Account pursuant to the requirements of the Investment Company Act and other
applicable law.
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act (6 Del. C. ss.17-101, et seq.), as amended from time to time
and any successor thereto.
"Director" means each director of the Company who at the
time in question has been duly elected or appointed and has qualified as a
director in accordance with the provisions hereof and is then in office.
"Disabling Conduct" shall have the meaning set forth in
Section 9.5.
"Disinterested Non-Party Directors" shall have the meaning
set forth in Section 9.6.
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"Excess Nonrecourse Liabilities" means excess nonrecourse
liabilities within the meaning of Treasury Regulations ss. 1.752-3(a)(3).
"Fiscal Quarter" means a three calendar month period ending
March 31, June 30, September 30 or December 31 of a Fiscal Year.
"Fiscal Year" means the Company's fiscal year, which shall
end on each December 31 unless otherwise determined by the Board of Directors.
"General Partner" means SVOF/MM, LLC, a Delaware limited
liability company.
"Hurdle" has the meaning set forth in Section 8.1(b)(ii).
"Incapacity" or "Incapacitated" means, as to any Person, the
bankruptcy, insolvency, death, disability, adjudication of incompetence or
insanity, dissolution or termination, as the case may be, of such Person.
"Indemnified Person" shall have the meaning assigned to such
term in Section 9.5.
"Independent Director" means a Director that is not an
Interested Person.
"Interested Person" has the meaning given to such term in
the Investment Company Act.
"Interests" means the Common Interests and the Preferred
Interests issued by the Company.
"Investment Company Act" means the Investment Company Act of
1940 and the rules and regulations promulgated thereunder and applicable
exemptions granted therefrom, as amended from time to time.
"Investment Manager" means Xxxxxxxxxx Capital Partners, LLC,
a Delaware limited liability company, in its capacity as investment manager to
the Company, and any successor thereto selected in accordance with the
Advisory Agreement and the Investment Company Act.
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"Investment Period" means the period commencing on the
Closing Date and ending on July 31, 2016.
"Manager Affiliate" has the meaning set forth in Section
9.8.
"Net Asset Value" means the value of the Assets less the
liabilities of the Company and less the liquidation preference of any
Preferred Interests, calculated pursuant to Section 14 in accordance with
generally accepted accounting principles and in compliance with the Investment
Company Act.
"Net Loss" means any realized and unrealized net decrease in
the net asset value of the Company (after liabilities of any sort (whether
contingent or otherwise), guaranteed payments and expenses of any sort) from
the beginning of an Accounting Period to the end of such Accounting Period
(determined in accordance with U.S. generally accepted accounting principles
consistently applied), excluding from such calculation any increase due to any
Capital Contributions made during such Accounting Period and any decrease due
to any distributions or withdrawals made during such Accounting Period.
"Net Profit" means any realized and unrealized net increase
in the net asset value of the Company (after liabilities of any sort (whether
contingent or otherwise), guaranteed payments and expenses of any sort) from
the beginning of a Accounting Period to the end of such Accounting Period
(determined in accordance with U.S. generally accepted accounting principles
consistently applied), excluding from such calculation any increase due to any
Capital Contributions made during such Accounting Period and any decrease due
to any distributions or withdrawals made during such Accounting Period.
"Nonrecourse Deduction" means a nonrecourse deduction
determined pursuant to Treasury Regulations ss. 1.704-2(c).
"Nonrecourse Distribution" means a distribution to a Partner
that is allocable to a net increase in Company Minimum Gain pursuant to
Treasury Regulations ss. 1.704-2(h)(1).
"Nonrecourse Liability" has the meaning assigned to it in
Treasury Regulations ss. 1.704-2(b)(3).
"Notice of Transfer" means a Notice of Transfer in the form
of Appendix B, including the certifications forming a part thereof.
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"Offering Memorandum" means the Confidential Private
Offering Memorandum, dated May, 2006, relating to the common shares of the
Parent, as amended or supplemented from time to time.
"Other Accounts" has the meaning set forth in Section 9.8.
"Parent" has the meaning set forth in the preamble.
"Partially Adjusted Capital Account" means with respect to
any Partner as of the last day of any Accounting Period, the Capital Account
of such Partner as of the beginning of the Accounting Period ending on such
date, adjusted as set forth in Section 7.3 to reflect (a) all contributions
made by and distributions made to such Partner during the Accounting Period
ending on such date and (b) all allocations of items of Company income, gain,
loss or expense made for such Accounting Period pursuant to Sections 7.5-7.8,
but (c) before giving effect to any allocation of Net Profit or Net Loss made
for such Accounting Period pursuant to Section 7.5.
"Partner" means any Person that is admitted as a Common
Partner, Preferred Partner or General Partner of the Company in accordance
with the terms of this Agreement at the time of reference thereto.
"Partner Nonrecourse Debt" means any liability of the
Company to the extent that (i) the liability is nonrecourse for purposes of
Treasury Regulations ss. 1.1001-2 and (ii) a Partner or a Related Person bears
the economic risk of loss under Treasury Regulations ss. 1.752-2.
"Partner Nonrecourse Debt Minimum Gain" means minimum gain
attributable to Partner Nonrecourse Debt pursuant to Treasury Regulations ss.
1.704-2(i)(2).
"Partner Nonrecourse Deduction" means any item of Book loss
or deduction that is attributable to a Partner Nonrecourse Debt pursuant to
Treasury Regulations ss. 1.704-2(i).
"Partner Nonrecourse Distribution" means a distribution to a
Partner that is allocable to a net increase in such Partner's share of Partner
Nonrecourse Debt Minimum Gain pursuant to Treasury Regulations ss.
1.704-2(i)(6).
"Person" means any human being, partnership, limited
liability company, corporation, trust or other entity.
"Portfolio Company" means any Person that has issued any
securities or incurred any obligations that are then owned, or that previously
were owned, by the Company.
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"Preferred Partner" means a Partner holding Preferred
Interests of the Company.
"Preferred Interests" means the preferred limited partner
interests of the Company having the rights and other terms set forth in the
Statement of Preferences for the applicable series thereof, including without
limitation any Series A Preferred Interests.
"Previously Undistributed Net Profit" means, as calculated
from time to time, the excess, if any, of (i) Aggregate Net Profit over (ii)
the aggregate amount of distributions pursuant to Section 8.1(b) made prior to
the time of calculation.
"Secretary of State" means the Secretary of State of the
State of Delaware.
"Section 8.1 Percentage" means a percentage interest from
time to time for each Partner as follows: (i) 100% for the Common Partners
(pro rata in accordance with their relative Capital Account balances) to the
extent that the Hurdle has not been met; (ii) thereafter, 100% to the General
Partner until the General Partner has received all amounts due it pursuant to
Section 8.1(b)(iii) of this Agreement; and (iii) at all other times, 80% to
the Common Partners (pro rata in accordance with their relative Capital
Account balances), and 20% to the General Partner.
"Section 705(a)(2)(B) Expenditures" means non-deductible
expenditures of the Company that are described in Section 705(a)(2)(B) of the
Code, and organization and syndication expenditures and disallowed losses to
the extent that such expenditures or losses are treated as expenditures
described in Section 705(a)(2)(B) of the Code pursuant to Treasury Regulations
ss. 1.704-1(b)(2)(iv)(i).
"Securities Act" means the Securities Act of 1933 and the
rules and regulations promulgated thereunder and applicable exemptions granted
therefrom, as amended from time to time.
"Series A Preferred Interests" means the Series A Cumulative
Preferred Interests of the Company, the Statement of Preferences of which is
attached hereto as Appendix A.
"Statement of Preferences" means any statement of
preferences setting forth the rights and other terms of any Preferred
Interests issued by the Company.
"Substituted Partner" means any Person admitted as a Partner
pursuant to Section 11.2(b).
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"Target Capital Account" means, with respect to any Partner
as of the last day of any Accounting Period, an amount (which may be either a
positive or a deficit balance) equal to the amount that such Partner would
receive as a distribution if all assets held by the Company on such date were
sold for an aggregate amount of cash equal to the fair market value (as
computed for Capital Account purposes as of such last day of such Accounting
Period) of such assets, all liabilities were satisfied in accordance with
their terms and all remaining cash were distributed to the Partners in
accordance with the relevant provisions of Section 8 (computed after the
contributions received and distributions made by the Company during the
Accounting Period ending on such date have been taken into account as provided
in Section 7.3).
"Tax Matters Partner" means the General Partner in its
capacity as the "tax matters partner" pursuant to Section 9.9(a).
"Transaction Documents" has the meaning assigned to such
term in the Credit Agreement.
"Transfer" or "Transferred" means, with respect to any legal
or beneficial interest in the Company, a direct or indirect sale, transfer,
assignment, gift, pledge, hypothecation or other disposition or encumbrance of
any nature of or on such interest, whether by operation of law or otherwise
(including a transfer as a result of a merger or consolidation involving a
Partner or a sale of all or substantially all of a Partner's assets).
"Transferee" means, with respect to any legal or beneficial
interest in the Company, the Person to whom the Transferor of such interest
desires to Transfer or has Transferred such interest.
"Transferor" means, with respect to any legal or beneficial
interest in the Company, the Partner or other Person desiring to Transfer such
interest.
"Treasury Regulations" means the United States Treasury
regulations promulgated under the Code.
"Valuation Date" means (i) the last Business Day of each
Fiscal Quarter, (ii) a date selected by the Company within 48 hours prior to
each issuance (exclusive of Sundays and holidays) of Common Interests by the
Company, (iii) each distribution declaration date (after giving effect to the
relevant declaration), (iv) the date on which the Company terminates, and (v)
such other dates as determined by the Board of Directors, in accordance with
the valuation policies and guidelines approved from time to time by the Board
of Directors.
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SECTION 2.
LIMITED PARTNERSHIP FORMATION AND IDENTIFICATION
2.1 Formation
The Company has been formed as a limited
partnership pursuant to the Delaware Act by the filing of the Certificate with
the Secretary of State, Division of Corporations, in accordance with the
Delaware Act on July 17, 2006. The Company is hereby continued under, and its
business and affairs shall be conducted in accordance with, the Delaware Act,
and this Agreement shall be governed by the laws of the State of Delaware.
Common Partners shall be admitted as Partners of the Company upon the Closing
Date and upon any approved Transfer. Preferred Partners shall be admitted as
Partners of the Company pursuant to the provisions of the applicable Statement
of Preferences.
2.2 Name and Place of Business
The name of the Company shall be "Special Value
Continuation Partners, LP" or such other name or names as
may be selected by the General Partner from time to time with written notice
given to the Partners of such change. The principal office of the Company
shall be at the principal place of business of the General Partner at 0000
00xx Xxxxxx, Xxxxx 0000, Xxxxx Xxxxxx, Xxxxxxxxxx 00000, or other or
additional places of business as may be selected from time to time by the
Company.
2.3 Records of Partners
The addresses and schedules of capital accounts and
other matters related to the Partners shall be those set forth in the Company
records. A Partner may change its address by written notice to the Company, in
care of the General Partner, at the address set forth in Section 2.2.
2.4 Limited Partnership
The Company has been formed as a limited
partnership under and pursuant to the Delaware Act. The Board of Directors and
the Partners specifically intend and agree that the Company shall, for
purposes of the Code and state tax laws, be classified as a partnership and
none of them shall make any election or take any other action that would cause
their relationship under this Agreement to be excluded from the application of
all or any part of Subchapter K of the Code (or any successor provisions). The
Partners specifically intend and agree that the Company shall be a limited
partnership pursuant to the Delaware Act and not any other type of venture.
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SECTION 3.
PURPOSE, NATURE OF BUSINESS AND POWERS
(a) The purposes of the Company and the business to be
carried on by it, subject to the limitations contained elsewhere in this
Agreement, are to engage in any business lawful for a corporation or
partnership formed under the laws of the State of Delaware, including to act
as an investment company.
(b) The Company shall have the power to do any and all acts
necessary, appropriate, proper, advisable, incidental or convenient to or for
the furtherance of the purposes and business described herein and for the
protection and benefit of the Company, and shall have, without limitation, any
and all of the powers of a partnership organized under the laws of the State
of Delaware.
(c) All property owned by the Company, real or personal,
tangible or intangible, shall be deemed to be owned by the Company as an
entity, and no Partner or Director, individually, shall have any ownership of
such property.
SECTION 4.
TERM
The existence of the Company commenced on the date
the Certificate was filed in the Office of the Secretary of State and shall
continue in full force and effect until the end of the Investment Period, plus
up to two one-year extensions if requested by the General Partner and approved
by Common Partners holding a majority of the Common Interests.
SECTION 5.
PARTNERSHIP INTERESTS
5.1 Capital Accounts
A capital account ("Capital Account") shall be
established for each Partner and shall initially equal the
Capital Contribution of such Partner, which shall be equal to the aggregate
amount of cash contributed by such Partner to the Company plus the fair market
value of property contributed by such Partner to the Company (net of any
liabilities secured by such property that the Company is considered to assume
or take subject or pursuant to Section 752 of the Code), minus the amount of
money and the fair market value of property, if any, distributed to such
Partner by the Company (net of any liabilities secured by such property that
such Partner is considered to assume or take subject or pursuant to Section
11
752 of the Code) in connection with the Capital Contribution. Each such
Capital Account shall be adjusted in accordance with the provisions of Section
7.
5.2 Classes and Series
The General Partner shall have the authority, with
the approval of the Directors and without the approval of any other Partners
of the Company, create, classify or reclassify one or more classes of
Interests and one or more series of any or all of such classes, each of which
classes and series thereof shall have such designations, powers, preferences,
voting, conversion and other rights, limitations, qualifications and terms and
conditions as the General Partner with the approval of the Directors shall
determine from time to time with respect to each such class or series;
provided, however, that no reclassification of any existing Interests and no
modifications of any of the designations, powers, preferences, voting,
conversion or other rights, limitations, qualifications and terms and
conditions of any existing Interests may be made by the General Partner
without the affirmative vote of the Partners specified in Section 10.3 to the
extent required thereby and the satisfaction of any conditions to such
reclassification as set forth in the applicable Statement of Preferences. The
designations, powers, preferences, voting, conversion and other rights,
limitations, qualifications and terms and conditions of the Series A Preferred
Interests in the form of the Statement of Preferences therefor are attached as
Appendix A.
5.3 Issuance of Interests
(a) Subject to Section 5.3(b), the General Partner, in its
discretion, may from time to time without vote of the Partners issue Interests
of any class or any series of any such class to such Person or Persons and for
such amount and type of consideration, including cash or property, at such
time or times, and on such terms as the General Partner with the approval of
the Directors may determine, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses.
(b) Number of Holders. The aggregate number of Partners at
no time shall exceed 95 "partners", as determined for purposes of
ss.1.7704-1(h) of the Treasury Regulations. Each Holder of a Preferred Unit
and a Common Membership Interest must (i) be a "United States Person" (as
defined in Section 7701(a)(30) of the Code), or (ii) represent to the Company
that it holds its Interest in the Company in connection with its conduct of a
trade or business within the United States, as determined for U.S. federal
income tax purposes, and provide the Company with a properly executed IRS Form
W-8 ECI with respect to its acquisition of its interest in the company upon
becoming a Partner and at such subsequent times as required by law or as the
Company may reasonably request.
5.4 Rights of Partners
The Interests shall be personal property giving
only the rights specifically set forth in this Agreement.
The ownership of the Assets of every description is vested in the Company. The
right to conduct and supervise the conduct of the business of the Company is
vested exclusively in the General Partner, subject to the rights of the
Directors specified herein or required by the Investment Company Act (subject
12
to the right of the General Partner and Board of Directors to delegate all or
any part of their authority to any person or group of persons, including,
without limitation, the Investment Manager), and the Partners shall have no
interest therein other than the beneficial interest conferred by their
Interests, and they shall have no right to call for any partition or division
of any property, profits, rights or interests of the Company nor can any
Partner (other than the General Partner) be called upon to share or assume any
losses of the Company or suffer an assessment of any kind by virtue of their
ownership of Interests. No Interests of any class or series shall entitle the
holder to preference, preemptive, appraisal, conversion or exchange rights
(except as otherwise specified in this Agreement or as specified by the
General Partner in the designation or redesignation of any such class or
series).
SECTION 6.
REGISTERED OFFICE AND AGENT FOR SERVICE OF PROCESS
The Corporation Trust Company is hereby designated,
subject to change by the General Partner, as the registered office of the
Company and as the agent upon whom process issued by authority of or under any
law of the State of Delaware may be served.
SECTION 7.
CAPITAL ACCOUNTS AND ALLOCATIONS
7.1 Capital Contributions of Partners
(a) Prior to being admitted as a Partner of the Company at
the Closing Date, the initial Common Partner must satisfy the General Partner
that it and each of its equity holders that is indirectly charged the amounts
allocated to the General Partner pursuant to Section 7.3(c) is an "accredited
investor" as defined in Rule 501(a) under the Securities Act and a "qualified
client" within the meaning of Rule 205-3 of the Advisers Act and on the
Closing shall be deemed to have contributed to the Company all of the
Company's Net Asset Value on the Closing Date. On the date of issuance of any
Preferred Interests, the Person who is admitted as a Partner in respect of
such Preferred Interest in accordance with the applicable Statement of
Preferences shall, in connection therewith, contribute to the Company an
amount in cash equal to the purchase price for such Preferred Interest.
7.2 Withdrawal of Capital
No Partner shall have any right to withdraw from
the Company except in connection with the admission of one
or more Transferees of all of such Partner's Interests in the Company. No
Partner shall have any right to require the Company to repurchase or redeem
all or any portion of its Interests except as provided in or pursuant to any
Statement of Preferences.
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7.3 Capital Accounts
(a) Without limiting the generality of the foregoing and
subject to paragraphs (b), (c), (d) and (e) below and to Section 7.8, the
Capital Account maintained for each Partner shall initially have a balance
equal to the Capital Contribution made by such Partner to the Company;
thereafter, such balance will be increased by the aggregate amount of Net
Profit and other items of income and gain allocated to such Partner pursuant
to Sections 7.4-7.8; decreased by the aggregate amount of distributions made
by the Company to such Partner; decreased by the aggregate amount of Net Loss
and other items of deduction, expenditure and loss allocated to such Partner
pursuant to Sections 7.4-7.8. In crediting or debiting a Partner's Capital
Account, whether in connection with its Capital Contribution or thereafter,
the Capital Account balance shall be (i) increased by the amount of any
liability of the Company that the Partner assumes (within the meaning of
Treasury Regulations ss. 1.704-1(b)(2)(iv)(c)) (excluding liabilities assumed
in connection with the distribution of Company property and excluding
increases in such Partner's share of Company liabilities pursuant to Section
752 of the Code) and (ii) decreased by the amount of any individual liability
of such Partner's for which the Company becomes personally and primarily
liable (excluding liabilities assumed in connection with the contribution of
property to the Company by such Partner and excluding decreases in such
Partner's share of Company liabilities pursuant to Section 752 of the Code).
(b) The General Partner may adjust the Partners' Capital
Accounts in accordance with, and upon the occurrence of an event described in
Treasury Regulations Section 1.704-1(b)(2)(iv)(f) including but not limited to
the addition of new Partners, to reflect a revaluation of the Company's assets
on the Company's books. Such adjustments to the Partners' Capital Accounts
shall be made in accordance with Treasury Regulations Section
1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization
and gain or loss with respect to such revalued property.
(c) Except as may be required by the Delaware Act or any
other applicable law, no Partner with a negative balance in its Capital
Account shall have any obligation, in connection with the liquidation of the
Company or otherwise, to restore such negative balance.
(d) Upon any Transfer (other than a pledge or hypothecation)
of an interest in the Company, a proportionate share of the Capital Account of
the Transferor shall be transferred to the Transferee, and the Transferee
shall be deemed to have made the contributions that were made by the
Transferor and to have received the distributions and allocations that were
received by the Transferor from the Company, in each case to the extent of the
interest transferred.
(e) All provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury
Regulations Section 1.704-1(b)(2)(iv), as amended, and shall be interpreted
and applied in a manner consistent with such Treasury Regulations. The General
Partner shall make any appropriate modifications in the event unanticipated
events might otherwise cause this Agreement not to comply with the Treasury
Regulations promulgated under Section 704 of the Code.
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7.4 Allocations in General
Company income, gain, loss and expense shall be
allocated to the Capital Accounts of the Partners in accordance with Sections
7.5-7.9.
7.5 Allocation of Net Profit and Net Loss
The General Partner shall seek to determine and
allocate all items of profit, gain, loss and deductions, as
described below, with respect to each Accounting Period of the Company within
45 days after the end of each Accounting Period other than any Accounting
Period ending on the last day of the Fiscal Year and within 60 days after the
end of each Fiscal Year. After giving effect to the special allocations set
forth in Sections 7.6, 7.7 and 7.8, the Net Profit or Net Loss of the Company
for such Accounting Period shall be allocated to the Capital Accounts of the
Partners as follows:
(a) Net Profit and Net Loss of the Company shall be
allocated among the Partners so as to reduce proportionately (i) in the case
of Net Profit, the difference between their respective Target Capital Accounts
and Partially Adjusted Capital Accounts as of the end of such Accounting
Period, or (ii) in the case of Net Loss, the difference between their
respective Partially Adjusted Capital Accounts and Target Capital Accounts as
of the end of such Accounting Period. No portion of the Company's Net Profit
or Net Loss for any Accounting Period shall be allocated to any Partner, in
the case of Net Profit, whose Partially Adjusted Capital Account is greater
than or equal to its Target Capital Account or, in the case of Net Loss, whose
Target Capital Account is greater than or equal to its Partially Adjusted
Capital Account as of the end of such Accounting Period.
(b) The following special allocations of items of Company
income, gain, loss and expense taken into account in determining Net Profit
and Net Loss shall be made in the circumstances described below:
(i) if the Company has Net Profit for any Accounting
Period and, notwithstanding the application of Section 7.5(a), any
Partner's Partially Adjusted Capital Account is greater than its Target
Capital Account (determined prior to giving effect to this Section
7.5(b)), then the Partner with such difference shall be specially
allocated items of Company loss or expense for such Accounting Period
that are taken into account in determining Net Profit and Net Loss (to
the extent available) equal to the difference between its Partially
Adjusted Capital Account and its Target Capital Account;
(ii) if the Company has Net Loss for any Accounting
Period and, notwithstanding the application of Section 7.5(a), any
Partner's Partially Adjusted Capital Account is less than its Target
Capital Account (determined prior to giving effect to this Section
7.5(b)), then the Partner with such difference shall be specially
allocated items of Company income or gain for such Accounting Period that
are taken into account in determining Net Profit and Net Loss (to the
extent available) equal to the difference between its Partially Adjusted
Capital Account and its Target Capital Account; and
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(iii) if the Company has neither Net Profit nor Net
Loss for any Accounting Period and, notwithstanding the application of
Section 7.5(a), any Partner's Target Capital Account differs from its
Partially Adjusted Capital Account (determined prior to giving effect to
this Section 7.5(b)), then the Partner with such difference shall be
specially allocated items of Company income or gain (if such Partner's
Target Capital Account exceeds its Partially Adjusted Capital Account) or
loss or expense (if such Partner's Target Capital Account is less than
its Partially Adjusted Capital Account) for such Accounting Period that
are taken into account in determining Net Profit and Net Loss (to the
extent available) equal to the difference between its Partially Adjusted
Capital Account and its Target Capital Account.
(c) The Net Profit or Net Loss of the Company for purposes
of determining allocations to the Capital Accounts of the Partners will be
determined in the same manner as the determination of the Company's taxable
income, except that (i) items that are required by Section 703(a)(1) of the
Code to be separately stated will be included; (ii) items of income that are
exempt from inclusion in gross income for federal income tax purposes will be
treated as items of income, and related deductions that are disallowed under
Section 265 of the Code will be treated as deductions; (iii) Section
705(a)(2)(B) Expenditures will be treated as deductions; (iv) items of gain,
loss, depreciation, amortization, or depletion that would be computed for
federal income tax purposes by reference to the Cost Basis of an item of
Company property will be determined by reference to the value of such item of
property for purposes of determining Net Asset Value; and (v) the effects of
upward and downward revaluations of Company property pursuant to Section
7.3(b) will be treated as gain or loss respectively from the sale of such
property.
(d) In the event that the value of any item of Company
property for purposes of determining Net Asset Value differs from its Cost
Basis, subject to Treasury Regulations ss. 1.704-3(d)(2), the amount of
depreciation, depletion, or amortization for purposes of determining Net
Profit or Net Loss for a period with respect to such property will be computed
so as to bear the same relationship to the value of such property for purposes
of determining Net Asset Value as the depreciation, depletion, or amortization
computed for tax purposes with respect to such property for such period bears
to the Cost Basis of such property. If the Cost Basis of such property is
zero, the depreciation, depletion, or amortization with respect to such
property for purposes of determining Net Profit or Net Loss will be computed
by using a method consistent with the method that would be used for tax
purposes if the Cost Basis of such property were greater than zero.
(e) The parties hereto acknowledge and agree that the
purpose of the allocations set forth in this Section 7.5 is to allocate Net
Profit and Net Loss among the Partners in a manner that conforms, as closely
as possible, to the manner in which amounts reflecting Aggregate Net Profit
would be distributed among the Partners pursuant to Section 8. In all events,
the basic economic arrangement of the Partners set forth in Section 8 shall be
controlling. The parties hereto further acknowledge and confirm the authority
of the General Partner, pursuant to Section 7.6 or otherwise, to make such
corrective allocations as it deems necessary to achieve the purpose described
in the two immediately preceding sentences.
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7.6 Corrective Adjustments
If, for any reason, allocations of Net Profit and
Net Loss (or any item of income, gain, loss or expense
taken into account in determining Net Profit and Net Loss) do not correspond
to distributions of amounts reflecting Aggregate Net Profit or other property
made or required to be made by the Company pursuant to Section 8 (due, for
example, to events occurring between the time that such allocations are made
and the time that the related distributions are made), then the General
Partner shall allocate Net Profit and Net Loss (and, if necessary, items of
Company income (including gross income), gain, loss and expense taken into
account in determining Net Profit and Net Loss) and any other items of Company
income, gain, loss and expense recognized in subsequent Accounting Periods
among the Partners in such a manner as shall, in the General Partner's sole
discretion, eliminate as rapidly as possible the disparity between the prior
allocations of Net Profit and Net Loss (or items taken into account in
determining Net Profit and Net Loss), on the one hand, and those
non-corresponding distributions, on the other hand. In all cases, any
corrective adjustments made pursuant to this Section 7.6 shall be controlled
by the economic arrangement of the Partners set forth in Section 8.
7.7 Special Allocations
Prior to making any allocations under Section 7.5
or Section 7.6, the following special allocations shall
be made in the following order:
(a) Limitation on Net Losses. If any allocation of Net Loss
or an item of deduction, expenditure or loss to be made pursuant to Section
7.5, Section 7.6 or this Section 7.7 for any Accounting Period would cause a
deficit in any Partner's Adjusted Capital Account (or would increase the
amount of any such deficit), then the relevant amount shall be allocated to
such Partners that have positive Adjusted Capital Account balances in
proportion to the respective amounts of such positive balances until all such
positive balances have been reduced to zero.
(b) Qualified Income Offset. If any Partner unexpectedly
receives any adjustment, allocation or distribution described in Treasury
Regulations Section 1.704-1(b)(2)(iv)(f)(6) that creates or increases a
deficit in the Adjusted Capital Account of such Partner, then items of income
and gain (consisting of a pro rata portion of each item of Company income,
including gross income, and gain for the relevant Fiscal Year and, if
necessary, for subsequent Fiscal Years) shall be allocated to such Partner in
an amount and manner sufficient to eliminate such deficit as quickly as
possible. This Section 7.7(b) is intended to constitute a "qualified income
offset" within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(d), and this Section 7.7(b) shall be interpreted and applied
consistently therewith.
(c) Substantial Economic Effect. Notwithstanding anything in
this Agreement to the contrary, if the allocation of any item of income, gain,
loss or expense pursuant to this Section 7 does not have substantial economic
effect under Treasury Regulations Section 1.704-1(b)(2) and is not in
accordance with the Partners' interests in the Company within the meaning of
Treasury Regulations Section 1.704-1(b)(3), then such item shall be
reallocated in such manner as to (i) have substantial economic effect or be in
17
accordance with the Partners' interests in the Company and (ii) result as
nearly as possible in the respective balances of the Capital Accounts that
would have been obtained if such item had instead been allocated under the
provisions of this Section 7 without giving effect to this Section 7.7(c).
(d) Corrective Allocations. If any amount is allocated
pursuant to paragraph (a), (b) or (c) of this Section 7.7, then,
notwithstanding anything in Section 7.5 to the contrary (but subject to the
provisions of paragraphs (a), (b) and (c) of this Section 7.7), income, gain,
loss and expense, or items thereof, shall thereafter be allocated in such
manner and to such extent as may be necessary so that, after such allocation,
the respective balances of the Capital Accounts will equal as nearly as
possible the balances that would have been obtained if the amount allocated
pursuant to paragraph (a), (b) or (c) of this Section 7.7 instead had been
allocated under the provisions of Sections 7.5-7.8 without giving effect to
the provisions of such paragraph.
(e) Amendments to Allocations. The provisions hereof
governing Company allocations and distributions, including the distribution of
assets upon liquidation of the Company, are intended to comply with the
requirements of Sections 704(b) and (c) of the Code and the Treasury
Regulations that have been or may be promulgated thereunder, and shall be
interpreted and applied in a manner consistent therewith. If, in the opinion
of the General Partner, the allocations of income, gain, loss and expense
provided for herein do not comply with (i) such Code provisions or Treasury
Regulations or (ii) any other applicable provisions of the Code or Treasury
Regulations (including the provisions relating to nonrecourse deductions and
partner nonrecourse deductions), then, notwithstanding anything in this
Agreement to the contrary, such allocations shall, upon notice in writing to
each Partner, be modified in such manner as the General Partner determines is
necessary to satisfy the relevant provisions of the Code or Treasury
Regulations, and the General Partner shall have the right to amend this
Agreement (without the consent of any other Partner being required for such
amendment) to reflect any such modification; provided, however, that no such
modification shall alter materially the economic arrangement among the
Partners.
7.8 Adjustments to Reflect Changes in Interests
With respect to any Accounting Period during which
any Partner's interest in the Company changes, whether by reason of the
admission of a new Partner, the withdrawal of a Partner, a non-pro rata
contribution of capital to the Company or otherwise as described in Section
706(d)(1) of the Code and Treasury Regulations issued thereunder, allocations
of Net Profit, Net Loss and other items of Company income, gain, loss and
expense shall be adjusted appropriately to take into account the varying
interests of the Partners during such Accounting Period. The General Partner,
in good faith and subject to approval by the Directors, shall select the
method (or combination of methods) of making such adjustments.
7.9 Allocation of Taxable Income and Loss
(a) Except as otherwise provided in this Section 7.9, the
taxable income or loss of the Company for any Accounting Period shall be
allocated among the Partners in proportion to and in the same manner as Net
Profit, Net Loss and separate items of income, gain, loss and expense
(excluding items for which there are no related tax items) are allocated among
18
the Partners for Capital Account purposes pursuant to the provisions of
Sections 7.5, 7.6, 7.7 and 7.8 giving effect to Sections 704(b) and (c) of the
Code. Except as otherwise provided in this Section 7.9, the allocable share of
a Partner for tax purposes in each specified item of income, gain, loss or
expense of the Company comprising Net Profit, Net Loss or any item allocated
pursuant to Section 7.5, 7.6, 7.7 or 7.8, as the case may be, shall be the
same as such Partner's allocable share of Net Profit, Net Loss or the
corresponding item for such Accounting Period. To the fullest extent
practicable and permitted under the Code, all items of ordinary deduction and
income shall be allocated separately from items of capital loss and gain.
(b) The items of income, gain, loss and expense allocated to
the Partners for tax purposes pursuant to this Section 7.9 shall not be
reflected in the Partners' Capital Accounts. Any elections or other decisions
relating to such allocations shall be made by the General Partner in any
manner that reasonably reflects the purpose and intent of this Agreement and
is consistent with the economic arrangement among the Partners.
7.10 Guaranteed Payments
The amounts payable to a Preferred Partner pursuant
to Section 8.1 shall be treated by such holder and the
Company as "guaranteed payments" under Section 707(c) of the Code.
7.11 Allocation of Nonrecourse Deductions
Nonrecourse Deductions for each fiscal year will be
allocated among the Partners in proportion to their respective Section 8.1
Percentages for such fiscal year.
7.12 Allocation of Partner Nonrecourse Deductions
Notwithstanding any other provisions of the
Agreement, any item of Partner Nonrecourse Deduction with respect to a Partner
Nonrecourse Debt will be allocated to the Partner or Partners who bear the
economic risk loss for such Partner Nonrecourse Debt in accordance with
Treasury Regulations ss. 1.704-2(i).
7.13 Excess Nonrecourse Liabilities
For the purpose of determining the Partners' shares
of the Company's Excess Nonrecourse Liabilities pursuant to Treasury
Regulations xx.xx. 1.752-3(a)(3) and 1.707-5(a)(2)(ii), and solely for such
purpose, the Partners' interests in profits are hereby specified to be their
respective Section 8.1(b) Percentages.
7.14 Treatment of Certain Distributions
(a) In the event that (i) the Company makes a distribution
that would (but for this subsection (a)) be treated as a Nonrecourse
Distribution, and (ii) such distribution does not cause or increase a deficit
19
balance in the Capital Account of the Partner receiving such distribution as
of the end of the Company's taxable year in which such distribution occurs,
then such distribution may be treated as not constituting a Nonrecourse
Distribution to the extent permitted by Treasury Regulations ss.
1.704-2(h)(3).
(b) In the event that (i) the Company makes a distribution
that would (but for this subsection (b)) be treated as a Partner Nonrecourse
Distribution, and (ii) such distribution does not cause or increase a deficit
balance in the Capital Account of the Partner receiving such distribution as
of the end of the Company's taxable year in which such distribution occurs,
then such distribution may be treated as not constituting a Partner
Nonrecourse Distribution to the extent permitted by Treasury Regulations ss.
1.704-2(i)(6).
SECTION 8.
DISTRIBUTIONS
8.1 Distributions
(a) From time to time, the General Partner will determine,
subject to approval by the Directors if they so determine, the amount of
distributions to be made, in the order of priority set forth in Section
8.1(b), of all or any portion of the Company's Aggregate Net Profit, in each
case to the extent permitted by the Borrowing Arrangements, the Statement of
Preferences for any Preferred Interests and any other agreements to which the
Company is subject. Amounts not distributed may be reinvested in Fund
Investments.
(b) Distributions of amounts reflecting Previously
Undistributed Net Profit shall be made at such times as the General Partner in
its sole discretion may determine and in the following order of priority:
(i) 100% to the Preferred Partners in accordance with
the Statement of Preferences for each series of Preferred Interests;
(ii) 100% to the Common Partners in accordance with
their relative Capital Account balances until the cumulative
distributions and amounts distributable in respect of the Common Interest
exceeds an 8% annual weighted average return on undistributed Capital
Contributions attributable to the aggregate cost basis of the membership
interests of Special Value Bond Fund II, LLC and Special Value Absolute
Return Fund, LLC that were redeemed on the Closing Date in exchange for
common shares in the Parent (such return, the "Hurdle");
(iii) 100% to the General Partner until the General
Partner has received 25% of the cumulative sum of all amounts previously
distributed to the Common Partners under this Section 8.1(b) (such
distributions, the "Catch-up Amount"); and
(iv) 80% to the Common Partners in accordance with
their relative Capital Account balances and 20% to the General Partner.
20
(c) For purposes of determining whether the Hurdle has been
exceeded and whether the General Partner has received the Catch-up Amount, the
performance of the Company will include the performance of Special Value
Absolute Return Fund, LLC for periods prior to the Closing Date and the
distributions made by the Company pursuant to Section 8.1(b)(i), (ii), (iii)
and (iv) will include an amount equal to the product of (i) the portion of the
distributions made by Special Value Absolute Return Fund, LLC prior to the
Closing Date attributable to its investors who have become members of the
Parent multiplied by (ii) the ratio of Net Asset Value of the Parent
immediately after giving effect to the transactions occurring on the Closing
Date to such Net Asset Value attributable to the shares of the Parent acquired
on the Closing Date by investors in Special Value Absolute Return Fund, LLC.
(d) The General Partner may, subject to approval by the
Directors if they so determine, determine to distribute to any class or
classes of the Partners any amounts representing a return of capital or
designated as a return of capital ("Returned Capital"); provided, however,
that the General Partner shall not make a distribution of Returned Capital at
any time when it could not make a distribution pursuant to Section 8.1(b).
Such Returned Capital shall not be distributed in accordance with Section
8.1(b). Any Returned Capital to be distributed shall be distributed to the
Partners in proportion to their respective Interests in the class or classes
to which such capital is being distributed.
(e) No Partner shall be entitled to receive distributions in
any Accounting Period in excess of its Capital Account balance, after taking
into account allocations of Net Profit or Net Loss for the applicable
Accounting Period.
(f) Any distribution by the Company pursuant to the terms of
this Section 8.1 or Section 16.4 to the Person shown on the Company's records
as a Partner or to such Person's legal representatives, or to the assignee of
the right to receive such distributions as provided herein, shall acquit the
Company and the General Partner of all liability to any other Person who may
be interested in such distribution by reason of any other assignment or
Transfer of such Partner's Interest for any reason (including an assignment or
Transfer thereof by reason of death, incompetence, bankruptcy or liquidation
of such Partner).
(g) Notwithstanding any provision to the contrary contained
in this Agreement, the Company, and the General Partner on behalf of the
Company, shall not make a distribution to any Partner on account of its
Interest if such distribution would violate Section 17-607 of the Delaware Act
or other applicable law.
(h) Notwithstanding the foregoing provisions of this Section
8.1 (or any other provision hereof), the General Partner may set aside
reasonable reserves for anticipated liabilities, obligations or commitments of
the Company.
8.2 Withholding
(a) The Company shall comply with withholding requirements
under United States federal, state and local law and shall remit amounts
withheld to and file required forms with the applicable jurisdictions. To the
extent the Company is required to withhold and pay over any amount to any
authority with respect to distributions or allocations to the General Partner,
21
the amount withheld shall be deemed to be a distribution by the Company to the
General Partner in the amount of the withholding.
(b) If any amount was withheld on income received by the
Company and the amount of the withholding was calculated, under applicable
law, with respect to income allocable to some (but not all) of the Partners
such withholding (and any related tax or book income or deduction item) shall
be allocated, in a manner reasonably determined by the General Partner, to the
Partners with respect to whom the withholding was calculated, and
distributions shall be adjusted accordingly; provided, however, that if the
Partner to whom such withholding is allocated is not a United States person
for U.S. federal income tax purposes, such Partner shall reimburse the Company
for the excess of the withholding tax paid on its behalf over the amount that
otherwise would have been payable in respect of such Partner had such Partner
been a United States person. If the Partner fails to so reimburse the Company,
such excess will be treated as an advance repayable with interest out of the
first available amounts that would otherwise be payable to such Partner.
SECTION 9.
MANAGEMENT, GENERAL PARTNER AND BOARD OF DIRECTORS
9.1 Management Generally
(a) Subject to the requirements of the Investment Company
Act, the voting rights of the Interests and the rights of the Board of
Directors set forth herein, the management of the Company shall be vested
exclusively in the General Partner, which shall have, subject to the
foregoing, all of the power and authority of a "general partner" of the
Company within the meaning of the Delaware Act, including the authority to
appoint officers and to authorize persons to act on behalf of the Company and
engage third parties to provide services to the Company and to perform any
permissible activity and is further authorized to delegate such power and
authority to such officers or authorized Persons as it determines to be
appropriate. The Board of Directors may designate one or more committees each
of which shall have all or such lesser portion of the power and authority of
the entire Board of Directors as the Directors shall determine from time to
time, except to the extent that action by the entire Board of Directors or
particular Directors is required by the Investment Company Act.
(b) Notwithstanding Section 9.1(a), the Board of Directors
shall have, and the General Partner hereby irrevocably delegates to them
pursuant to Section 17-403(c) of the Delaware Act, all of the power and
authority set forth in any provision of this Agreement or conferred on them
with respect to an investment company by or pursuant to the Investment Company
Act and any other federal securities laws, including to appoint and terminate
the General Partner, the Investment Manager, the Co-Manager and the
independent public accountants of the Company in accordance with the
provisions of Section 15 of the Investment Company Act, to establish the
policies and procedures for determining the Net Asset Value of the Company and
to review and adjust the determinations thereof by the General Partner, to
approve all policies and procedures, including compliance policies and
procedures, of the Company and of the General Partner, the Investment Manager,
the Co-Manager and any transfer agent, to approve co-investments as
22
contemplated by any exemptive order applicable to the Company and to resolve
conflicts of interest between the Company and Affiliated Persons thereof.
Notwithstanding Section 9.1(a), the Board of Directors shall have full power
and authority to allocate any or all of the investment management of the
Company's Assets to the Investment Manager or the Co-Manager instead of to the
General Partner.
(c) Except as expressly set forth herein, the Partners, in
their capacity as such, shall have no part in the management of the Company,
and shall have no authority or right to act on behalf of the Company in
connection with any matter. Employees, officers, authorized Persons and agents
of the Company shall have authority to act on behalf and in the name of the
Company to the extent authorized by the General Partner.
9.2 Board of Directors
(a) Subject to the terms of each Statement of Preferences,
the number of Directors shall be such number, not less than three, as shall be
approved from time to time by a majority of Directors then in office. No
reduction in the number of Directors shall have the effect of removing any
Director from office prior to the expiration of his or her term. An individual
nominated as a Director shall be at least 21 years of age and not older than
such age as shall be approved from time to time by not less than two-thirds of
the Directors then in office and shall not be under legal disability.
Directors need not own Interests or be Partners and may succeed themselves in
office. The names and addresses of the Directors shall be set forth in the
records of the Company.
(b) Any Director may resign as a Director (without need for
prior or subsequent accounting) by an instrument in writing signed by him and
delivered or mailed to the Chairman, if any, the President or the Secretary
and such resignation shall be effective upon such delivery, or at a later date
provided in such instrument. Subject to the rights of the Preferred Interests
with respect to Directors elected solely by the Preferred Interests pursuant
to the Investment Company Act, any Director may be removed (provided that the
aggregate number of Directors after such removal shall not be less than the
minimum number specified in Section 9.2(a) hereof) for cause at any time by
the act of a majority of the remaining Directors, specifying the date when
such removal shall become effective. Subject to the rights of the Preferred
Interests with respect to Directors elected solely by the Preferred Interests
pursuant to the Investment Company Act, any Independent Director may be
removed (provided that the aggregate number of Directors after such removal
shall not be less than the minimum number Section 9.2(a) hereof) without cause
at any time by the act of two-thirds of the remaining Directors, and any
Director can be removed without cause by vote of not less than two-thirds of
the aggregate voting power of the Interests entitled to vote in the election
of such Director, specifying the date when such removal shall become
effective.
(c) The term of office of a Director shall terminate and a
vacancy shall occur in the event of the removal, resignation, incompetence or
other incapacity to perform the duties of the office, or death, of a Director.
Subject to the rights of the Preferred Interests with respect to Directors
elected solely by the Preferred Interests pursuant to the Investment Company
Act and pursuant to any Statement of Preferences, whenever a vacancy in the
Board of Directors shall occur, the remaining Directors may fill such vacancy
23
by appointing an individual having the qualifications described in this
Agreement by a written instrument signed or adopted by a majority of the
Directors then in office or by election of the holders of Interests, or may
leave such vacancy unfilled, or may reduce the number of Directors (provided
that the aggregate number of Directors after such removal shall not be less
than the minimum specified in Section 9.2(a) hereof). Any vacancy created by
an increase in Directors may be filled by the appointment of an individual
having the qualifications described in this Agreement by a majority of the
Directors then in office or by election of the holders of Interests. No
vacancy shall operate to annul this Agreement or to revoke any existing agency
created pursuant to the terms of this Agreement. Whenever a vacancy in the
number of Directors shall occur, until such vacancy is filled as provided
herein, the Directors in office, regardless of their number, shall have all
the powers granted to the Directors and shall discharge all the duties imposed
upon the Directors by this Agreement.
(d) Meetings of the Directors shall be held from time to
time upon the call of the Chairman, if any, the President, the Secretary or
any two Directors. Regular meetings of the Directors may be held without call
or notice at a time and place fixed by resolution of the Directors. Notice of
any other meeting shall be mailed via overnight courier not less than 48 hours
before the meeting or otherwise actually delivered orally or in writing not
less than 24 hours before the meeting, but may be waived in writing by any
Director either before or after such meeting. The attendance of a Director at
a meeting shall constitute a waiver of notice of such meeting except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting has not been
lawfully called or convened. The Directors may act with or without a meeting.
A quorum for all meetings of the Directors shall be one-third of the Directors
then in office. Unless provided otherwise in this Agreement, any action of the
Directors may be taken at a meeting by vote of a majority of the Directors
present (a quorum being present) or without a meeting by written consent of a
majority of the Directors or such other proportion as shall be specified
herein for action at a meeting at which all Directors then in office are
present.
(i) Any committee of the Directors may act with or
without a meeting. A quorum for all meetings of any such committee shall
be one third of the Partners thereof. Unless provided otherwise in this
Agreement, any action of any such committee may be taken at a meeting by
vote of a majority of the Partners of such committee present (a quorum
being present) or without a meeting by written consent of a majority of
the Partners of such committee or such other proportion as shall be
specified herein for action at a meeting at which all committee Partners
are present.
(ii) With respect to actions of the Directors and any
committee of the Directors, Directors who are Interested Persons in any
action to be taken may be counted for quorum purposes under this Section
and shall be entitled to vote to the extent not prohibited by the
Investment Company Act.
(iii) All or any one or more Directors may participate
in a meeting of the Directors or any committee thereof by means of a
conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other;
participation in a meeting pursuant to any such communications system
24
shall constitute presence in person at such meeting except as otherwise
provided by the Investment Company Act.
(iv) The Directors may, but shall not be required to,
elect a Chairman of the Board of Directors, who shall not, in his or her
capacity as such, be an officer of the Company and who shall serve at the
pleasure of the Board of Directors. Any Chairman of the Board of
Directors elected by the Directors need not be an Independent Director,
unless otherwise required by applicable law.
(e) The Directors shall elect a Chief Executive Officer, a
Secretary and a Chief Financial Officer and any other authorized persons who
shall serve at the pleasure of the Board of Directors or until their
successors are elected. The Directors may elect or appoint or may authorize
the Chairman, if any, or Chief Executive Officer to appoint such other
officers or agents or other authorized persons with such other titles and
powers as the Board of Directors may deem to be advisable. Any Chairman shall,
and the Chief Executive Officer, Secretary and Chief Financial Officer may,
but need not, be a Director.
(f) The Directors and officers shall owe to the Company and
the holders of Interests the same fiduciary duties as owed by directors and
officers of corporations to such corporations and their stockholders under the
general corporation law of the State of Delaware. Directors elected by the
holders of Preferred Interests shall have no special duties to the holders of
Preferred Interests. The powers of the Directors may be exercised without
order of or resort to any court. No Director shall be obligated to give any
bond or other security for the performance of any of his duties or powers
hereunder.
(g) The Board of Directors may adopt and from time to time
amend or repeal By-Laws ("By-Laws") for the conduct of the business of the
Company. Such By-Laws shall be binding on the Company and the Partners unless
inconsistent with the provisions of this Agreement. The Partners shall not
have authority to adopt, amend or repeal By-Laws.
(h) Any determination as to what is in the interests of the
Company made by the Directors in good faith shall be conclusive. In construing
the provisions of this Agreement, the presumption shall be in favor of a grant
of power to the Directors.
(i) The Directors shall have the power, without any
amendment to this Agreement or any Statement of Preferences adopted hereunder,
to impose restrictions on the activities of Partners with respect to the
Company or any Portfolio Company to prevent limitations on the Company's
ability to invest in certain industries, such as utilities, communications,
gambling, interstate transportation and insurance. Such limitations shall be
binding upon all Partners.
9.3 Expenses of the Company
(a) The Company shall have power to incur and pay out of the
Assets or income of the Company any expenses necessary or appropriate to carry
out any of the purposes of this Agreement, and the business of the Company.
The Directors may pay themselves such compensation as they in good faith may
deem reasonable and may be reimbursed for expenses reasonably incurred by
themselves on behalf of the Company.
25
(b) The Company shall pay, and shall reimburse the General
Partner, the Investment Manager, the Co-Manager and each of their respective
Affiliates for, any costs and expenses that, in the good faith judgment of the
Board of Directors, are incurred in the formation, financing or operation of
the Company, including, without limitation, the Advisory Fees and other costs
and expenses specified herein or in the Advisory Agreement or the Co-Advisory
Agreement to be paid by the Company; fees and expenses of offering Interests
or debt instruments and enhancing or assuring the credit quality thereof; fees
and expenses relating to short-term investments of cash and investments in
Portfolio Companies including the structuring, negotiation, acquisition,,
syndication, holding, restructuring, recapitalization and disposition thereof
or relating to proposed portfolio investments which are not consummated;
reasonable premiums for insurance protecting the Company, the General Partner,
the Investment Manager, the Co-Manager, any of their respective Affiliates and
any of their respective employees and agents; legal, compliance,
administrative, custodial and accounting expenses; auditing expenses;
appraisal expenses; expenses relating to organizing companies through or in
which investments in Portfolio Companies will be made; expenses incurred in
maintaining the places of business of the Company; costs and expenses of
preparing and maintaining the books and records of the Company and entities
through which it invests; costs and expenses that are classified as
extraordinary expenses under generally accepted accounting principles; taxes
or other governmental charges payable by the Company; costs and expenses
incurred in connection with any actual or threatened litigation, and any
judgments or settlements paid in connection with litigation, involving the
Company, a Portfolio Company or a Person entitled to indemnification from the
Company; expenses (including legal fees and expenses) incurred in connection
with the bankruptcy or reorganization of any Portfolio Company; costs of
reporting to the Partners, creditors and regulatory authorities; costs of
responding to regulatory inquiries; costs of Partner meetings and the
solicitation of Partner consents; costs incurred in valuing assets; costs of
winding up and liquidating the Company; and interest, distributions and fees
under the Credit Agreement, other indebtedness incurred by the Company and the
Interests.
(c) The Company shall pay, and shall reimburse the General
Partner, the Investment Manager, the Co-Manager and each of their Affiliates
for, all legal, tax, accounting and other expenses (including organizational
expenses) incurred in connection with the Credit Agreement, the Preferred
Interests and the formation of the Company and related entities, and all fees
payable to any placement agents in connection with subscriptions for the
Interests and to any other agents, lenders, arrangers or other Persons in
connection with the Credit Agreement and the placement and sale of the
Preferred Interests.
(d) The Company shall pay, and shall reimburse the
Co-Manager for, any reasonable transportation and other travel costs and
expenses incurred by the Co-Manager in connection with making any
representative on any investment committee available for meetings with the
other Partners of such investment committee.
9.4 Partners' Consent
To the fullest extent permitted by law, each
Partner hereby consents to the exercise by the General Partner, the Board of
Directors and the Investment Manager of the powers conferred on them by or
pursuant to this Agreement.
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9.5 Exculpation
No Partner (other than the General Partner) shall be
subject in such capacity to any personal liability whatsoever to any Person in
connection with the Assets or the acts, obligations or affairs of the Company.
Partners (other than the General Partner) shall have the same limitation of
personal liability as is extended to stockholders of a private corporation for
profit incorporated under the general corporation law of the State of Delaware.
Except as otherwise required by law, the General Partner, the Directors, the
Investment Manager, the Co-Manager, and their respective Affiliated Persons, or
any officer, director, Partner, manager, employee, stockholder, assign,
representative or agent (including the Placement Agents) of any such Person
(each an "Indemnified Person", and collectively, the "Indemnified Persons")
shall not be liable, responsible or accountable in damages or otherwise to the
Company, any Partner or any other Person for any loss, liability, damage,
settlement cost, or other expense (including reasonable attorneys' fees)
incurred by reason of any act or omission or any alleged act or omission
performed or omitted by such Indemnified Person (other than solely in such
Indemnified Person's capacity as a Partner, if applicable) in connection with
the establishment, management or operations of the Company or the management of
the Assets (including in connection with serving on any creditors' committee or
board of directors for any Portfolio Company ), except that an Indemnified
Person shall be liable to the Company or any Partner, as the case may be, if
such act or failure to act arises out of the bad faith, willful misfeasance,
gross negligence or reckless disregard of such Person's duty to the Company or
such Partner, as the case may be (such conduct, "Disabling Conduct"). Subject
to the foregoing and to the general liability of the General Partner for the
liabilities of the Company, all such Persons shall look solely to the Assets
for satisfaction of claims of any nature arising in connection with the affairs
of the Company. If any Indemnified Person is made a party to any suit or
proceeding to enforce any such liability, subject to the foregoing exception,
such Indemnified Person shall not, on account thereof, be held to any personal
liability.
9.6 Indemnification; No Duty of Investigation; Reliance on
Experts
(a) To the fullest extent permitted by applicable law, each
of the Indemnified Persons shall be held harmless and indemnified by the
Company (out of the Assets and not out of the separate assets of any Partner)
against any liabilities and expenses, including amounts paid in satisfaction
of judgments, in compromise or as fines and penalties, and reasonable counsel
fees reasonably incurred by such Indemnified Person in connection with the
defense or disposition of any action, suit or other proceeding, whether civil
or criminal, before any court or administrative or investigative body in which
such Indemnified Person may be or may have been involved as a party or
otherwise (other than as authorized by the Directors, as the plaintiff or
complainant) or with which such Indemnified Person may be or may have been
threatened, while acting in such Person's capacity as an Indemnified Person,
except with respect to any matter as to which such Indemnified Person shall
not have acted in good faith in the reasonable belief that such Person's
action was in the best interest of the Company or, in the case of any criminal
proceeding, as to which such Indemnified Person shall have had reasonable
cause to believe that the conduct was unlawful, provided, however, that an
Indemnified Person shall only be indemnified hereunder if (i) such Indemnified
Person's activities do not constitute Disabling Conduct and (ii) there has
been a determination (a) by a final decision on the merits by a court or other
27
body of competent jurisdiction before whom the issue of entitlement to
indemnification was brought that such Indemnified Person is entitled to
indemnification or, (b) in the absence of such a decision, by (1) a majority
vote of a quorum of those Directors who are neither "interested persons" of
the Company (as defined in Section 2(a)(19) of the Investment Company Act) nor
parties to the proceeding, that the Indemnified Person is entitled to
indemnification (the "Disinterested Non-Party Directors"), or (2) if such
quorum is not obtainable or even if obtainable, if such majority so directs,
independent legal counsel in a written opinion that concludes that the
Indemnified Person should be entitled to indemnification. Notwithstanding the
foregoing, with respect to any action, suit or other proceeding voluntarily
prosecuted by any Indemnified Person as plaintiff, indemnification shall be
mandatory only if the prosecution of such action, suit or other proceeding by
such Indemnified Person was authorized by a majority of the Directors. All
determinations to make advance payments in connection with the expense of
defending any proceeding shall be authorized and made in accordance with the
immediately succeeding paragraph (b) below.
(b) The Company shall make advance payments in connection
with the expenses of defending any action with respect to which indemnification
might be sought hereunder if the Company receives a written affirmation by the
Indemnified Person of the Indemnified Person's good faith belief that the
standards of conduct necessary for indemnification have been met and a written
undertaking to reimburse the Company unless it is subsequently determined that
he is entitled to such indemnification and if a majority of the Directors
determine that the applicable standards of conduct necessary for
indemnification appear to have been met. In addition, at least one of the
following conditions must be met: (1) the Indemnified Person shall provide
adequate security for his undertaking, (2) the Company shall be insured against
losses arising by reason of any lawful advances, or (3) a majority of a quorum
of the Disinterested Non-Party Directors, or if a majority vote of such quorum
so direct, independent legal counsel in a written opinion, shall conclude,
based on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is substantial reason to believe that the Indemnified
Person ultimately will be found entitled to indemnification.
(c) The rights accruing to any Indemnified Person under
these provisions shall not exclude any other right to which he may be lawfully
entitled.
(d) Notwithstanding the foregoing, subject to any
limitations provided by the Investment Company Act and this Agreement, the
Company shall have the power and authority to indemnify Persons providing
services to the Company to the full extent provided by law as if the Company
were a corporation organized under the Delaware General Corporation Law
provided that such indemnification has been approved by a majority of the
Directors or, with respect to agreements to which the General Partner and
Investment Manager are not party, by the General Partner.
(e) No purchaser, lender, transfer agent or other person
dealing with the Directors or with the General Partner or any officer,
employee or agent of the Company shall be bound to make any inquiry concerning
the validity of any transaction purporting to be made by the Directors or by
said officer, employee or agent or be liable for the application of money or
property paid, loaned, or delivered to or on the order of the Directors or of
said officer, employee or agent. Every obligation, contract, undertaking,
instrument, certificate, Interest and security of the Company, and every other
28
act or thing whatsoever executed in connection with the Company shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Directors under this Agreement or in their capacity as
the General Partner or officers, employees or agents of the Company. The
Company may maintain insurance for the protection of the Assets, its Partners,
Directors, officers, employees or agents in such amounts as the Directors
shall deem adequate to cover possible liability, and such other insurance as
the Directors in their sole judgment shall deem advisable or is required by
the Investment Company Act.
(f) Each Indemnified Person shall, in the performance of its
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Company, upon an opinion of counsel, or upon
reports made to the Company by any of the Company's officers or employees or
by any advisor, administrator, manager, distributor, selected dealer,
accountant, appraiser or other expert or consultant selected with reasonable
care by the Directors, General Partner officers or employees of the Company,
regardless of whether such counsel or other person may also be a Director.
9.7 Director Limited Liability
Except as otherwise provided by law, the Directors
shall not be obligated personally for any debt, obligation or liability of the
Company solely by reason of being the manager of the Company, and the debt,
obligations and liabilities of the Company, whether arising in contract, tort
or otherwise, shall be solely the debts, obligations and liabilities of the
Company.
9.8 Certain Other Activities
The General Partner, the Investment Manager, the
Co-Manager and their respective Affiliated Persons, employees and associates
(collectively, the "Manager Affiliates") may manage funds and accounts other
than the Assets ("Other Accounts") that invest in assets eligible for purchase
by the Company. Subject to the requirements of the Investment Company Act and
the Advisers Act, the Manager Affiliates are in no way prohibited from
spending, and may spend, substantial business time in connection with other
businesses or activities, including, but not limited to, managing Other
Accounts, managing investments, advising or managing entities whose investment
objectives are the same as or overlap with those of the Company, participating
in actual or potential investments of the Company or any Partner, providing
consulting, merger and acquisition, structuring or financial advisory
services, including with respect to actual, contemplated or potential
investments of the Company, or acting as a director, officer, manager, Partner
or creditors' committee Partner of, or adviser to, or participant in, any
corporation, company, limited liability company, trust or other Person.
Subject to the requirements of the Investment Company Act and the Advisers
Act, the Manager Affiliates are in no way prohibited from receiving, and may
receive, fees or other compensation from third parties for any of these
activities, which fees will be for their own account and not for the account
of the Company. Such fees may relate to actual, contemplated or potential
29
investments of the Company and may be payable by entities in which the Company
directly or indirectly has invested or contemplates investing. Neither the
Company nor any Partner shall, by virtue of this Agreement, have any right,
title or interest in or to the businesses or activities permitted by this
Section 9.8 or in or to any fees or consideration derived therefrom.
Allocation of investments or opportunities among the Company and Other
Accounts will be made as described in the Offering Memorandum or as otherwise
approved by the Board of Directors in accordance with the Investment Company
Act, the Advisers Act and any exemptive order obtained from the U.S.
Securities and Exchange Commission.
9.9 Tax Matters
(a) The General Partner is hereby designated the "tax
matters partner" for purposes of Section 6231(a) of the Code and Treasury
Regulations.
(b) The Tax Matters Partner shall have the right to file all
necessary reports relating to any withholding or payment in connection with
Section 8.2, as may be required by law or as the Tax Matters Partner deems
appropriate. Each Partner shall indemnify the Company and the Tax Matters
Partner and hold each of them harmless from any liability with respect to any
taxes, penalties or interest required to be withheld or paid to any taxing
authority by the Company or the Tax Matters Partner for or on behalf of such
Partner or with respect to such Partner's Interests.
(c) Any Partner that is a partnership (or that is treated as
a partnership for federal income tax purposes) will promptly notify the
Company in writing upon any of the following occurrences:
(i) any event, such as a sale or exchange of an
interest in such Partner, that will result in an adjustment to the basis
of the assets of such Partner under Section 743(b) of the Code pursuant
to an election under Section 754 of the Code;
(ii) any event, such as a distribution of cash or other
property by such Partner, that will result in an adjustment to the basis
of such Partner's assets under Section 734(b) of the Code pursuant to an
election under Section 754 of the Code; or
(iii) any event that will result in the termination of
such Partner as a partnership pursuant to Section 708(b)(1)(B) of the
Code.
(d) In the event that any interest in a Partner that is a
partnership (or that is treated as a partnership for federal income tax
purposes) is owned directly or indirectly by a tax exempt or foreign Person or
entity, such Partner will promptly notify the Company in writing of such tax
exempt or foreign Person or entity's proportionate share of such Partner's
items of income and gain (determined as a percentage pursuant to Section
168(h)(6)(C) of the Code) and of any change in such proportionate share.
(e) The Tax Matters Partner shall have the right to make
such elections under the tax laws of the United States, the several states and
other relevant jurisdictions as to the treatment of items of Company income,
gain, loss, deduction and credit and as to all other relevant matters as it
believes necessary, appropriate and desirable.
30
(f) The Tax Matters Partner shall have the right to make or
petition to revoke (as the case may be) the election referred to in Section
754 of the Code; it being understood that the Tax Matters Partner, as of the
Closing Date, does not intend to make such election but may in the future
choose to do so in its sole discretion. Each Partner agrees in the event of
such an election to supply promptly to the Company the information necessary
to give effect thereto.
(g) No Partner (other than the Tax Matters Partner) shall
have the right to participate in the audit of any Company tax return, file any
tax return, amended tax return or claim for refund inconsistent with any item
of income, gain, loss or expense reflected on any Company tax return,
participate in any administrative or judicial proceeding arising out of or in
connection with any Company tax return, audit relating to a Company tax
return, claim for refund by the Company or denial of such a claim, or appeal,
challenge or otherwise protest any adverse findings in any such audit or with
respect to any such tax return or in any such administrative or judicial
proceedings.
SECTION 10.
PARTNERS
10.1 Identity and Contributions
The names and addresses of the Partners, the
Interests owned by each Partner and the Capital Contributions of each will be
set forth in the Company's records.
10.2 No Management Power or Liability
Subject to the requirements of the Investment
Company Act, except as otherwise provided herein, the Partners (other than the
General Partner) in their capacity as such shall have no right or power to,
and shall not, take part in the management of or transact any business for the
Company, including but not limited to, any acts or decisions relating to
investment activities of the Company, and shall have no power to sign for or
bind the Company. Except as otherwise required by law, no Partner (other than
the General Partner), in its capacity as such, shall be personally liable for
any debt, loss, obligation or liability of the Company. Except to the extent
expressly provided in the preceding sentence, the Company shall indemnify and
hold harmless each Partner (in its capacity as such), including the General
Partner, in the event such Partner becomes liable for any debt, loss,
obligation or liability of the Company unless such Partner has engaged in
fraud, willful misconduct, gross negligence or criminal conduct constituting a
felony with respect to such debt, loss, obligation or liability.
10.3 Amendments
(a) If a vote of the holders of Interests is required by
applicable law or this Agreement to amend this Agreement, or if the General
Partner or the Directors determine to submit an amendment to a vote of the
holders of Interests, then, other than with respect to Sections of this
31
Agreement where a different affirmative vote is specifically required, this
Agreement may be amended, after a majority of the Directors then in office
have approved a resolution therefor, by the affirmative vote set forth in
Section 10.10. Section 10.10 may only be amended, after a majority of
Directors then in office have approved a resolution therefor, by the
affirmative vote of the holders of not less than 75% of the affected Interests
then outstanding. Section 16.7 may only be amended, after a majority of
Directors then in office have approved a resolution therefor, by the
affirmative vote of the holders of not less than 100% of the Series A
Preferred Interests then outstanding. Notwithstanding the foregoing, without
the unanimous approval of all of the Partners affected thereby, no such
amendment may:
(i) require any Common Partner to make Capital
Contributions in excess of its Initial Capital Contribution as of the
Closing Date, require any Partner that is not a Common Partner to make
additional Capital Contributions in excess of its contractual commitment
or otherwise increase the liability of any Partner hereunder; or
(ii) adversely affect distributions to such Partner; or
(iii) modify this Section 10.3(a).
(b) Subject to the requirements of the Investment Company
Act and other applicable law, notwithstanding the foregoing provisions of this
Section 10.3, the Board of Directors, or the General Partner with the approval
of the Board of Directors, may amend this Agreement, without the consent of
any Partner, (i) to change the name of the Company or any class or series of
Interests; (ii) to make any change that does not adversely affect the relative
rights or preferences of any class or series of Interests, (iii) to conform
this Agreement to the requirements of the Investment Company Act or any other
applicable law; (iv) in connection with qualifying the Company to permit
limited liability under the laws of any state; (v) to prevent any material and
adverse effect to any Partner or the Company arising from the application of
legal restrictions to any Partner, the Investment Manager, the Co-Manager or
the Company, subject to the requirement that the Partners not be materially
and adversely affected; (vi) to make any change that is necessary or desirable
to cure any ambiguity or inconsistency, subject to the requirement that the
Partners not be materially and adversely affected; (vii) to make any other
changes similar to the foregoing, subject to the requirement that the Partners
not be materially and adversely affected; or (viii) to make such conforming
changes as may be necessary to reflect the termination of the Company and the
assumption by the Parent of all of the assets and obligations of the Company
to the extent not prohibited by applicable law; provided that the General
Partner and the Board of Directors shall not be liable for failing to do so.
Prior to entering into any amendment pursuant to this Section 10.3(b), the
General Partner or the Board of Directors shall notify the Partners in writing
of the material terms of such amendment. The Company may reflect in its
records changes made in the composition of the Partners and their respective
Capital Contributions and Interests in accordance with the provisions of this
Agreement without the consent of the Partners.
(c) After any amendment to this Agreement becomes effective,
the Company shall send to the Partners a copy of such amendment.
32
(d) Nothing contained in this Agreement shall permit the
amendment of this Agreement to impair the exemption from personal liability of
the Partners (other than the General Partner), Directors, officers, employees
and agents of the Company and their respective Affiliates, to permit
assessments upon such Partners or to permit the Company to be converted at any
time from a "closed-end investment company" to an "open-end investment
company" as those terms are defined by the Investment Company Act or a company
obligated to repurchase shares under Rule 23c-3 of the Investment Company Act.
(e) An amendment duly adopted by the requisite vote of the
Board of Directors and, if required, Partners as aforesaid, shall become
effective at the time of such adoption or at such other time as may be
designated by the Board of Directors or Partners, as the case may be. A
certification signed by the General Partner or the Secretary setting forth an
amendment and reciting that it was duly adopted by the Directors and, if
required, Partners as aforesaid, or a copy of the Agreement, as amended, and
executed by the General Partner or the Secretary, shall be conclusive evidence
of such amendment when lodged among the records of the Company or at such
other time designated by the Directors.
(f) Notwithstanding any other provision hereof, until such
time as Interests are issued and outstanding, this Agreement may be terminated
or amended in any respect by the affirmative vote of a majority of the
Directors or by an instrument signed by a majority of the Directors then in
office.
(g) Notwithstanding anything to the contrary contained
herein, no holder of Interests of any class or series, other than to the
extent expressly determined by the Directors with respect to Interests
qualifying as preferred stock pursuant to Section 18(a) of the Investment
Company Act, shall have any right to require the Company or any person
controlled by the Company to purchase any of such holder's Interests.
10.4 Merger, Consolidation, Liquidation
Subject to the provisions of the Investment
Company Act and other applicable law, the Company may merge or consolidate
with any other entity, or sell, lease or exchange all or substantially all of
the Assets upon approval by two-thirds of the Directors then in office and the
affirmative vote of not less than two-thirds of the outstanding Interests.
Notwithstanding the foregoing, the Company shall automatically be merged into
the Parent and terminate its existence at such time as, pursuant to receipt of
no-action or other appropriate relief from the Securities and Exchange
Commission or its staff, the board of directors of the Parent is able to
authorize the issuance of Series S Preferred Stock of the Parent to the
General Partner. Each Partner, upon becoming a Partner, consents to such
termination and merger, including the exchange by each Preferred Partner of
its Preferred Interests for an equivalent amount of preferred shares of the
Parent having substantially similar terms and the exchange of the General
Partner's Interest for the share or shares of Series S Preferred Stock of the
Parent, to the extent any consent of Partners would be required therefor. Such
merger shall occur on the basis of the net asset value of the Common
Interests, the liquidation preference of the Preferred Interests and the
amount of indebtedness outstanding under the Credit Agreements and in
accordance with the requirements of Rule 17a-8 under the Investment Company
33
Act. No Partner shall have any rights of redemption or appraisal in connection
with any such merger.
10.5 List of Partners
A list of the names and addresses of all Partners
(to the extent known to the Company) shall be made available to any Partner or
its representative for inspection and, at the Partner's cost, copying upon
written request and at reasonable times to the extent required by the
Investment Company Act with respect to trusts for any purpose.
10.6 Limitations
No Partner shall have the right or power to (i)
bring an action for partition against the Company; (ii) cause the termination
or dissolution of the Company, except as set forth in this Agreement; or (iii)
demand property other than cash with respect to any distribution and then only
in accordance with the terms of this Agreement. For the avoidance of doubt,
Partners shall not have the power provided for in Section 17-801 of the
Delaware Act, and the Company may only be dissolved pursuant to the terms of
this Agreement. Except to the extent required for a Delaware business
corporation, the Partners shall have no power to vote as to whether or not a
court action, legal proceeding or claim should or should not be brought or
maintained derivatively or as a class action on behalf of the Company or the
Partners.
10.7 Meetings
(a) The Company may, but shall not be required to, hold
annual meetings of the holders of any class or series of Interests. An annual
or special meeting of Partners may be called at any time only by the Directors
or by Partners in accordance with the requirements of the Investment Company
Act applicable to trusts. Any meeting of Partners shall be held within or
without the State of Delaware on such day and at such time as the Directors
shall designate.
(b) Notice of all meetings of Partners, stating the time,
place and purposes of the meeting, shall be given by the Directors by mail to
each Partner of record entitled to vote thereat at its registered address,
mailed at least 10 days before the meeting or otherwise in compliance with
applicable law. Except with respect to an annual meeting, at which any
business required by the Investment Company Act may be conducted, only the
business stated in the notice of the meeting shall be considered at such
meeting. Any adjourned meeting may be held as adjourned one or more times
without further notice not later than 130 days after the record date. For the
purposes of determining the Partners who are entitled to notice of and to vote
at any meeting the Directors may, without closing the transfer books, fix a
date not more than 100 days prior to the date of such meeting of Partners as a
record date for the determination of the Persons to be treated as Partners of
record for such purposes.
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10.8 Action Without a Meeting
Any action that may be taken at a meeting of the
Partners may be taken without a meeting if a consent in writing setting forth
the action to be taken is signed by Partners owning not less than the minimum
percentage of the Interests of the Partners that would be necessary to
authorize or take such action at a meeting at which all the Partners were
present and voted, and notice of the action taken is provided to each Partner.
Any such written consent must be filed with the records of the meetings of the
Partners.
10.9 Procedures
A Partner shall be entitled to cast votes: (a) at
a meeting, in person, by written proxy or by a signed writing directing the
manner in which its vote is to be cast, which writing must be received by the
Company at or prior to the commencement of the meeting; or (b) without a
meeting, by a signed writing directing the manner in which its vote is to be
cast, which writing must be received by the Company at or prior to the time
and date on which the votes are to be counted. Except as otherwise herein
specifically provided, all procedural matters relating to the holding of
meetings of Partners or taking action by written consent, whether noticed or
solicited by the Company or others, including, without limitation, matters
relating to the date for the meeting or the counting of votes by written
consent, the time period during which written consents may be solicited,
minimum or maximum notice periods, record dates, proxy requirements and rules
relating to the conduct of meetings or the tabulation of votes, shall be as
reasonably established by the Directors. To the extent not otherwise provided
by the Board of Directors pursuant to Section 10.10 or otherwise, the laws of
the State of Delaware pertaining to the validity and use of proxies regarding
the shares of business corporations shall govern the validity and use of
proxies given by Partners.
10.10 Voting
(a) Partners shall have no power to vote on any matter
except matters on which a vote of Interests is required by or pursuant to the
Investment Company Act, a Statement of Preferences, this Agreement, the
By-Laws or any resolution of the Directors. Any matter required to be
submitted for approval of any of the Interests and affecting one or more
classes or series shall require approval by the required vote of Interests of
the affected class or classes and series voting together as a single class
and, if such matter affects one or more classes or series thereof differently
from one or more other classes or series thereof or from one or more series of
the same class, approval by the required vote of Interests of such other class
or classes or series or series voting as a separate class shall be required in
order to be approved with respect to such other class or classes or series or
series; provided, however, that except to the extent required by the
Investment Company Act and any Statement of Preferences, there shall be no
separate class votes on the election or removal of Directors or the selection
of auditors for the Company. Partners of a particular class or series thereof
shall not be entitled to vote on any matter that affects the rights or
interests of only one or more other classes or series of such other class or
classes or only one or more other series of the same class. There shall be no
cumulative voting in the election or removal of Directors.
35
(b) The holders of one-third of the outstanding Interests of
the Company on the record date present in person or by proxy shall constitute
a quorum at any meeting of the holders for purposes of conducting business on
which a vote of all Partners of the Company is being taken. The holders of
one-third of the outstanding Interests of a class or classes on the record
date present in person or by proxy shall constitute a quorum at any meeting of
the holders of such class or classes for purposes of conducting business on
which a vote of holders of such class or classes is being taken. The holders
of one-third of the outstanding Interests of a series or series on the record
date present in person or by proxy shall constitute a quorum at any meeting of
the holders of such series or series for purposes of conducting business on
which a vote of holders of such series or series is being taken. Interests
underlying a proxy as to which a broker or other intermediary states its
absence of authority to vote with respect to one or more matters shall be
treated as present for purposes of establishing a quorum for taking action on
any such matter only to the extent so determined by the Directors at or prior
to the meeting of holders of Interests at which such matter is to be
considered and shall not be treated as present for purposes of voting or any
other purpose except as determined by the Directors.
(c) Subject to any provision of the Investment Company Act,
any Statement of Preferences or this Agreement specifying or requiring a
greater or lesser vote requirement for the transaction of any matter of
business at any meeting of Partners or, in the absence of any such provision
of the Investment Company Act, any Statement of Preferences or this Agreement,
subject to any provision of the By-Laws or resolution of the Directors
specifying or requiring a greater or lesser vote requirement, (i) the
affirmative vote of a plurality (or, if provided by the By-Laws, a majority)
of the Interests present in person or represented by proxy and entitled to
vote for the election of any Director or Directors shall be the act of such
Partners with respect to the election of such Director or Directors; (ii) the
affirmative vote of a majority of the Interests present in person or
represented by proxy and entitled to vote on any other matter who vote on such
matter shall be the act of the Partners with respect to such matter; and (iii)
where a separate vote of one or more classes or series is required on any
matter, the affirmative vote of a majority of the Interests of such class or
classes or series or series present in person or represented by proxy and
entitled to vote on such matter who vote on such matter shall be the act of
the Partners of such class or classes or series or series with respect to such
matter.
(d) At any meeting of Partners, any holder of Interests
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Company as the Secretary
may direct, for verification prior to the time at which such vote shall be
taken. Pursuant to a resolution of a majority of the Directors, proxies may be
solicited in the name of one or more Directors or one or more of the officers
or employees of the Company. Only Partners of record shall be entitled to
vote. Each .01% of the Net Asset Value of the Company shall entitle the Common
Partner of record thereof to one vote and each fraction thereof shall entitle
the Common Partner of record thereof to a vote equal to such fraction. Each
$20,000 of the liquidation preference of a Preferred Interest shall entitle
the Preferred Partner of record thereof to one vote and each fraction thereof
shall entitle the Preferred Partner of record thereof to a vote equal to such
fraction. When any Interest is held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of such
Interest, but if more than one of them shall be present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
36
Interest. A proxy purporting to be given by or on behalf of a Partner of
record on the record date for a meeting shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such Interest is a minor or
a person of unsound mind, and subject to guardianship or to the legal control
of any other person as regards the charge or management of such Interest, he
may vote by his guardian or such other person appointed or having such
control, and such vote may be given in person or by proxy. The Directors shall
have the authority to make and modify from time to time regulations regarding
the validity of proxies. In addition to signed proxies, such regulations may
authorize facsimile, telephonic, Internet and other methods of appointing a
proxy that are subject to such supervision by or under the direction of the
Directors as the Directors shall determine.
10.11 Removal of the General Partner
The General Partner may be removed with or without
cause at any time on not less than 60 days notice by vote of either (a) the
Board of Directors at a meeting called for such purpose or (b) by a majority
of the Interests at a meeting called for such purpose. Upon any such removal,
for purposes of determining any allocations and distributions due to the
General Partners pursuant to Section 7 or 8 hereof, the Company shall be
deemed to have liquidated all of its Assets at fair value as determined
pursuant to the Investment Management Agreement.
SECTION 11.
ADMISSION OF ADDITIONAL PARTNERS;
ASSIGNMENTS OR TRANSFERS OF INTERESTS
11.1 Admission of Additional Partners
No additional Partners will be admitted after the
Closing Date, except as provided in Sections 5.2, 7.1 and 11.2.
11.2 Assignments or Transfers of Interests
(a) In no event shall all or any part of a Partner's
Interests be Transferred if such Transfer would result in there being more
than 95 Partners for purposes of Treasury Regulation ss.1.7704-1(h), and any
such purported Transfer shall be void and shall not be recognized by the
Company. In no event shall all or any part of a Partner's Preferred Interests
be Transferred, and any such purported Transfer shall be void and shall not be
recognized by the Company, unless all of the conditions set forth in the
applicable Statement of Preferences with respect thereto have been satisfied.
In no event shall all or any part of a Partner's Common Interests be
Transferred, and any such purported Transfer shall be void and shall not be
recognized by the Company or the Partners, unless all of the following
conditions are satisfied:
37
(i) The Transferor, if requested by the Company in its
sole discretion, has delivered to the Company an opinion of counsel
reasonably acceptable to the Company that such Transfer (A) would not
violate the Securities Act or any state blue sky laws (including any
investor suitability standards) and, (B) would not result in the breach
of any agreement to which the Company is a party or by which it or any of
the Assets is bound;
(ii) The Transferor has demonstrated to the reasonable
satisfaction of the Company that the Transferee is both an "accredited
investor" as defined in Rule 501(a) under the Securities Act and a
"qualified client" within the meaning of Rule 205-3 of the Advisers Act;
(iii) The Transferor has demonstrated to the reasonable
satisfaction of the Company that (1) either (a) the Transferee is not
(and, if it is disregarded as an entity separate from its owner within
the meaning of Treasury Regulations Section 301.7701-3(a) (a "DRE"), its
owner is not), for federal income tax purposes, a partnership, trust,
estate or "S Corporation" (as such terms are defined in the Code) (in
each case, a "Pass-through Entity") or (b) the Transferee (or, if the
Transferee is a DRE, its owner) is, for federal income tax purposes, a
Pass-through Entity but, after giving effect to such purchase of such
Interest by such Transferee (or, if the Transferee is a DRE, its owner),
less than 50 percent of the aggregate value of the beneficial ownership
interests in the Pass-through Entity (or, if the Transferee is a DRE, its
owner) is attributable to the Pass-through Entity's ownership of
Interests, and (2) such Interests have not been, and will not be,
marketed on or transferred through an "established securities market"
within the meaning of Section 7704(b) of the Code and any Treasury
Regulations thereunder, including, without limitation, an over the
counter market or an interdealer quotation system that regularly
disseminates firm buy or sell quotations;
(iv) The Company has received a notice of Transfer
signed by both the Transferor and Transferee, such notice to be
substantially in the form of Appendix B attached hereto (or such other
document specified in the applicable Statement of Preferences); and
(v) the Company consents in writing to such Transfer
(which consent may be withheld in the Company's reasonable discretion).
(b) Provided the foregoing conditions are met, the
Transferee may become a Substituted Partner if and only if, with respect to
Preferred Interests, any requirements set forth in the relevant Statement of
Preferences are satisfied and, with respect to Common Interests, each of the
following conditions is satisfied:
(i) The Company has consented in writing to the
substitution (which consent may be withheld in the Company's reasonable
discretion with respect to Transfers of Common Interests only if the
transfer conditions described above have not been met or have not been
waived);
38
(ii) The Transferor and Transferee execute, acknowledge
and deliver such instruments as the Company deems necessary, appropriate
or desirable to effect such substitution, including the written
acceptance and adoption by the Transferee of this Agreement; and
(iii) The Transferee agrees to bear all of the
Company's expenses and costs incurred in connection with the Transfer and
substitution, including legal fees and filing fees.
Upon the satisfaction of the conditions set forth in this
Section 11.2(b), the Company shall record on the books and records of the
Company the Substituted Partner as a Partner of the Company.
(c) A Transferee, legal representative or successor in
interest of a Partner shall be subject to all of the restrictions upon a
Partner provided in this Agreement.
(d) A Transferee of Interests who desires to make a further
Transfer shall be subject to all of the provisions of this Section 11 to the
same extent and in the same manner as a Partner making the initial Transfer.
(e) Notwithstanding anything to the contrary in this
Agreement, the Company may elect (in the Company's sole discretion) to treat a
Transferee who has not become a Substituted Partner as a Partner in the place
of the Transferor should it determine such treatment to be in the best
interests of the Company.
(f) Upon the Incapacity of an individual Partner, such
Partner's personal representative or other successor in interest shall have
such rights as the Incapacitated Partner possessed to constitute a successor
as a Transferee of its Interests and to join with such Transferee in making
application to substitute such Transferee as a Partner, all as provided in
Sections 11.2(a) and (b).
(g) Upon the Incapacity of a Partner other than an
individual, the authorized representative of such entity shall have such
rights as such entity possessed to constitute a successor as a Transferee of
its Interests and to join with such Transferee in making application to
substitute such Transferee as a Partner, all as provided in Sections 11.2(a)
and (b).
(h) A Person who acquires Interests or an interest therein
but is not admitted to the Company as a Substituted Partner pursuant to
Section 11.2(b) shall (i) in the case of a Person acquiring Common Interests
or an interest therein who does not satisfy Section 11.2(a)(ii), obtain no
rights whatsoever in the Company, such Transfer shall be void as between such
Person and the Company and the Company shall have the absolute right in its
sole discretion to Transfer such Common Interests to any Person who does
satisfy Section 11.2(a)(ii) for such consideration as the Company deems
sufficient in the circumstances and to remit to such Person who acquired such
Common Interests in violation of this Agreement such portion of such
consideration not in excess of 75% thereof as the Company receives in complete
satisfaction of such Person's interest in the Company and (ii) in the case of
a Person acquiring Preferred Interests or an interest therein, be entitled
39
only to the allocations and distributions with respect to such Interests in
accordance with this Agreement or relevant Statement of Preferences but shall
have no right to any information or accounting of the affairs of the Company
and shall not have any voting or other rights of a Partner under this
Agreement or relevant Statement of Preferences; provided, however, that such
Person described in this clause (ii) shall be entitled to receive such
information and accountings as shall be consented to by the Company, which
consent shall not be unreasonably withheld. A Substituted Partner shall
succeed to all the rights and be subject to all the obligations of the
Transferor Partner in respect of the Interests or other interest as to which
it was substituted.
SECTION 12.
POWER OF ATTORNEY
12.1 Appointment of General Partner
Each Partner, by becoming a Partner, makes,
constitutes and appoints the General Partner as its true and lawful
attorney-in-fact, in its name, place and stead, with full power to do any of
the following:
(a) Execute on its behalf, file and record this Agreement
and all amendments to this Agreement made and otherwise approved in accordance
with Section 10.3 or otherwise made in accordance with the terms of this
Agreement;
(b) Prepare, execute on its behalf, verify, file and record
amendments to this Agreement made in accordance with the terms of this
Agreement or to the books and records of the Company reflecting (i) a change
of the name or location of the principal place of business of the Company,
(ii) a change of the name or address of any Partner, (iii) the addition of
Partners, (iv) the disposal by a Partner of its Interests in any manner, (v) a
Person becoming or ceasing to be a Partner of the Company, (vi) the exercise
by any Person of any right or rights hereunder, (vii) the correction of
typographical or similar errors, (viii) any amendments made in accordance with
Section 10.3, and (ix) any amendment and restatement of this Agreement
reflecting such amendments;
(c) Prepare, execute on its behalf and record any amendments
to the Certificate that the Investment Manager may deem advisable or
necessary;
(d) Prepare, execute on its behalf, file and record any
other agreements, certificates, instruments and other documents required to
continue the Company, to admit Substituted Partners, to liquidate and dissolve
the Company in accordance with Section 16, to comply with applicable law, and
to carry out the purposes of clauses (a) and (b) above, to the extent
consistent with this Agreement; and
(e) Take any further action that the General Partner shall
consider advisable in connection with the exercise of the authority granted in
this Section 12.1.
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12.2 Nature of Special Power
The power of attorney granted under this Section
12 is a special power of attorney coupled with an interest, is irrevocable and
may be exercised by the General Partner by listing all of the Partners
executing any agreement, certificate, instrument or document with a single
signature of such attorney-in-fact acting as attorney-in-fact for all of them.
The power of attorney shall survive and not be affected by the Incapacity of a
Partner and shall survive and not be affected by the Transfer by a Partner of
the whole or a portion of its Interests, except where the Transfer is of all
of the Interests and the Transferee thereof with the consent of the Company is
admitted as a Substituted Partner; provided, however, that this power of
attorney shall survive such Transfer for the sole purpose of enabling any such
attorney-in-fact to effect such substitution. This power of attorney does not
supersede any part of this Agreement, nor is it to be used to deprive any
Partner of its rights hereunder. It is intended only to facilitate the
execution of documents and the carrying out of other procedural or ministerial
functions.
SECTION 13.
BOOKS, RECORDS AND REPORTS
13.1 Books
(a) The Company shall maintain books and records required by
law for the Company at its principal office, which shall be in the United
States, and each Partner shall have the right to inspect, examine and copy
such books and records at reasonable times and upon reasonable notice for the
purposes required by the Investment Company Act relating to trusts or as
authorized by the Directors or their delegate. All such books and records may
be in electronic format, including the register of Partners and all capital
account and accounting records. Upon the request of a Partner, the Company
shall promptly deliver to the requesting Partner, at the expense of the
Company, a copy of any information which the Company is required by law to so
provide in paper or electronic format. Notwithstanding the foregoing
inspection rights or any other provision of this Section 13, the Company shall
be entitled, as and to the extent permitted by Section 17-305 of the Delaware
Act, to keep confidential from the Partners all information such Partners do
not have a right to obtain pursuant to the Investment Company Act.
(b) A register shall be kept at the Company or any transfer
agent duly appointed by or under the direction of the Directors which shall
contain the names and addresses of the Partners and the Interests held by them
respectively and a record of all authorized transfers thereof. Separate
registers shall be established and maintained for each class and each series
of each class. Each such register shall be conclusive as to who are the
holders of the Interests of the applicable class and series and who shall be
entitled to receive dividends or distributions or otherwise to exercise or
enjoy the rights of Partners. No Partner shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein
provided, until he has given his address to a transfer agent or such other
officer or agent of the Directors as shall keep the register for entry
thereon. Except as otherwise provided in any Statement of Preferences, it is
not contemplated that certificates will be issued for the Interests; however,
41
the Company may authorize the issuance of certificates and promulgate
appropriate fees therefor and rules and regulations as to their use.
(c) The Company shall have power to employ a transfer agent
or transfer agents, and a registrar or registrars, with respect to the
Interests. The transfer agent or transfer agents may keep the applicable
register and record therein, the original issues and transfers, if any, of the
said Interests.
(d) Interests shall be transferable on the records of the
Company only by the record holder thereof or by its agent thereto duly
authorized in writing, upon delivery to the Company or a transfer agent of the
Company of a duly executed instrument of transfer, together with such evidence
of the genuineness of each such execution and authorization and of other
matters as may reasonably be required, including satisfaction of any or all of
the requirements of Section 11.2(a) or (b) for the addition or substitution of
the Transferee as a Partner. Upon such delivery and satisfaction of such
requirements the transfer shall be recorded on the applicable register of the
Company. Until such record is made, the Partner of record shall be deemed to
be the holder of such Interests for all purposes hereof and none of the
Company, the Directors, any transfer agent or registrar or any officer,
employee or agent of the Company shall be affected by any notice of the
proposed transfer.
Any person becoming entitled to any Interests in
consequence of the death, bankruptcy, or incompetence of any Partner, or
otherwise by operation of law, shall be recorded on the applicable register of
Interests as the holder of such Interests upon production of the proper
evidence thereof to the Directors or a transfer agent of the Company, but
until such record is made, the Partner of record shall be deemed to be the
holder of such for all purposes hereof, and neither the Directors nor any
transfer agent or registrar nor any officer or agent of the Company shall be
affected by any notice of such death, bankruptcy or incompetence, or other
operation of law.
13.2 Reports
(a) The Company shall prepare and send to Partners to the
extent and in the form required by the Investment Company Act and other
applicable law or any exchange on which Interests are listed a report of
operations containing financial statements of the Company prepared in
conformity with generally accepted accounting principles and applicable law
and a schedule setting forth the investments of the Company. Common Partners
shall receive quarterly reports of operations.
(b) Within 60 days after the end of each Fiscal Year, the
Company shall communicate in writing to each Partner (i) such information as
is necessary to complete such Partner's United States federal and state income
tax or information returns and (ii) annual financial statements audited by an
accounting firm of national reputation.
(c) Further, the Directors may, in their sole and absolute
discretion, cause to be prepared (i) such reports or other information as may
be necessary with respect to any Partner's qualification for the benefit of
any income tax treaty or provision of law reducing or eliminating any
withholding or other tax or governmental charge with respect to any Assets and
42
(ii) such other reports and financial statements of the Company as the
Directors deem appropriate for informing the Partners about the operations of
the Company.
The Company shall promptly distribute to the Partners notice
of the occurrence of any Default or Event of Default (as defined in the Credit
Agreement) under the Credit Agreement.
(d) To the extent that the Company has access thereto and in
recognition of the various Partners' obligations to comply with certain
regulatory requirements, the Company will also provide to each Partner, with
reasonable promptness, such other data and information concerning the Company
or Company activities in response to a request by any applicable governmental
or regulatory agency as from time to time a Partner may reasonably request. If
the Company is bound by confidentiality obligations with respect to any
information so requested, then the Company shall not be obligated to provide
such information. A Partner shall, at the request of the Company, enter into a
confidentiality agreement relating to such information.
SECTION 14.
VALUATION OF ASSETS AND INTERESTS
The value of the Assets of the Company, the amount of
liabilities of the Company, the Net Asset Value, and the Net Asset Value of
each outstanding Common Share of the Company shall be determined on each
Valuation Date in accordance with generally accepted accounting principles and
the Investment Company Act. The method of determination of Net Asset Value
shall be determined by or under the supervision of the Board of Directors. The
making of Net Asset Value determinations and calculations may be delegated by
the Board of Directors.
SECTION 15.
BANK ACCOUNTS; CUSTODIAN
15.1 Bank Accounts Generally
Subject to the requirements of the Investment
Company Act, all funds received by the Company may be deposited in one or more
Custodial Accounts in the name of the Company at the Custodian. Subject to
Section 15.2, disbursements therefrom may be made by the Company in conformity
with the purposes of this Agreement and the requirements of the Investment
Company Act. The Company may designate from time to time those Persons
authorized to execute checks and other items on the Company bank accounts. The
funds of the Company shall not be commingled with the funds of any other
Person.
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15.2 Custodian
(a) The Company shall appoint one or more Custodians to hold
the Assets of the Company in one or more separately identified Custodial
Accounts or multiparty arrangements in accordance with the Advisory Agreement,
the Co-Advisory Agreement, the Credit Agreement, any Statement of Preferences,
the Custodial Agreement and the Pledge and Intercreditor Agreement (each as
defined in the Credit Agreement to the extent not defined herein) and in
compliance with the requirements of the Investment Company Act and other
applicable law. The Custodian shall at all times be responsible for the
physical custody of the Assets of the Company and for the collection of
interest, dividends and other income attributable to the Assets of the
Company. The Company will direct the Custodian to accept settlement
instructions issued by the General Partner the Investment Manager and
authorized Persons in accordance with the requirements of the Investment
Company Act.
(b) Nothing contained in this Agreement shall be construed
to authorize or require the Board of Directors, the General Partner or the
Investment Manager to take or receive physical possession of any Asset of the
Company or to take any action in violation of law, it being understood that
the Custodian shall solely be responsible for the safekeeping of the Assets
and the consummation of all such purchases, sales and deliveries of the Assets
in accordance with this Agreement and the Advisory Agreement, the Co-Advisory
Agreement, the Credit Agreement, any Statement of Preferences, the Custodial
Agreement and the Pledge and Intercreditor Agreement and in compliance with
the requirements of the Investment Company Act and other applicable law.
SECTION 16.
DISSOLUTION AND TERMINATION OF THE COMPANY
16.1 Dissolution Generally
Except as provided in this Agreement, no Partner
shall have the right to cause any dissolution of the Company before expiration
of its term.
16.2 Continuation of Company
The Company shall not be dissolved or terminated
by the Incapacity of any Partner as such, the Transfer by any Partner of its
Interests or the admission of a new or substituted Director or Partner, and
the existence and business of the Company shall be continued notwithstanding
the occurrence of any such event.
16.3 Events Causing Dissolution
Subject to the restriction on liquidation set
forth in Section 16.7, the Company may be dissolved prior to the time set
44
forth in Article 4 after two-thirds of the Directors then in office have
approved a resolution therefor, upon approval by Interests having at least 75%
of the votes of all of the Interests outstanding on the record date for such
meeting, voting as a single class except to the extent required by the
Investment Company Act. Notwithstanding the foregoing, the Company shall
automatically be merged into the Parent and terminate its existence at such
time as, pursuant to receipt of no-action or other appropriate relief from the
Securities and Exchange Commission or its staff, the board of directors of the
Parent is able to so authorize, the Parent issues Series S Preferred Stock of
the Parent to the General Partner or its designee. Each Partner, upon becoming
a Partner, consents to such termination and merger, including the exchange by
each Preferred Partner of its Preferred Interests for an equivalent amount of
preferred shares of the Parent having substantially similar terms and the
exchange of the General Partner's Interest for the share or shares of Series S
Preferred Stock of the Parent, to the extent any consent of Partners would be
required therefor.
16.4 Distribution of Assets on Liquidation
(a) In liquidating the Company, the Company will make
distributions in cash, in kind, or partly in cash and partly in kind as the
General Partner, under the supervision of the Board of Directors, may, in its
sole discretion, determine; provided, however, that any distribution made
partly in cash and partly in kind shall be pro rata among the Partners in
proportion to their interests to the extent reasonably practicable and if not
reasonably practicable, in such non-pro rata manner as is determined by the
Investment Manager, under the supervision of the Board of Directors, to be
fair and equitable; provided, further, that the General Partner will use
reasonable efforts to make all distributions in kind, if any, in the form of
freely tradable securities. The General Partner need not distribute all of the
Assets at once, but may make partial distributions and shall not be required
to redeem the Preferred Interests prior to making any liquidating distribution
in respect of the Common Interests so long as the Company has set aside liquid
assets in excess of liabilities sufficient to pay the liquidation preference
and all accumulated and unpaid distributions of the Preferred Interests.
(b) In connection with the liquidation of the Company, the
Assets (after paying or otherwise providing for the claims of creditors of the
Company, the Advisory Fees, claims by the Board of Directors, the General
Partner, the Investment Manager, the Co-Manager or their respective Affiliated
Persons for expenses of the Company paid by any of them, any other liabilities
of the Company and reasonable reserves for any anticipated or contingent
liabilities or obligations and all accumulated and unpaid distributions on
Preferred Interests) shall be distributed to the Partners in accordance with
Section 8.1.
16.5 Liquidation Statement
(a) Upon compliance by the Company with all applicable
requirements for dissolution, the Partners shall cease to be such and the
Company shall execute, acknowledge and cause to be filed a Certificate of
Cancellation of the Company or other appropriate documents evidencing its
dissolution and winding up.
(b) Notwithstanding anything to the contrary contained
herein, if the Board of Directors has been removed or resigned and the Company
has been dissolved, any Partner or other Person appointed by the Partners may
45
act as liquidating trustee for the Company during the winding up period, and
receive reasonable compensation for such activity, all as approved by the
Partners holding Interests that represent a majority of the outstanding
Interests.
16.6 Director's Liability Upon Dissolution or Removal
None of the Directors shall be personally liable
for the return of all or any part of the contributions of the Partners to the
Company or for any other distributions to be made by the Company. Any such
return or distributions shall be made solely from the Assets.
SECTION 17.
GENERAL PROVISIONS
17.1 Notices and Distributions
Except as otherwise provided herein, any notice,
distribution, offer or other communication which may be given to any Partner
in connection with the Company or this Agreement shall be duly given if
reduced to writing and:
(a) if to any Partner, when personally delivered, or if sent
by mail, postage prepaid, overnight courier or facsimile transmission, when
actually received at the last address furnished by such Partner pursuant to
Section 2.3 for notice purposes at the time of such mailing, overnight courier
or facsimile transmission; and
(b) if to the Company, the General Partner or the Board of
Directors, sent to 0000 00xx Xxxxxx, Xxxxx 0000, Xxxxx Xxxxxx, Xxxxxxxxxx
00000, Attention: Xxxxxx X. Xxxxxxxxx with a copy to the Investment Manager,
0000 00xx Xxxxxx, Xxxxx 0000, Xxxxx Xxxxxx, Xxxxxxxxxx 00000, Attention:
Xxxxxx X. Xxxxxxxxx, personally delivered or if sent by mail, overnight
courier or facsimile transmission when actually received at the address set
forth above or at such other address as the Company, the General Partner or
the Board of Directors, respectively, may then have specified in writing to
the Company.
All distributions to the Partners shall be made to the
extent practicable by wire transfer to the accounts specified by the Partners,
which accounts may be changed from time to time by written notice to the
Company.
17.2 Survival of Rights
This Agreement shall be binding upon and, as to
permitted or accepted successors, Transferees and assigns, inure to the
benefit of the Partners and the Company and their respective heirs, legatees,
legal representatives, successors, Transferees and permitted assigns, in all
cases whether by the laws of descent and distribution, merger, consolidation,
sale of assets, operation of law, or otherwise.
46
17.3 Construction
The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not strictly
for or against any Person.
17.4 Section Headings
The captions of the sections in this Agreement are
for convenience only and shall not be used in construing or interpreting this
Agreement.
17.5 Agreement in Counterparts
This Agreement and any amendments hereto may be
executed and delivered by facsimile and in multiple counterparts, each of
which shall be deemed an original agreement and all of which shall constitute
one and the same agreement, notwithstanding the fact that all Partners are not
signatories to the original or the same counterpart.
17.6 Governing Law
This Agreement has been executed by or on
authority of a majority of the Directors and the rights of all parties and the
validity and construction of every provision hereof shall be subject to and
construed according to the internal laws, and not the laws pertaining to
choice or conflict of laws, of the State of Delaware, and reference shall be
specifically made to the general corporation law of the State of Delaware as
to the construction of matters not specifically covered herein or as to which
an ambiguity exists, although such law shall not be viewed as limiting the
powers otherwise granted to the Directors hereunder and any ambiguity shall be
viewed in favor of such powers.
17.7 Additional Documents
Each Partner, upon the request of the Company,
agrees to perform all further acts and execute, acknowledge and deliver all
further documents which may be reasonably necessary, appropriate or desirable
to carry out the provisions of this Agreement, including but not limited to,
acknowledging before a Notary Public any signature heretofore or hereafter
made by a Partner.
17.8 Severability
Should any portion or provision of this Agreement
be declared illegal, invalid or unenforceable in any jurisdiction, then such
portion or provision shall be deemed to be severable from this Agreement to
the extent practicable while preserving the economic intention of the parties
and, in any event, such illegality, invalidity or unenforceability shall not
affect the remainder hereof.
47
17.9 Pronouns
All pronouns and defined terms and any variations
thereof shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as the identity of the Persons referred to may require.
17.10 Entire Agreement
This Agreement, the Statements of Preferences
adopted pursuant hereto and the Subscription Agreements executed and delivered
by the Partners (i) constitute the entire Agreement of the Partners with
respect to the Company and (ii) supersede all prior or contemporaneous written
or oral agreements, understandings or negotiations with respect to the
Company. The parties hereto acknowledge that the ability of the Partners and
of the Company to take certain of the actions contemplated hereby may be
limited by the terms of the Credit Agreement and the Statements of Preferences
to the extent provided therein.
17.11 Arbitration
To the extent permitted by law, any dispute
relating to this Agreement or the Company which cannot be amicably resolved
among the parties to such dispute shall be resolved by binding arbitration
conducted in Los Angeles, California in accordance with the rules of the
American Arbitration Association then prevailing, and the decisions of the
arbitrators shall be final and binding on all the parties. The costs of the
arbitration (other than fees and expenses of counsel, which shall be the
responsibility of the parties retaining such counsel) shall be allocated among
the parties as determined by the arbitrator.
17.12 Waiver of Partition
Each Partner hereby irrevocably waives and
forfeits any and all rights that it may have, whether arising under contract
or statute or by operation of law, to maintain an action for partition of the
Company or any of the Assets.
17.13 Non-Petition Covenant
Each Partner hereby agrees not to cause the filing
of a petition in bankruptcy against the Company for any reason until at least
367 days (or, if longer, the preference period then in effect under applicable
federal and state law) after the termination of the Credit Agreement (without
any replacement thereof).
17.14 Filing
This Agreement and any amendment (including any
supplement) hereto shall be filed in such places as may be required or as the
48
Company deem appropriate. Each amendment shall be accompanied by a certificate
signed and acknowledged by an authorized Person stating that such action was
duly taken in a manner provided herein, and shall, upon insertion in the
Company's minute book, be conclusive evidence of all amendments contained
therein. A restated Agreement, containing the original Agreement as amended by
all amendments theretofore made, may be executed from time to time by an
authorized Person and shall, upon insertion in the Company's minute book, be
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Agreement and the various amendments
thereto.
49
IN WITNESS WHEREOF, the Secretary of the Company has hereunto set his
hands as of the date first written above.
SECRETARY:
------------------------------------
Xxxxx X. Xxxxxxxxx
S-1
COMMON PARTNERS:
Those Persons subscribing for Common Interests
and admitted as Partners by the General Partner:
By: SVOF/MM, LLC
By:
------------------------------------------
Name:
Title:
PREFERRED PARTNERS:
Those Persons subscribing for Series A Preferred
Interests and admitted as Partners by the General
Partner:
By: SVOF/MM, LLC
By:
------------------------------------------
Name:
Title:
S-2
APPENDIX A
Statement of Preferences of Series A Preferred Interests
A-1
APPENDIX B
Form of Notice of Transfer
[Date]
Special Value Continuation Partners, LP
c/x Xxxxxxxxxx Capital Partners, LLC
0000 00xx Xx. Xxxxx 0000,
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
Ladies and Gentlemen:
This is to advise you that [_______________] (the "Purchaser") will purchase
(contingent only upon the approval of such purchase by Special Value
Continuation Partners, LP, a Delaware limited partnership (the "Company")) in
a private resale (the "Purchase") from [___________________] (the "Seller")
[insert number or amount] of [Common Interests (the "Interests")] issued
pursuant to the Partnership Agreement of the Company dated as of [ ] (as
amended, modified or supplemented from time to time, the "Partnership
Agreement"). Capitalized terms used herein and not defined have the respective
meanings assigned to them in the Partnership Agreement, a copy of which has
been provided to the undersigned by the Seller. Seller has also provided to
the Purchaser the Confidential Private Placement Memorandum, dated [ ],
relating to the Interests of the Company, together with any supplements
thereto (the "Confidential Private Placement Memorandum").
The undersigned hereby irrevocably agrees, represents and warrants on behalf
of the Purchaser that:
1. The Purchaser has been provided with and has truthfully and
accurately completed and returned to the Investment Manager a
subscription agreement, which is attached hereto, and the
representations and warranties made by the Purchaser in such
subscription agreement, including, without limitation, the
representations and warranties relating to the Purchaser's status as
an "accredited investor" within the meaning of Regulation D
promulgated under the Securities Act and as a "qualified client"
within the meaning of Rule 205-3 under the Investment Advisers Act of
1940, accurately describe the status of the Purchaser. The Purchaser
understands that the Company and the Investment Manager will rely on
the representations and warranties made by the Purchaser in the
subscription agreement in determining the eligibility of the
Purchaser to purchase the Interests.
2. If the Purchaser resells or transfers all or any portion of the
Interests, the Purchaser will obtain from each purchaser or
transferee a letter containing the same representations and
agreements as set forth herein and will have such purchaser or
transferee complete a subscription agreement.
B-1
3. The Purchaser (i) hereby agrees that this Transfer Certificate may be
attached to the Partnership Agreement and (ii) by executing and
delivering this Transfer Certificate, with the consent of the
Company, hereby becomes a Substituted Partner under the Partnership
Agreement and agrees to be bound by all the terms thereof.
4. The Purchaser hereby constitutes and appoints the Investment Manager
its true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for the Purchaser and in its name,
place and stead, in any and all capacities, to take any and all
actions as are authorized by the power of attorney contained in the
Partnership Agreement.
The power of attorney granted hereby shall be deemed an irrevocable
special power of attorney, coupled with an interest, which the
Investment Manager may exercise for the Purchaser by the signature of
the Company or by listing the Purchaser as a Partner, and executing
any instrument with the signature of the Company as attorney-in-fact
for the Purchaser.
5. The Purchaser agrees to bear all of the Company's expenses and costs
incurred in connection with the Transfer and substitution, including
all legal fees and filing fees.
Very truly yours,
[Name of Purchaser]
Address:
By:
------------------------------- --------------------------------
Name:
Title:
--------------------------------
B-2
This Transfer Certificate shall constitute (i) the notice of Transfer required
under subsection 11.2(a)(iv) of the Partnership Agreement and (ii) the
instrument of transfer required under subsection 13.1(d) of the Partnership
Agreement.
[Name of Seller]
Address:
By:
------------------------------- --------------------------------
Name:
Title:
--------------------------------
B-3
The undersigned, on behalf of the Company, hereby acknowledges receipt of this
Transfer Certificate and acknowledges and agrees that this Transfer
Certificate shall constitute the notice of Transfer required under subsection
11.2(a)(iv) of the Partnership Agreement and the instrument of transfer
required under subsection 13.1(d) of the Partnership Agreement. The
undersigned, on behalf of the Company, hereby consents to the Transfer which
is the subject of this notice of Transfer pursuant to subsections 11.2(a)(v)
and 11.2(b)(i) of the Partnership Agreement and hereby acknowledges and agrees
that the Purchaser shall become a Substituted Partner under the Partnership
Agreement pursuant to subsection 11.2(b) of the Partnership Agreement. The
proper authorized Person of the Company will record on the books and records
of the Company the Purchaser as a Partner of the Company.
By: Xxxxxxxxxx Capital Partners, LLC,
Investment Manager of Special Value
Continuation Partners, LP
By:
------------------------------------
Name:
Title:
B-4
Appendix C
Schedule of Partners
C-1
