XXXXXXXXX.XXX OPPORTUNITY FUND, LLC
FORM OF OPERATING AGREEMENT
This OPERATING AGREEMENT ("Agreement") is entered into by XXXxxxxxx.xxx
Advisors, Inc. (the "Investment Manager"), and Xxxxxx X. Xxxxxxxx and [ ]
(the "Affiliated Directors"), and [ ], [ ], and [ ]
(the "Independent Directors"), and each of those Persons who shall hereafter be
admitted as Investors. The Investment Manager, Affiliated Directors, and
Independent Directors are collectively the "Managing Members" of this limited
liability company.
The Parties to this Agreement hereby agree as follows:
ARTICLE 1
INTRODUCTION
1.01 FORMATION. XXXxxxxxx.xxx Opportunity Fund, LLC (the "Fund") has been formed
as a limited liability company under the laws of the State of Delaware by the
filing of the Certificate of Formation pursuant to the Act (as defined herein),
on behalf of the parties and any and all Substituted Investors (as defined
herein). Except as expressly provided herein to the contrary, the rights and
obligations of the Investors and the administration and termination of the Fund
shall be governed by the Act.
1.02 NAME. The name of the Fund is "XXXxxxxxx.xxx Opportunity Fund, LLC" If
considered necessary in the opinion of counsel to the Fund to preserve the
limited liability of the Investors, Directors, and Investment Manager, property
acquired and business conducted by the Fund shall be in such other name as is
necessary to preserve such limited liability.
1.03 PURPOSE. The Fund is authorized and empowered to elect to operate, and to
operate, as a business development company under Section 55, et. al. of the
Investment Company Act of 1940, as amended. The Fund's principal investment
objective is to generate long-term capital appreciation of its assets through
investment in venture capital opportunities. The Fund will seek to accomplish
this objective by making venture capital investments in new and developing
companies that the Investment Manager believes offer significant long-term
growth possibilities and by providing those companies with active management
assistance where warranted. The Fund will also seek to achieve this objective by
investing in established companies that the Investment Manager believes offer
special opportunities for growth. The Fund will seek to preserve the Investors'
capital through risk management and active participation with Portfolio
Companies. Generation of current income or tax benefits will not be primary
factors in the selection of investments.
1.04 PLACE OF BUSINESS AND OFFICE; REGISTERED AGENT. The Fund shall maintain its
principal office at: 000 X 00xx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000.
The Directors (as defined herein), may at any time change the location of the
Fund's offices and may establish additional offices if they deem it advisable.
Notification of any such change shall be given to the Investors on or before the
date of any such change. The name and address of the Fund's registered agent for
service of process is The Corporate Trust Company, Corporation Trust Center,
0000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxx Xxxxxx Xxxxxx, Xxxxxxxx 00000.
1.05 TERM. The operation of the Fund shall commence on the Commencement Date (as
hereinafter defined), and shall continue in full force and effect until December
31, 2008, unless further extended for up to two additional two-year periods from
such date if the Directors determines that such an extension is in the best
interest of the Fund or until dissolution prior thereto pursuant to the
provisions hereof.
1.06 THE INVESTORS. The names, addresses, and Capital Contributions (as defined
herein), of the Investors are set forth in the books and records of the Fund, as
amended from time to time.
1.07 TITLE TO FUND PROPERTY. All property owned by the Fund, whether real or
personal, tangible or intangible, shall be owned by the Fund as an entity, and
no Investor, individually, shall have title to or any interest in such property.
ARTICLE 2
DEFINITIONS
Unless otherwise provided herein or unless the context otherwise requires, the
terms with initial capital letters in this Agreement are defined as follows:
(a) "ACT" means the Delaware Limited Liability Company Act, as at anytime
now existing or in the future
(b) "ADJUSTED CAPITAL CONTRIBUTIONS" means total Investor Capital
Contributions raised in the offering reduced by the cost basis of any Portfolio
Company securities (i) distributed to, or liquidated and the proceeds
distributed to, the Investors, or (ii) written off with no further attempt being
made by the Investment Manager to aid the Portfolio Company but not reduced by
net operating losses of the Fund.
(c) "AFFILIATE" means, when used with reference to a specific Person, an
"affiliated person" of such specified Person as defined in Section 2(a)(3) of
the 1940 Act.
(d) "AFFILIATED DIRECTORS" shall mean Xxxxxx X. Xxxxxxxx and [ ] and/or
any other successor or additional director that is an affiliate of the Fund
within the meaning of Section 2(a)(3) of the 1940 Act.
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(e) "AGREEMENT" means this Operating Agreement as originally executed and
as amended, modified, supplemented, or restated from time to time.
(f) "CAPITAL ACCOUNT" means a capital account for an Investor calculated
as set forth in Section 11.03.
(g) "CAPITAL CONTRIBUTION" means the total amount of cash that each
Investor has contributed to the capital of the Fund in consideration for such
Investor's Shares, without reduction for selling, organizational, or other
expenses, less any amounts returned pursuant to Section 7.05.
(h) "CASH AND SECURITIES AVAILABLE FOR DISTRIBUTION" means all Fund cash
from whatever sources derived, less such reserves as the Directors shall deem
reasonable for the Fund's business, plus any securities held by the Fund that
the Directors deem available for distribution.
(i) "CLOSING DATE" means the fifth business day after the Fund has
terminated the offering of Shares.
(j) "COMMENCEMENT DATE" means the commencement of Fund operations as
evident by the acceptance by the initial subscriptions.
(k) "CONSENT" means either (i) the approval given by vote at a meeting
called and held pursuant to this Agreement or (ii) the written approval required
or permitted to be given pursuant to this Agreement, or (iii) the act of
granting such an approval, as the context requires.
(l) "CONVERSION" means that point in time when the amount of cash plus the
value of all securities distributed valued at the time of distribution to the
Investors equals the aggregate Capital Contributions of all Investors reduced by
any returns of Capital Contributions pursuant to Section 7.05.
(m) "DIRECTOR" or "DIRECTORS" shall mean each Affiliated Director or
Independent Director in his or her capacity as a Director of the Fund
collectively, the governing body of the Fund.
(n) "DISTRIBUTION EXPENSES" means those distribution expenses incurred in
connection with the distribution of the Fund by XXXxxxxxx.xxx Securities, Inc.
under applicable federal and state laws, and any other expenses actually
incurred by XXXxxxxxx.xxx Securities, Inc., including but not limited to: (i)
accounting and legal fees incurred in connection therewith; (ii) Blue Sky filing
fees; (iii) the cost of preparing sales materials used in connection with the
distribution of shares; (iv) salaries earned and reasonable and necessary
expenses incurred by the partners, officers, directors, and employees of or
contractors of the Investment Manager or its Affiliates for distribution
activities.
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(o) "FUND" is defined in Section 1.01.
(p) "FUND INTEREST" means all of the interests of an Investor in the Fund,
including, without limitation, the Investor's: (i) right to a distributive share
of profits and losses; (ii) right to a distributive share of the assets of the
Fund; and (iii) right, if a Director or the Investment Manager, to participate
in the management of the Fund.
(q) "INCAPACITY" shall mean, as to any Person, the entry of an order for
relief in a bankruptcy proceeding ("bankruptcy"), entry of an order of
incompetence or insanity, or the death, dissolution, or termination (other than
by merger or consolidation), as the case may be, of such Person.
(r) "INDEPENDENT DIRECTORS" shall mean those that are not "Interested
Persons" of the Fund, as defined in the 1940 Act.
(s) "INVESTMENT MANAGER" means XXXxxxxxx.xxx Advisors, Inc. and/or any
other Person who becomes an Investment Manager of the Fund as provided herein,
in such Person's capacity as Investment Manager of the Fund.
(t) "INVESTMENT MANAGER OVERHEAD" means those customary and routine
expenses incurred by the Investment Manager solely for its own account and that
are not attributable in any way to performing its investment management
activities for the Fund. Investment Manager Overhead does not include direct or
indirect expenses incurred by the Investment Manager associated with its Fund
management activities including but not limited to appropriate allocations of:
(i) rent or depreciation, utilities, property taxes, and the cost of capital
equipment unless acquired primarily for the benefit of the Fund; (ii) salaries
and other compensation of officers, directors, and employees of or contractors
to the Investment Manager or its Affiliates; and (iii) expenses of a general and
administrative nature that are incurred by the Investment Manager on behalf of
the Fund.
(u) "INVESTOR" means any Person, including a Substituted Investor or the
Investment Manager, who is an Investor shown on the books and records of the
Fund at the time of reference thereto, in such Person's capacity as an Investor
in the Fund.
(v) "IRC" means the Internal Revenue Code of 1986, as amended.
(w) "MAJORITY IN INTEREST OF THE INVESTORS" means Investors who in the
aggregate own, at the time of the determination, more than 50% of the Shares
owned by all such Investors.
(x) "DIRECTORS" means the governing body of the Company as set forth in
Article 3.
(y) "NET LOSS" means for any Taxable Period the aggregate sum, if
negative, of all items of Fund income, gain, deduction, and loss, including
tax-exempt income and nondeductible expenses.
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(z) "NET PROFIT" means for any Taxable Period the aggregate sum, if
positive, of all items of Fund income, gain, deduction, and loss, including
tax-exempt income and nondeductible expenses.
(aa) "OFFERING PERIOD" means that period commencing with the effective
date of the Prospectus when the Fund began offering Shares and ending when such
offering is terminated.
(bb) "OPERATIONAL COSTS" means all expenses of the Fund except
Organizational Expenses, Distribution Expenses and Investment Manager Overhead
including but not limited to: (i) the costs of operations (e.g., documentation,
securities filings, other direct and indirect costs of selecting, negotiating,
monitoring, and liquidating Portfolio Company investments including consultants,
attorneys, accountants, appraisers, due diligence expenses, industry trade shows
and conferences, travel, investment banking fees and commissions, or preparation
of status reports); (ii) the Fund's accounting costs (e.g., maintenance of Fund
books and records, audit fees, preparation of regulatory and tax reports, costs
of computer equipment or services used by or charged to the Fund); (iii) the
costs of investor communications (e.g., design, production, and mailing of all
reports and communications to Investors, including those required by regulatory
agencies); (iv) the costs of investor documentation and services; (v) legal,
tax, and other professional services; (vi) salaries, benefits, and other
compensation plus an appropriate allocation of overhead burden (including but
not limited to an allocation of direct and indirect costs such as benefits;
recruitment and training; rent and related facilities expenses; costs of
acquiring, financing, and maintaining capital assets; financing charges and cost
of capital; insurance; security; storage; utilities, etc.) for partners,
officers, directors, employees of and contractors to the Investment Manager or
its Affiliates attributable to performing any of the foregoing activities; and
(vii) any other related operational or administrative expenses necessary for the
operation of the Fund.
(cc) "ORGANIZATIONAL EXPENSES" means those organizational expenses
incurred in connection with the formation of the Fund and in qualifying or
maintaining the qualification of Shares under applicable federal and state laws,
and any other expenses actually incurred and related to organizational
activities of the Fund, including but not limited to: (i) accounting and legal
fees incurred in connection therewith; (ii) registration fees; (iii) the cost of
preparing, printing, amending, and supplementing the Prospectus, registration
statement, and related filings; and (iv) salaries earned and reasonable and
necessary expenses incurred by the partners, officers, directors, and employees
of or contractors to the Investment Manager or its Affiliates for performing any
such organizational activities.
(dd) "PERSON" shall mean any individual, company, corporation,
unincorporated organization or association, trust, or other entity.
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(ee) "PORTFOLIO COMPANY" means any Person in which the Fund makes an
investment, other than a Short-Term Investment.
(ff) "PROSPECTUS" means that prospectus dated [ ], 2000, offering
Shares in the Fund, as supplemented and amended.
(gg) "SHARE" means a unit of interest in the Fund held by any Investor,
including the Investment Manager to the extent of its capital contributions.
(hh) "SHORT-TERM INVESTMENT" means commercial paper, government
obligations, money market instruments, certificates of deposit, or other similar
obligations and securities, or the liquid securities of issuers, such as
Investment Companies, which exclusively invest in such securities, in each case
where the maturity or average maturity, as the case may be, is one year or less
at the time of purchase by the Fund.
(ii) "SUBSTITUTED INVESTOR" means a Person admitted as an Investor to the
Fund other than a Director pursuant to Section 13.03 in place of and with all of
the rights of the Investor who has transferred or assigned such Investor's Fund
Interest to such Person, and who is shown as an Investor on the books and
records of the Fund.
(jj) "SUBSCRIPTION AGREEMENT" means the contract for the purchase of Fund
shares.
(kk) "TAXABLE PERIOD" means each calendar year.
(ll) "1940 ACT" means the Investment Company Act of 1940 and all rules and
regulations promulgated thereunder, as amended by the Small Business Incentive
Act of 1980, and as further amended from time to time.
ARTICLE 3
MANAGEMENT
3.01 BOARD OF DIRECTORS. The governing body of the Fund shall be the Directors,
which shall consist of such number of Independent Directors as is fixed pursuant
to Section 3.02 and two Affiliated Directors, who shall initially be Xxxxxx X.
Xxxxxxxx and [ ].
3.02 INDEPENDENT DIRECTORS. The number of Independent Directors shall initially
be three and shall be fixed from time to time thereafter by the Directors as
then constituted; provided, however, that the number of Independent Directors
shall in no event be less than three or more than five. A majority of the
members of the Board of Directors shall at all times be Independent Directors.
If at any time the number of Independent Directors is less than a majority,
action shall be taken within 90 days
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thereafter, pursuant to Section 3.04 to restore the number of Independent
Directors to a majority.
3.03 DIRECTORS. The Directors shall have the powers specified in Section 3.05.
3.04 APPROVAL AND ELECTION OF DIRECTORS. The Directors shall hold office from
their election until their successors are elected, unless they are sooner
removed pursuant to Section 12.03 or sooner withdrawn pursuant to Section 12.01
or 12.02, as the case may be. The Directors may designate successor Directors
members to fill vacancies created by the retirement or withdrawal of a Director
pursuant to Section 12.01 or 12.02 or by the removal of a Director pursuant to
Section 12.03. The Directors may designate Independent Directors to fill any
vacancies created by an increase in the number of Independent Directors pursuant
to Section 3.02 or by the withdrawal or removal of an Independent Director. In
the event that no Independent Directors remain, the Directors shall continue the
business of the Fund and shall perform all duties of the Directors under this
Agreement and shall, within 90 days, call a special meeting of Investors for the
purpose of approving and electing Independent Directors. Each Investor other
than a Director hereby consents to the admission of any successor Independent
Directors pursuant to this Section 3.04, and no further consent shall be
required. Any successor Independent Director designated by the Directors shall
hold office until his or her successor has been approved and elected, unless he
or she is sooner removed pursuant to Section 12.03 or withdraws pursuant to
Section 12.01.
3.05 DIRECTORS POWERS. Subject to the terms hereof, including but not limited to
Section 3.06, the Directors shall have full, exclusive, and complete discretion
in the management and control of the affairs of the Fund, shall make all
decisions affecting Fund affairs and shall have all of the rights, powers, and
obligations of a managing member of a limited liability company under the Act
and otherwise as provided by law. The Directors shall provide overall guidance
and supervision with respect to the operation of the Fund, shall perform all
duties imposed on the directors of business development companies by the 1940
Act, and shall monitor the activities of Portfolio Companies in which the Fund
has invested. Except as otherwise expressly provided in this Agreement, the
Directors are hereby granted the right, power, and authority to do on behalf of
the Fund all things which, in its sole judgment, are necessary or appropriate to
manage the Fund's affairs and fulfill the purposes of the Fund, including, by
way of illustration and not by way of limitation, the power and authority from
time to time to do the following:
(a) subject to Section 3.14, invest the assets of the Fund in such
investments as are consistent with the Fund's purpose, provided that such
investments do not cause the Fund to fail to comply with Section 55 of the 1940
Act;
(b) incur all expenses permitted by this Agreement;
(c) to the extent that funds are available, cause to be paid all expenses,
debts, and obligations of the Fund;
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(d) employ and dismiss from employment such agents, employees, managers,
accountants, attorneys, consultants, and other Persons necessary or appropriate
to carry out the business and affairs of the Fund, whether or not any such
Persons so employed are Affiliates of any Directors or the Investment Manager,
and to pay such compensation to such Persons as is competitive with the
compensation paid to unaffiliated Persons in the area for similar services,
subject to the restrictions set forth in Section 3.11;
(e) subject to the indemnification provisions in this Agreement, pay,
extend, renew, modify, adjust, submit to arbitration, prosecute, defend, or
settle, upon such terms deemed sufficient, any obligation, suit, liability,
cause of action, or claim, including tax audits, either in favor of or against
the Fund;
(f) enter into any sales, agency, or dealer agreements, and escrow
agreements, with respect to the sale of Shares to Investors and provide for the
distribution of such Shares by the Fund through one or more broker-dealers
(which may be Affiliates of the Directors), or otherwise;
(g) borrow money and issue multiple classes of senior indebtedness or a
single class of interests senior to the Shares to the extent permitted by the
1940 Act and repay, in whole or in part, any such borrowings or indebtedness and
repurchase or retire, in whole or in part, any such interests senior to the
Shares; and in connection with such loans or senior instruments to mortgage,
pledge, assign, or otherwise encumber any or all properties or assets owned by
the Fund, including any income therefrom, to secure such borrowings or provide
repayment thereof;
(h) establish and maintain accounts with financial institutions, including
federal or state banks, brokerage firms, trust companies, savings and loan
institutions, or money market funds;
(i) make temporary investments of Fund capital in Short-Term Investments;
(j) to the extent permitted by the 1940 Act, form or cause to be formed
one or more small business investment companies under the Small Business
Investment Fund Act of 1958, as amended;
(k) establish valuation principles and periodically apply such principles
to the Fund's venture capital investment portfolio;
(l) to the extent permitted by the 1940 Act, designate and appoint one or
more agents for the Fund who shall have such authority as may be conferred upon
them by the Directors and who may perform any of the duties of, and exercise any
of the powers and authority conferred upon, the Directors hereunder including,
but not limited to, designation of one or more agents as authorized signatories
on any bank accounts maintained by the Fund;
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(m) prosecute, protect, defend, or cause to be protected and defended, or
abandon, any patent, patent right, copyright, trade name, trademark, and service
xxxx, and any application with respect thereto, that may be held by the Fund;
(n) take all reasonable and necessary actions to protect the secrecy of
and the proprietary rights with respect to any know-how, trade secret, secret
process, or other information and to prosecute and defend all rights of the Fund
in connection therewith;
(o) subject to the other provisions of this Agreement, to enter into,
make, and perform such contracts, agreements, and other undertakings, and to do
such other acts, as it may deem necessary or advisable for, or as may be
incidental to, the conduct of the business contemplated by this Section 3.05,
including, without in any manner limiting the generality of the foregoing,
contracts, agreements, undertakings, and transactions with any Investor or with
any other person, firm, or corporation having any business, financial, or other
relationship with any Investor, provided, however, such transactions with such
Persons and entities (i) shall only be entered into to the extent permitted
under the 1940 Act and (ii) shall be on terms no less favorable to the Fund than
are generally afforded to unrelated third parties in comparable transactions;
(p) purchase, rent, or lease equipment for Fund purposes;
(q) purchase and maintain, at the Fund's expenses, liability and other
insurance to protect the Fund's assets from third party claims; provided that,
in its judgment, such insurance is available and reasonably priced; and cause
the Fund to purchase or bear the costs of any insurance covering the potential
liabilities of the Investors, or employees or partners of the Fund or Investment
Manager as well as the potential liabilities of any Person serving at the
request of the Investment Manager as a director of or advisor to a Portfolio
Company; provided, however, that the Directors or Investment Manager as the case
may be shall be required to bear, out of their separate assets, the portion of
the premiums for any such insurance coverages beyond those for matters against
which the Fund is permitted to indemnify the Directors under Article 10;
(r) cause to be paid any and all taxes, charges, and assessments that may
be levied, assessed or imposed upon any of the assets of the Fund;
(s) make any election on behalf of the Fund that is or may be permitted
under the IRC and supervise the preparation and filing of all tax and
information returns that the Fund may be required to file;
(t) take any action that may be necessary or appropriate for the
continuation of the Fund's valid existence as a limited liability company under
the laws of the State of Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Investors or to
enable the Fund to conduct the business in which it is engaged;
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(u) admit additional Investors to the Fund in accordance with Section
7.02; admit an assignee of an Investor's Fund Interest to be a Substituted
Investor in the Fund, pursuant to and subject to the terms of Section 13.03,
without the consent of any other Investor; and
(v) perform all normal business functions, and otherwise operate and
manage the business and affairs of the Fund, in accordance with and as limited
by this Agreement.
3.06 INVESTMENT MANAGER. The Investment Manager is hereby granted the exclusive
power and authority from time to time to do the following:
(a) subject to the supervision of the Directors, manage and control the
venture capital investments of the Fund, including, but not limited to, the
power to make all decisions regarding the Fund's venture capital investment
portfolio and, among other things, to find, evaluate, structure, monitor, sell,
and liquidate, upon dissolution or otherwise, such investments, to provide, or
arrange for the provision of, managerial assistance to Portfolio Companies and
in connection therewith to enter into, execute, amend, supplement, acknowledge,
and deliver any and all contracts, agreements, or other instruments for the
performance of such functions, including the investment and reinvestment of all
or part of the Fund's assets, execution of portfolio transactions, and any or
all administrative functions; and
(b) on behalf of the Fund, grant Fund guarantees of Portfolio Company
borrowings so long as the aggregate guarantees outstanding at any time do not,
when combined with Fund borrowings, exceed 50% of the Fund's aggregate Capital
Contributions.
The grant of exclusive power and authority to the Investment Manager under this
Section 3.06 in no way limits the rights, powers, or authority of the Directors
under this Agreement, the Act, or as otherwise provided by law.
3.07 TAX MATTERS PARTNER; TAX ELECTIONS. The Investment Manager shall perform
all duties imposed by Sections 6221 through 6233 of the IRC as "Tax Matters
Partner" of the Fund, including, but not limited to, the following: (i) the
power to conduct all audits and other administrative proceedings with respect to
Fund tax items; (ii) the power to extend the statute of limitations for all
Investors with respect to Fund tax items; (iii) the power to file a petition
with an appropriate federal court for review of a final Fund administrative
adjustment; and (iv) the power to enter into a settlement with the Internal
Revenue Service on behalf of, and binding upon, those Investors having less than
a 1% interest in the profits of the Fund unless an Investor notifies the
Internal Revenue Service and the Investment Manager that the Investment Manager
may not act on such Investor's behalf.
The Directors may cause the Fund to make all elections required or permitted to
be made by the Fund under the IRC and not otherwise expressly provided for in
this Agreement, in
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the manner that the Directors believes will be most advantageous to individual
taxpayers who: (i) are married and filing joint federal income tax returns; (ii)
are not "dealers" for federal income tax purposes; (iii) are not subject to
alternative minimum tax; and (iv) have income at least part of which, without
giving effect to any additional tax on preference items, is subject to the
maximum federal income tax rate in effect at the time of the election.
3.08 APPOINTMENT OF AUDITORS. Subject to the approval of (i) a Majority in
Interest of the Investors (which approval is subject to Section 14.02) and (ii)
a majority of the Independent Directors, the Directors, in the name and on
behalf of the Fund, are authorized to appoint independent certified public
accountants for the Fund.
3.09 GOOD FAITH. The Directors shall not cause the Fund to consent to or join in
any waiver, amendment, or modification of the terms of any company agreement,
limited liability company agreement, management agreement, or investment
contract to which it is a party unless, in the good faith judgment of the
Directors, such waiver, amendment, or modification would be in the best
interests of the Fund.
3.10 RESTRICTIONS ON THE DIRECTORS' AUTHORITY. The Directors shall not have
authority to do any of the following:
(a) act in contravention of this Agreement or of the 1940 Act;
(b) possess Fund property or assign the rights of the Fund in specific
property for other than a Fund purpose;
(c) admit any other Person as a Director of the Fund without the approval
of the Investors except as otherwise provided herein;
(d) commingle or permit the commingling of the assets of the Fund with the
assets of any other Person except as otherwise provided herein;
(e) permit any Person who makes a nonrecourse loan to the Fund to acquire,
the time and as a result of making the loan, any direct or indirect interest in
the profits, capital or property of the Fund other than as a secured creditor;
(f) without the consent of a Majority in Interest of the Investors,
subject to paragraph 14.02; to (i) elect to dissolve the Fund; or (ii) sell or
otherwise dispose of at any one time all or substantially all of the assets of
the Fund; or
(g) invest in a company in which any Director has an equity interest other
than through another company that it manages.
3.11 CONTRACTS WITH AFFILIATES OF THE DIRECTORS. The Directors may, on behalf of
the Fund, enter into contracts for goods or services with any Affiliate of a
Director provided that the charges for such goods or services are the lower of
(i) cost,
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including a reasonable allocation of cost of capital, or (ii) those charged by
unaffiliated Persons in the area for similar goods and services. Any such
contract shall be subject to termination by a majority of the Independent
Directors following 60 days' prior notice thereof.
3.12 OBLIGATIONS OF THE DIRECTORS. The Directors shall devote such time and
effort to the Fund business as, in their judgment, may be necessary or
appropriate to manage the affairs of the Fund. The Directors are under a duty
and obligation to conduct the affairs of the Fund in the best interests of the
Fund, including the safekeeping and the use of all Fund funds and assets
(whether or not in the immediate possession or control of the Directors) and the
use thereof for the benefit of the Fund. Neither the Directors nor any of their
Affiliates shall enter into any transaction with the Fund that will
significantly benefit the Directors or such Affiliates in their independent
capacities unless the transaction is expressly permitted hereunder and under the
1940 Act or any exemptive order issued by the Securities and Exchange Commission
thereunder, or is entered into principally for the benefit of the Fund in the
ordinary course of Fund business.
3.13 OTHER BUSINESS OF INVESTORS. Any Investor and any Affiliate of any Investor
may engage in or possess any interest in other business ventures of any kind,
nature or description, independently or with others, whether such ventures are
competitive with the Fund or otherwise. Neither the Fund nor any Investor shall
have any rights or obligations by virtue of this Agreement or the company
relationship created hereby in or to such independent ventures or the income or
profits or losses derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Fund, shall not be deemed wrongful or
improper. Neither the Directors nor any Affiliate of the Directors shall be
obligated to present any particular investment opportunity to the Fund, except
with respect to opportunities that are suitable for the Fund, which must first
be made available to the Fund before any of the Directors may invest, and the
Directors and their Affiliates shall each have the right to take for their own
account (individually or as a trustee, partner, or fiduciary) or to recommend to
others any such particular investment opportunity. The Investment Manager and
Affiliated Directors hereby consent and agree promptly to furnish the
Independent Directors, upon request, with information on a confidential basis as
to any venture capital investments made by them, or any of their Affiliates, for
their own account or for others.
3.14 PROHIBITED TRANSACTIONS. Except to the extent expressly permitted by this
Agreement and except as permitted by the 1940 Act or any exemptive order issued
by the Securities and Exchange Commission thereunder:
(a) the Fund shall not lend money or other property to the Investment
Manager or any Investment Manager Affiliate;
(b) the Fund shall not sell to or purchase any security or any other
property from a Director, Investment Manager, or any Affiliate of either, or
effect any transaction in which a Director, Investment Manager, or any Affiliate
of either is a joint or several participant;
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(c) the Fund shall not purchase or sell commodities or commodity
contracts, participate on a joint or a joint and several basis in any trading
account in securities, or purchase any securities on margin, except such
short-term credits as are necessary for clearance of transactions;
(d) no reimbursement for expenses of the Fund shall be made to the
Directors or any Director Affiliate except as permitted under Article 4;
(e) the Fund shall not issue any of its Shares for services or for
property other than cash or securities;
(f) the Fund shall not sell any Shares at a price below the current net
asset value of such Shares; and
(g) except as provided in Section 7.06, the Fund shall not purchase any
Shares issued by it.
ARTICLE 4
COMPENSATION
4.01 INVESTMENT MANAGER. The Investment Manager shall also receive the following
amounts from the Fund:
(a) MANAGEMENT FEE. The Fund shall pay the Investment Manager a Management
Fee for supervising the venture capital operations of the Fund equal to 2.5% of
the average weekly net asset value of the Fund. All Management Fees shall be due
and payable monthly, in arrears. To the extent Fund cash reserves are
insufficient to pay the entire Management Fee when due, the unpaid fee shall be
carried forward and paid when cash reserves are sufficient to allow the payment.
The Fund shall pay interest on any such fees it carries forward at a rate of
[ ]%.
(b) INVESTMENT FEE.
(c) REIMBURSEMENT OF OPERATIONAL COSTS. The Fund shall reimburse the
Investment Manager or its Affiliates for Operational Costs incurred by the
Investment Manager or its Affiliates in connection with the business of the
Fund, including without limitations expenses related to the selection of
Portfolio Companies or to proposed investments, even if the proposed investments
ultimately are not undertaken by the Fund. The Management Fee is in addition to
the reimbursement of actual Operational Costs.
4.02 INDEPENDENT DIRECTORS. As compensation for services rendered to the
Fund, the Fund will pay each Independent Director:
13
(a) the sum of $10,000 annually in quarterly installments beginning on the
Commencement Date;
(b) the sum of $1,000 for each meeting of the Directors attended by such
Independent Director up to an annual limit of $4,000;
(c) if appointed to a committee by the Directors, the sum of $1,000 for
each such committee meeting attended; provided, however, that if such committee
meeting is held on the same day as a meeting of the Directors, no additional fee
will be paid; and
(d) all out-of-pocket expenses relating to attendance at the meetings,
committee or otherwise, of the Directors.
4.03 DISTRIBUTION AGENT. The Fund shall reimburse XXXxxxxxx.xxx Securities, Inc.
as Distribution Agent for the Fund for actual Offering Expenses incurred by
XXXxxxxxx.xxx Securities, Inc.
ARTICLE 5
INVESTORS
5.01 LIMITED LIABILITY. The Investors and Directors shall not be personally
liable for any of the debts or losses of the Fund beyond the amount of total
Investor Capital Contributions to the Fund and the share of assets and
undistributed profits of the Fund allocable to the Investors, except as
otherwise provided by the Act and Section 13.04.
5.02 NO MANAGEMENT RESPONSIBILITY. No Investor other than a Director or the
Investment Manager shall participate in the management or control of the
business of or transact any business for the Fund but may exercise the rights
and powers of an Investor under this Agreement. All management responsibility is
vested in the Directors. The Investors other than the Directors hereby consent
to the taking of any action by the Directors, Directors, and the Investment
Manager contemplated under Article 3.
5.03 NO AUTHORITY TO ACT. No Investor other than a Director shall have the power
to represent, act for, sign for, or to bind the Fund. All authority to act on
behalf of the Fund is vested in the Directors and as expressly delegated to the
Directors, and the Investment Manager. The Investors consent to the exercise by
the Directors of the powers conferred on them by law and this Agreement.
5.04 RIGHTS OF INVESTORS. The Investors shall have the following rights:
(a) the right to elect and remove Directors;
(b) the right to approve or disapprove proposed changes in the nature of
the Fund's business so as to cause the Fund to cease to be, or to withdraw its
election as, a business development company under the 1940 Act;
14
(c) the right to approve or disapprove any proposed investment advisory
contract or management agreement or to disapprove and terminate any such
existing contracts; provided, however, that such contracts are also approved by
a majority of the Independent Directors;
(d) the right to approve or reject the appointment of the independent
accountants of the Fund; provided, however, that such appointment is approved by
the Directors, including a majority of the Independent Directors;
(e) the right to propose and approve an amendment to this Agreement;
provided, however, that no such amendment shall conflict with the 1940 Act; and
(f) the right to approve any other material matters related to the
business of the Fund that the 1940 Act requires to be approved by the Investors
so long as the Fund is a business development company subject to the provisions
of the 1940 Act; provided, however, that, prior to the exercise of any such
right of approval, the Management Committee amends this Agreement to reflect
such additional voting right.
Each of the foregoing matters shall be approved or disapproved, as the case may
be, upon the vote or consent of a Majority in Interest of the Investors.
5.05 NO CONSENT REQUIRED. Notwithstanding the foregoing, no vote, approvals, or
other consent shall be required of the Investors to amend this Agreement in any
of the following respects: (i) to reflect any change in the amount or character
of the Capital Contribution of any Investor; (ii) to admit an additional
Investor or a Substituted Investor or remove an Investor in accordance with the
terms of this Agreement; or (iii) to correct any false or erroneous statement,
or to make a change in any statement in order that such statement shall
accurately represent the agreement among the Investors and Directors in this
Agreement; provided that no such correction or change shall in any manner
adversely affect the Fund Interests of any Investor.
ARTICLE 6
AMENDMENTS
6.01 PROPOSAL OF AMENDMENTS. Except as otherwise specified in this Agreement,
any amendment to this Agreement may be proposed by the Directors or by Investors
other than the Directors who, in aggregate, own not less than 10% of the Shares
owned by all such Investors. The Directors or Investors proposing such amendment
shall submit to the Directors: (i) the text of such amendment; (ii) a statement
of the purpose of such amendment; and (iii) an opinion of counsel obtained by
the Directors or Investors proposing such amendment to the effect that such
amendment is permitted by the Act and the laws of any other jurisdiction where
the Fund is qualified to do business, will not impair the limited liability of
the Directors or Investors, and will not adversely affect the classification of
the Fund as a partnership for federal and state income tax purposes. The
15
Directors shall, within 20 days after receipt of any proposal under this Section
6.01, give notification to all Directors and Investors of such proposed
amendment, of such statement of purpose, and of such opinion of counsel,
together, in the case of an amendment proposed by Investors, with the views, if
any, of the Directors and the Investment Manager with respect to such proposed
amendment. All proposed amendments shall be submitted to the Investors for a
vote no less than 10 days nor more than 60 days after the date of mailing of
such notice and will be adopted if approved by a Majority in Interest of the
Investors. For purposes of obtaining a written vote, the Directors may require
receipt of written responses within a specified time.
6.02 AMENDMENTS TO BE ADOPTED SOLELY BY THE DIRECTORS. The Directors may,
without the consent of any Investor, amend any provision of this Agreement, and
execute whatever documents may be required in connection therewith, to reflect:
(a) a change in the name or the location of the principal place of
business of the Fund;
(b) the admission of Substituted Investors, additional Investors, or
successor Directors in accordance with this Agreement;
(c) a change that is necessary to qualify the Fund as a limited liability
company under the laws of any state or that is necessary and advisable in the
opinion of the Directors to assure that the Fund will not be treated as a
publicly traded partnership taxable as a corporation for federal income tax
purposes or as a corporation for state income tax purposes; and
(d) any other amendments similar to the foregoing.
6.03 AMENDMENTS NOT ALLOWABLE. Unless approved by Investors holding a majority
of the Shares affected thereby, no amendment to this Agreement shall be
permitted if, in the opinion of counsel to the Fund (unless such counsel is
disapproved by such majority), the effect of such amendment would be to:
(a) increase the duties or liabilities of any Investor;
(b) change the interest of any Investor hereto in the assets, profits, or
losses of the Fund, except as otherwise provided herein; or
(c) in any way adversely affect the federal income tax status of the Fund.
ARTICLE 7
CAPITAL CONTRIBUTIONS
7.01 CAPITAL CONTRIBUTIONS OF INVESTORS. The Investors shall make the
16
following contributions to the capital of the Fund:
(a) INVESTMENT MANAGER. The Investment Manager shall contribute an
aggregate amount equal to $100,000 payable on the Commencement Date.
(b) INVESTORS. The Investors and Investment Manager shall make Capital
Contributions, payable upon subscription, in the amounts set forth opposite
their respective names in the books and records of the Fund, as amended from
time to time.
No Investor other than Investment Manager shall be required to lend any funds to
the Fund or to make any Capital Contribution to the Fund except as set forth in
this Section 7.01.
7.02 ADMISSION OF ADDITIONAL INVESTORS. The Directors are authorized to admit to
the Fund, as additional Investors, such Persons as they deem advisable. The
manner of the offering of Shares, the terms and conditions under which
subscriptions for such Shares will be accepted, and the manner of and conditions
to the sale of Shares to subscribers therefor and the admission of such
subscribers as additional Investors will be as provided in the Prospectus in all
material respects and subject to any provisions hereof. Before any Person is
admitted to the Fund as an Investor, such Person or such Person's
attorney-in-fact shall execute a counterpart of this Agreement and thereby agree
in writing to be bound by all of the provisions hereof as an Investor.
7.03 INTEREST ON CAPITAL CONTRIBUTIONS. No Investor shall have the right to be
paid interest on any Capital Contribution or on such Investor's Capital Account,
except as specifically provided in this Agreement.
7.04 WITHDRAWAL AND RETURN OF CAPITAL. No Investor shall have the right to
withdraw or to demand the return of any or all of that Investor's Capital
Contribution except as specifically provided in this Agreement.
7.05 EXCESS CAPITAL CONTRIBUTIONS. To the extent the Directors determine, in
their sole discretion, that the Fund has received Capital Contributions in
excess of the Fund's needs, the Directors may return said excess Capital
Contributions to the Investors, provided that at the time of such partial
returns (i) all liabilities of the Fund to Persons other than Investors have
been paid or, in the good faith determination of the Directors, there remains
property of the Fund sufficient to pay them and (ii) the Directors cause this
Agreement to be amended, if necessary, to reflect a reduction in Capital
Contributions. In the event that the Directors elect to make a partial return of
Capital Contributions to Investors, such distribution shall be made pro rata to
all of the Investors based upon the number of Shares held by each Investor. Each
Investor, by becoming such, consents to such pro rata distribution theretofore
or thereafter duly authorized and made in accordance with this Section 7.05.
Without the consent of all Investors, no Investor shall have the right to
receive property other than cash in return for such Investor's Capital
Contribution unless such property is in the form of marketable securities and
made valid to all Investors.
17
7.06 REDEMPTION OF SHARES. The Fund may redeem or repurchase Shares to the
extent permitted by the 1940 Act.
ARTICLE 8
PROFIT AND LOSS
8.01 NET PROFIT. Net Profit of the Fund shall be allocated for Fund tax and
accounting purposes.
8.02 NET LOSS. Net Loss of the Fund shall be allocated for Fund tax and
accounting purposes, to the Investors in accordance with their capital accounts.
ARTICLE 9
DISTRIBUTIONS
9.01 DISTRIBUTIONS GENERALLY. Except to the extent the Investment Manager
determines to reinvest in the Fund, Cash and Securities Available for
Distribution shall be distributed to the Investors in accordance with their
capital accounts. Securities distributed in kind to Investors shall be treated
as if sold at the value determined under Section 9.02, and the gain or loss
shall be allocated in accordance with Article 8. Distributions to Investors
shall be made only to the extent they are not prohibited by any applicable
restrictions set forth in the 1940 Act. On liquidation, distributions shall be
made in accordance with the provisions of Article 15.
9.02 VALUATION. The value of securities distributed in kind to the Investors
that cannot be valued on the basis of either (i) available market quotations or
(ii) third party transactions involving actual transactions or actual firm
offers by investors who are not Affiliates of the Fund shall be valued by an
appraisal made in accordance with the appraisal procedure described in Section
12.03(b) provided, however, that such appraisal need be made in connection with
securities distributed in kind to the Investors upon the dissolution of the Fund
only if the value of the securities distributed in kind to the Investors upon
such dissolution exceeds 10% of the Capital Contributions of all Investors.
ARTICLE 10
RESPONSIBILITIES OF THE INVESTORS AMONG THEMSELVES
10.01 INDEMNIFICATION OF THE DIRECTORS BY THE FUND. Neither the Directors nor
any of their Affiliates shall be liable, responsible, or accountable in damages
or otherwise to the Fund or any Investor for any loss or damage incurred by
reason of any act performed by or omission of the Directors or such Affiliates
in good faith in the furtherance of the interests of the Fund and in a manner
reasonably believed
18
by them to be within the scope of the authority granted to the Directors by this
Agreement or by the Investors, provided that the Directors or such Affiliates
were not guilty of negligence, misconduct, or any other breach of fiduciary duty
with respect to such acts or omissions. The Fund, out of its assets and, subject
to Section l0.02, not out of the assets of the Directors, shall, to the full
extent permitted by law, indemnify and hold harmless any Director and any
Director Affiliate who was or is a party or is threatened to be made a party to
any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (including any action by or in
the right of the Fund), by reason of any acts or omissions or alleged acts or
omissions arising out of such Person's activities as a Director or as an
Affiliate of a Director, if such activities were performed in good faith in
furtherance of the interests of the Fund and in a manner reasonably believed by
such Person to be within the scope of the authority conferred to the Directors
by this Agreement or by the Investors against losses, damages, or expenses for
which such Person has not otherwise been reimbursed (including attorneys' fees,
judgments, fines, and amounts paid in settlements) actually and reasonably
incurred by such Person in connection with such action, suit, or proceeding, so
long as such Person was not guilty of negligence, misconduct, or any other
breach of fiduciary duty with respect to such acts or omissions and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such Person's conduct was unlawful, and provided that the satisfaction of any
indemnification and any holding harmless shall be from and limited to Fund
assets and no Investor shall have any personal liability on account thereof.
Notwithstanding the foregoing, none of the indemnified parties shall be
indemnified for any loss or damage incurred by them in connection with any
judgment entered in or settlement of any lawsuit for violations of federal or
state securities laws by the indemnified parties in connection with the offer or
sale of Fund Interests unless: (i) there has been a successful adjudication on
the merits as a result of a trial; or (ii) such claim has been dismissed with
prejudice on the merits by a court of competent jurisdiction that has been
apprised of the Securities and Exchange Commission's position on
indemnification. In addition, any such indemnification for securities law
violations must be approved by a court of competent jurisdiction.
The Fund may purchase liability insurance that insures the indemnified parties
against any liabilities as to which such parties are permitted to be indemnified
pursuant to the provisions of this Section 10.01. However, the Fund may not
incur the cost of that portion of liability insurance which insures the
indemnified parties for any liability as to which the indemnified parties are
prohibited from being indemnified under this Section 10.01.
10.02 FUND LOANS. The Directors or any Affiliate of any Director may lend funds
to the Fund for such period of time as the Directors may determine, and with
interest payable in an amount equal to the lesser of (i) the interest rate at
which the Directors or such Director Affiliate could then borrow such amount or
(ii) the maximum amount of interest then permitted under any applicable usury
laws; provided, however, that if the Fund is able to obtain comparable financing
from an unrelated lending institution, the
19
amount of interest and similar charges or fees paid to the Directors or such
Affiliate would not exceed those charged by such unrelated lending institution
on comparable loans for the same purpose. Any such amounts shall be repaid to
the Directors or any Director Affiliate before any distributions may be made
pursuant to Article 9. In no event shall a loan made to the Fund by any Person
be deemed to be a part of any Fund Interest that such Person may hold, nor shall
the Directors or their Affiliates provide the Fund with permanent financing.
10.03 INVESTORS LOOK SOLELY TO FUND ASSETS. Neither the Directors nor any of
their Affiliates shall have any personal liability to any Investor for the
repayment of any amounts outstanding in the Capital Account of an Investor
including, but not limited to, Capital Contributions. Any such payment shall be
solely from the assets of the Fund. The Directors shall not be liable to any
Investor by reason of any change in the federal income tax laws as they apply to
the Fund and the Investors, whether such change occurs through legislative,
judicial, or administrative action, so long as the Directors have acted in good
faith and in a manner reasonably believed to be in the best interests of the
Investors. Neither the Directors nor any of their Affiliates shall have any
personal liability to repay to the Fund any portion or all of any negative
amount of the Director's Capital Account except as otherwise provided in Section
15.03.
ARTICLE 11
ACCOUNTING, RECORDS, AND REPORTS
11.01 METHOD OF ACCOUNTING. The Fund's books and records shall be kept on an
accrual basis in accordance with generally accepted accounting principles;
however, for purposes of tax reporting, the Directors may choose either the cash
or accrual method with the filing of the Fund's first tax return.
11.02 FISCAL YEAR. The fiscal year of the Fund shall be the calendar year. The
admission of additional Investors shall be deemed to have been on the first
[ ] after the Investor was admitted to the Fund.
11.03 CAPITAL ACCOUNTS. An individual Capital Account shall be maintained for
each Investor. The initial balance of each such Capital Account shall be zero
and shall be increased by: (i) the amount of any cash and the fair market value
of any property (net of liabilities) contributed to the Fund by such Investor
valued as of the time of such contribution and (ii) any Net Profit of the Fund
for a Taxable Period (or specially allocated items of income or gain) allocated
to the Investors pursuant to Article 8 (as of the end of such Taxable Period)
including gains deemed realized upon the distribution of securities under
Section 9.01. An Investor's Capital Account shall be decreased by: (i) the
amount of any cash distributed to such Investor; (ii) the fair market value of
any securities or other property (net of liabilities) distributed to such
Investor (valued as of the time of distribution); and (iii) the Net Loss of the
Fund for a Taxable Period (or specially allocated items of deduction or loss)
allocated to the Investor pursuant to Article 8 (as of the end of such Taxable
Period) including losses deemed realized upon the
20
distribution of securities under Section 9.01, such decrease occurring as of the
time of the distribution.
11.04 MAINTENANCE OF INFORMATION. The Fund will maintain, or cause to be
maintained, such books and records as are required under Section 31 of the 1940
Act and as shall enable it to be reasonably responsive to requests for
information pursuant to Section 11.05.
11.05 ACCESS TO INFORMATION. Each Investor may obtain from the Fund from time to
time upon written demand to the Directors, for a purpose clearly related to such
Investor's interest as an Investor, including any suit by such Investor against
the Fund, provided that such purpose is set forth in such written demand, the
following: (i) true and full information regarding the status of the business
and financial condition of the Fund, which shall be deemed satisfied if the
Directors provide a copy of the most recent audited financial statements of the
Fund; (ii) promptly after becoming available, a copy of that Investor's federal,
state, and local income tax information statement for each of the last two
fiscal years; (iii) a current list of the names and last known business,
residence, or mailing address of each Investor except for those Investors who
have requested that their names not be disclosed; (iv) a copy of this Agreement
and all amendments and restatements; and (v) such other information as is just
and reasonable in the discretion of the Directors. All such information may be
obtained by the Investor's compliance with such procedures as the Directors,
from time to time, shall reasonably establish, including without limitation with
respect to payment of copying, mailing, and other administrative costs
occasioned hereby. The Directors may condition the provision of information on
the execution of an acknowledgment by the requesting party that the information
provided will be held in confidence, will not be disclosed to any other persons,
will not be used for commercial purposes, will not be used in such a fashion
that the Fund's tax status may be jeopardized, and that the requesting party
will indemnify the Fund and the Directors for any failure to honor such
commitments.
11.06 BANKING. The Investment Manager shall open and thereafter maintain
separate accounts in the name of the Fund in which there shall be deposited all
of the funds of the Fund. No other funds shall be deposited in the accounts. The
funds in said accounts shall be used solely for the business of the Fund,
including, without limitation, such investments as authorized in Sections
3.04(i) and 3.05.
11.07 AUDIT. At the expense of the Fund, an annual audit of the Fund's books of
account shall be made by a firm of independent certified public accountants
selected by the Directors and approved by a Majority in Interest of the
Investors. In the determination of the profits or losses of the Fund to be
reflected by its books and records, such certified public accountants shall be
governed by the provisions of this Agreement and the 1940 Act. In any
circumstances where no provision under the IRC and regulations thereunder may be
applicable to the determination of any item, the accountants shall act in their
discretion in such manner as may, most consistently with prior practices,
properly reflect that item. If required by any governmental agency or by
principles of accounting, the accountants may cause adjustments to be made to
the statements of the Fund for reporting
21
purposes. The annual certified financial report of the Fund shall include a
balance sheet, an income statement, a statement of equity for Investors, and a
statement of changes in financial position. The report also shall include the
amount of any reimbursement made by the Fund to the Investment Manager,
Directors or their Affiliates. Copies of the annual certified financial report
of the accountants for each year shall be transmitted to all Investors within
120 days after the end of that year. Such copies shall be accompanied by a
statement of the risks involved in investments in the Fund to the extent
required under Section 64(b)(1) of the 1940 Act.
11.08 STATUS REPORTS. Within 75 days after the end of each of the first three
quarters of the Fund's fiscal year, the Directors shall have prepared and
transmitted to the Investors, at the expense of the Fund, a quarterly report
containing the same financial information contained in the Fund's Quarterly
Report on Form 10-Q filed by the Fund with the Securities and Exchange
Commission under the Securities Exchange Act of 1934. Within 120 days after the
end of each fiscal year, the Investment Manager shall have prepared and
transmitted to the Investors, at the expense of the Fund, an annual report
containing a summary of the year's activity and the financial information set
forth in Section 11.07.
11.09 TAX RETURNS. The Directors shall use their best efforts to cause the Fund
to file all tax and information returns required of the Fund in a timely manner.
The Directors will cause to be transmitted or delivered within 75 days after the
end of each year to each Person who was an Investor at any time during such year
a statement setting forth all information relating to the Fund's operations for
such fiscal year as is reasonably required to complete federal and state income
tax or information returns.
ARTICLE 12
REMOVAL OR RETIREMENT OF DIRECTORS AND THE INVESTMENT MANAGER
12.01 RESIGNATION OF A DIRECTOR. Subject to Section 12.05, a Director may
voluntarily resign or withdraw from the Fund, but only upon compliance with all
of the following procedures:
(a) the Director shall give notification to the Board of Directors that he
or she proposes to withdraw;
(b) subject to Section 3.02, the remaining members of the Directors shall
designate a successor Director who shall hold such office until such Director's
successor has been approved and elected;
(c) the Directors shall designate only an Independent Director to replace
a withdrawing or retiring Independent Director; and
22
(d) the withdrawing Director shall cooperate fully with the successor
Director so that the responsibilities of the withdrawing Director may be
transferred to the successor Director with as little disruption of the Fund's
business and affairs as practicable.
12.02 RESIGNATION OF THE INVESTMENT MANAGER. Subject to Section 12.05, the
Investment Manager may voluntarily resign or withdraw from the Fund, but only
upon compliance with all of the following procedures:
(a) the Investment Manager shall, at least 60 days prior to such
withdrawal, give notification to all Investors that they propose to withdraw and
that there be substituted in their place a Person or Persons designated and
described in such notification;
(b) enclosed with the notification shall be a certificate, duly executed
by or on behalf of each such proposed successor Investment Manager, to the
effect that: (i) it is experienced in performing (or employs sufficient
personnel who are experienced in performing) functions that the Investment
Manager is required to perform under this Agreement; (ii) it has a net worth
that meets the requirements of any statute or the courts applicable to a manager
of a limited liability company in order to ensure that the Fund will not fail to
be classified for state income tax purposes as a limited liability company
rather than as an association taxable as a corporation; and (iii) it is willing
to become the Investment Manager under this Agreement and will assume all duties
and responsibilities thereunder, without receiving any compensation for services
from the Fund in excess of that payable under this Agreement to the withdrawing
Investment Manager and without receiving any participation in the withdrawing
Investment Manager's Fund Interest other than that agreed upon by the
withdrawing Investment Manager and the successor Investment Manager;
(c) if the Investment Manager resigns or withdraws, there shall be on file
at the principal office of the Fund, prior to such withdrawal, audited financial
statements of the proposed successor Investment Manager as of a date not earlier
than twelve months prior to the date of the notification required by this
Section 12.02, certified by a nationally or regionally recognized firm of
independent certified public accountants, together with a certificate, duly
executed on behalf of the proposed successor Investment Manager by its principal
financial officer, to the effect that no material adverse change in its
financial condition has occurred since the date of such audited financial
statements that has caused its net worth, excluding the purchase price of its
Fund Interest, to be reduced to less than the amount under Subsection 12.02(b).
Such audited financial statements and certificates shall be available for
examination by any Investor during normal business hours;
(d) subject to Section 14.02, a Majority in Interest of the Investors has
consented to the appointment of a successor Investment Manager; and
23
(e) the withdrawing Investment Manager shall cooperate fully with the
successor Investment Manager so that the responsibilities of the withdrawing
Investment Manager may be transferred to the successor Investment Manager with
as little disruption of the Fund's business and affairs as practicable.
12.03 REMOVAL OF A DIRECTOR; DESIGNATION OF A SUCCESSOR DIRECTOR.
(a) Any of the Independent Directors may be removed either: (i) for cause
by the action of at least two-thirds of the remaining Directors, including a
majority of the remaining Independent Directors; (ii) subject to Section 14.02,
by failure to be approved and re-elected by the Investors pursuant to Section
14.04; or (iii) subject to Section 14.02, with the consent of a Majority in
Interest of the Investors. The Investment Manager may be removed either: (i) by
a majority of the Directors; (ii) subject to Section 14.02, by failure to be
approved and re-elected by the Investors pursuant to Section 14.04; or (iii)
subject to Section 14.02, with the consent of a Majority in Interest of the
Investors. The removal of a Director shall in no way derogate from any rights or
powers of such Director, or the exercise thereof, or the validity of any actions
taken pursuant thereto, prior to the date of such removal.
(b) In the event of the removal of the Investment Manager and continuation
of the Fund, the venture capital investments held by the Fund at the time of
removal shall be appraised by two independent appraisers, one selected by the
Investment Manager and one by the Independent Directors. In the event that such
two appraisers are unable to agree on the value of the Fund's venture capital
investment portfolio, they shall jointly appoint a third independent appraiser
whose determination shall be final and binding. The cost of the appraisal
conducted by the appraiser selected by the Investment Manager shall be borne by
the Investment Manager, and the cost of the appraisal conducted by the appraiser
selected by the Independent Directors shall be borne by the Fund. The cost of
the appraisal conducted by a third appraiser shall be borne equally by the Fund
and by the Investment Manager. The Investment Manager shall receive a final
incentive fee equal to the Net Profit or Net Loss that it would have been paid,
if all unrealized capital gains and losses of the Fund were deemed realized, a
payment was made at such time, and such time were deemed to be the end of a
Taxable Period.
(c) Subject to Section 3.02, the remaining Directors may designate one or
more Persons to fill any vacancy existing in the number of Independent Directors
fixed pursuant to Section 3.02 resulting from removal of an Independent Director
by the Directors pursuant to Section 12.03(a). Remaining Directors may designate
one or more Persons to be successors to the Investment Manager removed by the
Independent Directors pursuant to Section 12.03(a), and each Investor other than
a Director hereby consents to the admission of such successor or successors, no
further consent being required. Any such successor Director or Investment
Manager shall hold office until the next annual meeting of Investors or until
his or her successor has been approved and elected. With the consent of such
number of Investors other than a Director (but not in any event less than a
Majority in Interest of the Investors) as are then required under the
24
Act, and under the laws of the other jurisdictions in which the Fund is then
formed or qualified, to consent to the admission of a Director, such Investors
may, subject to the provisions of Sections 3.02, 12.05, 13.01 and 14.02, at any
time admit a Person to be successor to a Director concurrently therewith being
removed by the Investors pursuant to Section 12.03(a).
(d) Any removal of a Director shall not affect any rights or liabilities
of the removed Director that matured prior to such removal.
12.04 INCAPACITY OF A DIRECTOR.
(a) In the event of the incapacity of a Director, the business of the Fund
shall be continued with the Fund property by the remaining Directors. Subject to
Section 3.04, the remaining Directors shall give notification to the Investors
of such event and shall, within 90 days, call a meeting of the Directors for the
purpose of designating a successor Director. Any such successor Director shall
hold such office until the next bi-annual meeting of Investors or until his or
her successor has been approved and elected. The Directors shall make such
amendments to the certificate of formation and execute and file for recordation
such amendments or other documents or instruments as are necessary and required
by the Act or this Agreement to reflect the termination of the Fund Interest of
the Incapacitated Director, the fact that such Incapacitated Director has ceased
to be a Director, and the appointment of such successor Director.
(b) In the event of the Incapacity of all Directors, the Fund shall be
dissolved. Upon the Incapacity of a Director, a Director shall immediately cease
to be a Director and its Fund Interest, as such, shall continue only for the
purpose of determining the amount, if any, that it is entitled to receive upon
any dissolution pursuant to Section 15.01.
(c) Any such termination of a Director shall not affect any rights or
liabilities of the Incapacitated Director that matured prior to such Incapacity.
12.05 ADMISSION OF A SUCCESSOR DIRECTOR.
(a) The admission of any successor Director pursuant to Sections 12.01,
12.02, or 12.03, as the case may be, shall be effective only if and after the
following conditions are satisfied:
(i) the designation of such Person as successor Director shall
occur, and for all purposes, shall be deemed to have occurred, prior to
the withdrawal or removal of the withdrawing or removed Director, or
transfer of the withdrawing or removed Director's Fund Interest pursuant
to Sections 12.01, 12.02, or 12.03, as the case may be; and
(ii) the Fund Interests of the Investors shall not be affected by
the admission of such successor Director or the transfer of the Director's
Fund Interest.
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(b) A Director shall not have the right to transfer or assign its Fund
Interest, except that a Director may: (i) transfer its Fund Interest to a
successor Director pursuant to Section 12.01 or 12.02; (ii) substitute instead
as a successor Director any Person that has, by merger, consolidation, or
otherwise, acquired substantially all of its assets and continued its business;
and (iii) pledge or grant an interest in its right to receive payments and
distributions under this Agreement. Each Investor other than a Director hereby
consents to the admission of any additional or successor Director pursuant to
this Section 12.05(b), and no further consent or approval shall be required; and
(c) Notwithstanding anything to the contrary in this Article 12, a
Director's Fund Interest shall at all times be subject to the restrictions on
transfer set forth in Section 13.01.
12.06 LIABILITY OF A WITHDRAWN OR REMOVED DIRECTOR. Any Director who shall
withdraw or be removed from the Fund, or who shall sell, transfer, or assign its
Fund Interest shall remain liable for obligations and liabilities incurred by it
as Director prior to the time such withdrawal, removal, sale, transfer, or
assignment shall have become effective, but it shall be free of any obligation
or liability incurred on account of the activities of the Fund from and after
the time such withdrawal, removal, sale, transfer, or assignment shall have
become effective.
12.07 CONSENT OF INVESTORS TO ADMISSION OF SUCCESSOR DIRECTORS. Subject to
Section 14.02, each Investor other than a Director hereby consents pursuant to
Section 12.02 to the admission of any Person as a successor Director meeting the
requirements of Section 12.02 to whose admission as such a Majority in Interest
of the Investors have expressly consented, and no further express consent or
approval shall be required.
12.08 CONTINUATION. In the event of the withdrawal, removal, or retirement of a
Director, or the transfer or assignment by a Director of its Fund Interest, the
Fund shall not be dissolved and the business of the Fund shall be continued by
the remaining Directors.
ARTICLE 13
TRANSFERABILITY OF AN INVESTOR'S FUND INTEREST
13.01 RESTRICTIONS ON TRANSFERS.
(a) OPINION OF COUNSEL. Notwithstanding any other provisions of this
Section 13.01, no sale, exchange, transfer, or assignment of a Fund Interest may
be made by an Investor unless in the opinion of counsel for the Fund,
satisfactory in form and substance to the Directors, (which opinion may be
waived, in whole or in part, at the discretion of the Directors), that:
26
(i) such sale, exchange, transfer, or assignment, when added to the
total of all other sales, exchanges, transfers, or assignments of Fund
Interests within the preceding twelve months, would not result in the
Fund's being considered to have terminated within the meaning of Section
708 of the IRC;
(ii) such sale, exchange, transfer or assignment would not violate
any federal securities laws or any state securities or "Blue Sky" laws
(including any investor suitability standards) applicable to the Fund or
the Fund Interest to be sold, exchanged, transferred, or assigned; and
(iii) such sale, exchange, transfer, or assignment could not cause
the Fund to be treated as a publicly traded partnership taxable as a
corporation for federal income tax purposes or to lose its status as a
partnership for state income tax purposes.
Any such opinion of counsel shall be delivered in writing to the Fund prior to
the date of the sale, exchange, transfer, or assignment.
(b) MINORS. In no event shall all or any part of a Fund Interest be
assigned or transferred by an Investor to a minor or an incompetent except in
trust, pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to
Minors Act, or by will or intestate succession.
(c) DOCUMENTATION. Each Investor other than a Director agrees, upon
request of the Directors, to execute such certificates or other documents and
perform such acts as the Directors deem appropriate after an assignment of a
Fund Interest by that Investor to preserve the limited liability of the
Investors under the laws of the jurisdiction in which the Fund is doing
business. For purpose of this Section 13.01(d), any transfer of a Fund Interest,
whether voluntary or by operation of law, shall be considered an assignment.
(d) VOID AB INITIO. Any purported assignment of a Fund Interest that is
not made in compliance with this Agreement is hereby declared to be null and
void and of no force or effect whatsoever.
(e) EXPENSE. Each Investor other than a Director agrees, prior to the time
the Directors consent to an assignment of Fund Interest by that Investor, to pay
all reasonable expenses, including attorneys' fees, incurred by the Fund in
connection with such assignment.
13.02 ASSIGNEES.
(a) NOTIFICATION REQUIRED AND EFFECTIVE DATE. The Fund shall not recognize
for any purpose any purported sale, assignment, or transfer of all or any
fraction of the Fund Interest of an Investor other than a Director unless the
provisions of Section 13.01 shall have been complied with and there shall have
been filed with the
27
Fund a dated notification of such sale, assignment, or transfer, in form
satisfactory to the Directors, executed and acknowledged by both the seller,
assignor, or transferor and the purchaser, assignee, or transferee and such
notification (i) contains the acceptance by the purchaser, assignee, or
transferee of all of the terms and provisions of this Agreement and (ii)
represents that such sale, assignment, or transfer was made in accordance with
all applicable laws and regulations. Any sale, assignment, or transfer shall be
recognized by the Fund as effective on the first day of the fiscal quarter
following the fiscal quarter in which such notification is filed with the Fund.
If a Fund Interest is sold, assigned, or transferred more than once during a
fiscal quarter, the last purchaser, assignee, or transferee with respect to whom
notification is received shall be recognized by the Fund.
(b) VOTING. Unless and until an assignee of a Fund Interest becomes a
Substituted Investor, such assignee shall not be entitled to vote or to give
consents with respect to such Fund Interest.
(c) ASSIGNOR RIGHTS. Any Investor other than a Director who shall assign
all of such Investor's Fund Interest shall cease to be an Investor and shall not
retain any statutory rights as an Investor.
(d) WRITTEN ASSIGNMENTS. Anything herein to the contrary notwithstanding,
both the Fund and the Directors shall be entitled to treat the assignor of a
Fund Interest as the absolute owner thereof in all respects, and shall incur no
liability for distributions made in good faith to such assignor until such time
as a written assignment that conforms to the requirements of this Section 13.02
has been received by the Fund and accepted by the Directors.
(e) ASSIGNEE NOT SUBSTITUTED INVESTOR. A person who is the assignee of all
or any fraction of the Fund Interest of an Investor other than a Director, but
does not become a Substituted Investor and desires to make a further assignment
of such Fund Interest, shall be subject to all the provisions of this Article 13
to the same extent and in the same manner as any Investor desiring to make an
assignment of such Investor's Fund Interest.
13.03 SUBSTITUTED INVESTORS.
(a) APPROVAL. No Investor other than a Director shall have the right to
substitute a purchaser, assignee, transferee, donee, heir, legatee, distributee,
or other recipient of all or any fraction of such Investor's Interest as an
Investor in the transferring Investor's place. Any such purchaser, assignee,
transferee, donee, heir, or other recipient of a Fund Interest (whether pursuant
to a voluntary or involuntary transfer) shall be admitted to the Fund as a
substituted Investor only (i) with the consent of the Directors, which consent
shall be granted or withheld in the absolute discretion of the Directors; (ii)
by satisfying the requirements of Sections 13.01 or 13.02; and (iii) if
necessary, upon an amendment to this Agreement executed by all necessary parties
and filed or recorded in the proper records of each jurisdiction in which such
recordation is necessary to qualify
28
the Fund to conduct business or to preserve the limited liability of the
Investors and Directors. Any such consent by the Directors may be evidenced, if
necessary, by the execution by the Directors of an amendment to this Agreement
evidencing the admission of such Person as an Investor. The admission of a
Substituted Investor shall be recorded on the books and records of the Fund. The
Investors hereby consent and agree to such admission of a Substituted Investor
by the Directors. The Directors agree to process such amendments not less
frequently than quarterly.
(b) ADMISSION. Each Substituted Investor, as a condition to admission as
an Investor, shall execute and acknowledge such instruments, in form and
substance satisfactory to the Directors, as the Directors deem necessary or
desirable to effectuate such admission and to confirm the agreement of the
Substituted Investor to be bound by all the terms and provisions of this
Agreement with respect to the Fund Interest acquired. All reasonable expenses,
including attorneys' fees, incurred by the Fund in this connection shall be
borne by such Substituted Investor.
(c) RIGHTS OF ASSIGNEE. Until an assignee shall have been admitted to the
Fund as a Substituted Investor pursuant to this Section 13.03, such assignee
shall be entitled to all of the rights of an assignee of a limited liability
company interest under the Act.
13.04 INDEMNIFICATION. Each Investor shall indemnify and hold harmless the Fund,
the Directors, and every Investor who was or is a party to any pending or
completed action, suit, or proceeding whether civil, criminal, administrative,
or investigative, by reason of or arising from any actual misrepresentation or
misstatement of facts or omission to state facts made (or omitted to be made) by
such Investor in connection with any assignment, transfer, encumbrance, or other
disposition of all or and part of a Fund Interest, or the admission of a
Substituted Investor to the Fund, against expenses for which the Fund or such
other Person has not otherwise been reimbursed (including attorneys fees,
judgments, fines, and amounts paid in settlement) actually and reasonably
incurred by the Fund or such other Person in connection with such action, suit,
or proceeding.
13.05 INCAPACITY OF AN INVESTOR. If an Investor other than a Director dies, such
Investor's executor, administrator, or trustee, or, if such Investor is
adjudicated incompetent, such Investor's committee, guardian or conservator, or,
if such Investor becomes bankrupt, the trustee or receiver of such Investor's
estate, shall have all the rights of an Investor for the purpose of settling or
managing the estate of such Investor, and such power as the Incapacitated
Investor possessed to assign all or any part of the Incapacitated Investor's
Fund Interest and to join with such assignee in satisfying conditions precedent
to such assignee's becoming a Substituted Investor. The Incapacity of an
Investor shall not dissolve the Fund.
13.06 WITHHOLDING OF DISTRIBUTIONS. From the date of the receipt of any
instrument relating to the transfer of a Share or at any time the Investment
Manager is in doubt regarding the person entitled to receive distributions in
respect of a Share, the
29
Directors may withhold any such distributions until the transfer is completed or
abandoned or the dispute is resolved.
13.07 TRANSFEROR-TRANSFEREE ALLOCATIONS. If a Share is transferred in compliance
with the provisions of this Article 13, the income, gains, losses, deductions,
and credits allocable in respect of that Share shall be allocated to the days of
the Taxable Period to which they are economically attributable, and then
prorated between the transferor and the transferee on the basis of the number of
days in the Taxable Period that each was the holder of that interest.
ARTICLE 14
CONSENTS, VOTING, AND MEETINGS
14.01 METHOD OF GIVING CONSENT. Any consent required by this Agreement may be
given as follows:
(a) by a written consent pursuant to Section 14.05 given by the consenting
Investor at or prior to the doing of the act or thing for which the consent is
solicited, provided that such consent shall not have been nullified by either
(i) notification to the Directors by the consenting Investor at or prior to the
time of, or the negative vote by such consenting Investor at, any meeting held
to consider the doing of such act or thing or (ii) notification to the Director
prior to the doing of any act or thing the doing of which is not subject to
approval at such meeting; or
(b) by the affirmative vote by the consenting Investor to the doing of the
act or thing for which the consent is solicited at any meeting called and held
pursuant to Sections 14.04 or 14.05 to consider the doing of such act or thing.
14.02 LIMITATIONS ON REQUIREMENTS FOR CONSENTS. Notwithstanding any other
provisions of this Agreement unless, prior to the exercise by the Investors
other than the Directors of the rights of such Investors: (i) to approve actions
of the Directors pursuant to Section 3.09; (ii) to vote to remove a Director or
Investment Manager pursuant to Section 12.03 or to approve the appointment of a
successor Director pursuant to Section 12.05; (iii) to approve and elect or
remove Directors and to approve certain Fund matters pursuant to Section 5.04;
(iv) to approve and elect to dissolve the Fund pursuant to Section 15.01(c); or
(v) to amend this Agreement pursuant to Section 6.03, as the case may be,
counsel for the Fund or counsel designated by not less than 10% of the Shares
owned by all Investors shall have delivered to the Fund an opinion to the effect
that neither the existence of such right or rights nor the exercise thereof will
violate the provisions of the Act or the laws of the other jurisdictions in
which the Fund is then formed or qualified, will adversely affect the limited
liability of the Investors and Directors, or will adversely affect the
classification of the Fund as a partnership for federal or state income tax
purposes, then:
30
(a) notwithstanding the provisions of Section 3.09, the Directors shall be
prohibited from taking an action, performing an act, or entering into a
transaction, as the case may be;
(b) notwithstanding the provisions of Sections 12.03 and 12.05, the
Investors other than the Directors shall be prohibited from removing a Director
or from approving the appointment of a successor Director;
(c) notwithstanding the provisions of Section 5.04, the Investors other
than the Directors shall be prohibited from approving and electing or removing
Directors and approving certain Fund matters, as the case may be;
(d) notwithstanding the provisions of Section 15.01(c), the Investors
other than the Directors shall be prohibited from electing to dissolve the Fund;
and
(e) notwithstanding the provisions of Section 6.03, the Investors other
than the Directors shall be prohibited from amending this Agreement. Such
counsel may rely as to the law of any jurisdiction, other than a jurisdiction in
which such counsel's principal office is located, on an opinion of counsel in
such other jurisdiction in form and substance satisfactory to such counsel.
14.03 ACTION BY THE DIRECTORS. The Directors shall act by majority vote at a
meeting duly called, or by unanimous written consent without a meeting, unless
the 1940 Act requires that a particular action be taken only at a meeting.
Meetings of the Directors may be called by any two Directors. Subject to the
requirements of the 1940 Act, the Directors by majority vote may delegate to any
one of its members, or a committee thereof, its authority to approve particular
matters or take particular actions on behalf of the Fund. A quorum for all
meetings of the Directors shall be a majority of the Directors.
14.04 SPECIAL MEETINGS. The dissolution of the Fund, the removal of Directors,
and any other matter requiring the consent of all or any of the Investors other
than the Investment Manager pursuant to this Agreement may be considered at a
meeting of the Investors held not less than 20 nor more than 60 days after
notification thereof shall be given to all Investors. Such notification (i) may
be given by the Directors, in their discretion, at any time and (ii) shall be
given by the Directors within 30 days after receipt by the Directors of a
request for such a meeting made by Investors who own, in aggregate, not less
than 10% of the Shares owned by all Investors. Any such notification shall state
briefly the purpose, time, and place of the meeting. All such meetings shall be
held within or outside the State of Delaware at such reasonable place as the
Directors shall designate and during normal business hours. Investors may vote
in Person or by proxy at any such meeting. If Proxies are solicited for a
specific meeting and an Investor other than a Director does not return a proxy,
that Investor shall be deemed to have granted to the Investment Manager a proxy
solely for those matters noticed for and acted upon at that meeting. Such proxy
shall be voted by their Investment Manager.
31
14.05 ACTION WITHOUT A MEETING. Any action that may be taken at a Fund meeting
may be taken without a meeting if consent in writing setting forth the action to
be taken is signed by the Investors holding not less than the minimum percentage
of Shares that would be necessary to authorize or take such action at a meeting
at which all the Investors were present and voted. Each Investor shall be given
notice of the matters to be voted upon in the same manner as described in
Sections 14.04 and 14.05. The date on which votes will be counted shall be not
less than 10 or more than 60 days following mailing of the notice.
14.06 APPROVAL AND ELECTION OF DIRECTORS. In the approval and election of
Independent Directors, those candidates receiving the highest number of votes
cast, at a meeting at which a Majority in Interest of the Investors is present
in person or by proxy, up to the number of Independent Directors proposed to be
approved and elected, shall be approved and elected to serve until the next
Investor meeting or until their successors are duly approved, elected and
qualified; and each Investor shall have one vote for each Share owned by such
Investor. In the approval and election of the Investment Manager, the candidate
receiving the highest number of votes cast shall be approved and elected
pursuant to the foregoing provision. Any vote for the approval and election of
Directors shall be subject to the limitations of Section 14.02.
14.07 RECORD DATES. The Directors may set in advance a date for determining the
Investors other than the Directors entitled to notification of and to vote at
any meeting. All record dates shall not be more than 60 days prior to the date
of the meeting to which such record date relates.
14.08 SUBMISSIONS TO INVESTORS. The Directors shall give all Investors
notification of any proposal or other matter required by any provision of this
Agreement or by law to be submitted for the consideration and approval of the
Investors. Such notification shall include any information required by the
relevant provision of this Agreement or by law.
ARTICLE 15
DISSOLUTION AND TERMINATION
15.01 DISSOLUTION. The Fund shall be dissolved upon the occurrence of any of the
following:
(a) the expiration of its term, except to the extent extended pursuant to
Section 1.05;
(b) the Incapacity of all Directors and the Investment Manager;
(c) the vote of a Majority in Interest of the Investors;
(d) the withdrawal, retirement or removal of the Investment Manager;
32
(e) the sale or other disposition at any one time of all or substantially
all of the assets of the Fund; or
(f) dissolution required by operation of law, provided that, upon the
occurrence of an event described in (d) above, the Fund will not dissolve if
within 90 days after such event, all Directors agree in writing to continue the
business of the Fund, and appoint, effective as of such date, a successor
Investment Manager.
Dissolution of the Fund shall be effective on the day on which the event occurs
giving rise to the dissolution, but the Fund shall not terminate until the
assets of the Fund have been distributed as provided in Section 15.02 and the
certificate of formation of the Fund has been canceled.
15.02 LIQUIDATION. On dissolution of the Fund, a "Liquidating Trustee" (who
shall be the Directors, if still constituted, and otherwise shall be a Person
proposed and approved by a Majority in Interest of the Investors) shall cause to
be prepared a statement setting forth the assets and liabilities of the Fund as
of the date of dissolution, and such statement shall be furnished to all of the
Investors. Then, those Fund assets that the Liquidating Trustee determines
should be liquidated shall be liquidated as promptly as possible, but in an
orderly and business-like manner to minimize loss. If the Liquidating Trustee
determines that an immediate sale at the time of liquidation of all or part of
the Fund assets would cause undue loss to the Investors, the Liquidating Trustee
may, in order to avoid such loss, either defer liquidation and retain the assets
for a reasonable time, or distribute the assets to the Investors in kind. The
Liquidating Trustee shall then wind up the affairs of the Fund and distribute
the proceeds of the Fund by the end of the Taxable Period of the liquidation
(or, if later, within 90 days after the date of such liquidation) in the
following order or priority:
(a) to the payment of the expenses of liquidation and to creditors
(including Investors who are creditors, to the extent permitted by law) in
satisfaction of liabilities of the Fund other than liabilities for distributions
to Investors, in the order of priority as provided by law;
(b) to the setting up of any reserves that the liquidating trustee may
deem necessary or appropriate for any anticipated obligations or contingencies
of the Fund or of the Liquidating Trustee arising out of or in connection with
the operation or business of the Fund. Such reserves may be paid over by the
Liquidating Trustee to an escrow agent or trustee proposed and approved by the
Liquidating Trustee to be disbursed by such escrow agent or trustee in payment
of any of the aforementioned obligations or contingencies and, if any balance
remains at the expiration of such period as the liquidating trustee shall deem
advisable, to be distributed by such escrow agent or trustee in the manner
hereinafter provided;
(c) to the payment of liabilities for distributions to Investors other
than the Investment Manager in order of priority as provided by law;
33
(d) to the payment of liabilities for distributions to Independent
Directors in order of priority as provided by law;
(e) to the payment of liabilities for distributions to the Investment
Manager in order of priority as provided by law; then
(f) to those Investors with positive Capital Account balances in
proportion to the respective amounts of such positive balances.
For purposes of determining the amounts and allocation of such distribution, all
Fund assets shall be valued by the Liquidating Trustee at their then fair market
value, and any gains or losses that would arise from their sale at such
valuation or, in the event of distributions to be made in kind, that would arise
assuming such a sale were made, shall be allocated as specified in Article 8.
For the purposes of calculating if and when Conversion occurs in liquidation,
amounts credited to the Investors' Capital Accounts, pursuant to this Section
15.02 shall be deemed to have been distributed.
15.03 TERMINATION. The Liquidating Trustee shall comply with any requirements of
the Act or other applicable law pertaining to the winding up of a limited
liability company, at which time the Fund shall stand terminated.
34
ARTICLE 16
COVENANTS OF INVESTORS
Each Investor covenants, warrants, and agrees with the Fund and each of the
Investors that:
(a) such Investor shall not transfer, sell, or offer to sell such
Investor's Shares without compliance with the conditions and provisions of this
Agreement;
(b) if such Investor assigns all or any part of such Investor's Shares,
then until such time as one or more assignees thereof are admitted to the Fund
as a Substituted Investor with respect to the entire Fund Interest so assigned,
the matters to which any holder thereof would covenant and agree if such holder
were to execute this Agreement as an Investor shall be and remain true; and
(c) such Investor shall notify the Directors immediately if any
representations or warranties made herein or in any subscription agreement
should be or become untrue.
ARTICLE 17
REPRESENTATIONS AND WARRANTIES OF INVESTMENT MANAGER
THE INVESTMENT MANAGER REPRESENTS AND WARRANTS TO THE FUND AND EACH OF THE
INVESTORS THAT:
(a) the Investment Manager shall not assign all or any part of its
interest in the Fund if, such assignment would cause a termination of the Fund
within the meaning of IRC Section 708(b).
ARTICLE 18
ARBITRATION
IN THE EVENT A DISPUTE BETWEEN THE PARTIES HERETO ARISES OUT OF, IN CONNECTION
WITH, OR WITH RESPECT TO THIS AGREEMENT, OR ANY BREACH THEREOF (OTHER THAN
CLAIMS ARISING UNDER FEDERAL AND STATE SECURITIES LAWS), SUCH DISPUTE SHALL, ON
THE WRITTEN REQUEST OF ONE PARTY DELIVERED TO THE OTHER PARTY, BE SUBMITTED TO
AND SETTLED BY ARBITRATION IN THE COUNTY OF NEW YORK IN ACCORDANCE WITH THE
RULES OF THE AMERICAN ARBITRATION ASSOCIATION THEN IN EFFECT. JUDGMENT UPON THE
AWARD RENDERED BY THE ARBITRATORS MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION THEREOF. THE PARTIES HEREBY SUBMIT TO THE IN PERSONAM JURISDICTION
OF THE SUPERIOR COURT OF THE STATE OF NEW YORK FOR THE PURPOSE OF CONFIRMING ANY
SUCH
35
AWARD AND ENTERING JUDGMENT THEREON. NOTWITHSTANDING ANYTHING TO THE CONTRARY
THAT MAY NOW OR HEREAFTER BE CONTAINED IN THE RULES OF THE AMERICAN ARBITRATION
ASSOCIATION, THE PARTIES AGREE AS FOLLOWS:
(a) Within 10 days after receipt of notice of arbitration from the
noticing party, each party shall propose and approve one person approved by the
American Arbitration Association to hear and determine the dispute. If more than
two parties are involved, they shall together propose and approve two persons.
The two persons so chosen shall propose and approve a third impartial
arbitrator. The majority decision of the arbitrators shall be final and
conclusive upon both parties hereto. If either party fails to approve its
arbitrator within 10 days after delivery of the notice provided for herein, then
the arbitrator approved by the one party shall act as the sole arbitrator and
shall be deemed to be the single, mutually approved arbitrator to resolve the
controversy. In the event the parties are unable to agree upon a rate of
compensation for the arbitrators, they shall be compensated for their services
at a rate to be determined by the American Arbitration Association;
(b) the parties shall enjoy, but are not to be limited to, the same rights
to discovery as they would in the federal District Court for the Southern
District of New York;
(c) the costs of the arbitration including attorneys' fees shall be paid
by the suing party or will be allocated between the parties in such proportions
as the arbitrators decide;
(d) the arbitrators shall, upon the request of either party, issue a
written opinion of their findings of fact and conclusions of law; and
(e) upon receipt by the requesting party of said written opinion, said
party shall have the right within 10 days thereof to file with the arbitrators a
motion to reconsider, and the arbitrators thereupon shall reconsider the issues
raised by said motion and either confirm or change their majority decision,
which shall then be final and conclusive upon both parties hereto. The costs of
such a motion for reconsideration and written opinion of the arbitrators
including attorneys' fees shall be paid by the moving party.
ARTICLE 19
POWER OF ATTORNEY
19.01 POWER OF ATTORNEY. Each Investor other than a Director hereby irrevocably
constitutes and appoints the Investment Manager as such Investor's true and
lawful agent and attorney-in-fact, with full power and authority in such
Investor's name, place, and stead, to make, execute, acknowledge, deliver, file,
and record the following documents and instruments in accordance with the other
provisions of this Agreement;
36
(a) this Agreement and a certificate of formation, a certificate of doing
business under fictitious name, and any other instrument that may be required to
be filed in connection with the formation and operation of the Fund under the
laws of Delaware or other laws of any other state;
(b) any and all amendments, restatements, cancellations, or modifications
of the instruments described in Section 19.01(a);
(c) any and all instruments related to the admission of any successor
Director or any Investor; and
(d) all documents and instruments that may be necessary or appropriate to
effect the dissolution and termination of the Fund, pursuant to the terms
hereof.
19.02 IRREVOCABILITY. The foregoing power of attorney is coupled with an
interest and such grant shall be irrevocable. Such power of attorney shall
survive the subsequent Incapacity of any such Investor or the transfer of any or
all of such Investor's Shares.
19.03 PRIORITY OF AGREEMENT. In the event of any conflict between provisions of
this Agreement or any amendment hereto and any documents executed, acknowledged,
sworn to, or filed by the Directors under this power of attorney, this Agreement
and its amendments shall govern.
19.04 EXERCISE OF POWER. This power of attorney may be exercised by a Directors
either by signing separately as attorney-in-fact for each such Investor or by a
single signature of a Directors acting as attorney-in-fact for all of them.
37
ARTICLE 20
MISCELLANEOUS
20.01 CERTIFICATE OF FORMATION. On each subsequent change in the Fund specified
in the Act, the Directors shall cause to be executed and acknowledged an amended
certificate of formation pursuant to the provisions of the Act, which will be
duly filed as prescribed by Delaware law.
20.02 DELAWARE LAW. This Agreement and the rights and obligations of the parties
hereunder shall be governed by, and construed and interpreted according to, the
laws of Delaware.
20.03 COUNTERPARTS. This Agreement may be executed in counterparts, and all
counterparts so executed shall constitute one agreement that shall be binding on
all the parties hereto. Any counterpart of either this Agreement that has
attached to it separate signature pages which altogether contain the signatures
of all Directors or Investors or their attorneys-in-fact shall for all purposes
be deemed a fully executed instrument.
20.04 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to and unless otherwise
provided in this Agreement, each and all of the covenants, terms, provisions,
and agreements herein contained shall be binding upon and inure to the benefit
of the successors, successors-in-title, heirs, and assigns of the respective
parties hereto.
20.05 NOTICES. Any notice, offer, consent, or demand permitted or required to be
made under this Agreement to any party hereto shall be given in writing signed
by the Investor giving such notice either by (i) personal delivery or (ii) by
registered or certified mail, postage prepaid, addressed to that party at the
respective address shown on the Fund's books and records, or to such other
address as that party shall indicate by proper notice to the Directors, in the
same manner as provided above. All notices shall be deemed effective upon
receipt or five days after the date of mailing in accordance with the above
provisions.
20.06 SEVERABILITY. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other
Persons or circumstances shall not be effected thereby, but shall be enforced to
the maximum extent possible under applicable law.
20.07 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding and
agreement of the parties hereto with respect to the subject hereof and
supersedes all prior agreements or understandings, written or oral, between the
parties with respect thereto.
20.08 HEADINGS, ETC. The headings in this Agreement are inserted for convenience
of reference only and shall not affect interpretation of this Agreement.
Wherever from
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the context it appears appropriate, each term stated in either the singular or
the plural shall include the singular and the plural, and pronouns stated either
the masculine or the neuter genders shall include the masculine, the feminine
and the neuter.
20.09 LEGENDS. If certificates are issued evidencing an Investor's Shares, each
such certificate shall bear such legends as may be required by applicable
federal and state laws, or as may be deemed necessary or appropriate by the
Directors to reflect restrictions upon transfer contemplated herein.
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EXECUTED ______________ at _________THE INVESTMENT MANAGER
XXXXXXXXX.XXX ADVISERS, INC.,
Investment Manager
By: _____________________________
Xxxxxx X. Xxxxxxxx, President
THE AFFILIATED DIRECTORS
[Xxxxxx X. Xxxxxxxx]
THE INDEPENDENT DIRECTORS
[ ]
[ ]
[ ]
THE INVESTORS
(All Investors now and hereafter
admitted as Investors of the Fund
pursuant to powers of attorney now
and hereafter executed in favor of,
and delivered to, the Investment
Manager)
By: The Directors,
Attorney-in-Fact
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