FORM OF
MERCANTILE ALTERNATIVE STRATEGIES FUND LLC
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of January 1, 2003
Table of Contents
Page
Article I. Definitions.................................................1
Section 1.1. ADMINISTRATIVE SERVICES.................................1
Section 1.2. ADMINISTRATOR...........................................1
Section 1.3. ADMINISTRATION AGREEMENT................................1
Section 1.4. ADVISER.................................................1
Section 1.5. ADVISERS ACT............................................2
Section 1.6. AFFILIATE...............................................2
Section 1.7. AGREEMENT...............................................2
Section 1.8. BOARD...................................................2
Section 1.9. CAPITAL ACCOUNT.........................................2
Section 1.10. CERTIFICATE.............................................2
Section 1.11. CLOSING DATE............................................2
Section 1.12. CODE....................................................2
Section 1.13. COMPANY.................................................2
Section 1.14. DELAWARE ACT............................................2
Section 1.15. DIRECTOR................................................2
Section 1.16. FISCAL PERIOD...........................................2
Section 1.17. FISCAL YEAR.............................................3
Section 1.18. FORM N-2................................................3
Section 1.19. INCENTIVE FEE...........................................3
Section 1.20. INCENTIVE PERIOD........................................3
Section 1.21. INDEPENDENT DIRECTORS...................................3
Section 1.22. INITIAL MEMBER..........................................3
Section 1.23. INTEREST................................................3
Section 1.24. INVESTMENT ADVISORY AGREEMENT...........................3
Section 1.25. INVESTMENT FUNDS........................................3
Section 1.26. INVESTMENT MANAGERS.....................................3
Section 1.27. INVESTMENT MANAGEMENT AGREEMENT.........................4
Section 1.28. INVESTMENT PERCENTAGE...................................4
Section 1.29. LOSS CARRYFORWARD AMOUNT................................4
Section 1.30. MANAGEMENT FEE..........................................4
Section 1.31. MANAGER.................................................4
Section 1.32. MEMBER..................................................4
Section 1.33. NET ASSETS..............................................4
Section 1.34. NET PROFITS OR NET LOSSES...............................5
Section 1.35. 1940 ACT................................................5
Section 1.36. ORGANIZATIONAL MEMBER...................................5
Section 1.37. PLACEMENT AGENT.........................................5
Section 1.38. PRINCIPAL DIRECTOR......................................5
Section 1.39. PROMISSORY NOTE.........................................5
Section 1.40. Private Placement Memorandum............................5
Section 1.41. SECURITIES..............................................5
Section 1.42. TAXABLE YEAR............................................5
i
Table of Contents
Page
Section 1.43. TRANSFER................................................5
Article II. ORGANIZATION; ADMISSION OF MEMBERS..........................6
Section 2.1. Formation of Limited Liability Company..................6
Section 2.2. Name....................................................6
Section 2.3. Principal and Registered Office.........................6
Section 2.4. Duration................................................6
Section 2.5. Objective and Business of the Company...................6
Section 2.6. Board of Directors......................................7
Section 2.7. Members.................................................8
Section 2.8. Placement Fees..........................................8
Section 2.9. Both Directors and Members..............................8
Section 2.10. Limited Liability.......................................8
Article III. MANAGEMENT..................................................9
Section 3.1. Management and Control..................................9
Section 3.2. Actions by the Board of Directors.......................10
Section 3.3. Meetings of Members.....................................10
Section 3.4. Custody of Assets of the Company........................11
Section 3.5. Other Activities of Members, the Manager and Directors..12
Section 3.6. Duty of Care............................................12
Section 3.7. Indemnification.........................................12
Section 3.8. Fees, Expenses and Reimbursement........................15
Article IV. TERMINATION OF STATUS OF MANAGER AND DIRECTORS, TRANSFERS
AND REPURCHASES...............................................................17
Section 4.1. Termination of Status of the Manager....................17
Section 4.2. Termination of Status of a Director.....................17
Section 4.3. Removal of the Directors................................17
Section 4.4. Appointment of a Director...............................17
Section 4.5. Removal of the Manager..................................18
Section 4.6. Transfer of Interests of Members........................18
Section 4.7. Repurchase of Interests.................................19
Article V. CAPITAL.....................................................21
Section 5.1. Contributions to Capital................................21
Section 5.2. Rights of Members to Capital............................22
Section 5.3. Capital Accounts........................................22
Section 5.4. Allocation of Net Profits and Net Losses................23
Section 5.5. Allocation of Insurance Premiums and Proceeds...........23
Section 5.6. Allocation of Certain Expenditures......................23
Section 5.7. Reserves................................................24
Section 5.8. Allocation of Organizational Expenses...................24
Section 5.9. Tax Allocations.........................................24
Section 5.10. Distributions...........................................26
ii
Table of Contents
Page
Section 5.11. Withholding.............................................26
Article VI. DISSOLUTION AND LIQUIDATION.................................27
Section 6.1. Dissolution.............................................27
Section 6.2. Liquidation of Assets...................................27
Article VII. ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS................28
Section 7.1. Accounting and Reports..................................28
Section 7.2. Determinations by the Board of Directors................29
Section 7.3. Valuation of Assets.....................................29
Article VIII. MISCELLANEOUS PROVISIONS....................................29
Section 8.1. Amendment of Limited Liability Company Agreement........29
Section 8.2. Special Power of Attorney...............................30
Section 8.3. Notices.................................................31
Section 8.4. Agreement Binding Upon Successors and Assigns...........32
Section 8.5. Applicability of 1940 Act and Form N-2..................32
Section 8.6. Choice of Law; Arbitration..............................32
Section 8.7. Not for Benefit of Creditors............................33
Section 8.8. Consents................................................33
Section 8.9. Merger and Consolidation................................34
Section 8.10. Pronouns................................................34
Section 8.11. Confidentiality.........................................34
Section 8.12. Severability............................................35
Section 8.13. Filing of Returns.......................................35
Section 8.14. Tax Matters Partner.....................................35
Section 8.15. Section 754 Election....................................36
iii
LIMITED LIABILITY COMPANY AGREEMENT
OF
MERCANTILE ALTERNATIVE STRATEGIES FUND LLC
A Delaware Limited Liability Company
Dated as of January 1, ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(▇▇▇) ▇▇▇-▇▇▇▇
THIS LIMITED LIABILITY COMPANY AGREEMENT of Mercantile Alternative Strategies
Fund LLC (the "Company") is dated as of January 1, 2003 by and among Mercantile
Capital Advisors, Inc. as the manager ("MCA" or the "Manager"), and Mercantile
Bankshares Corporation as Organizing Member and those persons hereinafter
admitted as Members.
WHEREAS, the Company has heretofore been formed as a limited liability company
under the Delaware Limited Liability Company Act pursuant to an initial
Certificate of Formation (the "Certificate") dated and filed with the Secretary
of State of Delaware on October 3, 2002,
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants hereinafter set forth, it is hereby agreed as follows:
Article I.
Definitions
For purposes of this Agreement:
Section 1.1. ADMINISTRATIVE SERVICES. Such administrative services as the
Administrator shall provide to the Company pursuant to a separate written
agreement with the Company as contemplated by Section 3.1 hereof.
Section 1.2. ADMINISTRATOR. MCA, or any person who may hereafter provide
Administrative Services to the Company pursuant to an administration agreement.
For purposes of this Agreement the term "Administrator" includes a
"Sub-Administrator".
Section 1.3. ADMINISTRATION AGREEMENT. A separate written agreement entered into
by the Company pursuant to which MCA provides administrative services to the
Company.
Section 1.4. ADVISER. Agio Alternative Assets, LLC ("Agio"), a Delaware limited
liability company retained by the Manager to provide investment advisory
services to the Company or
such other person appointed by the Manager to provide similar services, with the
consent of the Board of Directors.
Section 1.5. ADVISERS ACT. The Investment Advisers Act of 1940, as amended, and
the rules, regulations and orders thereunder, as amended from time to time, or
any successor law.
Section 1.6. AFFILIATE. Shall have such meaning as such term is defined in the
1940 Act.
Section 1.7. AGREEMENT. This Limited Liability Company Agreement, as amended
from time to time.
Section 1.8. BOARD. The Board of Directors established pursuant to Section 2.6.
Section 1.9. CAPITAL ACCOUNT. With respect to each Member, the capital account
established and maintained on behalf of each Member pursuant to Section 5.4.
Section 1.10. CERTIFICATE. The Certificate of Formation of the Company and any
amendments thereto as filed with the office of the Secretary of State of
Delaware.
Section 1.11. CLOSING DATE. The first date on or as of which a Member other than
the Organizational Member is admitted to the Company.
Section 1.12. CODE. The United States Internal Revenue Code of 1986, as amended,
and as hereafter amended from time to time, or any successor law.
Section 1.13. COMPANY. The limited liability company governed hereby, as such
limited liability company may from time to time be constituted.
Section 1.14. DELAWARE ACT. The Delaware Limited Liability Company Act as in
effect on the date hereof and as amended from time to time, or any successor
law.
Section 1.15. DIRECTOR. An individual designated as a Director of the Company
who is delegated authority provided for in Section 2.6 of this Agreement. For
purposes of this Agreement the term "Director" shall have the same meaning as
the term "Manager" as such term is defined under the Delaware Act (but is not
the same as the term "Manager" as used in this Agreement).
Section 1.16. FISCAL PERIOD. The period commencing on the Closing Date of the
Company, and thereafter each period commencing on the day following the last day
of the preceding Fiscal Period, and ending at the close on business on the first
to occur of the following dates:
(a) the last day of a Fiscal Year;
(b) the last day of a Taxable Year;
(c) the day preceding the date on which a contribution to the capital of
the Company is made;
(d) the day on which a substitute member is admitted;
2
(e) the day on which the Company repurchases any Interest, or portion of
an Interest, of a Member; or
(f) any day on which any amount is credited to, or debited against, the
Capital Account of a Member, other than an amount to be credited to,
or debited against, the Capital Account of all Members in accordance
with their respective Investment Percentages.
Section 1.17. FISCAL YEAR. The period commencing on the Closing Date and ending
on March 31, 2003, and thereafter each period commencing on April 1 of each year
and ending on March 31 of the following year (or on the date of a final
distribution pursuant to Section 6.2 hereof), unless the Board elect another
fiscal year for the Company.
Section 1.18. FORM N-2. The Company's Registration Statement on Form N-2 filed
with the Securities and Exchange Commission, as amended from time to time.
Section 1.19. INCENTIVE FEE. The fee paid to the Manager at the end of each
fiscal year and accrued at the end of each Incentive Period (as defined below)
which is based upon the performance of the Company. The Incentive Fee is an
amount equal to 10% of each Member's net profits in excess of such Member's Loss
Carryforward Amount (before any accruals of Incentive Fees).
Section 1.20. INCENTIVE PERIOD. The Incentive Period, which may be composed of
one or more consecutive fiscal periods, generally corresponds to a fiscal year,
but may vary with respect to Members. An Incentive Period may be composed of one
or more consecutive fiscal periods.
Section 1.21. INDEPENDENT DIRECTORS. Those Directors who are not "interested
persons" of the Company as such term is defined in the 1940 Act.
Section 1.22. INITIAL MEMBER. Mercantile Capital Advisors, Inc.
Section 1.23. INTEREST. The ownership interest in the Company at any particular
time of a Member, or other person to whom an Interest of a Member or portion
thereof has been transferred pursuant to Section 4.5 hereof, including the
rights and obligations of such Member or other person under this Agreement and
the Delaware Act.
Section 1.24. INVESTMENT ADVISORY AGREEMENT. A separate written agreement
entered into by the Adviser, the Manager and the Company pursuant to which the
Adviser provides advisory services to the Company.
Section 1.25. INVESTMENT FUNDS. Unregistered general or limited partnerships,
pooled investment vehicles or managed accounts in which the Company invests its
assets that are advised by an Investment Manager and includes Investment Funds
that may be formed by the Company.
Section 1.26. INVESTMENT MANAGERS. Third party investment managers designated by
the Adviser to manage a portion of the assets of the Company either directly or
through the investment by the Company in an Investment Fund.
3
Section 1.27. INVESTMENT MANAGEMENT AGREEMENT. A separate written agreement
entered into by the Company pursuant to which MCA provides investment management
services to the Company.
Section 1.28. INVESTMENT PERCENTAGE. A percentage established for each Member on
the Company's books as of the first day of each Fiscal Period. The Investment
Percentage of a Member for a Fiscal Period shall be determined by dividing the
balance of the Member's Capital Account as of the commencement of such period by
the sum of the Capital Accounts of all of the Members as of the commencement of
such period. The sum of the Investment Percentages of all Members for each
Fiscal Period shall equal 100%.
Section 1.29. LOSS CARRYFORWARD AMOUNT. The excess, with respect to any
Incentive Period, and to the extent not subsequently offset by allocations of
profits or otherwise reduced, of (1) a Member's allocable share of net losses
calculated in accordance with Section 5.4 of this Agreement (excluding amounts
previously allocated to repurchased or distributed portions of the Capital
Account during the Incentive Period) over (2) the Member's allocable share of
net profits calculated in accordance with Section 5.4 of this Agreement
(excluding amounts previously allocated to repurchased or distributed portions
of the Capital Account during the Incentive Period), in each case for the
current and any prior Incentive Periods. If at the end of any subsequent
Incentive Period, profits allocated to a Member's Capital Account exceed the
losses allocated during that period (excluding profits and losses previously
taken into account for this purpose by reason of a partial repurchase or
distribution during that period), any Loss Carryforward Amount for such Member
will be reduced (but not below zero) by the amount of the excess. No transferee
may succeed to any portion of the Loss Carryforward Amount applicable to the
Transferring Member unless the transfer of the Interest or portion of the
Interest results in no change in beneficial ownership in the Interest or portion
of the Interest. The Loss Carryforward Amount, for a given Incentive Period,
will be adjusted with respect to any contributions, transfers, distributions,
withdrawals and repurchases applicable to the Member's Capital Account for that
Incentive Period, or portion thereof.
Section 1.30. MANAGEMENT FEE. The fee paid to the Manager out of the Company's
assets, and debited against Members' Capital Accounts, as provided in Section
3.8(g) of this Agreement
Section 1.31. MANAGER. Mercantile Capital Advisors Inc., a Maryland corporation,
or any person who may hereinafter serve as the Manager to the Company pursuant
to an investment management agreement.
Section 1.32. MEMBER. Any person who shall have been admitted to the Company as
a member (including any Director in such person's capacity as a member of the
Company but excluding any Director in such person's capacity as a Director of
the Company) until the Company repurchases the entire Interest of such person as
a member pursuant to Section 4.6 hereof or a substituted member or members are
admitted with respect to any such person's entire Interest as a member pursuant
to Section 4.5 hereof.
Section 1.33. NET ASSETS. The total value of all assets of the Company, less an
amount equal to all accrued debts, liabilities and obligations of the Company,
calculated before giving effect to any repurchases of Interests.
4
Section 1.34. NET PROFITS OR NET LOSSES. The amount by which the Net Assets as
of the close of business on the last day of a Fiscal Period exceed (in the case
of Net Profit) or are less than (in the case of Net Loss) the Net Assets as of
the commencement of the same Fiscal Period (or, with respect to the initial
Fiscal Period of the Company, at the close of business on the Closing Date),
such amount to be adjusted to exclude:
(a) the amount of any insurance premiums or proceeds to be allocated
among the Capital Accounts of the Members pursuant to Section 5.5
hereof;
(b) any items to be allocated among the Capital Accounts of the Members
on a basis that is not in accordance with the respective Investment
Percentages of all Members as of the commencement of such Fiscal
Period pursuant to Section 5.6 and Section 5.7 hereof; and
(c) Monthly reimbursement of Organization Expenses allocated among the
Capital Accounts of the Members pursuant to Sections 3.8 and 5.8
hereof.
Section 1.35. 1940 ACT. The Investment Company Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
Section 1.36. ORGANIZATIONAL MEMBER. Mercantile Bankshares Corporation.
Section 1.37. PLACEMENT AGENT. An agent who is hired by the Manager to sell
Interests in the Company.
Section 1.38. PRINCIPAL DIRECTOR. The Director selected to preside over meetings
of the Board.
Section 1.39. PROMISSORY NOTE. The Promissory Note is a non-interest bearing and
non-transferable promise to pay which will contain terms providing for payment
to a redeeming Member at two separate times.
Section 1.40. PRIVATE PLACEMENT MEMORANDUM. The Company's placement memorandum,
as included in the Form N-2, as amended or supplemented from time to time.
Section 1.41. SECURITIES. Securities (including, without limitation, equities,
debt obligations, options, and other "securities" as that term is defined in
Section 2(a)(36) of the ▇▇▇▇ ▇▇▇) and any contracts for forward or future
delivery of any security, debt obligation or currency, or commodity, all types
of derivative instruments and any contracts based on any index or group of
securities, debt obligations or currencies, or commodities, and any options
thereon, as well as investments in registered investment companies and private
investment funds.
Section 1.42. TAXABLE YEAR. The period from January 1 to December 31 of each
year.
Section 1.43. TRANSFER. The assignment, transfer, sale, encumbrance, pledge or
other disposition of all or any portion of an Interest, including any right to
receive any allocations and distributions attributable to an Interest. Verbs,
adverbs or adjectives such as "Transfer," "Transferred" and "Transferring" have
correlative meanings.
5
Article II.
ORGANIZATION; ADMISSION OF MEMBERS
Section 2.1. Formation of Limited Liability Company.
The Board shall execute and file in accordance with the Delaware Act
any amendment to the Certificate and shall execute and file with applicable
governmental authorities any other instruments, documents and certificates that,
in the opinion of the Company's legal counsel, may from time to time be required
by the laws of the United States of America, the State of Delaware or any other
jurisdiction in which the Company shall determine to do business, or any
political subdivision or agency thereof, or that such legal counsel may deem
necessary or appropriate to effectuate, implement and continue the valid
existence and business of the Company.
Section 2.2. Name.
The name of the Company shall be Mercantile Alternative Strategies Fund
LLC or such other name as the Board may hereafter adopt upon (i) causing an
appropriate amendment to the Certificate to be filed in accordance with the
Delaware Act and (ii) sending notice thereof to each Member.
Section 2.3. Principal and Registered Office.
(a) The Company shall have its principal office at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other place designated
from time to time by the Board.
(b) The Company shall have its registered office in Delaware at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ and shall have National
Corporate Research, Ltd. as its registered agent for service of
process in Delaware, unless a different registered office or agent
is designated from time to time by the Board.
Section 2.4. Duration.
The term of the Company commenced on the filing of the Certificate with
the Secretary of State of Delaware and shall continue until the Company is
dissolved pursuant to Section 6.1 hereof.
Section 2.5. Objective and Business of the Company.
(a) The objective of the Company is to seek attractive risk adjusted
rate of returns with a risk profile that is significantly lower than
that of traditional "long only" small cap market exposure. The
Company intends to achieve its objective principally through
investing in Investment Funds managed by third-party Investment
Managers who employ a variety of alternative investment strategies.
The business of the Company is to purchase, sell (including short
sales), invest and trade in Securities, on margin or otherwise, and
to engage in any financial or
6
derivative transactions relating thereto or otherwise. The Company
may execute, deliver and perform all contracts, agreements,
subscription documents and other undertakings and engage in all
activities and transactions as may in the opinion of the Board be
necessary or advisable to carry out its objective or business. The
Company shall be operated subject to any applicable restrictions of
the Bank Holding Company Act of 1956, as amended.
(b) The Company shall operate as a closed-end, non-diversified,
management investment company in accordance with the 1940 Act and
subject to any fundamental policies and investment restrictions set
forth in the Form N-2.
Section 2.6. Board of Directors.
(a) Prior to the Closing Date, the Organizational Member may designate
such persons who shall agree to be bound by all of the terms of this
Agreement to serve as the initial Directors on the Board, subject to
the election of such persons prior to the Closing Date by the
Organizational Member. By signing this Agreement or the signature
page of the Company's subscription agreement, a Member admitted on
the Closing Date shall be deemed to have voted for the election of
each of the initial Directors to the Board. After the Closing Date,
the Board may, subject to the provisions of paragraphs (a) and (b)
of this Section 2.6 with respect to the number of, and vacancies in,
the position of Director and the provisions of Section 3.3 hereof
with respect to the election of Directors to the Board by Members,
designate any person who shall agree to be bound by all of the terms
of this Agreement as a Director. The names and mailing addresses of
the Directors shall be set forth in the books and records of the
Company. The number of Directors shall be fixed from time to time by
the Board.
(b) Each Director shall serve on the Board for the duration of the term
of the Company, unless his or her status as a Director shall be
sooner terminated pursuant to Section 4.2 hereof. In the event of
any vacancy in the position of Director, the remaining Directors may
appoint an individual to serve in such capacity, so long as
immediately after such appointment at least two-thirds (2/3) of the
Directors then serving would have been elected by the Members. The
Board may call a meeting of Members to fill any vacancy in the
position of Director, and shall do so within 60 days after any date
on which Directors who were elected by the Members cease to
constitute a majority of the Directors then serving on the Board.
(c) In the event that no Director remains to continue the business of
the Company, the Manager shall promptly call a meeting of the
Members, to be held within 60 days after the date on which the last
Director ceased to act in that capacity, for the purpose of
determining whether to continue the business of the Company and, if
the business shall be continued, of electing the required number of
Directors to the Board. If the Members shall determine at such
meeting not to continue the business of the Company or if the
required number of Directors is not elected within 60 days after the
date on which the last Director ceased to act in that
7
capacity, then the Company shall be dissolved pursuant to Section
6.1 hereof and the assets of the Company shall be liquidated and
distributed pursuant to Section 6.2 hereof.
Section 2.7. Members.
The Board expects to admit Members as of the first business day of each
calendar quarter. Members may be admitted to the Company subject to the
condition that each such Member shall execute an appropriate signature page of
this Agreement and of the Company's subscription agreement pursuant to which
such Member agrees to be bound by all the terms and provisions hereof. The Board
may in its sole discretion reject any subscription for Interests. The Board may,
in its sole discretion, suspend subscriptions for Interests at any time. The
admission of any person as a Member shall be effective upon the revision of the
books and records of the Company to reflect the name and the contribution to the
capital of the Company of such additional Member.
Section 2.8. Placement Fees
(a) A Member may be charged a Placement Fee when a Placement Agent is
used to place such Member's Interest with the Company. The specific
amount of the Placement Fee is dependent on the size of the
investment in the Company. The fees are as follows:
Amount Subscribed For Placement Fee
----------------- ------------------
$75,000 to $1 million 3.0% of subscription amount
Between $1 million and $5 million 1.5% of subscription amount
$5 million to $10 million 1% of subscription amount
More than $10 million No fee
(b) The placement fee will be added to a prospective Member's
subscription amount; it will not constitute a Capital Contribution
made by the Member to the Company nor part of the assets of the
Company and may be adjusted or waived at the sole discretion of the
Placement Agent in consultation with the Manager.
Section 2.9. Both Directors and Members.
A Member may at the same time be a Director and a Member, in which
event such Member's rights and obligations in each capacity shall be determined
separately in accordance with the terms and provisions hereof and as provided in
the Delaware Act.
8
Section 2.10. Limited Liability.
Except as provided under applicable law, including capital contribution
obligations, a Member shall not be liable for the Company's debts, obligations
and liabilities in any amount in excess of such Member's contributions to the
capital of the Company (plus such Member's share of undistributed profits and
assets). Except as provided under applicable law, a Director shall not be liable
for the Company's debts, obligations and liabilities.
Article III.
MANAGEMENT
Section 3.1. Management and Control.
(a) Management and control of the business of the Company shall be
vested in the Board, which shall have the right, power and
authority, on behalf of the Company and in its name, to exercise all
rights, powers and authority of "manager" as defined under the
Delaware Act (but is not the same as the term "Manager" as defined
in this Agreement) and to do all things necessary and proper to
carry out the objective and business of the Company and their duties
hereunder. No Director shall have the authority individually to act
on behalf of or to bind the Company except within the scope of such
Director's authority as delegated by the Board. The parties hereto
intend that, except to the extent otherwise expressly provided
herein, (i) each Director shall be vested with the same powers,
authority and responsibilities on behalf of the Company as are
customarily vested in each director of a Delaware corporation and
(ii) each Independent Director shall be vested with the same powers,
authority and responsibilities on behalf of the Company as are
customarily vested in each director of a closed-end management
investment company registered under the 1940 Act that is organized
as a Delaware corporation who is not an "interested person" (as such
term is defined in the ▇▇▇▇ ▇▇▇) of such company. During any period
in which the Company shall have no Directors, the Manager shall
continue to provide management and administrative services to the
Company pursuant to the Investment Management and Administration
Agreements. The Manager will oversee the day-to-day management of
the Company and, subject to the approval of the Board, has the
authority to: approve the acceptance of initial and subsequent
subscriptions on behalf of the Company; determine whether additional
subscriptions should be suspended; make determinations on the
transfer of Interests; and manage and oversee the general
administrative and operational aspects of the Company.
(b) Members shall have no right to participate in and shall take no part
in the management or control of the Company's business and shall
have no right, power or authority to act for or bind the Company.
Members shall have the right to vote on any matters only as provided
in this Agreement or on any matters that require the approval of the
holders of voting securities under the 1940 Act or as otherwise
required in the Delaware Act.
9
(c) The Board may delegate to any other person any rights, power and
authority vested by this Agreement in the Board to the extent
permissible under applicable law.
(d) The Company will file a tax return as a partnership for U.S. federal
income tax purposes. Except as otherwise specifically provided
herein, all decisions for the Company relating to tax matters
including, without limitation, whether to make any tax elections,
the positions to be made on the Company's tax returns and the
settlement or further contest or litigation of any audit matters
raised by the Internal Revenue Service or other taxing authority,
will be made by the Board. All actions (other than ministerial
actions) taken by the Manager, as designated in this Section 3.1 and
Section 3.2 below, will be subject to the approval of the Board.
Each Member agrees not to treat, on his personal income tax return
or any claim for a tax refund, any item of income, gain, loss,
deduction or credit in a manner inconsistent with the treatment of
such item by the Company.
Section 3.2. Actions by the Board of Directors.
(a) Unless provided otherwise in this Agreement, the Board shall act
only: (i) by the affirmative vote of a majority of the Directors
(including the vote of a majority of the Independent Directors, if
required by the ▇▇▇▇ ▇▇▇) present at a meeting duly called at which
a quorum of the Directors shall be present (in person or, if in
person attendance is not required by the 1940 Act, by telephone) or
(ii) by unanimous written consent of all of the Directors without a
meeting, if permissible under the 1940 Act.
(b) The Board may designate from time to time a Principal Director who
shall preside at all meetings. Meetings of the Board may be called
by the Principal Director or by any two Directors, and may be held
on such date and at such time and place as the Board shall
determine. Each Director shall be entitled to receive written notice
of the date, time and place of such meeting within a reasonable time
in advance of the meeting. Notice need not be given to any Director
who shall attend a meeting without objecting to the lack of notice
or who shall execute a written waiver of notice with respect to the
meeting. Directors may attend and participate in any meeting by
telephone except where in person attendance at a meeting is required
by the 1940 Act. A majority of the Directors shall constitute a
quorum at any meeting.
(c) The Board may designate from time to time agents and employees of
the Company who shall have the same powers and duties on behalf of
the Company (including the power to bind the Company) as are
customarily vested in officers of a Delaware corporation, and
designate them as officers of the Company.
Section 3.3. Meetings of Members.
(a) Actions requiring the vote of the Members may be taken at any duly
constituted meeting of the Members at which a quorum is present.
Meetings of the Members
10
may be called by the Board or by Members holding a majority of the
total number of votes eligible to be cast by all Members, and may be
held at such time, date and place as the Board shall determine. The
Board shall arrange to provide written notice of the meeting,
stating the date, time and place of the meeting and the record date
therefor, to each Member entitled to vote at the meeting within a
reasonable time prior thereto. Failure to receive notice of a
meeting on the part of any Member shall not affect the validity of
any act or proceeding of the meeting, so long as a quorum shall be
present at the meeting, except as otherwise required by applicable
law. Only matters set forth in the notice of a meeting may be voted
on by the Members at a meeting. The presence in person or by proxy
of Members holding a majority of the total number of votes eligible
to be cast by all Members as of the record date shall constitute a
quorum at any meeting. In the absence of a quorum, a meeting of the
Members may be adjourned by action of a majority of the Members
present in person or by proxy without additional notice to the
Members. Except as otherwise required by any provision of this
Agreement or of the 1940 Act, (i) those candidates receiving a
plurality of the votes cast at any meeting of Members shall be
elected as Directors and (ii) all other actions of the Members taken
at a meeting shall require the affirmative vote of Members holding a
majority of the total number of votes eligible to be cast by those
Members who are present in person or by proxy at such meeting.
(b) Each Member shall be entitled to cast at any meeting of Members a
number of votes equivalent to such Member's Investment Percentage as
of the record date for such meeting. The Board shall establish a
record date not less than 10 nor more than 60 days prior to the date
of any meeting of Members to determine eligibility to vote at such
meeting and the number of votes that each Member will be entitled to
cast thereat, and shall maintain for each such record date a list
setting forth the name of each Member and the number of votes that
each Member will be entitled to cast at the meeting.
(c) A Member may vote at any meeting of Members by a proxy properly
executed in writing by the Member and filed with the Company before
or at the time of the meeting. A proxy may be suspended or revoked,
as the case may be, by the Member executing the proxy by a later
writing delivered to the Company at any time prior to exercise of
the proxy or if the Member executing the proxy shall be present at
the meeting and decide to vote in person. Any action of the Members
that is permitted to be taken at a meeting of the Members may be
taken without a meeting if consents in writing, setting forth the
action taken, are signed by Members holding a majority of the total
number of votes eligible to be cast or such greater percentage as
may be required in order to approve such action.
Section 3.4. Custody of Assets of the Company.
The physical possession of all funds, Securities or other properties of
the Company shall at all times be held, controlled and administered by one or
more custodians retained by the Company in accordance with the requirements of
the 1940 Act and the rules thereunder. The Manager will have no responsibility,
other than that associated with the oversight and
11
supervision of custodians retained by the Company, with respect to the
collection of income or the physical acquisition or safekeeping of the funds,
securities or other assets of the Company, all duties of collection physical
acquisition or safekeeping being the sole obligation of such custodians.
Section 3.5. Other Activities of Members, the Manager and Directors.
(a) Neither the Manager nor any Director shall be required to devote its
full time to the affairs of the Company, but shall devote such time
as may reasonably be required to perform its obligations under this
Agreement.
(b) Any Member, Manager or Director, and any Affiliate of any Member,
Manager or Director, may engage in or possess an interest in other
business ventures or commercial dealings of every kind and
description, independently or with others, including, but not
limited to, acquisition and disposition of Securities, provision of
investment advisory or brokerage services, serving as directors,
officers, employees, advisors or agents of other companies, partners
of any partnership, members of any limited liability company, or
trustees of any trust, or entering into any other commercial
arrangements. No Member, Manager or Director shall have any rights
in or to such activities of any other Member, Manager or Director,
or any profits derived therefrom.
Section 3.6. Duty of Care.
(a) The Manager and Directors shall not be liable to the Company or to
any of its Members for any loss or damage occasioned by any act or
omission in the performance of their services under this Agreement,
unless it shall be determined by final judicial decision on the
merits from which there is no further right to appeal that such loss
is due to an act or omission of such Manager or Director
constituting willful misfeasance, bad faith, or gross negligence of
the duties involved in the conduct of such Manager's or Director's
office.
(b) Members not in breach of any obligation hereunder or under any
agreement pursuant to which the Member subscribed for an Interest
shall be liable to the Company, any Member or third parties only as
provided under the Delaware Act.
Section 3.7. Indemnification.
(a) To the fullest extent permitted by law, the Company shall, subject
to Section 3.7(b) hereof, indemnify the Manager and Adviser
(including for this purpose each officer, director, member, partner,
principal, employee or agent of, or any Person who controls, is
controlled by or is under common control with, the Manger or Adviser
or partner of the Manager or Adviser and their respective executors,
heirs, assigns, successors or other legal representatives), its
Officers and each Director (and his respective executors, heirs,
assigns, successors or other legal representatives) (each such
person an "indemnitee") against all losses, claims, damages,
liabilities, costs and expenses, including, but not limited to,
amounts paid in satisfaction of judgments, in compromise, or as
fines or penalties,
12
and reasonable counsel fees, incurred in connection with the defense
or disposition of any action, suit, investigation or other
proceeding, whether civil or criminal, before any judicial,
arbitral, administrative or legislative body, in which such
indemnitee may be or may have been involved as a party or otherwise,
or with which such indemnitee may be or may have been threatened,
while in office or thereafter. Except to the extent that such loss,
claim, damage, liability, cost or expense shall have been finally
determined in a judicial decision on the merits from which no
further right to appeal may be taken in any such action, suit,
investigation or other proceeding to have been incurred or suffered
by such indemnitee by reason of willful misfeasance, bad faith,
breach of fiduciary duty or gross negligence of the duties involved
in the conduct of such indemnitee's office. The rights of
indemnification provided under this Section 3.7 shall not be
construed so as to provide for indemnification of a Director for any
liability (including liability under Federal securities laws which,
under certain circumstances, impose liability even on persons that
act in good faith) to the extent (but only to the extent) that such
indemnification would be in violation of applicable law, but shall
be construed so as to effectuate the applicable provisions of this
Section 3.7 to the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred by any such
indemnitee (but excluding amounts paid in satisfaction of judgments,
in compromise, or as fines or penalties), may be paid from time to
time by the Company in advance of the final disposition of any such
action, suit, investigation or proceeding upon receipt of an
undertaking by or on behalf of such indemnitee to repay to the
Company amounts so paid if it shall ultimately be determined that
indemnification of such expenses is not authorized under Section 3.7
hereof; provided, that (i) such indemnitee shall provide security
for such undertaking, (ii) the Company shall be insured by or on
behalf of such indemnitee against losses arising by reason of such
indemnitee's failure to fulfill such undertaking, or (iii) a
majority of the Directors (excluding any Director who is either
seeking advancement of expenses hereunder or is or has been a party
to any other action, suit, investigation or proceeding involving
claims similar to those involved in the action, suit, investigation
or proceeding giving rise to a claim for advancement of expenses
hereunder) or independent legal counsel in a written opinion
determines based on a review of readily available facts (as opposed
to a full trial-type inquiry) that there is reason to believe such
indemnitee ultimately will be entitled to indemnification.
(c) As to the disposition of any action, suit, investigation or
proceeding (whether by a compromise payment, pursuant to a consent
decree or otherwise) without an adjudication or a decision on the
merits by a court, or by any other body before which the proceeding
shall have been brought, that an indemnitee is liable to the Company
or its Members by reason of willful misfeasance, bad faith, breach
of fiduciary duty or gross negligence of the duties involved in the
conduct of such indemnitee's office, indemnification shall be
provided pursuant to Section 3.7(a) hereof if:
13
(i) approved as in the best interests of the Company by a majority
of the Directors (excluding any Director who is either seeking
indemnification hereunder or is or has been a party to any
other action, suit, investigation or proceeding involving
claims similar to those involved in the action, suit,
investigation or proceeding giving rise to a claim for
indemnification hereunder) upon a determination based upon a
review of readily available facts (as opposed to a full
trial-type inquiry) that such indemnitee acted in good faith
and in the reasonable belief that such actions were in the
best interests of the Company and that such indemnitee is not
liable to the Company or its Members by reason of willful
misfeasance, bad faith, breach of fiduciary duty or gross
negligence of the duties involved in the conduct of such
indemnitee's office, or
(ii) the Board secures a written opinion of independent legal
counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry) to the effect that such
indemnification would not protect such indemnitee against any
liability to the Company or its Members to which such
indemnitee would otherwise be subject by reason of willful
misfeasance, bad faith, breach of fiduciary duty or gross
negligence of the duties involved in the conduct of such
indemnitee's office.
(d) Any indemnification or advancement of expenses made pursuant to this
Section 3.7 shall not prevent the recovery from any indemnitee of
any such amount if such indemnitee subsequently is determined in a
final judicial decision on the merits in any action, suit,
investigation or proceeding involving the liability or expense that
gave rise to such indemnification or advancement of expenses to be
liable to the Company or its Members by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of such indemnitee's office. In
(i) any suit brought by an indemnitee (or other person entitled to
indemnification hereunder) to enforce a right to indemnification
under this Section 3.7 it shall be a defense that, and (ii) in any
suit in the name of the Company to recover any indemnification or
advancement of expenses made pursuant to this Section 3.7 the
Company shall be entitled to recover such expenses upon a final
adjudication that, the Director or other person claiming a right to
indemnification under this Section 3.7 has not met the applicable
standard of conduct set forth in this Section 3.7. In any such suit
brought to enforce a right to indemnification or to recover any
indemnification or advancement of expenses made pursuant to this
Section 3.7, the burden of proving that the indemnitee is not
entitled to be indemnified, or to any indemnification or advancement
of expenses, under this Section 3.7 shall be on the Company (or any
Member acting derivatively or otherwise on behalf of the Company or
its Members).
(e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 3.7 or to which such
indemnitee may otherwise be entitled except out of the assets of the
Company, and no Member shall be personally liable with respect to
any such claim for indemnification or advancement of expenses.
14
(f) The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be
entitled by contract or otherwise under law. Nothing contained in
this Section 3.7 shall affect the power of the Company to purchase
and maintain liability insurance on behalf of the Manager, any
Director, the Adviser or other person.
Section 3.8. Fees, Expenses and Reimbursement.
(a) So long as the Administrator provides Administrative Services to the
Company, it shall be entitled to receive reasonable and customary
fees for such services as well as out-of-pocket expenses as may be
agreed to by the Administrator and the Company pursuant to a
separate written agreement.
(b) As consideration for providing advisory services, and for so long as
the Manager provides such advisory services to the Company pursuant
to the Investment Management Agreement, the Manager shall be
entitled to receive the Incentive Fee equal to 10% of each Member's
Net Profits in excess of the Loss Carryforward Amount applicable to
such Member's capital account (before any accruals of Incentive
Fees).
(c) The Board may cause the Company to compensate each Director for his
or her services rendered in connection with the Company as may be
agreed to by the Directors and the Manager, and as described in the
Private Placement Memorandum. In addition, the Directors shall be
reimbursed by the Company for reasonable out-of-pocket expenses
incurred by them in performing their duties under this Agreement.
(d) The Company shall bear all expenses related to its investment
program, including, travel and other expenses related to the
selection and monitoring of Investment Managers as well as indirect
expenses of the Investment Funds in which the Company invests.
Expenses to be borne by the Company (both directly and indirectly)
include, but are not limited to, fees paid and expenses reimbursed
to Investment Funds or Investment Managers (including management
fees, performance or incentive fees or allocations and redemption or
withdrawal fees, however titled or structured), all costs and
expenses directly related to portfolio transactions and positions
for the Company's account such as direct and indirect expenses
associated with the Company's investments, including its investments
in Investment Funds (whether or not consummated), and enforcing the
Company's rights in respect of such investments, transfer taxes and
premiums, taxes withheld on non-U.S. dividends, fees for data and
software providers, research expenses, professional fees (including,
without limitation, the fees and expenses of consultants, attorneys
and experts) and, if applicable in connection with temporary or cash
management investments, brokerage commissions, interest and
commitment fees on loans and debit balances, borrowing charges on
securities sold short, dividends on securities sold but not yet
purchased and margin fees; any non-investment related interest
expense; attorneys' fees and disbursements associated with preparing
and updating the offering materials and with qualifying
15
prospective investors; fees and disbursements of any accountants
engaged by the Company, and expenses related to the annual audit of
the Company; record-keeping, custody and escrow fees and expenses;
the costs of errors and omissions / directors' and officers'
liability insurance and a fidelity bond; the Management Fee; the
Incentive Fee; the costs of preparing and mailing reports and other
communications, including proxy, tender offer correspondence or
similar materials, to Members; fees and travel expenses of Directors
relating to meetings of the Board and committees thereof; all costs
and charges for equipment or services used in communicating
information regarding the Company's transactions among the Adviser
and any custodian or other agent engaged by the Company; any
extraordinary expenses, including indemnification expenses as
provided for in this Agreement.
(e) Subject to procuring any required regulatory approvals, from time to
time the Company may, alone or in conjunction with other accounts
for which the Manager, or any of its affiliates, acts as general
partner or investment adviser, purchase insurance in such amounts,
from such insurers and on such terms as the Board shall determine.
(f) The expenses incurred by the Manager in connection with the
Company's formation, initial registration as an investment company
under the 1940 Act, and the initial offering of Interests of the
Company will be reimbursed to the Manager from the assets of the
Company. The Manager hereby agrees to limit the amount of each
monthly reimbursement to 0.0125% (0.15% on an annualized basis) of
the Company's net assets as of the end of each month. The Company
will only be obliged to reimburse organizational expenses and
offering costs for twelve months after the Closing Date and if after
such time such costs remain unpaid to the Manager, the Manager will
bear the remaining portion of such expenditures. If such
expenditures are paid in full prior to the twelfth month then,
during the remainder of the twelve month period, newly admitted
Members, and existing Members that subscribe for additional
Interests, will be allocated proportionate share of the amount
previously reimbursed to the Manager, and those Members who bore the
previously reimbursed expenditures will be credited with a
proportionate share of the expenditures allocated to such newly
admitted or existing Members.
(g) In consideration of the services provided by the Manager to the
Company under the Investment Management Agreement, the Company will
pay the Manager a quarterly fee of 0.3125% of the Company's net
assets (the "Management Fee"). The Management Fee will be an expense
paid out of the Company's assets, and will be reflected in each
Member's Capital Account (including the Capital Account of the
Adviser and the Manager or any of their respective affiliates to the
extent any of them holds a Member Interest) as a reduction to net
profits or an increase to net losses credited to or debited against
each Member's Capital Account. The Manager shall be entitled to
reduce the Management Fee, to all Members on an equal and pro rata
basis, in its sole discretion.
16
(h) In the event that the Company is terminated other than at the
end of a fiscal quarter or if the Manager is terminated other
than at the end of a fiscal quarter or if the effective date
of a Member's redemption is other than at the end of a fiscal
quarter, then the Management Fee provided above shall be
computed on the basis of the period ending on the last
business day prior to the termination or redemption date
subject to a pro rata adjustment based on the number of days
elapsed in the current fiscal quarter as a percentage of the
total number of days in such quarter.
Article IV.
TERMINATION OF STATUS OF MANAGER AND DIRECTORS, TRANSFERS
AND REPURCHASES
Section 4.1. Termination of Status of the Manager.
The status of the Manager as an investment adviser to the Company shall
be terminated at any time, (i) by the Company on 60 days' written notice to the
Manager, without the payment of any penalty, by a vote of a majority of the
entire Board or by vote of a majority of the outstanding voting securities of
the Company; or (ii) upon 90 days' written notice by the Manager. The Investment
Management Agreement will automatically and immediately terminate in the event
of its assignment by the Manager, provided that an assignment to a successor to
all or substantially all of the Manager's business or to a wholly-owned
subsidiary of such successor which does not result in a change of actual control
of the Manager's business shall not be deemed to be an assignment for the
purposes of the Investment Management Agreement.
Section 4.2. Termination of Status of a Director.
The status of a Director shall terminate if the Director, pursuant to
Delaware law, is removed, resigns or is subject to various disabling events such
as death, incapacity or bankruptcy. A Director may resign, subject to giving 90
days' prior written notice to the other Directors if such resignation is likely
to affect adversely the tax status of the Company.
Section 4.3. Removal of the Directors.
Any Director may be removed either by (a) the vote or written consent
of at least two-thirds (2/3) of the Directors not subject to the removal vote or
(b) the vote or written consent of Members holding not less than two-thirds
(2/3) of the total number of votes eligible to be cast by all Members.
Section 4.4. Appointment of a Director.
In the event of any vacancy in the position of a Director, the
remaining Directors serving on the Board may appoint an individual to serve as a
Director on the Board, so long as immediately after the appointment at least
two-thirds (2/3) of the Directors then serving on the Board would have been
elected by the Members. The Board may call a meeting of Members to fill any
vacancy in the position of a Director, and must do so within 60 days after any
date on
17
which Directors who were elected by the Members cease to constitute a majority
of the Board then serving.
Section 4.5. Removal of the Manager.
The Manager may be removed as Manager under this Agreement by the vote
or written consent of Members holding not less than 80% of the total number of
votes eligible to be cast by all Members.
Section 4.6. Transfer of Interests of Members.
(a) An Interest of a Member may be transferred only (i) by operation of
law pursuant to the death, bankruptcy, insolvency, dissolution or
incompetency of such Member or (ii) under certain limited
circumstances with the written consent of the Board (which may be
withheld in its sole discretion).
(b) The Board may not consent to a Transfer unless (x) the Company
consults with legal counsel to the Company and counsel confirms that
the Transfer will not cause the Company to be treated as a "publicly
traded partnership" taxable as a corporation or be subject to any
other adverse tax or regulatory treatment or (y) the following
conditions are met: (i) the Transferring Member has been a Member
for at least six months; (ii) the proposed Transfer is to be made on
the effective date of an offer by the Company to repurchase
Interests; and (iii) the Transfer is (A) one in which the tax basis
of the Interest in the hands of the transferee is determined, in
whole or in part, by reference to its tax basis in the hands of the
Transferring Member (e.g., certain Transfers to affiliates, gifts
and contributions to family entities), (B) to members of the
Transferring Member's immediate family (siblings, spouse, parents
and children), or (C) a distribution from a qualified retirement
plan or an individual retirement account.
(c) In no event, however, will any transferee or assignee be admitted as
a Member without the consent of the Board, which may be withheld in
its sole discretion. Any pledge, transfer, or assignment not made in
accordance with this Section 4.5 shall be void.
(d) The Board may not consent to a Transfer of an Interest unless: (i)
the person to whom the Interest is Transferred is a person whom the
Company believes is an "accredited investor," as that term is
defined in Regulation D under the Securities Act of 1933, as
amended, or any successor rule thereto; (ii) the person to whom the
Interest is Transferred (or each of the person's beneficial owners
if such a person is a "private investment company" as defined in
paragraph (d)(3) of Rule 205-3 under the Advisers Act) is a person
whom the Board believes meets the requirements of paragraph (d)(1)
of Rule 205-3 under the Advisers Act or any successor rule thereto;
(iii) the person to whom the Interest is Transferred is a person
whom the Board believes meets the requirements of paragraph (a)(2)
of section 4.7 of the Commodity Exchange Act; and (iv) the entire
Interest of the Member is Transferred to a single transferee or,
after the Transfer of a portion of
18
an Interest, the balance of the Capital Account of each of the
transferee and transferor is not less than $75,000 or such lesser
amount as the Board may determine in its sole discretion. Any
transferee that acquires an Interest by operation of law as the
result of the death, bankruptcy, insolvency, dissolution or
incompetency of a Member, shall be entitled to the allocations and
distributions allocable to the Interest so acquired and to Transfer
such Interest in accordance with the terms of this Agreement, but
shall not be entitled to the other rights of a Member unless and
until such transferee becomes a substituted Member. Once a Member
obtains the approval of the Board and satisfies the other
requirements to transfer its Interests, the Board shall promptly
take all necessary actions so that the transferee to whom such
Interest is transferred is admitted to the Company as a Member.
(e) The admission of any transferee as a substituted Member will be
effective upon the execution and delivery by, or on behalf of, the
substituted Member of this Agreement or an instrument that
constitutes the execution and delivery of this Agreement. Each
Member and transferee agrees to pay all expenses, including
attorneys' and accountants' fees, incurred by the Company in
connection with any Transfer. In connection with any request to
Transfer an Interest or portion of an Interest, the Company may
require the Member requesting the Transfer to obtain, at the
Member's expense, an opinion of counsel selected by the Manager as
to such matters as the Manager may reasonably request. If a Member
Transfers its entire Interest as a Member, it will not cease to be a
Member unless and until the transferee is admitted to the Company as
a substituted Member in accordance with this Section 4.5.
(f) Each Member shall indemnify and hold harmless the Company, the
Directors, the Manager, each other Member and any Affiliate of the
foregoing against all losses, claims, damages, liabilities, costs
and expenses (including legal or other expenses incurred in
investigating or defending against any such losses, claims, damages,
liabilities, costs and expenses or any judgments, fines and amounts
paid in settlement), joint or several, to which such persons may
become subject by reason of, or arising from, (i) any Transfer made
by such Member in violation of this Section 4.5 and (ii) any
misrepresentation by such Member in connection with any such
Transfer.
Section 4.7. Repurchase of Interests.
(a) Except as otherwise provided in this Agreement, no Member or other
person holding an Interest or portion thereof shall have the right
to withdraw or tender to the Company for repurchase that Interest or
portion thereof. The Board from time to time, in its sole discretion
and on such terms and conditions as it may determine, may cause the
Company to repurchase Interests or portions thereof pursuant to
written tenders. In determining whether to cause the Company to
repurchase Interests pursuant to written tenders, the Board shall
consider the recommendation of the Manager, and shall also consider
the following factors, among others:
19
(i) whether any Members have requested to tender Interests or
portions thereof to the Company;
(ii) the liquidity of the Company's assets (including fees and
costs associated with withdrawing from Investment Funds);
(iii) the investment plans and working capital and reserve
requirements of the Company;
(iv) the relative economies of scale with respect to the size of
the Company;
(v) the history of the Company in repurchasing Interests;
(vi) the availability of information as to the value of the
Company's interests in underlying Investment Funds;
(vii) the economic condition of the securities markets and the
economy generally as well as political, national or
international developments or current affairs; and
(viii)the anticipated tax consequences of any proposed repurchases
of Interests.
The Board shall cause the Company to repurchase Interests or portions
thereof pursuant to written tenders only on terms fair to the Company and to all
Members (including persons holding Interests acquired from Members), as
applicable. The Company shall not repurchase Interests pursuant to written
tenders more than twice during any Taxable Year.
(b) A Member tendering for repurchase only a portion of the Member's
Interest will be required to maintain a Capital Account balance of
at least $50,000 after giving effect to the repurchase. If a Member
tenders an amount that would cause the Member's Capital Account
balance to fall below the required minimum, the Manager reserves the
right to reduce the amount to be repurchased from the Member so that
the required minimum balance is maintained or to repurchase the
Member's entire Interest in the Company.
(c) A Member choosing to tender an Interest or a portion of an Interest
for repurchase must do so by the expiration date, which generally
will be no sooner than 20 days after the commencement date (the
"Expiration Date"). Tenders will be irrevocable at such time.
Interests will be valued as of the valuation date (the "Valuation
Date"), which is generally expected to be at the end of each fiscal
quarter (and no less than 65 days after the Expiration Date).
(i) For purposes of this section, the "Valuation Date" is the day
Interests in the Company will be valued for the payment of the
Promissory Note;
(ii) Promptly after the Expiration Date, the Company will give to
each Member whose Interest has been accepted for repurchase a
promissory note (the "Promissory Note") entitling the Member
to be paid an amount
20
equal to the value, determined as of the Valuation Date, of
the repurchased Interest;
(iii) The Promissory Note, which will be non-interest bearing and
non-transferable, is expected to contain terms providing for
payment at two separate times; and
(iv) Although the amounts required to be paid by the Company under
the Promissory Note will generally be paid in cash, the
Company may under certain limited circumstances pay all or a
portion of the amounts due by an in-kind distribution of
securities.
(d) Repurchases of Interests or portions thereof by the Company shall be
payable after the expiration date of such repurchase offer in
accordance with the terms of such repurchase offer. The initial
payment in respect of the Promissory Note (the "Initial Payment")
will be in an amount equal to at least 90% of the estimated value of
the repurchased Interest, determined as of the Valuation Date. The
Initial Payment will be made as of the later of (1) 30 days after
the Valuation Date, or (2) if the Company has requested withdrawals
of its capital from any Investment Funds in order to fund the
repurchase of Interests, ten business days after the Company has
received at least 90% of the aggregate amount withdrawn by the
Company from the Investment Funds. The second and final payment in
respect of the Promissory Note (the "Post-Audit Payment") will be in
an amount equal to the excess, if any, of (1) the value of the
repurchased Interest, determined as of the Valuation Date and based
upon the results of the annual audit of the Company's financial
statements for the year in which the Valuation Date occurs, over (2)
the Initial Payment. The Manager anticipates that the annual audit
of the Company's financial statements will be completed within 60
days after the end of each fiscal year of the Company and that the
Post-Audit Payment will be made promptly after the completion of the
audit.
(e) Notwithstanding anything in the foregoing to the contrary, the
Board, in its discretion, may pay all or any portion of the
repurchase price in marketable Securities (or any combination of
marketable Securities and cash) having a value, determined as of the
date of repurchase, equal to the amount to be repurchased. All
repurchases of Interests shall be subject to any and all conditions
as the Board may impose in its sole discretion. The amount due to
any Member whose Interest or portion thereof is repurchased shall be
equal to the audited value of such Member's Capital Account or
portion thereof, as applicable, as of the effective date of
repurchase, after giving effect to all allocations to be made to
such Member's Capital Account as of such date.
21
Article V.
CAPITAL
Section 5.1. Contributions to Capital.
(a) The minimum initial contribution of each Member to the capital of
the Company shall be $75,000, subject to the discretion of the
Manager to accept initial investments in lesser amounts. The amount
of the initial contribution of each Member shall be recorded on the
books and records of the Company upon acceptance as a contribution
to the capital of the Company. The Directors shall not be entitled
to make voluntary contributions of capital to the Company as
Directors of the Company, but may make voluntary contributions to
the capital of the Company as Members.
(b) The Members may make additional contributions to the capital of the
Company of at least $50,000 (subject to the discretion of the
Manager to accept additional contributions in lesser amounts),
effective as of such times as the Manager, in its discretion, may
permit, subject to Section 2.7 hereof, but no Member shall be
obligated to make any additional contribution to the capital of the
Company except to the extent provided in Section 5.7 hereof.
(c) Except as otherwise permitted by the Board, (i) initial and any
additional contributions to the capital of the Company by any Member
shall be payable in cash, and (ii) initial and any additional
contributions in cash shall be payable in readily available funds on
the business day prior to the subscription date.
Section 5.2. Rights of Members to Capital.
No Member shall be entitled to interest on any contribution to the
capital of the Company, nor shall any Member be entitled to the return of any
capital of the Company except (i) upon the repurchase by the Company of a part
or all of such Member's Interest pursuant to Section 4.7 hereof or (ii) upon the
liquidation of the Company's assets pursuant to Section 6.2 hereof. Except as
specified in the Delaware Act, or with respect to distributions or similar
disbursements made in error, no Member shall be liable for the return of any
such amounts. No Member shall have the right to require partition of the
Company's property or to compel any sale or appraisal of the Company's assets.
Section 5.3. Capital Accounts.
(a) The Company shall maintain a separate Capital Account for each
Member.
(b) Each Member's Capital Account shall have an initial balance equal to
the amount of cash constituting such Member's initial contribution
to the capital of the Company.
(c) Each Member's Capital Account shall be increased by the sum of (i)
the amount of cash constituting additional contributions by such
Member to the capital of the Company permitted pursuant to Section
5.1 hereof, plus (ii) all amounts credited to such Member's Capital
Account pursuant to Section 5.4 through Section 5.8 hereof.
(d) Each Member's Capital Account shall be reduced by the sum of (i) the
amount of any repurchase of the Interest, or portion thereof, of
such Member or distributions
22
to such Member pursuant to Section 4.7, Section 5.10, Section 5.11
or Section 6.2 hereof that are not reinvested (net of any
liabilities secured by any asset distributed that such Member is
deemed to assume or take subject to under Section 752 of the Code),
plus (ii) any amounts debited against the Member's Capital Account
pursuant to Section 5.4 through Section 5.8 hereof.
(e) In the event all or a portion of the Interest of a Member is
Transferred in accordance with the terms of this Agreement, the
Transferee will succeed to the Capital Account of the Transferor to
the extent of the Transferred Interest or portion of an Interest.
(f) No Member will be required to pay the Company or any other Member
any deficit in such Member's Capital Account upon dissolution of the
Company or otherwise.
Section 5.4. Allocation of Net Profits and Net Losses.
As of the last day of each Fiscal Period, any Net Profits or Net Losses
for the Fiscal Period shall be allocated among and credited to or debited
against the Capital Accounts of the Members in accordance with their respective
Investment Percentages for such Fiscal Period.
Section 5.5. Allocation of Insurance Premiums and Proceeds.
(a) Any premiums payable by the Company for insurance purchased pursuant
to Sections 3.8(d) and (e) above shall be apportioned evenly over
each Fiscal Period or portion thereof falling within the period to
which such premiums relate under the terms of such insurance, and
the portion of the premiums so apportioned to any Fiscal Period
shall be allocated among and debited against the Capital Accounts of
each Member who is a member of the Company during such Fiscal Period
in accordance with such Member's Investment Percentage for such
Fiscal Period.
(b) Proceeds, if any, to which the Company may become entitled pursuant
to such insurance shall be allocated among and credited to the
Capital Accounts of each Member who is a member of the Company
during the Fiscal Period in which the event that gives rise to
recovery of proceeds occurs in accordance with such Member's
Investment Percentage for such Fiscal Period.
Section 5.6. Allocation of Certain Expenditures.
Except as otherwise provided for in this Agreement and unless
prohibited by the 1940 Act, any expenditures payable by the Company, to the
extent determined by the Board to have been paid or withheld on behalf of, or by
reason of particular circumstances applicable to, one or more but fewer than all
of the Members, shall be charged to only those Members on whose behalf such
payments are made or whose particular circumstances gave rise to such payments.
Such charges shall be debited from the Capital Accounts of such Members as of
the close of the Fiscal Period during which any such items were paid or accrued
by the Company.
23
Section 5.7. Reserves.
(a) Appropriate reserves may be created, accrued and charged against Net
Assets and proportionately against the Capital Accounts of the
Members for contingent liabilities, if any, as of the date any such
contingent liability becomes known to the Manager or the Board. Such
reserves will be in the amounts that the Board, in its sole
discretion, deems necessary or appropriate. The Board may increase
or reduce any such reserves from time to time by such amounts as the
Board, in its sole discretion, deems necessary or appropriate. The
amount of any such reserve, or any increase or decrease therein,
shall be proportionately charged or credited, as appropriate, to the
Capital Accounts of those parties who are Members at the time when
such reserve is created, increased or decreased, except that if any
such individual reserve item, adjusted by any increase therein,
exceeds the lesser of $500,000 or 1% of the aggregate value of the
Capital Accounts of all such Members, then the amount of the
reserve, increase or decrease may instead be charged or credited to
those parties who were Members at the time, as determined by the
Board in its sole discretion, of the act or omission giving rise to
the contingent liability for which the reserve was established,
increased or decreased in proportion to their Capital Accounts at
that time.
(b) If at any time an amount is paid or received by the Company (other
than contributions to the capital of the Company, distributions or
repurchases of Interests or portions thereof) and such amount
exceeds the lesser of $500,000 or 1% of the aggregate value of the
Capital Accounts of all Members at the time of payment or receipt
and such amount was not accrued or reserved for but would
nevertheless, in accordance with the Company's accounting practices,
be treated as applicable to one or more prior Fiscal Periods, then
such amount shall be proportionately charged or credited, as
appropriate, to those parties who were Members during such prior
Fiscal Period or Periods.
Section 5.8. Allocation of Organizational Expenses.
The Manager will allocate among the Members a monthly expense to
reimburse the Manager for the Company's organizational expenses and offering
costs, as described in Section 3.8(f).
Section 5.9. Tax Allocations.
(a) For each Fiscal Year, items of income, deduction, gain, loss or
credit shall be allocated for income tax purposes among the Members
in such manner as to reflect equitably amounts credited or debited
to each Member's Capital Account for the current and prior fiscal
years (or relevant portions thereof). Allocations under this Section
5.9 shall be made pursuant to the principles of Sections 704(b) and
704(c) of the Code, and in conformity with Treasury Regulations
Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e)
promulgated thereunder, as
24
applicable, or the successor provisions to such Section and
Regulations. Notwithstanding anything to the contrary in this
Agreement, there shall be allocated to the Members such gains or
income as shall be necessary to satisfy the "qualified income
offset" requirements of Treasury Regulation Section
1.704-1(b)(2)(ii)(d).
(b) If the Company realizes capital gains (including short-term capital
gains) for U.S. Federal income tax purposes ("net gains") for any
Fiscal Year during or as of the end of which the Interests of one or
more Positive Basis Members (as hereinafter defined) are repurchased
by the Company pursuant to Article IV, the Manager may elect to
allocate such net gains as follows:
(i) to such Positive Basis Members, in proportion to the Positive
Basis (as hereinafter defined) of each such Positive Basis
Member, until either the full amount of the net gains has been
so allocated or the Positive Basis of each Positive Basis
Member shall have been eliminated; and
(ii) any net gains not so allocated to Positive Basis Members to
the other Members in a manner that equitably reflects the
amounts credited to the Members' Capital Accounts.
(c) If the Company realizes capital losses for U.S. Federal Income tax
purposes for any Fiscal year during or as of the end of which the
Interests of one or more Negative Basis Members (as hereinafter
defined) are repurchased by the Company under Article IV of this
Agreement, the Manager may elect to allocate net losses as follows:
(i) to such Negative Basis Members, in proportion to the Negative
Basis (as hereafter defined) of each Negative Basis Member,
until either the full amount of net losses will have been so
allocated or the Negative Basis of each Negative Basis Member
has been eliminated, and
(ii) any net losses not so allocated to Negative Basis Members, to
the other Members in a manner that reflects equitably the
amounts credited to the Members' Capital Accounts.
(d) As used herein, (i) the term "Positive Basis" shall mean, with
respect to any Member and as of any time of calculation, the amount
by which the value of its Interest as of such time exceeds its
"adjusted tax basis," for U.S. Federal income tax purposes, in its
Interest as of such time (determined without regard to any
adjustments made to such "adjusted tax basis" by reason of any
transfer or assignment of such Interest, including by reason of
death, and without regard to such Member's share of the liabilities
of the Company under Section 752 of the Code), and (ii) the term
"Positive Basis Member" shall mean any Member whose Interest is
repurchased by the Company and who has Positive Basis as of the
effective date of the repurchase, but such Member shall cease to be
a Positive Basis Member at such time as it shall have received
allocations pursuant to clause
25
(i) of paragraph (b) equal to its Positive Basis as of the effective
date of such repurchase.
(e) The term "Negative Basis" means, with respect to any Member and as
of any time of calculation, the amount by which the Member's
"adjusted tax basis," for U.S. Federal income tax purposes, in the
Member's Interest in the Company as of that time (determined without
regard to any adjustments made to the "adjusted tax basis" by reason
of any Transfer or assignment of the Interest, including by reason
of death, and without regard to such Member's share of the
liabilities of the Company under section 752 of the Code) exceeds
the value of its Interest as of such time. As used in this Section
5.9, the term "Negative Basis Member" means any Member whose
Interest is repurchased by the Company and who has Negative Basis as
of the effective date of the repurchase, but such Member shall cease
to be a Negative Basis Member at such time as it shall have received
allocations pursuant to clause (i) of paragraph (c) equal to its
Negative Basis as of the effective date of such repurchase.
Section 5.10. Distributions.
The Board, in its sole discretion, may authorize the Company to make
distributions in cash or in kind at any time to all of the Members on a pro rata
basis in accordance with the Members' Investment Percentages.
Section 5.11. Withholding.
(a) The Board may withhold and pay over to the Internal Revenue Service
(or any other relevant taxing authority) taxes from any distribution
to any Member to the extent required by the Code or any other
applicable law.
(b) For purposes of this Agreement, any taxes so withheld by the Company
with respect to any amount distributed by the Company to any Member
shall be deemed to be a distribution or payment to such Member
pursuant to this Agreement, reducing the amount otherwise
distributable to such Member pursuant to this Agreement and reducing
the Capital Account of such Member. If the amount of such taxes is
greater than any such distributable amounts, then such Member and
any successor to such Member's Interest shall pay to the Company as
a contribution to the capital of the Company, upon demand of the
Board, the amount of such excess.
(c) The Board shall not be obligated to apply for or obtain a reduction
of or exemption from withholding tax on behalf of any Member that
may be eligible for such reduction or exemption. To the extent that
a Member claims to be entitled to a reduced rate of, or exemption
from, a withholding tax pursuant to an applicable income tax treaty,
or otherwise, the Member shall furnish the Board with such
information and forms as such Member may be required to complete
where necessary to comply with any and all laws and regulations
governing the obligations of withholding tax agents. Each Member
represents and warrants that
26
any such information and forms furnished by such Member shall be
true and accurate and agrees to indemnify the Company and each of
the Members from any and all damages, costs and expenses resulting
from the filing of inaccurate or incomplete information or forms
relating to such withholding taxes.
Article VI.
DISSOLUTION AND LIQUIDATION
Section 6.1. Dissolution.
The Company shall be dissolved:
(a) upon the affirmative vote to dissolve the Company by: (i) the Board
or (ii) Members holding at least two-thirds (2/3) of the total
number of votes eligible to be cast by all Members;
(b) upon the failure of the Members to elect a successor Director at a
meeting called by Manager in accordance with Section 2.6 hereof when
no Director remains to continue the business of the Company;
(c) upon the expiration of any two year period that commences on the
date on which any Member has submitted a written notice to the
Company requesting to tender its entire Interest for repurchase by
the Company, if such Interest has not been repurchased by the
Company; or
(d) as required by operation of law.
Dissolution of the Company shall be effective on the day on which the
event giving rise to the dissolution shall occur, but the Company shall not
terminate until the assets of the Company have been liquidated in accordance
with Section 6.2 hereof and the Certificate has been canceled.
Section 6.2. Liquidation of Assets.
(a) Upon the dissolution of the Company as provided in Section 6.1
hereof, the Board shall promptly appoint the Board or Manager as the
liquidator and the Board or Manager shall liquidate the business and
administrative affairs of the Company, except that if the Board does
not appoint the Manager as the liquidator or the Board is unable to
perform this function, another liquidator will be elected by the
Board. Net Profits and Net Losses during the period of liquidation
shall be allocated pursuant to Section 5.4 hereof. The proceeds from
liquidation (after establishment of appropriate reserves for
contingencies in such amount as the Board or other liquidator shall
deem appropriate in its sole discretion as applicable) shall be
distributed in the following manner:
(i) the debts, liabilities and obligations of the Company, other
than debts to Members, and the expenses of liquidation
(including legal and accounting
27
expenses incurred in connection therewith), up to and
including the date that distribution of the Company's assets
to the Members has been completed, shall first be paid on a
proportionate basis;
(ii) such debts, liabilities or obligations as are owing to the
Members shall next be paid in their order of seniority and on
a proportionate basis; and
(iii) the Members shall next be paid on a proportionate basis the
positive balances of their respective Capital Accounts after
giving effect to all allocations to be made to such Members'
Capital Accounts for the Fiscal Period ending on the date of
the distributions under this Section 6.2.
(b) Anything in this Section 6.2 to the contrary notwithstanding, upon
dissolution of the Company, the Board or other liquidator may
distribute ratably in kind any assets of the Company; provided,
however, that if any in-kind distribution is to be made (i) the
assets distributed in kind shall be valued pursuant to Section 7.3
hereof as of the actual date of their distribution and charged as so
valued and distributed against amounts to be paid under Section
6.2(a) above, and (ii) any profit or loss attributable to property
distributed in-kind shall be included in the Net Profits or Net
Losses for the Fiscal Period ending on the date of such
distribution.
Article VII.
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
Section 7.1. Accounting and Reports.
(a) The Company shall adopt for tax accounting purposes any accounting
method that the Board shall decide in its sole discretion is in the
best interests of the Company. The Company's accounts shall be
maintained in U.S. currency.
(b) After the end of each taxable year, the Company shall furnish to
each Member such information regarding the operation of the Company
and such Member's Interest as is necessary for Members to complete
Federal and state income tax or information returns and any other
tax information required by Federal and state law.
(c) Except as otherwise required by the 1940 Act, or as may otherwise be
permitted by rule, regulation or order, within 60 days after the
close of the period for which a report required under this Section
7.1 is being made, the Company shall furnish to each Member an
unaudited semi-annual report and an audited annual report containing
the information required by such Act. The Company shall cause
financial statements contained in each annual report furnished
hereunder to be accompanied by a certificate of independent public
accountants based upon an audit performed in accordance with
generally accepted accounting principles. The Company may furnish to
each Member such other periodic reports as it deems necessary or
appropriate in its discretion.
28
Section 7.2. Determinations by the Board of Directors.
(a) All matters concerning the determination and allocation among the
Members of the amounts to be determined and allocated pursuant to
Article V hereof, including any taxes thereon and accounting
procedures applicable thereto, shall be determined by the Board
unless specifically and expressly otherwise provided for by the
provisions of this Agreement or required by law, and such
determinations and allocations shall be final and binding on all the
Members.
(b) The Board may make such adjustments to the computation of Net
Profits or Net Losses, and the allocation thereof to a Member's
Capital Account, or any components comprising any of the foregoing
as it considers appropriate to reflect fairly and accurately the
financial results of the Company and the intended allocation thereof
among the Members.
Section 7.3. Valuation of Assets.
(a) Valuation of Securities and other assets shall be made by the Board
in accordance with the requirements of the 1940 Act and the
valuation procedures adopted by the Board.
(b) The value of the assets and liabilities shall be determined by
reference to the latest market prices and values available and in
further accordance with the valuation procedures adopted by the
Board.
(c) The value of Securities and other assets of the Company and the net
worth of the Company as a whole determined pursuant to this Section
7.3 shall be conclusive and binding on all of the Members and all
parties claiming through or under them.
Article VIII.
MISCELLANEOUS PROVISIONS
Section 8.1. Amendment of Limited Liability Company Agreement.
(a) Except as otherwise provided in this Section 8.1, this Agreement may
be amended, in whole or in part, with: (i) the approval of the Board
(including the vote of a majority of the Independent Directors, if
required by the ▇▇▇▇ ▇▇▇) without the Members approval; and (ii) if
required by the 1940 Act, the approval of the Members by such vote
as is required by the ▇▇▇▇ ▇▇▇.
(b) Any amendment that would:
(i) increase the obligation of a Member to make any contribution
to the capital of the Company;
(ii) reduce the Capital Account of a Member other than in
accordance with Article V; or
29
(iii) modify the events causing the dissolution of the company;
may be made only if (i) the written consent of each Member adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Member has received written notice of
such amendment and (B) any Member objecting to such amendment has been afforded
a reasonable opportunity (pursuant to such procedures as may be prescribed by
the Board) to tender its entire Interest for repurchase by the Company.
(c) The power of the Board to amend this Agreement at any time without
the consent of the other Members as set forth in paragraph (a) of
this Section 8.1 shall specifically include the power to:
(i) restate this Agreement together with any amendments hereto
that have been duly adopted in accordance herewith to
incorporate such amendments in a single, integrated document;
(ii) amend this Agreement (other than with respect to the matters
set forth in Section 8.1(b) hereof) to effect compliance with
any applicable law or regulation or to cure any ambiguity or
to correct or supplement any provision hereof that may be
inconsistent with any other provision hereof; and
(iii) amend this Agreement to make such changes as may be necessary
or advisable to ensure that the Company will not be treated as
an association or a publicly traded partnership taxable as a
corporation as defined in Section 7704(b) of the Code for U.S.
Federal income tax purposes.
(d) The Board shall cause written notice to be given of any amendment to
this Agreement to each Member, which notice shall set forth (i) the
text of the proposed amendment or (ii) a summary thereof and a
statement that the text of the amendment thereof will be furnished
to any Member upon request.
Section 8.2. Special Power of Attorney.
(a) Each Member hereby irrevocably makes, constitutes and appoints each
Director, acting severally, and any liquidator of the Company's
assets appointed pursuant to Section 6.2 hereof with full power of
substitution, the true and lawful representatives and
attorneys-in-fact of, and in the name, place and stead of, such
Member, with the power from time to time to make, execute, sign,
acknowledge, swear to, verify, deliver, record, file and/or publish:
(i) any amendment to this Agreement that complies with the
provisions of this Agreement (including the provisions of
Section 8.1 hereof);
(ii) any amendment to the Certificate required because this
Agreement is amended, including, without limitation, an
amendment to effectuate any change in the membership of the
Company; and
30
(iii) all such other instruments, documents and certificates that,
in the opinion of legal counsel to the Company, may from time
to time be required by the laws of the United States of
America, the State of Delaware or any other jurisdiction in
which the Company shall determine to do business, or any
political subdivision or agency thereof, or that such legal
counsel may deem necessary or appropriate to effectuate,
implement and continue the valid existence and business of the
Company as a limited liability company under the Delaware Act.
(b) Each Member is aware that the terms of this Agreement permit certain
amendments to this Agreement to be effected and certain other
actions to be taken or omitted by or with respect to the Company
without such Member's consent. If an amendment to the Certificate or
this Agreement or any action by or with respect to the Company is
taken in the manner contemplated by this Agreement, each Member
agrees that, notwithstanding any objection that such Member may
assert with respect to such action, the attorneys-in-fact appointed
hereby are authorized and empowered, with full power of
substitution, to exercise the authority granted above in any manner
that may be necessary or appropriate to permit such amendment to be
made or action lawfully taken or omitted. Each Member is fully aware
that each Member will rely on the effectiveness of this special
power-of-attorney with a view to the orderly administration of the
affairs of the Company.
(c) This power-of-attorney is a special power-of-attorney and is coupled
with an interest in favor of each of the Directors and as such:
(i) shall be irrevocable and continue in full force and effect
notwithstanding the subsequent death or incapacity of any
party granting this power-of-attorney, regardless of whether
the Company or Board shall have had notice thereof; and
(ii) shall survive the delivery of a Transfer by a Member of the
whole or any portion of such Member's Interest, except that
where the transferee thereof has been approved by the Board
for admission to the Company as a substituted Member or upon
the withdrawal of a Member from the Company pursuant to a
periodic tender, this power-of-attorney given by the
transferor shall survive the delivery of such assignment or
withdrawal for the sole purpose of enabling the Board to
execute, acknowledge and file any instrument necessary to
effect such substitution or withdrawal.
Section 8.3. Notices.
Notices that may or are required to be provided under this Agreement
shall be made, if to a Member, by regular mail, or if to the Board or the
Manager, by hand delivery, registered or certified mail return receipt
requested, commercial courier service, telex or telecopier, and shall be
addressed to the respective parties hereto at their addresses as set forth in
the books and records of the Company. Notices shall be deemed to have been
provided, when delivered by
31
hand, on the date indicated as the date of receipt on a return receipt or when
received if sent by regular mail, commercial courier service, telex or
telecopier. A document that is not a notice and that is required to be provided
under this Agreement by any party to another party may be delivered by any
reasonable means.
Section 8.4. Agreement Binding Upon Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, assigns, executors,
trustees or other legal representatives, but the rights and obligations of the
parties hereunder may not be Transferred or delegated except as provided in this
Agreement and any attempted Transfer or delegation thereof that is not made
pursuant to the terms of this Agreement shall be void.
Section 8.5. Applicability of 1940 Act and Form N-2.
The parties hereto acknowledge that this Agreement is not intended to,
and does not, set forth the substantive provisions contained in the 1940 Act and
the Form N-2 that affect numerous aspects of the conduct of the Company's
business and of the rights, privileges and obligations of the Members. Each
provision of this Agreement shall be subject to, and interpreted in a manner
consistent with the applicable provisions of, the 1940 Act and the Form N-2.
Section 8.6. Choice of Law; Arbitration.
(a) Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed under the laws of the
State of Delaware, including the Delaware Act without regard to the
conflict of law principles of such State.
(b) To the extent such action is consistent with the provisions of the
1940 Act and any other applicable law, except as provided in Section
8.11(b) of this Agreement, each Member agrees to submit all
controversies arising between or among Members or one or more
Members and the Company in connection with the Company or its
businesses or concerning any transaction, dispute or the
construction, performance or breach of this Agreement or any other
agreement relating to the Company, whether entered into prior to, on
or subsequent to the date of this Agreement, to arbitration in
accordance with the provisions set out in this Section 8.6. EACH
MEMBER UNDERSTANDS THAT ARBITRATION IS FINAL AND BINDING ON THE
MEMBERS AND THAT THE MEMBERS IN EXECUTING THIS AGREEMENT ARE WAIVING
THEIR RIGHTS TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY
TRIAL.
(c) Controversies will be finally settled by, and only by, arbitration
in accordance with the commercial arbitration rules of the American
Arbitration Association (the "AAA") to the fullest extent permitted
by law. The place of arbitration will be New York, New York. Any
arbitration under this Section 8.6 will be conducted before a panel
of three arbitrators. The Member or Members initiating arbitration
under this Section 8.6 will appoint one arbitrator in the demand for
32
arbitration. The Member or Members against whom or which arbitration
is sought will jointly appoint one arbitrator within 30 Business
Days after notice from the AAA of the filing of the demand for
arbitration. The two arbitrators nominated by the Members will
attempt to agree on a third arbitrator within 30 Business Days of
the appointment of the second arbitrator. If the two arbitrators
fail to agree on the third arbitrator within the 30-day period, then
the AAA will appoint the third arbitrator within 30 Business Days
following the expiration of the 30-day period. Any award rendered by
the arbitrators will be final and binding on the Members, and
judgment upon the award may be entered in the supreme court of the
state of New York and/or the U.S. District Court for the Southern
District of New York, or any other court having jurisdiction over
the award or having jurisdiction over the Members or their assets.
The arbitration agreement contained in this Section 8.6 will not be
construed to deprive any court of its jurisdiction to grant
provisional relief (including by injunction or order of attachment)
in aid of arbitration proceedings or enforcement of an award. In the
event of arbitration as provided in this Section 8.5, the
arbitrators will be governed by and will apply the substantive (but
not procedural) law of Delaware, to the exclusion of the principles
of the conflicts of law of Delaware. The arbitration will be
conducted in accordance with the procedures set out in the
commercial arbitration rules of the AAA. If those rules are silent
with respect to a particular matter, the procedure will be as agreed
by the Members, or in the absence of agreement among or between the
Members, as established by the arbitrators. Notwithstanding any
other provision of this Agreement, this Section 8.6(c) will be
construed to the maximum extent possible to comply with the laws of
the State of Delaware, including the Uniform Arbitration Act (10
Del. C. (S) 5701 et seq.) (the "Delaware Arbitration Act"). If,
nevertheless, it is determined by a court of competent jurisdiction
that any provision or wording of this Section 8.6(c), including any
rules of the AAA, are invalid or unenforceable under the Delaware
Arbitration Act or other applicable law, such invalidity will not
invalidate all of this Section 8.6(c). In that case, this Section
8.6(c) will be construed so as to limit any term or provision so as
to make it valid or enforceable within the requirements of the
Delaware Arbitration Act or other applicable law, and, in the event
such term or provision cannot be so limited, this Section 8.6(c)
will be construed to omit such invalid or unenforceable provision.
Section 8.7. Not for Benefit of Creditors.
The provisions of this Agreement are intended only for the regulation
of relations among past, present and future Members, Directors, the Manager and
the Company. This Agreement is not intended for the benefit of non-member
creditors and no rights are granted to non-Member creditors under this
Agreement.
Section 8.8. Consents.
Any and all consents, agreements or approvals provided for or permitted
by this Agreement (including minutes of any meeting) shall be in writing and a
signed copy thereof shall be filed and kept with the books of the Company.
33
Section 8.9. Merger and Consolidation.
(a) The Company may merge or consolidate with or into one or more
limited liability companies formed under the Delaware Act or other
business entities pursuant to an agreement of merger or
consolidation that has been approved in the manner contemplated by
Section 18-209(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained elsewhere in this
Agreement, an agreement of merger or consolidation approved in
accordance with Section 18-209(b) of the Delaware Act may, to the
extent permitted by Section 18-209(f) of the Delaware Act, (i)
effect any amendment to this Agreement, (ii) effect the adoption of
a new limited liability company agreement for the Company if it is
the surviving or resulting limited liability company in the merger
or consolidation, or (iii) provide that the limited liability
company agreement of any other constituent limited liability company
to the merger or consolidation (including a limited liability
company formed for the purpose of consummating the merger or
consolidation) shall be the limited liability company agreement of
the surviving or resulting limited liability company.
Section 8.10. Pronouns.
All pronouns shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identity of the person or persons, firm or
corporation may require in the context thereof.
Section 8.11. Confidentiality.
(a) A Member may obtain from the Company such information regarding the
affairs of the Company as is just and reasonable under the Delaware
Act, subject to reasonable standards (including standards governing
what information and documents are to be furnished, at what time and
location and at whose expense) established by the Board.
(b) Each Member covenants that, except as required by applicable law or
any regulatory body, it will not divulge, furnish or make accessible
to any other person the name and/or address (whether business,
residence or mailing) of any Member (collectively, "Confidential
Information") without the prior written consent of the Board, which
consent may be withheld in its sole discretion.
(c) Each Member recognizes that in the event that this Section 8.11 is
breached by any Member or any of its principals, partners, members,
directors, officers, employees or agents or any of its affiliates,
including any of such affiliates' principals, partners, members,
directors, officers, employees or agents, irreparable injury may
result to the non-breaching Members and the Company. Accordingly, in
addition to any and all other remedies at law or in equity to which
the non-breaching Members and the Company may be entitled, such
Members shall also have the right to obtain equitable relief,
including, without limitation, injunctive relief, to prevent any
disclosure of Confidential Information, plus reasonable
34
attorneys' fees and other litigation expenses incurred in connection
therewith. In the event that any non-breaching Member or the Company
determines that any of the other Members or any of its principals,
partners, members, directors, officers, employees or agents or any
of its affiliates, including any of such affiliates' principals,
partners, members, directors, officers, employees or agents should
be enjoined from or required to take any action to prevent the
disclosure of Confidential Information, each of the other
non-breaching Members agrees to pursue in a court of appropriate
jurisdiction such injunctive relief.
Section 8.12. Severability.
If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Member agrees that it is the intention of the Members that such
provision should be enforceable to the maximum extent possible under applicable
law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
Section 8.13. Filing of Returns.
The Board or its designated agent shall prepare and file, or cause the
accountants of the Company to prepare and file, a U.S. Federal information tax
return in compliance with Section 6031 of the Code and any required state and
local income tax and information returns for each tax year of the Company.
Section 8.14. Tax Matters Partner.
(a) The Manager shall be designated on the Company's annual Federal
income tax return, and have full powers and responsibilities, as the
Tax Matters Partner of the Company for purposes of Section
6231(a)(7) of the Code. In the event the Manager cannot act as Tax
Matters Partner, another Member shall be so designated. Should any
Member other than the Manager be designated as the Tax Matters
Partner for the Company pursuant to Section 6231(a)(7) of the Code,
it shall, and each Member hereby does, to the fullest extent
permitted by law, delegate to the Manager all of its rights, powers
and authority to act as such Tax Matters Partner and hereby
constitutes and appoints the Manager as its true and lawful
attorney-in-fact, with power to act in its name and on its behalf,
including the power to act through such agents or attorneys as it
shall elect or appoint, to receive notices, to make, execute and
deliver, swear to, acknowledge and file any and all reports,
responses and notices, and to do any and all things required or
advisable, in the Manager's judgment, to be done by such a Tax
Matters Partner. Any Member designated as the Tax Matters Partner
for the Company under Section 6231(a)(7) of the Code shall be
indemnified and held harmless by the Company from any and all
liabilities and obligations that arise from or by reason of such
designation.
35
(b) Each person (for purposes of this Section 8.14(b), called a
"Pass-Thru Partner") that holds or controls an interest as a Member
on behalf of, or for the benefit of, another person or persons, or
which Pass-Thru Partner is beneficially owned (directly or
indirectly) by another person or persons, shall, within 30 days
following receipt from the Tax Matters Partner of any notice,
demand, request for information or similar document, convey such
notice or other document in writing to all holders of beneficial
interests in the Company holding such interests through such
Pass-Thru Partner. In the event the Company shall be the subject of
an income tax audit by any Federal, state or local authority, to the
extent the Company is treated as an entity for purposes of such
audit, including administrative settlement and judicial review, the
Tax Matters Partner shall be authorized to act for, and its decision
shall be final and binding upon, the Company and each Member
thereof. All expenses incurred by the Company or the Tax Matters
Partner in connection with any such audit, investigation, settlement
or review shall be borne by the Company.
Section 8.15. Section 754 Election.
In the event of a distribution of Company property to a Member or an
assignment or other transfer (including by reason of death) of all or part of
the interest of a Member in the Company, at the request of a Member, the
Manager, in its discretion, may cause the Company to elect, pursuant to Section
754 of the Code, or the corresponding provision of subsequent law, to adjust the
basis of the Company property as provided by Sections 734 and 743 of the Code.
EACH OF THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS ENTIRETY
BEFORE SIGNING, INCLUDING THE CONFIDENTIALITY CLAUSE SET FORTH IN SECTION 8.11.
[Signature Page to Follow]
36
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
MANAGER:
MERCANTILE CAPITAL ADVISORS, INC.
By:________________________________
Name:
Title:
ORGANIZATIONAL MEMBER:
MERCANTILE BANKSHARES CORPORATION
By:________________________________
Name:
Title:
MEMBERS:
Each person who shall sign a Member Signature Page and who shall be accepted by
the Board to the Company as a Member.
By:________________________________
Name:
Title:
37