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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-5
REGISTRATION STATEMENT OF SMALL BUSINESS INVESTMENT
COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940
BERTHEL SBIC, LLC
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(Exact name of registrant as specified in charter)
100 Second Street SE, Cedar Rapids, Iowa 52401
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(Address of principal executive offices)
Leslie D. Smith, Secretary
Berthel SBIC, LLC
100 Second Street SE
Cedar Rapids, Iowa 52401
with a copy to:
David E. Gardels
H. Dale Dixon III
Dixon & Jessup Ltd., LLP
1800 One First National Center
Sixteenth and Dodge Streets
Omaha, Nebraska 68102
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(Name and address of agent for service)
Page 1 of 104
Exhibit Index Appears on Page 23
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PART I
INFORMATION REQUIRED IN REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
ITEM 1. ORGANIZATION AND BUSINESS.
Berthel SBIC, LLC (the "Registrant") organized as a limited liability
company under the laws of the State of Delaware on May 13, 1997. The
Registrant is a wholly-owned subsidiary of Berthel Growth & Income Trust I (the
"Trust"), a business trust organized under the laws of the State of Delaware on
February 10, 1995, which has elected to be regulated as a business development
company (a "BDC") under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). The Registrant has received the preliminary
approval of the Small Business Administration (the "SBA") and has been notified
by the SBA that it may submit an application for a license to operate as a
small business investment company ("SBIC") under the Small Business Investment
Act of 1958. On May 15, 1997, the Registrant submitted its SBIC application to
the SBA.
The Registrant proposes to operate as a non-diversified closed-end
investment company which will elect to be regulated as a BDC under the
Investment Company Act.
The investment objective of the Registrant is to provide long term capital
appreciation in the value of its net assets and to achieve current income
principally by making debt, mezzanine, and equity investments through private
placements in privately- and publicly-owned companies. The Registrant will
invest primarily in mid- to late- stage companies. Typically, these companies
will have been operating for several years and have proven revenues and cash
flows. On a selected basis, early-stage financing will be considered but only
when capital appreciation is expected to be extraordinary. The size of
investments will range from $500,000 to $1,000,000. The Registrant's primary
investment area will be the Midwest, between the Rocky Mountains and the
Appalachian Mountains. Management believes that the Midwest is greatly
underserved with a significant demand for the financing contemplated by the
Registrant with very few venture capital firms serving these needs. In
addition, the Registrant may selectively invest throughout the United States.
The Registrant intends to follow a prudent investment strategy that entails
investing in a wide range of industries. The Registrant has a significant
interest and experience in the telecommunications industry and anticipates
continued involvement in this field as well as industries that have proven
technologies and manufacturing processes that are consistent with areas of
expertise of key individuals involved with the Registrant or individuals
readily available to the Registrant.
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ITEM 2. FUNDAMENTAL POLICIES OF THE REGISTRANT.
The Registrant will elect to be regulated as a BDC under the Investment
Company Act. Generally, to be eligible to elect BDC status, a company must
engage in the business of furnishing capital and offering significant
managerial assistance to Eligible Portfolio Companies, as defined in the
Investment Company Act, that do not have ready access to capital through
conventional channels. As a BDC, the Registrant will be subject to certain
provisions of the Investment Company Act, and certain of its proposed
operations will be subject to review by the Securities and Exchange Commission
(the "Commission"). In accordance with the sections of the Investment Company
Act applicable to BDCs, a BDC may not change the nature of its business so as
to cease to be, or withdraw its election as, a BDC, unless authorized by vote
of a majority, as defined in the Investment Company Act, of the Company's
voting securities. As noted above, the Registrant is a wholly-owned subsidiary
of Trust, which is also a BDC. Accordingly, the Registrant will not withdraw
such election or change its objective of seeking capital appreciation and
current income unless, in either case, such action is authorized by a vote of a
majority of the outstanding voting securities of the Registrant and by a vote
of a majority of the outstanding voting securities of the Trust.
In accordance with the Registrant's investment strategy that entails
investing in a wide range of industries, the Registrant will not concentrate
its portfolio investments in any particular industry. Nevertheless, the
Registrant has a significant interest and experience in the telecommunications
industry and anticipates continued involvement in this field as well as
industries that have proven technologies and manufacturing processes that are
consistent with areas of expertise of key individuals involved with the
Registrant or individuals readily available to the Registrant.
The Registrant may borrow money and issue senior securities to the extent
permitted to a BDC under the Investment Company Act, for the purpose of making
investments or for temporary or emergency purposes. A BDC may issue and sell
senior securities if, immediately after such issuance or sale, the securities
will have asset coverage of at least 200%.
The Registrant may issue and sell senior securities, in the form of
subordinated debentures, within applicable SBIC limitations. An SBIC may
borrow money through subordinated debentures in an amount up to 300% of its
combined paid-in capital and paid-in surplus, but not in excess of $90 million
in the aggregate. Subordinated debentures may be issued for a term not
exceeding ten years and bear interest at a rate determined by the United States
Secretary of the Treasury. The Investment Company Act senior securities asset
coverage requirements noted above will not be applicable to the Registrant's
SBA borrowings. Congressional funding for the SBA, or changes in the SBA
regulations may have an adverse impact on the future ability of the Registrant
to issue such securities.
The Registrant may invest up to 100% of its total assets in securities
acquired directly from issuers in privately negotiated transactions. With
respect to such securities, the Registrant may, for
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the purposes of determining the availability of registration exemptions in
connection with public resale, be deemed an "underwriter," as that term is
defined in the Securities Act of 1933, as amended (the "Securities Act").
The Registrant will not (1) act as an underwriter of securities of other
issuers (except to the extent that it may be deemed to be an "underwriter"
under the Securities Act, as described above); (2) purchase or sell real estate
or real estate investment trusts (except that the Registrant may purchase and
sell real estate or interests in real estate in connection with the orderly
liquidation of investments, and may own the securities of companies or
participate in partnerships that are in the business of buying, selling or
developing real estate); (3) sell securities short; (4) purchase securities on
margin (except to the extent that it may fund portfolio security investment
with the proceeds from the sale of SBA-guaranteed debentures); (5) make loans
to other persons (other than with respect to investments in Portfolio Company
debt securities which were not the subject of a public distribution); or (6)
engage in the purchase or sale of commodities or commodity contracts, including
futures contracts.
ITEM 3. POLICIES WITH RESPECT TO SECURITIES INVESTMENTS.
The Registrant has adopted the following investment policies. Except for
the investment objective of the Registrant, these policies are not considered
to be fundamental policies of the Registrant and may be changed from time to
time by the Registrant's managing member.
Investment Objective
The investment objective of the Registrant is to provide capital
appreciation potential and current income by investing primarily in private
placements of subordinated debt, preferred stock, and related equity securities
in small businesses.
Stage of Investments
After the Registrant has completed its initial selection of portfolio
investments, of the total dollar amount of portfolio investments of the
Registrant at any given time, the Registrant expects to have approximately 41%
invested in debt securities with equity features, approximately 36% in
yield-bearing stock, and approximately 23% in no-yield stock. Investments will
primarily be in mid- to late-stage companies. Typically, these companies will
have been operating for several years and have proven revenues and cash flows.
Pratts Guide to Venture Capital Sources characterizes this sort of financing as
"expansion financing" and defines these financings as second-stage financing
(for companies that are producing and shipping but may not be profitable) and
third-stage financing (for companies experiencing sales volume increases and
are breaking even or profitable). On a selected basis, early-stage financing
will be considered but only when capital appreciation is expected to be
extraordinary.
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Geographic Preference
The Registrant's primary geographic investment area will be the Midwest,
between the Rocky Mountains and the Appalachian Mountains. The Registrant
will also selectively invest in companies located throughout the United States
that may not be located in the Midwest.
Industry Preference
The Registrant intends to follow a prudent diversification strategy that
entails investing in a wide range of industries. The Registrant has a
significant interest and experience in the telecommunications industry and
anticipates continued involvement in this field as well as industries that have
proven mundane technologies and manufacturing processes that are consistent
with areas that key individuals involved with the Registrant, or individuals
readily available to the Registrant, can provide their expertise in evaluating
and monitoring the investment.
The Registrant will not acquire the securities of other investment
companies, except to the extent that distributions or loans to the Trust could
be deemed to be the acquisition of securities of the Trust. Sections of the
Investment Company Act applicable to BDCs may limit the ability of the
Registrant to make any such distributions or loans to the Trust, and
accordingly, such distributions and loans will be made only upon qualification
for or receipt of any necessary exemptions.
Size of Investments
Typical investments will average $500,000 to $1,000,000, taking into
consideration possible follow-on investments. If the Registrant is able to
obtain the maximum amount of leverage permitted under SBIC regulations, the
Registrant will have $18,500,000 invested over a period of four years and an
additional $2,000,000 reinvested by year seven. Assuming this level of full
investment by year seven, the Registrant expects that approximately 25
portfolio companies will be involved with an average investment of
approximately $820,000. As provided in SBA regulations, the Registrant will
not invest more than 20% of its regulatory capital in a single business without
the prior approval of the SBA. In addition to financing "Small Business" as
defined by the SBA regulations, the Registrant will also have at least 20% of
the dollar amount of financings in Smaller Businesses.
Portfolio Company Profile
In evaluating a potential investment, the Registrant will consider many
factors that are crucial for a successful investment: the management team,
market opportunity, operations, the participation of other investors, and
pricing.
Management. The management of a Portfolio Company is usually the most
crucial factor impacting an investment's success. The Registrant will seek
portfolio companies having
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management teams with integrity that possess the experience and skill required
to accomplish the Portfolio Company's objectives. The management team's
commitment to a Portfolio Company is also critical to success. The Registrant
will expect that a Portfolio Company's management team will own or have the
right to acquire a significant ownership position in the Portfolio Company.
Finally, management of a Portfolio Company must have objectives compatible with
those of the Registrant. For example, in situations where an investment has an
equity component, Portfolio Company management must be willing to work closely
as a partner with the Registrant and have the objective of increasing
shareholder value and ultimately generating liquidity for the investment.
Market Opportunity. Market opportunity for a Portfolio Company is also
important to the success of an investment. A Portfolio Company should have a
substantial opportunity to grow its revenues through (1) favorable growth
characteristics of the markets it serves; (2) expanding into new markets and/or
(3) growing its revenues through capturing greater market share within a
particular market. In certain more mature situations, a Portfolio Company may
not have a substantial opportunity to grow revenues, and in those cases, the
Portfolio Company must have a substantial and defensible position in the market
it serves.
Operations. Historic and current operating performance will be important
when considering an investment for the Registrant. Portfolio companies in
which the Registrant acquires yield bearing securities must have adequate
positive cash flow to service these securities. A Portfolio Company's
projected performance will be analyzed and reviewed for reasonableness. A
Portfolio Company's ability to meet the requirements of the proposed investment
will also be analyzed. Since current yield bearing securities require future
cash flows to service debt or make dividend payments, the projected performance
of a Portfolio Company must be adequate to meet those needs. Further, since
the Registrant will frequently be a long-time equity investor in a Portfolio
Company, the projected valuation of the Portfolio Company is critical to the
projected rate of return and the pricing of the investment. Projected
valuations are based upon projected performance.
Participation of Other Investors. The Registrant may be the sole investor
or the lead and/or participating investor when investing with other
professional investors or lenders, public or private, including other SBICs.
Other investors may include other BDCs, SBICs, institutional investors, and
venture capital groups. The investment position of the Registrant and its
co-investors, if any, in portfolio companies will typically involve a
substantial ownership interest, however, in accordance with SBA regulations,
the Registrant will not exercise Control of the Portfolio Company, except for
those instances in which Temporary Control, as defined in the SBA regulations,
is permitted. Co-investments with any other fund managed by the Registrant's
investment adviser are covered by a specific policy to assure that the terms of
the co-investments are not less advantageous to the Trust and the Registrant
that to the other fund. Please see, "TRANSACTIONS WITH AFFILIATES."
Pricing. Pricing of an investment in a Portfolio Company is the single
most important element of any investment affecting that investment's rate of
return, assuming that all other factors
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are equal. Only those investments that meet or exceed the Registrant's
projected internal rate of return will be considered for investment purposes.
Deal Flow
It is expected that investment opportunities will be identified for the
Registrant principally by Berthel Fisher & Company Planning, Inc. (the
"Investment Adviser"). Investment proposals may, however, come directly to the
Registrant or to the Investment Adviser from other third party sources,
including unsolicited proposals from management of prospective portfolio
companies, the public, and referrals from banks, lawyers, accountants and
members of the financial community. As of May, 1997, the Investment Adviser
had received approximately 300 requests for financing, totaling approximately
$875 million, in the past 18 months. Approximately half of the requests
representing 58% of the dollar amount have come from companies located in the
target geographic region. Further, approximately $250 million of requests, or
29%, have come from companies located in Iowa, Kansas, and Missouri. The
highest percentage of dollar requests have come from companies in the following
industries: telecommunications, mobile communications, pagers, cellular,
leisure and recreation products and services, food and beverage, and financial
services. However, as noted above, diversity is important and requests have
come from companies representing over 130 separate SIC codes as classified in
the Venture Economics SIC code mapping.
Due Diligence
The primary responsibility for the due diligence required in evaluating an
investment will be dependent upon James D. Thorp and Michael H. Reynoldson.
However, the experience and expertise of the officers, directors and employees
of the Investment Advisor will be essential in evaluating products, markets,
industry trends, financial requirements, competition and management associated
with a prospective Portfolio Company. Where appropriate, the Investment
Adviser may engage on behalf of the Registrant third party experts and
consultants to assist it with the evaluation of certain investment
opportunities. An extensive due diligence process will cover four major areas
- -- management, financials, operations and legal. Management due diligence will
include personal interviews, reference checks, resume review and verification.
Financial due diligence will include evaluation of financial statements for at
least five years, interim financials, budgets, variance reports, projections,
agings, taxes, and capital structure. Operations due diligence will include a
review of a current business plan, product analysis, technological assessments,
review of significant contracts, professional agreements, insurance, employee
agreements, vendor agreements, customer rankings, organization chart, industry
analysis, competition analysis, and customer site lists. Legal due diligence
will include past, pending, and/or outstanding litigation, articles of
incorporation, bylaws, board and executive committee minutes, capital
structure, intellectual property, and significant agreements.
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Investment Decisions
Following the due diligence process, the Investment Adviser will prepare a
detailed recommendation for investment that must be unanimously approved by the
Management Board. The investment recommendation will include, among other
things, a description of the Portfolio Company, annual current and projected
performance for the Portfolio Company, and the principal proposed terms of the
recommended investment.
Investment Documentation
The Registrant will make its investments pursuant to comprehensive
investment documents which set forth the economic terms of the investment,
contain comprehensive representations and warranties that confirm the
Registrant's due diligence, require verification of the use of investment
proceeds, contain covenants concerning the future operation of the Portfolio
Company, afford Registrant with the right of first refusal to purchase new
issuances of Portfolio Company securities, provide Registrant with information,
inspection, and other rights to enable it to monitor its investment, require
the Portfolio Company to provide information concerning the "economic impact"
of the Registrant's investment which will enable the Registrant to complete
page 22 of SBA Form 468, and provide for Registrant's exit from the investment
(demand and/or piggyback registration rights, co-sale rights with significant
investors, and puts of securities held by the Registrant which conform to SBA
Regulation 107.850).
Monitoring of Investments and Company Support
The officers of the Registrant and employees of the Investment Adviser
will be responsible for monitoring the Registrant's investments and providing
continuing support to portfolio companies.
The Registrant will require portfolio companies to provide the Registrant
with unaudited monthly financial statements (including a management discussion
and comparative figures from the prior year and variances from the company's
budget), annual audited financial statements, annual budgets, an annually
revised business plan, information provided to directors, shareholders, and
applicable regulatory agencies, and reports of extraordinary events, such as
significant litigation. The Registrant will supplement its review of such
materials with periodic meetings with the management of portfolio companies.
Registrant expects that its officers and other persons with specific industry
related expertise designated by the Registrant will serve on the board of
directors of portfolio companies or will have visitation rights at board of
directors meetings.
Registrant expects that it will be able to provide portfolio companies
with significant management advice and assistance with respect to such matters
as the capital needs and structure of the business, budgets, diversification
strategy, management additions and replacements, and the development of a
public market or other liquidity alternatives for the securities of the
Portfolio
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Company. The Registrant will advise portfolio companies concerning the use of
third party consultants and professional advisers, as well as general business
strategy. The Registrant and the Investment Adviser expect to have
significant business experience, analytical ability, resources and contacts
which we expect to be of assistance to Portfolio Companies.
Exit Strategy
Prior to making an investment, the Investment Adviser will explore all
options for exiting an investment and work closely with the Portfolio Company
management to share expectations for liquidating the investment. The
Registrant will work closely with each Portfolio Company to develop different
alternatives to provide liquidity of the Registrant's investment. These
activities may include, among other things, providing counsel and advice with
respect to positioning the Portfolio Company for a public offering, assisting
the Portfolio Company in engaging an underwriter for a public offering,
providing counsel and advice with respect to positioning the Portfolio Company
for sale to a third party acquirer and assisting the Portfolio Company in
engaging an investment banker or other professional to locate a third party
acquire. In structuring investments, the Investment Adviser will be aggressive
in negotiating the appropriate rights and agreements with a prospective
Portfolio Company with respect to the method and timing of the disposition of
the Registrant's investment. These rights affecting liquidation of securities
may include items such as put rights, acceleration rights, co-sale rights,
rights of first refusal, and certain rights to have a Portfolio Company's
securities owned by the Registrant or others sold as part of an offering or
other disposition by the Portfolio Company. The Registrant will comply with
SBA Regulations 107.845 and 107.850 in connection with Portfolio Company exit
strategies.
The Registrant anticipates that its portfolio investments generally may
take from three to seven years from the date of initial investment to reach a
stage of maturity such that realization on any equity component of the
Registrant's investment can be achieved. Transaction structures will typically
not provide for repayment of the principal portion or liquidation of portfolio
investments for several years following the date of investment.
Valuation Policy
The Registrant's portfolio investments will be valued individually and in
the aggregate at least quarterly. The Registrant has adopted the SBA Model
Valuation Guidelines. Generally, these guidelines provide that publicly traded
equity securities are valued by taking the average of the close (or bid price
in the case of over-the-counter equity securities) for the valuation date and
the preceding two days. This policy differs from the Commission's guidelines
which utilize only a one-day price measurement.
All other investments are valued at fair value as determined in good faith
by the Registrant's Management Board. Interest-bearing securities shall be
valued in an amount not greater than cost, with unrealized depreciation being
recognized when the value is impaired. The fair value of
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convertible debt securities may be adjusted to reflect the value of the
underlying equity security net of the conversion price. Warrants and options
shall be valued at the excess of the underlying equity security over the
exercise price. Equity securities of private companies shall be valued
initially at cost. Thereafter, the fair value of such equity securities may be
adjusted based upon subsequent significant equity financings, price-to-earnings
ratios, cash flow multiples and other pertinent factors, discounted for
illiquidity.
Transactions with Affiliates
Co-Investments with the Trust and Managed Affiliates. The Registrant has
applied for an order of the Commission permitting it to make certain
investments in participation with its parent company, the Trust. In addition,
from time to time, the Registrant and/or the Trust may co-invest with other
funds managed by the Investment Adviser or its affiliates ("Managed
Affiliates"). There are presently no Managed Affiliates. The Registrant and
the Trust also have applied for an order of the Commission exempting such
co-investments with Managed Affiliates, subject to certain conditions. These
conditions require that the Registrant must be offered the opportunity to
invest in any investment that would be suitable for the Registrant that is
being presented to the Managed Affiliates to the extent of an amount
proportionate to their respective consolidated assets. All co-investments with
Managed Affiliates will receive specific advance approval from a majority of
the members of the Management Board of the Registrant, including a majority of
the independent members of the Management Board. Securities purchased in a
joint transaction by both the Registrant and a Managed Affiliate will consist
of the same class of securities, including the same registration rights, if
any, and other rights related thereto, and will be purchased for the same unit
consideration, all as governed by SBA regulations, and the approval of such
transaction, including determination by the Independent Directors, will take
place during the same time period.
Notwithstanding the foregoing, the Registrant will not make an investment
in the securities of an issuer in which one of the Managed Affiliates, but not
the Registrant, has previously invested.
The Registrant will be given the opportunity to dispose of any securities
in which a Managed Affiliate and the Registrant have invested in proportion to
the holdings of such securities. The Registrant will take advantage of such
opportunity except to the extent that a majority of the members of its
Management Board, including a majority of the independent members of the
Management Board, determines otherwise. In connection with any such
disposition, the Registrant will be required to bear no more than its
proportionate share of the transaction costs.
The Registrant will be given notice of any intention by a Managed
Affiliate to exercise any conversion privilege or other right to acquire equity
securities of an issuer in the securities in which both the Registrant and a
Managed Affiliate have invested. There can be no assurances that the
requested exemptive order will be issued.
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Leasing Affiliates. The investment strategy of the Trust and of the
Registrant also contemplates from time to time investing in the securities of
an issuer which has entered into or will enter into lease financing
arrangements or other financing arrangements with Berthel Fisher & Company
Leasing, Inc. ("Leasing") and/or one or more equipment leasing limited
partnerships for which Leasing serves as the general partner (the "Leasing
Funds") (Leasing and the Leasing Funds together, the "Leasing Affiliates"). In
each such case and in all transactions involving Leasing Affiliates, the
Leasing Affiliate will be engaged in the ordinary course of business of
providing lease, loan or other financing or financial services to the Portfolio
Company. Subject to qualification for or receipt of any necessary exemptions,
such financing or financial services from the Leasing Affiliates may, from time
to time, involve equity-oriented investments as an adjunct to the financing or
financial services.
The Registrant and the Trust have applied for an order of the Commission
exempting investments by the Registrant and the Trust in Portfolio Companies
which have or will enter into equipment leases with Leasing Affiliates, subject
to certain conditions. These conditions require the Investment Adviser and the
Leasing Affiliates to provide information to the members of the Management
Boards of the Trust and the Registrant which will enable such members to
evaluate the investment opportunity. Specifically, the Trust and/or the
Registrant will not invest in a Portfolio Company which has or will enter into
an equipment lease with a Leasing Affiliate unless a majority of the members of
the Management Board, including a majority of the members who are not
interested persons, determine that: (i) the investment is in the best interest
of the Trust or the Registrant, as applicable, and the Trust's shareholders,
considering the equipment lease(s); (ii) the acquisition and/or financing of
the equipment subject to such equipment lease(s) is/are required for the
operation of the Portfolio Company; (iii) the Leasing Affiliate(s) party to the
equipment lease(s) can perform under the equipment lease(s) in a manner at
least equal in nature and quality to that which could be provided by others;
and (iv) the terms of the equipment lease(s), including, without limitation,
the compensation to be received by the Leasing Affiliate(s), are fair and
reasonable in light of the terms offered by others in connection with
transactions involving the leasing of equipment of the same type and quality.
There can be no assurances that the requested exemptive order will be issued.
Financial Services. The Registrant contemplates that from time to time,
Berthel Fisher & Company Financial Services, Inc. ("Financial Services"), a
registered broker-dealer, may provide brokerage, underwriting, investment
banking, or other financial services to the Registrant, the Trust and Portfolio
Companies of either, subject to receipt of or qualification for any necessary
exemptions. From time to time, Financial Services may acquire equity
securities of such Portfolio Companies in connection with the performance of
such services.
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ITEM 4. OWNERSHIP OF VOTING AND CONVERTIBLE SECURITIES
OF OTHER ISSUERS
As of August 31, 1997, the Registrant did not own, control or hold with
the power to vote 5% or more of the voting securities of any company.
The following table sets forth certain information as of August 31, 1997,
with respect to those Portfolio Company investments in which the Registrant
owns securities convertible into more than 5% of the voting securities of such
portfolio companies:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
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NAME AND ADDRESS OF NATURE OF ITS TITLE OF PERCENTAGE PERCENTAGE
COMPANY PRINCIPAL SECURITIES OF VOTING OF VOTING
BUSINESS OWNED, SECURITIES SECURITIES
CONTROLLED, OR NOW OWNED
HELD BY OWNED UPON FULL
REGISTRANT CONVERSION
Kinseth Hospitality Building, $1 million -0- 12.5%
Company, Inc. managing,owning promissory
2 Quail Creek Circle and operating note
North Liberty, IA 52317 hotels/motels and
food and beverage Warrant to
services. acquire
common stock
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</TABLE>
ITEM 5. SPECIAL TAX PROVISIONS APPLICABLE TO REGISTRANT.
Information in response to this Item 5 is incorporated by reference to the
Registration Statement on Form N-2 of Berthel Growth & Income Trust I
(Commission File No. 33-89506), filed with the Commission on June 21, 1995.
ITEM 6. PENDING LEGAL PROCEEDINGS.
There are no items to report.
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ITEM 7. SUMMARY OF EARNINGS.
Information in response to this Item 7 is incorporated by reference to the
Annual Report on Form 10-K for the year ended December 31, 1996, of Berthel
Growth & Income Trust I, and to the Quarterly Report on Form 10-Q for the three
months ended June 30, 1997, of Berthel Growth & Income Trust I.
ITEM 8. PERSONS IN CONTROL RELATIONSHIP
WITH REGISTRANT.
As of August 31, 1997, no person was controlled by the Registrant. The
Registrant is deemed to be under the control of the Trust due to the Trust's
ownership of all membership interests in the Trust. To the extent that the
Management Agreement pursuant to which the Investment Adviser serves as
investment adviser to the Registrant would be deemed to be control of the
Registrant by the Investment Adviser, the Registrant is controlled by the
Investment Adviser. To the extent that the Management Agreement pursuant to
which the Investment Adviser serves as investment adviser to the Trust would be
deemed to be control of the Trust by the Investment Adviser, the Registrant is
under common control with the Trust. No other persons are known to the
Registrant to be controlling, controlled by or under common control with the
Registrant.
ITEM 9. PERSONS OWNING EQUITY SECURITIES
OF REGISTRANT.
As of August 31, 1997, all membership interests in the Registrant,
representing the sole class of equity securities and of voting securities of
the Registrant, were owned of record by the Trust. Pursuant to Section 3(c)(1)
of the Investment Company Act, all membership interests in the Registrant are
deemed to be beneficially owned by the owners of beneficial interests in the
Trust. As of August 31, 1997, no person owned 5% or more of the beneficial
interests in the Trust, and accordingly, no person was deemed to own 5% or more
of the membership interests in the Registrant as a result of such investment in
the Trust.
All officers and Directors of the Registrant, as a group, are the record
owners of seven units of beneficial interest in the Trust, representing .07% of
the total amount of such beneficial interests. Pursuant to Section 3(c)(1) of
the Investment Company Act, such officers and Directors are deemed to be the
beneficial owners of .07% of the total amount of membership interests in the
Registrant, as a result of their investment in the Trust.
ITEM 10. NUMBER OF HOLDERS OF EQUITY SECURITIES.
As of August 31, 1997, all membership interests in the Registrant,
representing the sole class of equity securities of the Registrant, were held
of record by the Trust.
13
<PAGE> 14
ITEM 11. DIRECTORS AND EXECUTIVE OFFICERS.
The Registrant is organized as a limited liability company under the laws
of the State of Delaware. As such, the Registrant has no board of directors,
but has a Management Board which functions in the same capacity as the board of
directors of a traditional corporation. Members of the Registrant's Management
Board are hereinafter referred to as "Directors." The Management Board will
approve all of the Registrant's investments, approve the valuation of the
Registrant's assets, and elect the officers of the Registrant. The officers of
the Registrant will carry out the administrative duties of the Registrant in
the same manner as officers of a traditional corporation.
The following chart summarizes the names, positions and principal
occupations of each of the Registrant's Directors and officers:
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Address Positions and Officeswith Principal Occupations during
Registrant Past Five Years
- --------------------------------------------------------------------------------------
James D. Thorp Director and President President and Managing
100 Second Street SE Director of the Investment
Cedar Rapids, Iowa 52401 Adviser; Director of Berthel
Fisher; Vice President -
Investment Banking of
Berthel Fisher & Company
Financial Services, Inc.
("Financial Services")
- --------------------------------------------------------------------------------------
Henry T. Madden Director Independent Trustee of the
100 Second Street SE Trust; Director of MACC
Cedar Rapids, Iowa 52401 Private Equities Inc. and
MorAmerica Capital
Corporation
- --------------------------------------------------------------------------------------
Henry Royer Director Independent Trustee of the
100 Second Street SE Trust; President and Chief
Cedar Rapids, Iowa 52401 Executive Officer of River
City Bank, Sacramento,
California; Chairman and
President of The Merchants
National Bank of Cedar
Rapids (until August, 1994).
- --------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------------
Thomas J. Berthel Chairman Chairman and Chief
100 Second Street SE Executive Officer of the
Cedar Rapids, Iowa 52401 Investment Adviser; Chief
Executive Officer of Berthel
Fisher; Director and Chief
Executive Officer of
Financial Services; Chairman
of the Board of Amana
Colonies Golf Course, Inc.
- --------------------------------------------------------------------------------------
Michael H. Reynoldson Vice President Senior Analyst for Financial
100 Second Street SE Services; prior to 1996,
Cedar Rapids, Iowa 52401 senior auditor for Price
Waterhouse.
- --------------------------------------------------------------------------------------
Ronald O. Brendengen Chief Financial Officer Chief Financial Officer,
100 Second Street SE Treasurer and Director of
Cedar Rapids, Iowa 52401 Investment Adviser;
Controller, Treasurer and
Director of Berthel Fisher;
Treasurer and Director of
Financial Services.
- --------------------------------------------------------------------------------------
Leslie D. Smith Secretary Director and Secretary of
100 Second Street SE Investment Adviser; General
Cedar Rapids, Iowa 52401 Counsel and Secretary of
Berthel Fisher; from 1993-94,
Associate General Counsel
for Gateway 2000, Inc.
- --------------------------------------------------------------------------------------
</TABLE>
ITEM 12. MEMBERS OF ADVISORY BOARD OF REGISTRANT.
This item is not applicable.
ITEM 13. REMUNERATION OF DIRECTORS, OFFICERS AND
MEMBERS OF ADVISORY BOARD.
All management services to the Registrant are provided by the Investment
Advisor. Accordingly, the Registrant does not pay any salary, wages or other
remuneration to its officers or employees. Directors of the Registrant receive
no compensation from the Registrant for services as such, but will be
reimbursed for reasonable out-of-pocket expenses relating to attendance at
meetings or otherwise performing their respective duties. The Registrant
maintains no retirement plans for the benefit of its officers or Directors.
15
<PAGE> 16
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The LLC Agreement of the Registrant generally provides that no investment
adviser, officer or Director, or member, shall be liable to the Registrant for
any action taken or omitted in good faith, and with respect to any criminal
action or proceeding, taken or omitted without reasonable cause to believe
their conduct was unlawful. The LCC Agreement provides for the indemnification
of the Registrant's investment adviser, officers and Directors, and members, to
the extent of the Registrant's net assets, for any expense incurred in
connection with any action taken or omitted on behalf of the Registrant and in
furtherance of its interests. The LLC Agreement also provides that private
members of the Registrant who are not affiliates of the Investment Adviser or
the Management Board shall be indemnified by the Registrant to the extent of
its net assets, with respect to any expense incurred such person as a result of
any transaction of the Registrant. In addition, the LLC Agreement provides
that the Registrant may purchase insurance with respect to the indemnification
obligations described above.
ITEM 15. CUSTODIANS OF PORTFOLIO SECURITIES.
The Registrant has entered into a letter agreement, dated October 13,
1997, with Firstar Bank Cedar Rapids, N.A. (the "Custodian"), 222 Second
Avenue, SE, Cedar Rapids, Iowa 52403. The agreement provides for the custody
in a vault or other depository maintained by the Custodian of the securities
and similar investments of the Registrant, which shall be physically segregated
from those of any other persons. Pursuant to this agreement, the Custodian
receives annually the greater of: (i) $1,000, or (ii)$500 plus applicable
transaction fees.
ITEM 16. INVESTMENT ADVISERS.
Pursuant to a Management Services Agreement (the "Management Agreement"),
dated as of May 13, 1997, between the Registrant and Berthel Fisher & Company
Planning, Inc. (the "Investment Adviser"), 100 Second Street, SE, Cedar Rapids,
Iowa 52401, the Investment Adviser serves as investment adviser for the
Registrant. The Management Agreement provides that the Investment Adviser
shall locate and present to the Registrant's Management Board suitable
investment opportunities for consideration by the Management Board. The
Investment Adviser is also required to provide all office space and employees
necessary for the Registrant. As compensation for its services thereunder, the
Investment Adviser is entitled to a management fee, payable quarterly in
advance, equal to the lesser of (i) .625% of the Registrant's Combined Capital
plus $31,250 if the Capital Commitment is less than $20,000,000, or (ii) .625%
of the value of the Registrant's assets as determined from time to time in good
faith by the Management Board. The Management Agreement also provides for the
indemnification of the Investment Adviser. No managerial person of the
Investment Adviser has been the subject of any legal proceedings described in
Item 401(k)(1) of Regulation S-K.
16
<PAGE> 17
Listed below are the names and addresses of the affiliated persons of the
Registrant, as that term is defined in Section 2(a)(3) of the Investment
Company Act who are also affiliated persons of the Investment Adviser, as well
as the nature of the affiliation:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
<S> <C> <C>
Name and Address Nature of Affiliation with Nature of Affiliation with the
the Registrant Investment Adviser
- --------------------------------------------------------------------------------------
Berthel Growth & Income Owner of all membership The Investment Adviser
Trust I interests in the Registrant serves as investment adviser
100 Second Street, S.E. to Berthel Growth & Income
Cedar Rapids, Iowa 52401 Trust I
- --------------------------------------------------------------------------------------
James D. Thorp Director and President of President and Managing
100 Second Street, S.E. the Registrant Director of the Investment
Cedar Rapids, Iowa 52401 Adviser
- --------------------------------------------------------------------------------------
Thomas J. Berthel Chairman of the Registrant Chairman and Chief
100 Second Street, S.E. Executive Officer of the
Cedar Rapids, Iowa 52401 Investment Adviser; Chief
Executive Officer and
principal of Berthel Fisher
which owns all of the
outstanding voting securities
of the Investment Adviser
- --------------------------------------------------------------------------------------
Michael H. Reynoldson Vice President of the Senior Analyst for the
100 Second Street, S.E. Registrant Investment Adviser
Cedar Rapids, Iowa 52401
- --------------------------------------------------------------------------------------
Ronald O. Brendengen Chief Financial Officer of Chief Financial Officer,
100 Second Street SE the Registrant Treasurer and Director of the
Cedar Rapids, Iowa 52401 Investment Adviser
- --------------------------------------------------------------------------------------
Leslie D. Smith Secretary of the Registrant Director and Secretary of the
100 Second Street SE Investment Adviser
Cedar Rapids, Iowa 52401
- --------------------------------------------------------------------------------------
</TABLE>
ITEM 17. BUSINESS AND OTHER CONNECTIONS OF
INVESTMENT ADVISERS AND THEIR MANAGEMENTS.
Information in response to this Item 17 is incorporated by reference to
the Registration Statement on Form N-2 of Berthel Growth & Income Trust I
(Commission File No. 33-89506), filed with the Commission on June 21, 1995.
17
<PAGE> 18
ITEM 18. INTEREST OF AFFILIATED PERSONS IN CERTAIN TRANSACTIONS.
On May 16, 1997, the Registrant entered into a certain Investment
Agreement (the "Investment Agreement") by and among Kinseth Hospitality
Company, Inc. ("Kinseth"), the Trust and the Registrant. Pursuant to the
Investment Agreement, the Registrant and the Trust each purchased a promissory
note of Kinseth in the principal amount of $1,000,000, and a warrant to
purchase 590 shares (representing 12.5% of the authorized shares) of the common
stock, no par value, of Kinseth.
The Trust is deemed to be an affiliated person of the Registrant pursuant
to Section 2(a)(3) of the Investment Company Act due to the Trust's beneficial
ownership of all of the issued and outstanding membership interests in the
Registrant.
ITEM 19. CAPITAL STOCK.
Membership interests in the Registrant represent the sole class of capital
stock of the Registrant. Although the Trust is presently the sole member of
the Registrant and shall remain the sole member of the Registrant in order to
comply with Rule 60a-1 under the Investment Company Act, the following
describes the terms of the Registrant's Certificate of Formation and Limited
Liability Company Agreement which set forth the rights of members of the
Registrant.
The Registrant's Certificate of Formation provides that no member may own
10% or more of the membership interests in the Registrant without the prior
approval of the SBA. The Registrant's Limited Liability Company Agreement
provides that the Management Board of the Registrant prior to December 31,
1997, without the consent of the members, and thereafter, with the consent of
at least 66% in interest of the members, may admit one or more new members or
may permit a member to increase its capital commitment. No member has the
right to withdraw any capital contributed to the Registrant, to receive any
property other than cash in return for its capital contribution, or has
priority over any other member with respect to distributions. Members may not
resign or withdraw from the Registrant without the consent of a majority in
interest of the other members, and the prior written approval of the SBA if
required by applicable law. Annual net income and net losses are allocated to
members' capital accounts in respect to their percentage interests. Subject to
applicable law, the Registrant's net cash flow will be distributed annually to
members.
The members shall have no right to participate in the management of the
Registrant, which shall be managed by the Management Board. Actions which
shall require the affirmative vote of a majority in interest of the members
include the following: (i) amendment of the Certificate of Formation; (ii)
amendment of the Limited Liability Company Agreement; (iii) approval of a
voluntary dissolution of the Registrant; (iv) agreement to continue the
business of the Registrant after an involuntary event of dissolution; (v)
appointment of a liquidation trustee; (vi) approval of
18
<PAGE> 19
a merger, consolidation or other reorganization of the Registrant; (vii)
approval a fundamental change in the business of the Registrant, including a
sale of substantially all of the Registrant's assets other than in the ordinary
course of business; (viii) election of members of the Management Board.
The Registrant is not restricted with respect to the redemption or
repurchase of membership interest while there exists an arrearage in the
payment of dividends or sinking fund installments.
ITEM 20. LONG TERM DEBT.
The Registrant currently has no outstanding classes of long term debt.
ITEM 21. OTHER SECURITIES.
The Registrant currently has no authorized securities other than capital
stock or long-term debt.
ITEM 22. FINANCIAL STATEMENTS.
Information in response to this Item 7 is incorporated by reference to the
Annual Report on Form 10-K for the year ended December 31, 1996, of Berthel
Growth & Income Trust I, and to the Quarterly Report on Form 10-Q for the three
months ended June 30, 1997, of Berthel Growth & Income Trust I.
PART II
INFORMATION REQUIRED IN PROSPECTUS FOR SECURITIES BEING REGISTERED
UNDER THE SECURITIES ACT OF 1933
ITEMS 23 -28. DISTRIBUTION SPREAD; PLAN OF DISTRIBUTION; USE OF PROCEEDS TO
REGISTRANT; SALES OTHERWISE THAN FOR CASH; INFORMATION REQUIRED
BY ITEMS OF PART I; FINANCIAL STATEMENTS REQUIRED BY ITEM 22 OF
PART I.
Not applicable.
19
<PAGE> 20
PART III
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEMS 29-34. MARKETING ARRANGEMENTS; OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION; RELATIONSHIP WITH REGISTRANT OF EXPERTS NAMED IN
REGISTRATION STATEMENT; RECENT SALES OF UNREGISTERED SECURITIES;
TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED; UNDERTAKING.
Not Applicable.
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
Not Applicable.
(b) Exhibits:
(1) Copies of the charter as now in effect -- Berthel
SBIC, LLC Certificate of Formation
(2) Copies of the existing by-laws or instruments
corresponding thereto -- Limited Liability Company Agreement
of Berthel SBIC, LLC
(3) Copies of all instruments defining the rights of
holders of the securities being registered including, where
applicable, the relevant portion of the articles of
incorporation or by-laws of the registrant -- Please see
Exhibits (1) and (2)
(4) Copies of all custodian agreements with respect
to portfolio securities of the registrant -- Letter
Agreement, dated October 13, 1997, between Berthel SBIC, LLC
and Firstar Bank Cedar Rapids, N.A.
(5) Copies of all indemnification contracts or
arrangements described in response to Item 14 -- Limited
Liability Company Agreement of Berthel SBIC, LLC -- Please
see Exhibit (2)
(6)(i) Copies of all investment advisory contracts to which the
registrant is a party -- Management Services Agreement, dated
May 13, 1997, between Berthel SBIC, LLC and Berthel Fisher &
Company Planning, Inc.
20
<PAGE> 21
(6)(ii) Copies of all investment advisory contracts to which the
registrant is a party -- Limited Liability Company Agreement
of Berthel SBIC, LLC -- Please see Exhibit (2)
(7) Copies of all bonus, profit sharing, pension or
similar contracts or arrangements wholly or partly for the
benefit of directors or officers of the registrant -- Not
Applicable.
(8) A copy of the registrant's license from the Small
Business Administration -- To be supplied by amendment.
(9) Copies of every material contract not made in the
ordinary course of business which is to performed in whole or
in part at or after the filing of the registration statement
or which was made not more than two years before filing,
except contracts called for by the foregoing instructions --
Not Applicable.
(10) Copies of each underwriting contract with a
principal underwriter, each syndicate agreement and each
purchase, sub-underwriting or selling group agreement or
letter pursuant to which the securities being registered are
to be distributed or, if the forms of such documents are not
determined, the proposed form thereof -- Not Applicable.
(11) An opinion of counsel as to the legality of the
securities being registered under the Securities Act of 1933,
indicating whether they will when sold be legally issued,
fully paid and non-assessable -- Not Applicable.
(12) If the issuer has not yet obtained a license from
the Small Business Administration, copies of any contract or
arrangement made to assure that the funds paid in by
investors for the securities being registered will be
returned to them in the event such license is not obtained
-- Not Applicable.
(13) Financial Data Schedule -- Not Applicable.
[Remainder of this page intentionally left blank]
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cedar
Rapids, and State of Iowa, on the 1st day of October, 1997.
BERTHEL SBIC, LLC
By /s/ James D. Thorp
----------------------
James D. Thorp, President
22
<PAGE> 23
EXHIBIT INDEX
Number Description Page
(1) Copies of the charter as now in effect --
Berthel SBIC, LLC Certificate of Formation 25
(2) Copies of the existing by-laws or instruments
corresponding thereto -- Limited Liability
Company Agreement of Berthel SBIC, LLC 28
(3) Copies of all instruments defining the rights of
holders of the securities being registered
including, where applicable, the relevant
portion of the articles of incorporation or by-laws
of the registrant -- Please see Exhibits (1) and (2) --
(4) Copies of all custodian agreements with respect
to portfolio securities of the registrant --
Letter Agreement, dated October 13, 1997, between
Berthel SBIC, LLC and Firstar Bank Cedar Rapids,
N.A. 92
(5) Copies of all indemnification contracts or arrangements
described in response to Item 14 -- Limited Liability
Company Agreement of Berthel SBIC, LLC -- Please see
Exhibit (2) --
(6)(i) Copies of all investment advisory contracts to which the
registrant is a party -- Management Services Agreement,
dated May 13, 1997, between Berthel SBIC, LLC and
Berthel Fisher & Company Planning, Inc. 100
(6)(ii) Copies of all investment advisory contracts to which the
registrant is a party -- Limited Liability Company
Agreement of -- Berthel SBIC, LLC -- Please see
Exhibit (2) --
(7) Copies of all bonus, profit sharing, pension or
similar contracts or arrangements wholly or partly for
the benefit of directors or officers of the registrant
-- Not Applicable. --
23
<PAGE> 24
Number Description Page
(8) A copy of the registrant's license for the
Small Business Administration -- To be supplied by
amendment. --
(9) Copies of every material contract not made in the
ordinary course of business which is to performed
in whole or in part at or after the filing of the
registration statement or which was made not more
than two years before filing, except contracts
called for by the foregoing instructions
-- Not Applicable. --
(10) Copies of each underwriting contract with a
principal underwriter, each syndicate agreement
and each purchase, sub-underwriting or selling
group agreement or letter pursuant to which the
securities being registered are to be distributed or,
if the forms of such documents are not determined,
the proposed form thereof -- Not Applicable. --
(11) An opinion of counsel as to the legality of the
securities being registered under the Securities
Act of 1933, indicating whether they will when sold
be legally issued, fully paid and non-assessable --
Not Applicable. --
(12) If the issuer has not yet obtained a license from
the Small Business Administration, copies of any
contract or arrangement made to assure that the funds
paid in by investors for the securities being registered
will be returned to them in the event such license
is not obtained -- Not Applicable. --
(13) Financial Data Schedule -- Not Applicable. --
24
<PAGE> 1
Exhibit (1)
Copies of the charter as now in effect --
Berthel SBIC, LLC Certificate of Formation
25
<PAGE> 2
STATE OF DELAWARE
CERTIFICATE OF FORMATION OF
BERTHEL SBIC, LLC
This Certificate of Formation of BERTHEL SBIC, LLC (the "Limited Liability
Company") has been duly executed and is being filed by the undersigned
authorized person to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del. C. Section Section 18-101, et seq.).
1. Name. The name of the Limited Liability Company formed hereby is
BERTHEL SBIC, LLC.
2. Registered Office. The address of the registered office of the
Limited Liability Company in the State of Delaware, County of New Castle, is
1209 Orange Street, Wilmington, Delaware 19801.
3. Registered Agent. The registered agent for service of process on the
Limited Liability Company in the State of Delaware, County of New Castle, is
The Corporation Trust Company and its address is 1209 Orange Street,
Wilmington, Delaware 19801.
4. Purpose. The Limited Liability Company is being organized to operate
as a venture capital company. The Limited Liability Company will apply to be
licensed as a small business investment company under the Small Business
Investment Act of 1958, as amended (which, together with the regulations issued
by the United States Small Business Administration ("SBA") thereunder, are
herein referred to as the "SBIC Act"). If the Limited Liability Company is
licensed as a small business investment company by the SBA, the Limited
Liability Company's sole purpose will be to operate as a small business
investment company under the SBIC Act, and shall have the powers,
responsibilities, and be subject to the limitations provided in the SBIC Act.
5. Approval of Members. No person may serve as a manager, member of the
management board, officer or a holder of a 10% or greater interest as a Member
of the Limited Liability Company without SBA approval.
6. Provisions Required by the SBA for Issuers of Debentures. This Section
6 shall be in effect at any time that the Limited Liability Company has
outstanding Debentures (as defined in the SBIC Act) and shall not be in effect
at any time that the Limited Liability Company does not have outstanding
Debentures.
a. The provisions of 13 C.F.R. Section 107.1810 are hereby
incorporated by reference in this Certificate of Formation as if fully
set forth herein and shall be deemed to apply to the Limited Liability
Company.
26
<PAGE> 3
b. The Limited Liability Company hereby consents to the exercise by
the SBA of all of the rights of the SBA under C.F.R. Section 107.1810(i),
and agrees to take all actions which the SBA may require in accordance
with 13 C.F.R. Section 107.1810(i); SBA's rights of removal shall be
deemed to apply to any manager, member of the management board, or
officer of the Limited Liability Company.
c. Nothing in Section 6 shall be construed to limit the ability or
authority of the SBA to exercise its regulatory authority over the
Limited Liability Company as a licensed small business investment company
under the SBA Act.
7. Additional SBA Provisions. This Section 7 shall be in effect at any
time that the Limited Liability Company is a licensed small business investment
company.
a. The SBA shall be deemed an express third party beneficiary of
the provisions of this Certificate of Formation to the extent of the
rights of the SBA hereunder and under the Act, and the SBA shall be
entitled to enforce such provisions for its benefit.
b. The Limited Liability Company is subject to the examination and
reporting requirements under Section 3.10(b) of the Small Business
Investment Act of 1958, as amended, and to the restrictions and
obligations imposed under 13 C.F.R. 107.160 as in effect from time to
time.
8. Dissolution. The latest date on which the Limited Liability Company is
to dissolve is May 13, 2027.
9. Corporation Status. Under the terms of the Certificate of Formation
and any written operating statement made or intended to be made, the Limited
Liability Company is intended to be treated for purposes of federal income
taxation as a corporation.
IN WITNESS WHEREOF, the undersigned authorized person has duly executed
this Certificate of Formation as of May 13, 1997.
/s/ Thomas J. Berthel
-----------------------
THOMAS J. BERTHEL
Authorized Person
27
<PAGE> 1
Exhibit (2)
Copies of the existing by-laws or instruments
corresponding thereto -- Limited Liability
Company Agreement of Berthel SBIC, LLC
28
<PAGE> 2
THE LIMITED LIABILITY COMPANY INTERESTS HAVE NOT BEEN REGISTERED UNDER ANY
FEDERAL OR STATE SECURITIES LAWS AND CANNOT BE SOLD, TRANSFERRED, ASSIGNED,
HYPOTHECATED OR OTHERWISE DISPOSED UNLESS THEY ARE REGISTERED THEREUNDER OR
EXEMPTIONS FROM SUCH REGISTRATIONS ARE AVAILABLE, AND THE REQUIREMENTS OF THE
LIMITED LIABILITY COMPANY AGREEMENT ARE SATISFIED.
LIMITED LIABILITY COMPANY AGREEMENT
OF
BERTHEL SBIC, LLC
a Delaware limited liability company
Dated May 13, 1997
29
<PAGE> 3
Table of Contents
Page
1. Definitions 1
1.1 "Act" 1
1.2 "Affiliate" 1
1.3 "Agreement" 1
1.4 "Annex LLC-GDP" 1
1.5 "Annex LLC-OP" 2
1.6 "Capital Account" 2
1.7 "Capital Contributions" 2
1.8 "Certificate of Formation" 2
1.9 "Code" 2
1.10 "Combined Capital" 2
1.11 "Company" 2
1.12 "Debentures" 2
1.13 "ERISA" 2
1.14 "Fiscal Year" 2
1.15 "Interest" 2
1.16 "Investment Company Act" 2
1.17 "Leverage" 2
1.18 "Majority in Interest" 3
1.19 "Management Board" 3
1.20 "Management Expenses" 3
1.21 "Management Fee" 3
1.22 "Member" 3
1.23 "Net Cash Flow" 3
1.24 "Net Income" and "Net Loss" 4
1.25 "Officers" 4
1.26 "Percentage Interest" 4
1.27 "Portfolio Companies" 5
1.28 "Portfolio Securities" 5
1.29 "Private Capital" 5
1.30 "Regulatory Capital" 5
1.31 "SBA" 5
1.32 "SBIC" 5
1.33 "SBIC Act" 5
1.34 "Security" or "Securities" 5
1.35 "Securities Act" 5
1.36 "Small Business" 5
1.37 "Treasury Regulations" 5
2. Organization 5
2.1 Formation 5
30
<PAGE> 4
2.2 Name 6
2.3 Certificate of Formation 6
2.4 Incorporation of Annexes and Section 1820 6
3. Principal Office 6
4. Purpose and Powers 6
4.1 Purpose 6
4.2 Powers 7
5. Term 7
6. Capital Contributions 7
6.1. Initial Capital Contributions 7
6.2 Additional Members 7
6.3 Repayment of Capital Contributions 8
6.4 No Priorities of Members 8
6.5 Limited Liability of Members 8
6.6 Interested Transactions 8
6.7 No Interest on Capital 9
6.8 Resignation 9
6.9 Control by the Members 9
7. Capital Accounts 9
7.1 Maintenance of Capital Accounts 9
8. Allocations and Distributions 9
8.1 Allocations 9
8.1.1 Net Income 9
8.1.2 Net Loss 10
8.2 Distributions 10
8.2.1 Net Cash Flow 10
8.2.2 Distributions in Kind 10
8.3 Apportionment of Net Profits and Net Losses;
Distributions in Respect of Interests Transferred 10
9. Management Services, Fees and Expenses 11
9.1. Management 11
9.2 Management Fees 11
9.2.1 Calculation of Fee 11
9.2.2 Expenses 11
10. Member Actions 12
10.1 Place of Meetings 12
31
<PAGE> 5
10.2 Proxies 12
10.3 Actions Requiring Member Consent 12
10.4 Investment Restrictions 13
11. Management Board 13
11.1 Number of Members 13
11.2 Election 13
11.3 Qualifications 13
11.4 Powers 14
11.5 Meetings of the Management Board 14
11.6 Special Meetings of the Management Board 14
11.7 Quorum 14
11.8 Required Approval 14
11.9 Action by Consent 15
11.10 Actions 15
11.11 Oversight 15
11.12 Compensation and Fees 15
11.13 Resignation or Removal 15
11.14 Participation in Meetings by Telephone 16
11.15 Notices 16
12. Officers 16
12.1 Officers 16
12.2 Chairman 17
12.3 President 17
12.4 Chief Financial Officer 17
12.5 Vice President 17
12.6 Secretary and Assistant Secretaries 17
12.7 Treasurer and Assistant Treasurers 18
13. Interests Acquired for Investment; Transfers of Interests
in Company 18
13.1 Representations of Members 19
13.2 Transfer of Company Interest 19
13.3 Substituted Members 20
14. Tax Election 21
15. Termination of the Company 21
15.1 Dissolution 21
15.2 Withdrawal, Dissolution or Bankruptcy of a Member 21
15.3 Winding Up of the Company 21
15.4 Liquidation Committee; Payment of Claims 22
15.5 Liquidation Distributions 22
15.6 Allocation of Net Income or Net Loss
32
<PAGE> 6
Upon Dissolution 22
15.7 Liquidation of a Member's Interest Upon Election
of Members to Continue the Company 22
16. Books of Account; Annual Meeting; Accounting and Reports;
Valuation and Banking 23
16.1 Accounting and Records 23
16.2 Annual Reporting 23
16.3 Records and Inspection 24
16.4 Income Tax Information 24
16.5 Other Reports 24
16.6 Banking and Portfolio Securities 24
17. Valuation of Portfolio Securities 25
17.1 Valuation of Securities 25
18. Amendment 25
18.1 General Amendments 25
18.2 Regulatory Amendments 25
19. Miscellaneous 27
19.1 Indemnification 27
19.2 Section Headings 27
19.3 Severability 27
19.4 Right to Rely upon the Authority of Officers 27
19.5 Governing Law 27
19.6 Counterpart Execution; Jurisdiction 27
19.7 Parties in Interest 28
19.8 Amendments to Admit Members 28
19.9 Integrated Agreement 28
19.10 Description of Company 28
19.11 Waiver of Right to Court Decree of Dissolution 28
19.12 Pronouns 28
EXHIBIT A - ANNEX LLC-GDP 30
EXHIBIT B - ANNEX LLC-OP 31
EXHIBIT C - VALUATION GUIDELINES 32
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THIS LIMITED LIABILITY COMPANY AGREEMENT is made as of May 13, 1997, by
and between Berthel SBIC, LLC, a Delaware limited liability company, and
Berthel Growth & Income Trust I.
RECITALS
The following is a recitation of the facts underlying this Agreement:
A. On May 13, 1997, the Company filed the Certificate of Formation
pursuant to the Act.
B. The parties now wish to adopt a written limited liability company
agreement pursuant to which the Company will carry on its business.
NOW, THEREFORE, in consideration of their agreement set forth herein, the
parties hereby agree as follows:
1. Definitions. When used herein, the following terms shall have the
meaning set forth below:
1.1 "Act" means the Delaware Limited Liability Company Act, (6 Del.
C. Section Section 18-101, et seq.) as amended.
1.2 "Affiliate" of a Member or Manager means any Person, directly or
indirectly, through one or more intermediaries, controlling, controlled by, or
under common control with the Member or Manager, as applicable. The term
"control" as used in the immediately preceding sentence, means with respect to
a corporation, limited liability company, limited life company or limited
duration company (collectively, "limited liability company"), the right to
exercise, directly or indirectly, more than twenty-five percent (25%) of the
voting rights attributable to the controlled corporation or limited liability
company and, with respect to any individual, Company, trust, estate,
association or other entity, the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of the
controlled entity.
1.3 "Agreement" means this Limited Liability Company Agreement and
all exhibits hereto, including, but not limited to, Annex LLC-GDP and Annex
LLC-OP.
1.4 "Annex LLC-GDP" means SBA Annex LLC-GDP, Version 1.1 dated
June 1, 1997, General and Debenture Related Provisions for Limited Liability
Companies in the form attached to this Agreement as Exhibit A.
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1.5 "Annex LLC-OP" means SBA Annex LLC-OP, Version 1.1 dated
June 1, 1997, Optional Provisions for Limited Liability Companies in the form
attached to this Agreement as Exhibit B.
1.6 "Capital Account" means the account of each Member established and
maintained on the books of the Company as provided in Section 7 hereof.
1.7 "Capital Contributions" means the contributions made by the
Members to the Company pursuant to Section 6 hereof, and, in the case of all
the Members, the aggregate of all such capital contributions.
1.8 "Certificate of Formation" means the Certificate of Formation of
the Company filed with the Delaware Secretary of State on May 13, 1997.
1.9 "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of any succeeding law).
1.10 "Combined Capital" shall have the meaning set forth in the SBIC
Act.
1.11 "Company" means Berthel SBIC, LLC.
1.12 "Debentures" shall have the meaning set forth in the SBIC Act.
1.13 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the regulations and interpretations promulgated thereunder by
the Department of Labor.
1.14 "Fiscal Year" means the Company's fiscal year which shall
commence on January 1 and end on December 31 of each year.
1.15 "Interest" means the right of a Member to any and all
distributions to which such Member may be entitled as provided in this
Agreement, together with the duties and obligations of such Member to comply
with all provisions of this Agreement.
1.16 "Investment" means the Investment Company Act of 1940, as amended.
1.17 "Leverage" shall have the meaning set forth in the SBIC Act.
1.18 "Majority in Interest" or a specified percentage "In Interest"
means Members holding more than fifty percent (50%) or such specified
percentage, respectively, of the Interest then held by all Members.
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1.19 "Management Board" means the Management Board established
pursuant to Section 11 of this Agreement, whose initial members shall be James
D. Thorp, Henry T. Madden and Henry Royer.
1.20 "Management Expenses" means the Company's normal operating
expenses, including salaries, services, rent, utilities and other overhead
charges; expenses for business development, travel and entertainment incurred
in connection with the affairs of the Company; insurance premiums and fees
(excluding directors and officers liability insurance); telephone, telegram,
cablegram, telegraph and similar charges; postage expenses; dues,
subscriptions, office supplies, equipment rental and similar expenses; fees for
bookkeeping and other similar services relating to the affairs of the Company
and the Management Company, and other routine expenses incurred in connection
with their affairs. Management Expenses shall not include the expenses borne
by the Company and described in Section 9.2.2.
1.21 "Management Fee" shall have the meaning set forth in Section 9.2.
1.22 "Member" means Berthel Growth & Income Trust I and any other
person or legal entity who or which has been admitted as a Member in accordance
with the Act and this Agreement, and does not cease to be a Member for any
reason.
1.23 "Net Cash Flow" means, for each Fiscal Year, the Company's Net
Income (for this purpose any Net Loss shall be treated as negative Net Income),
adjusted as follows:
(a) Increased by the following:
(i) Any receipts which are not included in the computation
of Net Income (such as capital contributions, loan proceeds, and
withdrawals from reserves).
(ii) Any deductions not involving cash expenditures (such as
depreciation, amortization and other cost recovery deductions).
(b) Decreased by the following:
(i) All expenditures which are not deducted in determining
Net Income (such as expenditures for capital improvements, asset
acquisitions, and loan repayments).
(ii) Contributions to any reserve established by the Managers
for anticipated Company cash needs.
1.24 "Net Income" and "Net Loss" mean, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for such year
or period, determined in accordance with Section 703(a) of the Code (for this
purpose, all items of income, gain, loss or
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deduction required to be stated separately pursuant to Section 703(a)(1) of the
Code shall be included in taxable income or loss), with the following
adjustments:
(a) Income of the Company that is exempt from federal income tax
and not otherwise taken into account in computing Net Income or Net Loss shall
be added to such taxable income or loss.
(b) Expenditures of the Company described in Section 705(a)(2)(B)
of the Code or treated as such expenditures pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Net Income or Net Loss shall be subtracted from such taxable income or loss.
(c) Gain or loss resulting from any disposition of Company
property with respect to which gain or loss is recognized for federal income
tax purposes shall be computed by reference to the Gross Asset Value of the
property disposed of, notwithstanding that the adjusted tax basis of such
property differs from its Gross Asset Value.
(d) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing taxable income or loss,
there shall be taken into account book depreciation for such Fiscal Year or
other period.
1.25 "Officers" means the officers of the Company as provided in
Section 12 of this Agreement.
1.26 "Percentage Interest" in respect of any Member means that
fraction, expressed as a percentage, having as its numerator the Capital
Contribution of such Member and having as its denominator, the total Capital
Contributions of all Members.
1.27 "Portfolio Companies" means the issuers of Securities acquired by
the Company, other than issuers of (a) direct obligations of or obligations
guaranteed as to principal and interest by the United States, (b) repurchase
agreements with federally insured institutions, (c) certificates of deposit,
and (d) such similar types of investments in which an SBIC is permitted to
invest idle funds under the SBIC Act. Reference to a "Portfolio Company" is to
any one of the Portfolio Companies.
1.28 "Portfolio Securities" means the Securities issued by Portfolio
Companies other than Securities described in Section 1.26 (a)-(d).
1.29 "Private Capital" shall have the meaning set forth in the SBIC
Act.
1.30 "Regulatory Capital" shall have the meaning set forth in the
SBIC Act.
1.31 "SBA" means the United States Small Business Administration.
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1.32 "SBIC" means an entity licensed by the SBA as a small business
investment company pursuant to the SBIC Act.
1.33 "SBIC Act" means the Small Business Investment Act of 1958, as
amended, and the rules and regulations promulgated thereunder by the SBA, as
in effect from time to time.
1.34 "Security" or Securities" (whether or not capitalized) when used
herein shall have the same meaning given to that term in Section 2(1) of the
Securities Act.
1.35 "Securities Act" means the Securities Act of 1933, as amended.
1.36 "Small Business" shall have the meaning set forth in the SBIC Act.
1.37 "Treasury Regulations" means the regulations promulgated under
the Code, as such regulations may be amended from time to time (including
temporary regulations and corresponding provisions of succeeding regulations).
2. Organization
2.1 Formation. The parties hereto have formed a limited liability
company pursuant to the Certificate of Formation pursuant to the laws of the
State of Delaware.
2.2 Name. The name of the Company is Berthel SBIC, LLC. The
Management Board may change the name of the Company at any time. However, if
the Company is an SBIC, the name of the Company may not be changed without the
prior consent of SBA.
2.3 Certificate of Formation. The Management Board has caused the
execution and filing of the Certificate of Formation. The Members hereby agree
to execute, file and record all such other certificates and documents,
including amendments to the Certificate of Formation of the Company, and to do
such other acts as may be appropriate to comply with all requirements for the
formation, continuation, and operation of a limited liability company, the
licensing of the Company as an SBIC, the ownership of property, and the conduct
of business under the laws of the State of Delaware and any other jurisdiction
in which the Company may own property or conduct business.
2.4 Incorporation of Annexes and Section 1820. The provisions of
Annex LLC-GDP and Annex LLC-OP and the provisions of 13 CFR Section 107.1810
(including any amendment or successor thereto) are incorporated in this
Agreement with the same force and effect as if fully set forth herein. With
respect to 13 CFR Section 107.1810, (i) the Company agrees with SBA that the
Company shall be treated as if it were a corporate licensee, and that SBA shall
have the remedies set forth in 13 CFR Section 107.1810(i) (1) with respect to
causing the removal and/or replacement of any of the members of its Management
Board and/or its Officers. If, and
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so long as, the Company is an SBIC, SBA shall be deemed a third-party
beneficiary of this Section 2.4 and this Section 2.4 may not be amended without
SBA's consent.
3. Principal Office. The principal office of the Company shall be
located at 100 Second Street, SE, Cedar Rapids, Iowa 52407-4250, or at such
other place as the Management Board from time to time may determine. However,
the Company may not move its office location or establish any branch office
without the prior approval of SBA if the Company is an SBIC. If the principal
place of business of the Company is changed, the officers of the Company
promptly shall notify the Members of such fact.
4. Purpose and Powers.
4.1 Purpose. The Company is being organized solely for the purpose
of operating as a venture capital fund. The Company shall apply to the SBA for
a license to operate as an SBIC. If such license is granted, the Company shall
(i) conduct only the activities described under Title III of the SBIC Act, and
(ii) have the powers, responsibilities, and be subject to the limitations,
provided in the SBIC Act.
4.2 Powers. Consistent with Section 4.1, the Company shall have all
the rights and powers of a limited liability company under the Act. However,
the Company shall not make any investments other than those which are
consistent with the investment objectives of Berthel Growth & Income Trust I as
long as it is a Member.
5. Term. The term during which the Company shall exist shall commence on
the date the Certificate of Formation is filed in the office of the Delaware
Secretary of State (the "Filing Date") and shall continue until the later of
(i) the close of business on the 30th annual anniversary of the Filing Date or
(ii) two years after SBA Leverage has been repaid, unless sooner terminated as
provided in Section 15.
6. Capital Contributions.
6.1 Initial Capital Contributions. Within thirty (30) days of the
date of formation of the Company under the Act, or on such later date as the
President shall designate in writing, the Member shall make an initial Capital
Contribution to the Company in cash in the amount of Five Million Dollars
($5,000,000). Upon receipt of such Capital Contribution, the Company shall
credit the Member's Capital Account with the amount of such Member's Capital
Contributions.
6.2 Additional Members. The Management Board may, from time to time
after the date hereof and on or prior to December 31, 1997 without the consent
of the Members, and on or after January 1, 1998, with the consent of at least
66% in Interest of the Members, admit one or more new Members (hereinafter
referred to as the Additional Members), or permit any Member to increase its
Capital Commitment under the following terms and conditions:
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(1) Each of such Additional Members and Members increasing their
Capital Commitments shall execute and deliver to the Company a
counterpart of this Agreement, thereby evidencing their agreement to be
bound by and comply with the terms and provisions hereof as if they were
an original signatory to this Agreement.
(2) Each of such Additional Members shall be admitted to the
Company as of the date that (i) an executed counterpart of this
Agreement has been delivered to and accepted by the Company and (ii) such
Additional Member shall have paid by way of a Capital Contribution to the
Company cash in an amount determined by the Management Board, based upon
the percentage of Capital Contributions paid by Members.
(3) In the case of each Member whose Capital Contribution has
been increased, such increased Capital Contribution shall be effective
as of the date (i) an executed counterpart of this Agreement reflecting
such increased Capital Contribution is delivered by such Member and
accepted by the Company, and (ii) such Member shall have paid the amount
of such increased Capital Contribution.
(4) If Additional Members are admitted to the Company as
Members, and if Members increase their Capital Commitments pursuant to
this Section 6.5, expenses of the Company (including Management Fees) to
be allocated on or after the effective date of such admission or increase
first shall be allocated to such Additional Members and Members
increasing their Capital Contributions to the extent necessary to cause
such persons to be treated with respect to such items as if they had been
Members with respect to these Capital Contributions from the commencement
of the Company; thereafter, such items shall be allocated to the Members
in accordance with Section 8.1.
6.3 Repayment of Capital Contributions. Except as expressly
provided in this Agreement, no specific time has been agreed upon for the
repayment of the Capital Contributions of the Members, and no Member, or any
successor-in-interest, shall have a right to withdraw any capital contributed
to the Company.
6.4 No Priorities of Members. Except as expressly provided in this
Agreement or the SBIC Act, no Member shall have the right to demand or receive
property other than cash in return for its Capital Contribution, nor shall any
Member have priority over any other Member, either as to the return of its
Capital Contribution or as to profits, losses or distributions.
6.5 Limited Liability of Members. Notwithstanding anything to the
contrary in this Agreement, the liability of each Member as a Member of the
Company shall in no event exceed in the aggregate the Capital Contribution of
such Member to the Company.
6.6 Interested Transactions. Any Member or Affiliate thereof may
engage in or possess an interest in other business ventures of any nature or
description, independently or
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with others, similar or dissimilar to the business of the Company, and the
Company shall not have any rights by virtue of this Agreement or any Annex in
and to such independent ventures or the income or profits derived therefrom,
and the pursuit of any such venture, even if competitive with the business of
the Company, shall not be deemed wrongful or improper. Unless otherwise agreed
in writing, no Member or Affiliate thereof shall be obligated to present any
particular investment opportunity to the Company even if such opportunity is of
a character which, if presented to the Company, could be taken by the Company,
and any Member or Affiliate thereof shall have the right to take for its own
account (individually or as a partner or fiduciary) or to recommend to others
any such particular investment opportunity.
6.7 No Interest on Capital. No interest shall be payable to the
Members with respect to any Capital Contributions made to the Company.
6.8 Resignation. No Member may resign, or withdraw from the Company,
without the consent of a Majority in Interest of the other Members and, if
required by the SBIC Act, the prior written approval of the SBA.
6.9 Control by the Members. Except as otherwise expressly provided
in this Agreement, the management of the Company shall be vested in the
Management Board and, as provided herein, no officer or Member shall have any
authority to act for or on behalf of the Company.
7. Capital Accounts.
7.1 Maintenance of Capital Accounts. The Company shall maintain a
Capital Account for each Member in accordance with Treasury Regulations issued
under Section 704(b) of the Code. The foregoing sentence and the other
provisions of this Agreement relating to the maintenance of Capital Accounts
are intended to comply with Treasury Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In
the event that the Board of Managers shall determine that it is prudent to
modify the manner in which Capital Accounts or any debits or credits thereto
are computed in order to comply with such Regulations, the Board of Managers
may make such modifications without the consent of the Members, provided that
such modifications will not have a material effect on the amounts distributable
to the Limited Members pursuant to this Agreement.
8. Allocations and Distributions.
8.1 Allocations.
8.1.1 Net Income. Except as otherwise provided in this
Agreement, all Net Income for any Fiscal Year shall be allocated to the
Members in proportion to their respective Percentage Interest.
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8.1.2 Net Loss. Except as otherwise provided in this Agreement,
all Net Losses shall be allocated to the Members in proportion to their
respective Percentage Interest.
8.2 Distributions
8.2.1 Net Cash Flow. Except as otherwise provided in
Section 14.5, Net Cash Flow, if any, will, subject to the SBIC Act, be
distributed to the Members annually and at such times as the Management
Board may determine.
8.2.2 Distribution in Kind. Subject to the SBIC Act, the
Management Board may, at any time or from time to time, if it, in its sole
discretion determines, distribute Portfolio Securities, among the Members in
accordance with the distribution of Net Cash Flow pursuant to Section 8.2.1.
Upon any distribution in kind, the difference between the fair market value and
the adjusted cost basis for federal income tax purposes of any securities
distributed shall be allocated to the Capital Accounts of the Members in
accordance with the provisions of Section 8.1.
8.3 Apportionment of Net Losses; Distributions in Respect of Interests
Transferred. If any Interest in the Company is transferred during any Fiscal
Year of the Company in compliance with the provisions of this Agreement, the
Net Income or Net Loss, each item thereof and all other items attributable to
the transferred Interest in the Company for such Fiscal Year shall be divided
and allocated between the transferor and transferee by taking into account
their varying Percentage Interests during the Fiscal Year in accordance with
Section 706(d) of the Code, using any convention permitted by the Treasury
Regulations thereunder and agreed upon by the transferor and transferee;
provided, however, that if the Company does not receive, on or before January
31 of the year following the year in which the transfer occurs, a written
notice stating the manner in which such parties have agreed that such Net
Income or Net Loss is to be allocated between them, then all of such Net Income
or Net Loss, each item thereof and all other items attributable to the
transferred Interest shall be allocated pro rata between the transferor and
transferee based on the number of days each owned the Interest in the Company
during such year as such ownership is reflected in the books and records of the
Company. Distributions of Company assets in respect of Interests in the
Company shall be made only to persons who, according to the books and records
of the Company, are the owners of record of the Interests in the Company in
respect of which such distributions are made on the date determined by the
Management Board as of which owners of Interests in the Company are entitled to
such distributions. The Management Board and the Company shall incur no
liability for making distributions in accordance with the provisions of this
Section 8.3, whether or not the Management Board or the Company has knowledge
or notice of any transfer of ownership of any Interests in the Company.
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9. Management Services, Fees and Expenses.
9.1 Management. Subject to the SBIC Act, an entity or entities
designated by the Management Board to perform management services for the
Company shall be compensated on a quarterly basis for management services
rendered during the term of the Company by the payment by the Company in cash
to such entity or entities (or its designee) on the first day of each fiscal
quarter (or portion thereof) of a Management Fee.
9.2 Management Fees.
9.2.1 Calculation of Fee. The Management Fee for each fiscal
quarter shall be an amount equal to the lesser of (i) five-eighths of one
percent (.625%)of the Company's Combined Capital plus $31,250 if the Capital
Commitment is less than $20,000,000, or (ii) five-eighths of one percent
(.625%) of the value of the Company's assets as determined from time to time in
good faith by the Management Board. However (A) the Management Fee for each of
the Company's first and last fiscal periods of the Company shall be
proportionately reduced based upon the ratio that the number of days in each
such period bears to ninety (90), and (B) that an additional Management Fee
shall be payable upon the date of any increase in the Combined Capital of the
Company or value of the Company's assets, as applicable, to reflect the
increased Combined Capital during the remainder of the quarter by a
proportionate increase based upon the ratio that the number of days in such
remainder of the quarter bears to ninety (90); and (C) that the Management Fee
for the next quarter shall be reduced to reflect any decrease in the Combined
Capital of the Company or value of the Company's assets, as applicable, during
the remainder of the prior quarter by a proportionate decrease based upon the
ratio that the number of days in such remainder of that quarter bears to ninety
(90).
9.2.2 Expenses. The entity providing management services
pursuant to Section 9.1 shall be responsible for the payment of Management
Expenses. The following expenses shall be borne by the Company: the
accounting fees, costs and expenses of the Company, including without
limitation, the annual audit of the Company, the preparation of the annual and
any interim financial statements of the Company and the federal and state tax
returns of the Company; SBA examination fees; costs and expenses associated
with meetings of the Members and their shareholders, communications with
Members and preparation of Company status reports; costs and expenses
associated with meetings of the advisory board of the Company, if any; trade
association dues; legal fees, costs and expenses of counsel for the Company, if
any; legal action or proceeding, including threatened action, proceeding or
investigation, and the amount of any judgments or settlements paid in
connection with such action, proceeding or investigation; the legal and other
fees, costs and expenses of and incidental to the purchase and sale of
Portfolio Securities to the extent that such fees, costs and expenses are not
paid by Portfolio Companies or others; all other legal fees; interest on the
Company's indebtedness; bonding expenses; premiums for insurance protecting the
Company and the Management Board and Officers of the Company and other persons
entitled to indemnification from the Company from liabilities to third parties
for activities on behalf of the Company; fees incurred by the Company for
special advisory or consulting services; securities filing fees, SBA
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commitment, reservation, custodian and other fees, interest, costs and expenses
incurred in connection with obtaining or using SBA Leverage; and all
extraordinary fees, costs and expenses.
10. Member Actions.
10.1 Place of Meetings. All meetings of the Members shall be held
at such time and place within or without the State of Delaware as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
10.2 Proxies. At any meeting to which the Members are entitled to
vote, the Members may vote in person or by proxy, but no proxy shall be voted
on after three (3) years from its date unless the proxy provides for a longer
period.
10.3 Actions Requiring Member Consent. The affirmative vote of a
Majority in Interest of the Members shall be required to:
(a) amend the Certificate of Formation;
(b) amend this Agreement;
(c) approve a voluntary dissolution of
the Company;
(d) agree to continuing the business of
the Company after a Dissolution Event specified in
Section 15.1;
(e) appoint a Liquidation Trustee in
accordance with Section 15.3;
(f) approve a merger, consolidation or
other reorganization of the Company;
(g) authorize or approve a fundamental
change in the business of the Company including the sale
of all or substantially all of its assets other than in
the ordinary course of its business; or
(h) elect members of the Management Board.
10.4 Investment Restrictions. Subject to the SBIC Act, a Member and
its Affiliates may make purchases and sales for its own account of
publicly-held securities in the open market and may purchase participations in
financings of Portfolio Companies if the Company has previously secured its
desired investment position and such investment is made at substantially the
same time and on substantially the same terms and conditions as participations
by the Company and provided further, no Member shall, either for its own
account or for others, invest in any viable venture capital opportunity which
is suitable for investment by the Company without first offering the
opportunity to the Company. Except as set forth in this Section 10.4, a Member
and its Affiliates may make other investments of every type and nature for
itself or for the account of others without offering the Company or any other
Member a participation in such investments and without the Company or any
Member becoming entitled by virtue of this Agreement to any interest therein or
to the profits or income derived therefrom.
11. Management Board.
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11.1 The Management Board shall consist of three (3) persons.
11.2 Persons serving on the Management Board (other than the
initial members who are named in Section 1.19) shall be elected by the Members.
Each person serving on the Management Board shall hold the office until his
successor is elected and qualified or until his earlier death, resignation or
removal. Vacancies occurring on the Management Board shall be filled by the
Members.
11.3 At least two (2) members of the Management Board shall be
individuals who are not "Interested Persons" as hereafter defined("Independent
Directors"), neither of whom shall be officers. No person may serve as a
member of the Management Board without the prior approval of SBA. At all
times, a majority of the members of the Management Board shall be persons who
are not "Interested Persons" (as defined by Section 2(a)(19) of the Investment
Company Act), of the Company or any Member. If at any time fifty percent (50%)
or more of the Independent Directors are such "Interested Persons", the Company
will take action within ninety (90) days to correct that condition. The
initial Independent Directors are Henry T. Madden and Henry Royer.
11.4 Subject to the provisions of the Act and any limitations in the
Certificate of Formation or this Agreement, the business and affairs of the
Company shall be managed and all its powers shall be exercised as set forth
herein, by or under the direction of the Management Board.
11.5 Meetings of the Management Board The Management Board may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Management Board may be held without notice
at such time and at such place as shall from time to time be determined by the
Management Board. The Management Board shall meet at least quarterly.
11.6 Special Meetings of the Management Board. Special meetings of
the Management Board may be called by the President or by at least one
Independent Director of the Management Board on two (2) days notice to each
member, which is given either personally or by mail or by telegram; special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of two (2) members of the Management Board.
11.7 Quorum. At all meetings of the Management Board, a majority
of members shall constitute a quorum for the transaction of business and the
act of a majority of the members present at any meeting at which there is a
quorum shall be the act of the Management Board, except as may otherwise be
specifically provided by statute, by the Certificate of Formation, or under
this Agreement. If a quorum shall not be present at any meeting of the
Management Board, the members present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
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11.8 Required Approval. The Company shall not take any of the
following actions without the unanimous affirmative vote of the Management
Board:
(a) file an application to become a Small
Business Investment Company;
(b) issue Debentures or other SBA Leverage;
(c) acquire Portfolio Securities in any
Portfolio Company or otherwise invest the Company's
assets;
(d) appoint an independent certified
public accountant for the Company;
(e) make any distribution to the Members;
(f) indemnify any party pursuant to Section 19.1;
(g) appoint a Liquidating Trustee
pursuant to Section 15.3;
(h) determine the valuation of the
Company's assets for any purpose;
(i) elect any Officer;
(j) enter into any management services
agreement or agreement pursuant to which any
compensation is paid to any Officer of the Company, to
any Member, or any of their Affiliates.
11.9 Action by Consent. Unless otherwise restricted by the
Certificate of Formation or this Agreement, any action required or permitted to
be taken at any meeting of the Management Board may be taken without a meeting
if all members of the Management Board consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Management
Board.
11.10 Actions. The Management Board shall not take any action
except at a meeting of the Management Board or by unanimous written consent of
all of the members of the Management Board.
11.11 Oversight. The Management Board shall supervise and review
the actions of the Officers in the performance of their duties. Except as
expressly authorized by this Agreement, the Independent Directors and members
of the Management Board, in their capacity as such, shall not have any
management or administrative powers over the Company or its property.
11.12 Compensation and Fees. Members of the Management Board shall
not be paid any compensation for services rendered to the Company. The Company
shall reimburse the Independent Directors for their reasonable out-of-pocket
expenses relating to attendance at meetings or otherwise performing their
duties under this Agreement.
11.13 Resignation or Removal. An Independent Director may resign
effective on the designation of the successor Independent Director by giving
reasonable notice to the Company. A resigning Independent Director shall
cooperate fully with any successor Independent Director. Members of the
Management Board may be removed by the affirmative
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vote of a Majority in Interest of the Members. Removal of any Independent
Director shall not effect the validity of any actions taken prior to the date
of removal.
11.14 Participation in Meetings by Telephone. Members of the
Management Board may participate in a meeting of the Management Board by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and participation
in a meeting pursuant to this subsection shall constitute presence in person at
such meeting.
11.15 Notices. Notices to members of the Management Board and Members
shall be in writing and delivered personally or mailed to the members of the
Management Board and Members at their addresses appearing on the books of the
Company. Notice by mail shall be deemed to be given at the time when the same
shall be mailed. Notice to members of the Management Board may also be given
by telegram or telecopy or other similar electronic communication which
produces a printed copy. Whenever any notice is required to be given under the
provisions of the Act or of the Certificate of Formation or this Agreement, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the members of the Management Board need be
specified in any written waiver of notice.
12. Officers.
12.1 Officers. The Management Board shall elect the Officers of the
Company who shall include a President and Secretary, and may include a
Chairman, Chief Financial Officer, Treasurer, one or more Vice Presidents, and
one or more Assistant Secretaries and Assistant Treasurers. Any number of
offices may be held by the same person except for the President and Secretary,
who shall be different people. If the Company is an Small Business Investment
Company, no person may serve as an Officer without the prior approval of SBA.
Officers shall serve at the pleasure of the Management Board and shall continue
in office until their removal, death or resignation.
12.2 Chairman. The Chairman may execute bonds, mortgages and other
contracts, whether or not requiring a seal, except where the signing and
execution thereof shall be expressly designated by the Management Board to some
other Officer or agent of the Company and except as otherwise provided by law.
He shall also perform such other duties as the Management Board may from time
to time assign to him.
12.3 President. The President shall be the chief executive officer
of the Company. Under the direction of the Management Board, he shall supervise
and direct all of the Officers and employees of the Company but may delegate in
his discretion any of his powers to
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any Officer or such other executives as he may designate. In the absence of the
Chairman, the President may, in the discretion of the Management Board, perform
the duties of the Chairman. He shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Company, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Management Board to some other Officer or agent of the Company. The President
of the Company, if any, is designated as the Tax Matters member pursuant to
Section 6231(a)(7) of the Code and, to the extent authorized or permitted under
applicable law, the President is authorized and required to represent the
Company and each member in connection with all examinations of the Company's
affairs by tax authorities, including resulting administrative and judicial
proceedings, and to expend Company funds for professional services and costs
connected therewith. Each Member agrees to cooperate with the President and to
do or refrain from doing any and all such things reasonably required by the
President to conduct such proceedings.
12.4 Chief Financial Officer. The Chief Financial Officer shall be
the chief financial officer of the Company and shall perform the duties and
have the powers as the President and the Management Board may from time to time
prescribe.
12.5 Vice President. The Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Management Board,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President, and shall perform such other duties and
have such other powers as the Management Board may from time to time prescribe.
12.6 Secretary and Assistant Secretaries. The Secretary shall attend
all meetings of the Management Board and all meetings of the Members and record
all the proceedings of such meetings of the Company and the Management Board in
a book to be kept for that purpose. He shall give, or cause to be given,
notice of all meetings of the Members and special meetings of the Management
Board, and shall perform such other duties as may be prescribed by the
Management Board or President, under whose supervision he shall be. He shall
have custody of the corporate seal of the Company, if any, and he, or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such Assistant Secretary. The Management Board may give general
authority to any other Officer to affix the seal of the Company, if any, and to
attest the affixing by his signature. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the
Management Board, shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such
other duties and have such other powers as the Management Board may from time
to time prescribe.
12.7 Treasurer and Assistant Treasurers. The Treasurer shall have the
custody of the Company funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Company and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be
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designated by the Management Board. He shall disburse the funds of the Company
as may be ordered by the Management Board, taking proper vouchers for such
disbursements, and shall render to the President and the Management Board at
its regular meetings or when the Management Board so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Company. If required by the Management Board, he shall give the Company a bond
(which shall be renewed every six (6) years) in such sum and with such surety
or sureties as shall be satisfactory to the Management Board for the faithful
performance of the duties of his office and for the restoration to the Company
in case of his death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Company. The Assistant
Treasurer, or if there shall be more than one, the Assistant Treasurers in the
order determined by the Management Board, shall, in the absence or disability
of the Treasurer, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the
Management Board may from time to time prescribe.
13. Interests Acquired for Investment: Transfers of Interests in Company.
13.1 Representations of Members.
13.1.1 Each Member hereby represents and warrants to the
Company for himself and only for himself that (a) his acquisition of
Interests is made as principal for his own account for investment purposes
only and not with a view to the resale or distribution of such Interest;
(b) he has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of the investment in
the Interest; (c) he is able to bear the economic risk of losing his
entire investment in the Interest; (d) he acknowledges that all material
documents, records and books pertaining to this investment have, on
request, been made available to him. In addition to the requirements of
this Agreement, no distribution of such Interest will be made unless the
Interest is registered under the Securities Act of 1933, as amended, and
any applicable securities laws of any state or other jurisdiction or an
exemption therefrom is available.
13.1.2 Each Member agrees that he will not sell, assign, or
otherwise transfer his Interests, or any portion thereof, to any Person
who does not similarly represent and warrant and similarly agree not to
sell, assign, or transfer such Interests, or portion thereof, to any
Person who does not similarly represent and warrant and agree.
13.2 Transfer of Company Interest.
13.2.1 The prior written consent of the Members and, if
applicable under the SBIC Act, the SBA shall be required for the transfer,
sale, pledge, assignment or other disposition of any Member's Interest in
the Company, except:
(i) By transfer to a trust, profit sharing plan or
other entity controlled by and for the benefit of the Member;
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(ii) To a corporation controlling, controlled by, or
under common control with the transferor.
provided in each instance: (a) the proposed transferee is a sophisticated
investor with such knowledge and experience in business and financial matters
as will enable it to evaluate the merits and risks of acquiring an interest in
the Company; (b) the proposed transferee makes all the representations it would
have made if it had been one of the original Members including those set forth
in any subscription agreement; (c) the proposed transferee assumes all the
obligations of the original Member; (d) the Management Board has no reasonable
belief that admitting the proposed transferee as a Member would be harmful to
the Company or any Member; and (e) the proposed transfer would not, in the
opinion of the Company's counsel, create a material risk of subjecting the
Company or any Member to any governmental regulation or require any
registration which the Members believe to be significant.
13.2.2 No transfer or other disposition of a Member's Interest pursuant to
Section 13.2.1 shall be permitted until the proposed transferee has agreed to
be bound by all of the provisions of this Agreement and until the Company shall
have received an opinion of counsel satisfactory to the Management Board (or
waived such requirement) that the effect of such transfer of disposition would
not (i) violate the Securities Act; (ii) require the Company to register as an
investment company under the Investment Company Act; (iii) require the
Management Board or any entity providing management services to the Company or
the Company to register as an investment adviser under the Investment Adviser's
Act of 1940; (iv) result in the termination of the Company for tax purposes;
(v) result in the treatment of the Company as an association taxable as a
corporation; (vi) cause the assets of the Company to be treated as assets of an
employee benefit plan under regulations adopted pursuant to ERISA; or (vii)
violate the SBIC Act. The Member transferring its Interest shall bear all
reasonable costs of the Company in effecting such transfer.
13.3 Substituted Members. Notwithstanding a transfer pursuant to
Section 13.2, no transferee shall become a substituted Member within the
meaning of the Act unless a Majority in Interest of the other Members and, if
applicable under the SBIC Act, the SBA expressly and in writing consent to the
substitution, and such transferee:
13.3.1 elects to become a substituted Member by delivering a written
notice of such election to the Company;
13.3.2 executes and acknowledges such other instruments as the
Members may deem necessary or advisable to effect the such person as a
substituted Member, including without limitation the written acceptance and
adoption by such person of the provisions of this Agreement; and
13.3.3 pays a reasonable transfer fee to the Company which is
sufficient to cover all reasonable expenses connected with the admission of
such person as a substituted Member within the meaning of the Act; and if all
steps shall be taken which, in the opinion of the
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Members, are reasonably necessary to admit such person under the Act and this
Agreement as a substituted Member, then such person shall thereupon become a
substituted Member within the meaning of the Act.
14. Tax Election. Upon the transfer of an Interest in the Company, the
Company may elect, pursuant to Section 754 of the Code, to adjust the basis of
the Company property as allowed by Section 734(b) and 743(b) of the Code. Any
election so made will be filed with the Company's tax return for the first
taxable year to which the election applies or otherwise in accordance with
Treasury Regulations.
15. Termination of the Company.
15.1 Dissolution. The Company shall be dissolved upon the first
to occur of the following: (a) as provided in Section 5; (b) the death,
retirement, resignation, expulsion, bankruptcy or dissolution of a Member, or
the occurrence of any other event (other than as provided in Section 13) which
terminates the continued membership of a Member in the Company pursuant to this
Agreement or the Act (referred to herein as a "Dissolution Event"); or (c) a
Majority in Interest of the Members elect to dissolve the Company following
repayment of all sums payable with respect to SBA leverage or otherwise payable
to SBA.
15.2 Withdrawal, Dissolution or Bankruptcy of a Member.
Notwithstanding the occurrence of a Dissolution Event, the Company shall not be
dissolved if within ninety (90) days after the occurrence of a Dissolution
Event, a Majority in Interest of the remaining Members agree in writing to
continue the business of the Company. In the event that the Members so agree
to continue the Company, the interest of the former Member shall be terminated
in accordance with Section 15.7.
15.3 Winding Up of the Company. Upon a dissolution of the
Company, the Management Board or, in the absence of a Management Board, an
individual or a committee (the "Liquidation Committee") chosen by a Majority in
Interest of the Members shall take full account of the Company's assets and
liabilities, and shall determine which assets shall be distributed in kind and
which assets shall be liquidated, which liquidation shall be carried out as
promptly as is consistent with obtaining the fair value thereof. In connection
with such determination, the value of those Portfolio Securities which are not
to be liquidated may, in the discretion of the Liquidation Committee, be
determined by the Liquidation Committee. Thereupon, such assets of the Company
or the proceeds therefrom, if the Liquidation Committee elects to liquidate the
same, to the extent sufficient therefor, shall be applied and distributed in
the following order:
15.3.1 To the discharge of all the Company's debts and
liabilities to creditors including but not limited to SBA, including Members
who are creditors, to the extent otherwise permitted by law, (whether by
payment or the making of reasonable provision for payment thereof);
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15.3.2 The balance of such assets or proceeds shall be
distributed among the Members in accordance with their respective positive
Capital Account balances.
15.4 Liquidation Committee; Payment of Claims. In connection with the
discharge of debts and liabilities provided for in Section 15.3, the
Liquidation Committee shall pay or make reasonable provision to pay all claims
and obligations, including all contingent, conditional or unmatured claims and
obligations, known to the Company and all claims and obligations which are
known to the Company but for which the identity of the claimant is unknown. If
there are sufficient assets, such claims and obligations shall be paid in full
and any such provision for payment made shall be made in full. If there are
insufficient assets, such claims and obligations shall be paid or provided for
according to their priority and, among claims and obligations of equal
priority, ratably to the extent of assets available therefor. The members of
the Liquidating Committee shall not be personally liable to any claimants of
the Company by reason of such Person's actions in winding up the Company in
accordance with the foregoing provisions.
15.5 Liquidation Distributions. Distributions pursuant to Section
15.3.2 may be distributed to a trust established for the benefit of the
Members for the purposes of liquidating the Company's assets, collecting
amounts owed to the Company, and paying any contingent or unforeseen
liabilities or obligations of the Company arising out of or in connection with
the Company. The assets of any such trust shall be distributed to the Members
from time to time, in the reasonable discretion of the Liquidation Committee,
as applicable, in the same proportions as the amount distributed to such trust
by the Company would otherwise have been distributed to the Members pursuant to
this Agreement.
15.6 Allocation of Net Income or Net Loss Upon Dissolution. Net Income
or Net Loss realized upon the liquidation of the Company shall be allocated to
the Capital Accounts of the Members in accordance with Section 8.1.
15.7 Liquidation of a Member's Interest Upon Election of Members to
Continue the Company. If, upon occurrence of the withdrawal, dissolution or
bankruptcy of a Member, the Company continues, the assets of the Company shall
be valued in accordance with Section 17 as of the date of the withdrawal,
dissolution or bankruptcy. The Net Income or Net Loss will be determined as if
all assets had been sold at their fair market value as of the applicable date,
and the aggregate amount of the terminating Member's Capital Account as of such
date reduced by the sum of (a) any Net Loss to the Members remaining and not
previously restored shall be determined, and (b) if the withdrawal is either
voluntary or due to bankruptcy or dissolution, the value of any unpaid Capital
Commitment of the Member. The terminating Member's interest in the Company,
including its then existing Capital Account, shall be treated as a right to
share in its proportionate share of allocations and distributions based upon
its revalued interest when, as and if such allocations and distributions are
made.
16. Books of Account; Annual Meeting; Accounting and Reports; Valuation
and Banking.
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16.1 Accounting and Records.
16.1.1 Proper and complete records and books of account of the
business of the Company shall be maintained at the Company's principal place of
business. Each Member and his duly authorized representatives may examine the
Company's books of account, records, reports and other papers of the Company
that are not legally required to be kept confidential or secret, make copies
and extracts therefrom, and discuss the affairs, finances and accounts of the
Company with the independent public accountants of the Company (and by this
provision the Company authorizes said accountants to discuss with each of the
Members the finances and affairs of the Company), all at such reasonable times
and as often as may be reasonably requested.
16.1.2 The books and records of the Company shall be kept in
accordance with generally accepted accounting principles. The books and
records of the Company shall be maintained for a period of three (3) years
following the termination of this Agreement.
16.2 Annual Reporting. Within ninety (90) days after the end of each
Fiscal Year, the Company shall deliver to each Member an annual report
containing the following:
16.2.1 financial statements of the Company, including without
limitation, a balance sheet of the Company, a statement of Net Income or Net
Loss, a statement of cash flow, and a statement of changes in the Members'
aggregate capital for such Fiscal Year (all prepared in accordance with federal
income tax principles), together with a supplementary schedule to the financial
statements, showing in reasonable detail the Capital Account of each Member as
of the beginning and as of the end of such Fiscal Year, and showing the major
components of the changes in the Capital Account of each Member during such
Fiscal Year, which financial statements and financial statement schedules shall
be prepared in accordance with generally accepted accounting principles by
certified public accountants; and
16.2.2 a separate report describing any material litigation with
respect to the Company and any material developments with respect to that
litigation.
16.3 Records and Inspection. The Company shall keep, at its principal
office, the Company's books and records, including (a) a current list of the
full name and last known business or residence address of each Member set forth
in alphabetical order together with the contribution and the share in profits
and losses of each Member, (b) a copy of the Certificate of Formation and all
certificates of amendment thereto, together with executed copies of any powers
of attorney pursuant to which any certificate has been executed, (c) copies of
the Company's federal, state and local income tax or information returns and
reports, if any, for the six (6) most recent years, (d) copies of the original
of this Agreement and any amendments thereto, (e) financial statements of the
Company for the six (6) most recent Fiscal Years and (f) the Company's books
and records for at least the current and past three (3) Fiscal Years. Each
Member has the right, upon reasonable notice, to inspect and copy during normal
business hours any such Company records.
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16.4 Income Tax Information. The Company shall provide to each Member
within ninety (90) days after the end of each Fiscal Year (a) the information
necessary for the Member to complete its Federal and state income tax returns,
and (b) if requested by a Member, a copy of the Company's federal, state and
local income tax or information returns for the year. The Members shall cause
to have prepared and filed all required income tax returns for the Company.
16.5 Other Reports. Within sixty (60) days after the end of each of
the first three (3) quarters of each Fiscal Year, the Company shall deliver to
each Member unaudited financial statements for such period comparable to the
unaudited financial statements to be supplied to the Members annually.
16.6 Banking and Portfolio Securities. All funds of the Company shall
be deposited in such separate bank account or accounts as shall be determined
by the Management Board, which funds shall be maintained separately from other
bank accounts of the Members. All withdrawals therefrom shall be made upon
checks signed by any person authorized to do so by the Management Board. All
Portfolio Securities of the Company shall be held by the Company separately
from other securities held by Members for their own account or the account of
others. All Portfolio Securities of the Company shall be held by the
Management Board or the Company in safekeeping at Firstar Bank Iowa N.A.
pursuant to a written agreement establishing the procedures for handling of
Portfolio Securities, which agreement has been approved by the Management
Board.
17. Valuation of Portfolio Securities.
17.1 Valuation of Securities. Subject to the specific standards set
forth below, wherever valuation of Company assets or net assets is required by
this Agreement or the SBIC Act, the Management Board shall determine the fair
market value thereof. In determining the value of the Interest of any Member
in the Company, or in any accounting among the Members or any of them, no value
shall be placed on the goodwill or name of the Company. No tax reserves shall
be set up for unrealized gains or profits unless the tax obligations of the
Company are established by law. Subject to the SBIC Act, the Management Board
has sole responsibility for determining the value of the Securities held by the
Company. The written guidelines for determining the value of the Securities
held by the Company are set forth in Exhibit C. To the extent that the SBIC Act
requires any asset held by the Company to be valued other than as provided by
this Agreement, the Management Board shall value such asset in such manner as
it determines to be consistent with the SBIC Act.
18. Amendment.
18.1 General Amendments. Except as otherwise specifically set forth
in this Agreement, this Agreement may, subject to the SBIC Act, be amended,
modified, discharged or terminated in whole or in part only by the written
consent of the Management Board and a Majority in Interest of the Members;
provided, that any modification or amendment of this
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Agreement that would (i) increase or decrease a Member's Capital Commitment,
(ii) increase the liability of the Members, or (iii) materially adversely
affect the rights of the Members under this Agreement shall require the consent
of the Management Board and each Member and further, that no such modification
or amendment shall be valid unless contained in a written instrument executed
by the party against whom or with respect to whom such modification or
amendment is to be enforced.
18.2 Regulatory Amendments. Notwithstanding anything in this
Agreement to the contrary, upon the request of any Member, the Management Board
may, in its discretion, but subject to SBA approval to the extent required by
the SBIC Act, (if the Company is licensed as an SBIC) effect such amendments to
this Agreement and the Certificate of Formation without the consent of any
Member, (i) as shall be needed in order to permit the requesting Member to
remain in compliance with the provisions of ERISA, the Federal Deposit
Insurance Act, as amended, the National Bank Act, as amended, the Bank Holding
Company Act of 1956, as amended (the Holding Company Act), Title 29, Section
1002(3) of the United States Code and any similar laws or regulations,
including state laws and regulations, thereunder (Governmental Plan
Regulations), applicable to such Member, as in effect now or at any time during
the term of this Agreement with respect to the investment of such Member in the
Company; provided, however, that in the event the Management Board considers
the amendments to be onerous for the Company, the Management Board need not
effect the amendments or (ii) to preclude the assets of the Company from being
considered to be plan assets for purposes of Section 3 of ERISA and regulations
thereunder and Section 4975 of the Code. In the event the Management Board
does not effect the amendments after a request to do so by a Member and such
Member delivers to the Management Board an opinion of counsel (including an
attorney general's opinion or an opinion from a regulatory authority) to the
effect that the Member must withdraw from the Company in order for such Member
to be in compliance with ERISA, the Holding Company Act, the Federal Deposit
Insurance Act, as amended, the National Bank Act, as amended, or the
Governmental Plan Regulations unless the amendments are effected, or in the
event that the Management Board effects the Amendments and the Member delivers
to the Management Board such an opinion of counsel to the effect that after the
amendments the Member must withdraw from the Company in order for such Member
to be in compliance with ERISA, the Holding Company Act, the Federal Deposit
Insurance Act, as amended, the National Bank Act, as amended, or the
Governmental Plan Regulations, then the Management Board, subject to SBA
approval to the extent required by the SBIC Act, shall either (i) effect such
amendments as would enable such Member to be in compliance with ERISA, the
Holding Company Act, the Federal Deposit Insurance Act, as amended, the
National Bank Act, as amended, or the Governmental Plan Regulations without
withdrawing from the Company; or (ii) to the extent permissible under
applicable securities laws cause the Company to distribute to such Member its
pro rata share of assets of the Company, including cash and cash equivalents,
or (iii) cause the Company to repurchase the Company Interest owned by such
Member at a price equal to such Member's pro rata share of the net asset value
of the Company payable to such Member upon termination of the Company, or as
soon as practicable after the election by the Management Board to repurchase
the Company Interest, payment therefor to be made by a promissory note of the
Company which shall be payable to such Member upon the earlier of termination
of the
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Company or eight (8) years from the date of the Note and which shall
bear interest at a rate per annum equal to the rate that the Wall Street
Journal publishes from time to time as the prime rate for unsecured commercial
loans during the term of the Note or such lesser rate of interest as is equal
to the maximum rate of interest permissible, or (iv) dissolve the Company. Any
opinion delivered to the Management Board pursuant to this Section 18 must be
acceptable to the Management Board (which acceptance shall not be unreasonably
withheld).
19. Miscellaneous.
19.1 Indemnification. Indemnification shall be available as
provided in Annex LLC-OP.
19.2 Section Headings. Section and other headings contained in
the Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of the
Agreement or any provisions hereof.
19.3 Severability. Each provision of the Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reasons whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of the Agreement.
19.4 Right to Rely upon the Authority of Officers. No person
dealing with any Officer shall be required to determine such Officer's
authority to make any commitment or undertaking on behalf of the Company, nor
to determine any fact or circumstance bearing upon the existence of such
authority.
19.5 Governing Law. Delaware law shall govern the validity of the
Agreement, the construction of its terms and the interpretation of the rights
and duties of the parties, without giving effect to its conflicts of law
provisions.
19.6 Counterpart Execution; Jurisdiction. This Agreement may be
executed in any number of counterparts with the same effect as if all parties
hereto had signed the same document. All counterparts shall be construed
together and shall constitute one Agreement. Any action to enforce, arising out
of, or relating in any way to this Agreement may be brought and prosecuted in
any Federal or state court or courts located in the State of Delaware, and each
Member (a) consents to the jurisdiction of any such state court located in New
Castle County or any such Federal court located in that county and to service
of process by registered or certified mail, return receipt requested, or by any
other matter provided by law, and (b) agrees not to object to venue of any such
court.
19.7. Parties in Interest. Subject to the provisions contained in
Sections 13.2 and 13.3 hereof, each and every covenant, term, provision and
agreement herein contained shall be binding upon and inure to the benefit of
the successors and assigns of the respective parties hereto.
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19.8 Amendments to Admit Members. In the case of an amendment to
admit a Member, the writing to amend this Agreement may be signed by the
Officer designated by the Management Board and the member to be admitted, and
where applicable, by the assigning Member. No other signatures shall be
required if appropriate consent has been obtained in accordance with this
Agreement.
19.9 Integrated Agreement. This Agreement constitutes the entire
understanding and agreement among the parties hereto with respect to the
subject matter hereof, and there are no agreements, understandings,
restrictions, representations or warranties among the parties other than those
set forth or provided for in this Agreement.
19.10 Description of Company. The terms of this Agreement
supersede any description of the Company appearing in any other document,
including any offering documents.
19.11 Waiver of Right to Court Decree of Dissolution. Each
Member agrees that he shall not (i) dissolve or cause the dissolution of the
Company, whether by court action or otherwise, except under the circumstances
specified in this Agreement, or (ii) cause a partition of any of the Company's
property, whether by court action or otherwise, it being agreed that any such
action would cause a substantial hardship to the Company and would be in breach
and contravention of this Agreement.
19.12 Pronouns. Where the context so indicates, all pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identification of the person, firm, entity,
member or corporation may require, and the present tense shall include the
future and the future tense the present.
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IN WITNESS WHEREOF, this Limited Liability Company Agreement has been
executed as of the date first set forth above.
BERTHEL SBIC, LLC
By: /s/ James D. Thorp
-----------------------
Its: President
----------------------
BERTHEL GROWTH & INCOME
TRUST I
By: /s/ James D. Thorp
-----------------------
Its: President of Berthel Fisher
---------------------------
& Company Planning, Inc.;
The Berthel Growth & Income
Trust I's advisor
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EXHIBIT A - ANNEX LLC-GDP
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SBA Annex LLC-GDP Version 1.1 June 1, 1997
________________________________________________________________________________
_________________________________________________________
SBA ANNEX LLC-GDP
VERSION 1.1
GENERAL AND DEBENTURE RELATED PROVISIONS
_________________________________________________________
SBA ANNEX OF GENERAL PROVISIONS FOR
A LIMITED LIABILITY COMPANY AGREEMENT
FOR A SECTION 301(C) LICENSEE
WITHOUT LEVERAGE OR ONLY ISSUING DEBENTURES
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SBA Annex LLC-GDP
TABLE OF CONTENTS
Page
ARTICLE I
General Provisions 1
1.1. Definitions 1
1.2. Conflict With the SBIC Act 2
1.3. Conflict With Other Provisions of the Agreement 2
1.4. Effective Date of Incorporated SBIC Act Provisions 3
ARTICLE II 3
Powers 3
ARTICLE III
Management 4
3.1. Authority of Management Board 4
3.2. Valuation of Assets 4
ARTICLE IV
Small Business Investment Company Matters 4
4.1. Provisions Required by the SBIC Act for Issuers of Debentures 4
4.2. SBA as Third Party Beneficiary 5
4.3. Representations of Members 5
4.4. Notices With Respect to Representations by Members 6
ARTICLE V
Members' Commitments 6
5.1. Conditions to the Commitments of the Members 6
5.2. Failure to Make Required Capital Contributions 7
5.3. Termination of the Obligation to Contribute Capital 8
5.4. Withdrawal by ERISA Regulated Pension Plans 8
5.5. Withdrawal by Government Plans Complying with State and Local Law 8
5.6. Withdrawal by Government Plans Complying with ERISA 9
5.7. Withdrawal by Tax Exempt Members 9
5.8. Withdrawal by Registered Investment Companies 9
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5.9. Notice and Opinion of Counsel 9
ARTICLE VI
Dissolution 10
ARTICLE VII
Audit and Report 10
ARTICLE VIII
Miscellaneous 11
8.1. Assignability 11
8.2. Amendments 11
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SBA ANNEX LLC-GDP
ARTICLE I
GENERAL PROVISIONS
1.1 DEFINITIONS. For the purposes of this Annex, the following terms
shall have the following meanings:
"Act" shall mean the state statute under which the LLC is organized.
"Agreement" shall mean the limited liability company agreement of the LLC
to which this Annex is attached and incorporated as a provision thereof.
References to the Agreement shall be deemed to include all provisions
incorporated in the Agreement by reference.
"Assets" shall mean and include common and preferred stock (including
warrants, rights and other options relating thereto or any combination
thereof), notes, bonds, debentures, trust receipts and other obligations,
instruments or evidences of indebtedness, and other properties or interests
commonly regarded as securities, and in addition, interests in real property,
whether improved or unimproved, and interests in personal property of all
kinds, tangible or intangible, choses in action, and cash, bank deposits and
so-called "money market instruments".
"Code" shall mean the Internal Revenue Code of 1986, and the regulations
and interpretations thereof promulgated by the Internal Revenue Service, as
amended and supplemented from time to time.
"Commitments" shall mean the capital contributions to the LLC which the
Members have made or are obligated to make to the LLC. The amounts and terms
of the Commitments of the Private Members shall be as defined in the Agreement.
"Debentures" shall have the meaning set forth in the SBIC Act.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and interpretations thereof promulgated by the
Department of Labor.
"Institutional Investor" shall have the meaning set forth in the SBIC Act.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
amended, and the regulations and interpretations thereof promulgated by the
Securities and Exchange Commission.
"Leverage" shall have the meaning set forth in the SBIC Act.
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"Outstanding Leverage" shall mean the total amount of outstanding
Debentures and other securities issued by the LLC which qualify as Leverage and
have not been repaid for purposes of and as provided in the SBIC Act.
"Management Board" shall mean the Management Board, if any, specified in
the Agreement; or if no Management Board is providedin the Agreement, the
"Managers".
"Manager" shall mean the Manager, if any, specified in the Agreement.
"Members" shall mean the members of the LLC.
"LLC" shall mean the limited liability company established by the
Agreement.
"Officers" shall mean the Officers, if any, specified in the Agreement.
"Qualified Nonprivate Funds" shall have the meaning set forth in the SBIC
Act.
"Regulatory Capital" shall have the meaning set forth in the SBIC Act.
"SBA" shall mean the United States Small Business Administration.
"SBA Annex LLC-PS" shall mean the version of such Annex, if any, which is
attached to and incorporated as a part of the Agreement.
"SBIC Act" shall mean the Small Business Investment Act of 1958, as
amended, and the rules and regulations promulgated thereunder by the SBA, as in
effect from time to time.
1.2 CONFLICT WITH THE SBIC ACT. The provisions of this Annex and the
Agreement shall be interpreted to the fullest extent possible in a manner
consistent with the SBIC Act. In the event of any conflict between any
provision of the Agreement and the provisions of the SBIC Act (including,
without limitation, any conflict with respect to the rights of the SBA
hereunder), the provisions of the SBIC Act shall control.
1.3 CONFLICT WITH OTHER PROVISIONS OF THE AGREEMENT. (a) The provisions
of the Agreement shall be interpreted to the fullest extent possible in a
manner consistent with the provisions of this Annex. In the event of any
conflict between any provision of this Annex and any other provision of the
Agreement, the provisions of this Annex shall control.
(b) If this Annex and SBA Annex LLC-PS are both incorporated in the
Agreement, in the event of any conflict between the provisions of this Annex
and SBA Annex LLC-PS, the provisions of SBA Annex LLC-PS shall control.
1.4 EFFECTIVE DATE OF INCORPORATED SBIC ACT PROVISIONS. (a) Subject to
Section 1.4(b), any section of this Annex relating to Debentures issued by the
LLC which incorporates or refers to a provision of the SBIC Act (including,
without limitation, 13 C.F.R. Section Section 107.1830 - 107.1850),
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shall, with respect to the rights of the SBA (or any other holder of
any such Debenture) under any such section as to each Debenture, be deemed to
refer to such SBIC Act provision as in effect on the date on which such
Debenture was purchased from the LLC.
(b) Notwithstanding Section 1.4(a), the provisions of 13 C.F.R. Section
107.1810(i) incorporated by reference in Section 4.1 shall be deemed to be such
provisions as in effect on the date of the first purchase of a Debenture from
the LLC after April 25, 1994. If 13 C.F.R. Section 107.1810(i) is amended
subsequent to the date such section is incorporated in the Agreement pursuant
to this Section 1.4(b), then unless the SBA shall otherwise give its written
consent, before the LLC may issue additional Leverage, this Section 1.4(b) must
be amended to incorporate the version of 13 C.F.R. Section 107.1810(i) then in
effect.
(c) This Section 1.4 applies to the rights of the SBA in its capacity
as a holder or guarantor of Debentures. This Section 1.4 shall not be
construed to apply to the provisions of the SBIC Act which relate to the
regulatory authority of SBA under the SBIC Act over the LLC as a licensed small
business investment company. References to the provisions of the SBIC Act
relating to the SBA's regulatory authority shall mean such provisions as in
effect from time to time.
1.5 INCORPORATION OF THIS ANNEX INTO THE AGREEMENT. The Agreement shall
contain the following provision evidencing the incorporation of this Annex:
"The provisions of SBA Annex LLC-GDP attached to
this Agreement are incorporated in this Agreement
with the same force and effect as if fully set forth
herein."
ARITCLE II
PURPOSE AND POWERS
The LLC is being organized solely for the purpose of operating as
a small business investment company under the SBIC Act and conducting the
activities described under Title III of the SBIC Act, and shall have the
powers, responsibilities, and be subject to the limitations, provided in the
SBIC Act.
ARTICLE III
MANAGEMENT
3.1 AUTHORITY OF MANAGEMENT BOARD. (a) The management and operation of
the LLC and the formulation of investment policy shall be vested exclusively
in the Management Board.
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(b) So long as it remains the Manager of the LLC, the Management Board
shall comply with the requirements of the SBIC Act, including without
limitation, 13 C.F.R. Section Section 107.160(a) and (b).
3.2 VALUATION OF ASSETS. (a) The LLC shall adopt written guidelines for
determining the value of its Assets. Assets held by the LLC shall be valued by
the Management Board in a manner consistent with such guidelines and the SBIC
Act.
(b) To the extent that the SBIC Act requires any Asset held by the LLC
to be valued other than as provided in the Agreement, the Management Board
shall value such Asset in such manner as it determines to be consistent with
the SBIC Act.
(c) Assets held by the LLC shall be valued not less often than annually
(or more often, as the SBA may require), and shall be valued not less often
than semi-annually (or more often, as the SBA may require) at any time that the
LLC has Outstanding Leverage.(1)
ARTICLE IV
SMALL BUSINESS INVESTMENT COMPANY MATTERS
4.1 PROVISIONS REQUIRED BY THE SBIC ACT FOR ISSUERS OF DEBENTURES.(2) (a)
The provisions of 13 C.F.R. Section 107.1810(i) are hereby incorporated by
reference in this Annex as if fully set forth herein.
(b) The LLC and the Members hereby consent to the exercise by the SBA of
all of the rights of the SBA under 13 C.F.R. Section 107.1810(i), and agree to
take all actions which the SBA may require in accordance with 13 C.F.R. Section
107.1810(i). For purposes of 13 C.F.R. Section 107.1810(i), the LLC shall
be deemed to be a corporation; members of the Management Board and Managers,
if any, shall be considered to be directors; and officers shall be considered
to be officers.
(c) This Section 4.1 shall be in effect at any time that the LLC has
outstanding Debentures and shall not be in effect at any time that the LLC does
not have any outstanding Debentures.
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(1) See 13 C.F.R. Section 107.503(d), which requires valuation of assets
on a semi-annual basis if there is outstanding Leverage.
(2) This Section incorporates regulations relating to the special rights
of the SBA when the LLC has outstanding Debentures.
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(d) Nothing in this Section 4.1 shall be construed to limit the ability
or authority of the SBA to exercise its regulatory authority over the LLC as a
licensed small business investment company under the SBIC Act.
4.2 SBA AS THIRD PARTY BENEFICIARY. The SBA shall be deemed an express
third party beneficiary of the provisions of the Agreement (including, without
limitation, this Annex) to the extent of the rights of the SBA thereunder and
under the Act, and the SBA shall be entitled to enforce such provisions
(including, without limitation, those provisions setting forth the obligations
of each Member to make capital contributions) for the benefit of the holders of
Debentures and for its benefit, as if the SBA were a party thereto.
4.3 REPRESENTATIONS OF MEMBERS. (a) Each Member represents to the LLC
and the SBA that it is an Institutional Investor with respect to the LLC;
provided, however, that in lieu of making this representation, any Member may
provide the LLC with a separate written representation describing its status
under the definition of an Institutional Investor.(3)
(b) Each Member represents to the LLC and the SBA that its Commitment
qualifies as Private Capital, and none of its Commitment constitutes Qualified
Nonprivate Funds whose source is Federal funds; provided, however, that in
lieu of making this representation any Member may provide the LLC with a
separate written representation stating the amount of its Commitment which
qualifies as Private Capital and the amount of its Commitment which constitutes
Qualified Nonprivate Funds whose source is Federal funds.(4)
(c) Each Member represents to the LLC and the SBA that (i) its net worth
or (in the case of any employee benefit plan, pension plan or government plan
as defined under ERISA) net assets available for benefits equals or exceeds $10
million (exclusive, in the case of any individual, of the value of any equity
in such individual's most valuable residence), (ii) its Commitment to the LLC
represents less than ten percent (10%) of such Member's net worth or (in the
case of any employee benefit plan, pension plan or government plan as defined
under ERISA) net assets available for benefits, and (iii) if such Member is a
natural person, such person is a permanent resident of the United States;
provided, however, that in lieu of making this representation any Member may
provide the LLC with a separate written representation stating the amount of
its net worth (exclusive, in the case of any individual, of the value of any
equity in such individual's most valuable residence) or net assets available
for benefits (in the case of any such employee benefit plan, pension plan or
government plan), the percentage of such net worth
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(3) See the definition of "Institutional Investor" at 13 C.F.R.
Section 107.50.
(4) See the definitions of "Regulatory Capital", "Qualified Nonprivate
Funds" and "Leverageable Capital" at 13 C.F.R. Section 107.50.
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or net assets available for benefits represented by such Member's Commitment to
the LLC and the country (if other than the United States) in which such Member
is a permanent resident.(5)
(d) Each Member which directly or indirectly owns or controls a Member's
interest which constitutes ten percent (10%) or more of the LLC capital (as
such term is used in the SBIC Act), represents to the LLC and the SBA that its
Commitment to the LLC does not (i) constitute thirty-three percent (33%) or
more of the LLC capital or (ii) exceed five percent (5%) of such Member's net
worth or net assets available for benefits (in the case of any employee benefit
plan, pension plan or government plan); provided, however, that in lieu of
making this representation any Member may provide the LLC with a separate
written representation stating the percentage of the LLC capital which the
Member's interest directly or indirectly owned or controlled by it constitutes,
and the percentage of its net worth represented by such Member's interest.(6)
(e) Each Member represents to the LLC and the SBA that such Member has
full power and authority to execute and deliver the Agreement and to act as a
Member thereunder; the Agreement has been authorized by all necessary actions
by it; the Agreement has been duly executed and delivered by it; and the
Agreement is a legal, valid and binding obligation of it, enforceable against
it according to its terms.
4.4 NOTICES WITH RESPECT TO REPRESENTATIONS BY MEMBERS. (a) In the event
that the representation made by a Member in Section 4.3(a), (b), (c) or (d)
shall cease to be true (including any separate written representation
previously provided by such Member to the LLC as provided in such Sections),
then such Member shall promptly provide the LLC with a correct separate written
representation as provided in each such Section.
(b) The LLC shall give the SBA prompt written notice of any notice
received from any Member pursuant to Section 4.4(a) with respect to the
representations of such Member.
ARTICLE V
MEMBERS' COMMITMENT
5.1 CONDITIONS TO THE COMMITMENTS OF THE MEMBERS. (a) Notwithstanding
any provision in the Agreement to the contrary, the Members shall be obligated
to contribute any amount of their respective Commitments, not previously
contributed to the LLC, upon the earlier of (i) the completion of the
liquidation of the LLC or (ii) one year from the commencement of such
liquidation if and to the extent that the other Assets of the LLC have not been
sufficient to permit at such time the redemption of all Outstanding Leverage,
the payment of all amounts due
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(5) See the definitions of "Private Capital" and "Regulatory Capital" at
13 C.F.R. Section 107.50.
(6) See the definition of "Associate" at 13 C.F.R. Section 107.50.
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with respect to the Outstanding Leverage as provided in the SBIC Act, and the
payment of all other amounts owed by the LLC to the SBA.
(b) Notwithstanding any provision in the Agreement to the contrary
(except as expressly provided in this Section 5.1(b)), in the event that the
LLC is subject to restricted operations (as such term is used in the SBIC Act)
and prior to the liquidation of the LLC the SBA requires the Members to
contribute any amount of their respective Commitments not previously
contributed to the LLC, the obligation to make such contributions shall not be
subject to any conditions set forth in the Agreement other than limitations on
the amount of capital which a Member is obligated to contribute (i) within any
specified time period or (ii) prior to any specified date.
(c) The provisions of this Section 5.1 shall not apply to the Commitment
of any Member whose obligation to make capital contributions has been
terminated or who has withdrawn from the LLC pursuant to a provision of this
Article V or any agreement, release, settlement or action under any provision
of the Agreement which has been taken with the consent of the SBA as provided
in Section 5.2. No Member shall have any right to delay, reduce or offset any
capital contribution obligation to the LLC called under this Section 5.1 by
reason of any counterclaim or right to offset by such Member or the LLC against
SBA.
5.2 FAILURE TO MAKE REQUIRED CAPITAL CONTRIBUTIONS. (a) The LLC shall be
entitled to enforce the obligations of each Member to make the contributions to
capital specified in the Agreement, and the LLC shall have all rights and
remedies available at law or equity in the event any such contribution
is not so made.(7)
(b) The LLC shall give the SBA prompt written notice of any default by a
Member in making any capital contribution to the LLC required under the
Agreement which continues beyond any applicable grace period specified in the
Agreement.
(c) The LLC shall not enter into any agreement (whether oral or
written), release or settlement with any Member or take any action under any
provision of the Agreement, which defers, reduces, or terminates the
obligations of any such Member to make contributions to the capital of the LLC,
or commence any legal proceeding or arbitration, which seeks any such deferral,
reduction or termination of such obligation, and no such agreement, release,
settlement or action taken under any provision of the Agreement shall be
effective with respect to the LLC or any such Member, without the prior written
(except as provided in Section 5.2(d)) consent of the SBA.
(d) If the LLC has given the SBA thirty (30) days prior written notice
of any proposed legal proceeding, arbitration or other action under the
provisions of the Agreement with respect to any default by a Member in making
any capital contribution to the LLC required under the Agreement and for which
SBA consent is required as provided in Section 5.2(c), and the LLC
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(7) See also the rights of the SBA as a third party beneficiary under
Section 4.2.
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shall not have received written notice from the SBA that it objects to such
proposed action within such thirty (30) day period, then SBA shall be deemed to
have consented to such proposed LLC action.
(e) Section 5.2(c) shall be in effect at any time that the LLC has
Outstanding Leverage and shall not be in effect at any time the LLC has no
Outstanding Leverage.
5.3 TERMINATION OF THE OBLIGATION TO CONTRIBUTE CAPITAL. Notwithstanding
any other provision of the Agreement (including, without limitation, the
provisions of this Annex), any Member may elect to terminate its obligation in
whole or in part to make a capital contribution required pursuant to the
Agreement or upon demand by the Management Board shall no longer be entitled to
make such capital contribution, in the event that such Member or the Management
Board shall obtain an opinion of counsel to the effect that making such
contribution would require such Member to withdraw from the LLC pursuant to
Sections 5.4 through 5.8. Upon receipt by the Management Board of an opinion
and notice as required under Section 5.9, unless cured within the period
provided under Section 5.10, the Commitment of the Member delivering such
opinion shall be deemed to be reduced by the amount of such capital
contribution and the Agreement shall be deemed amended to reflect a
corresponding reduction of aggregate Commitments to the LLC.
5.4 WITHDRAWAL BY ERISA REGULATED PENSION PLANS. Notwithstanding any
other provision of the Agreement (including, without limitation, the provisions
of this Annex), any Member that is an "employee benefit plan" within the
meaning of, and subject to the provisions of, ERISA, may elect to withdraw from
the LLC in whole or in part, or upon demand by the Management Board shall
withdraw from the LLC in whole or in part, if either such Member or the
Management Board shall obtain an opinion of counsel to the effect that, as a
result of ERISA, (i) the withdrawal of such Member from the LLC to such extent
is required to enable such Member to avoid a violation of, or breach of the
fiduciary duties of any person under (other than a breach of the fiduciary
duties of any such person based upon the investment strategy or performance of
the LLC), ERISA or any provision of the Code related to ERISA or (ii) all or
any portion of the assets of the LLC (as opposed to such Member's LLC interest)
constitute assets of such Member for purposes of ERISA and are subject to the
provisions of ERISA to substantially the same extent as if owned directly by
such Member.
5.5 WITHDRAWAL BY GOVERNMENT PLANS COMPLYING WITH STATE AND LOCAL LAW.
Notwithstanding any other provision of the Agreement (including, without
limitation, the provisions of this Annex), any Member that is a "government
plan" within the meaning of ERISA may elect to withdraw from the LLC in whole
or in part, or upon demand by the Management Board shall withdraw from the LLC
in whole or in part, if either such Member or the Management Board shall obtain
an opinion of counsel to the effect that as a result of state statutes,
regulations, case law, administrative interpretations or similar authority
applicable to such "government plan", the withdrawal of such Member from the
LLC to such extent is required to enable such Member or the LLC to avoid a
violation (other than a violation based upon the investment performance of the
LLC) of such applicable state law.
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5.6 WITHDRAWAL BY GOVERNMENT PLANS COMPLYING WITH ERISA.
Notwithstanding any other provision of the Agreement (including, without
limitation, the provisions of this Annex), any Member that is a "government
plan" within the meaning of ERISA may elect to withdraw from the LLC in whole
or in part, if such "government plan" shall obtain an opinion of counsel to the
effect that, as a result ERISA, (i) the withdrawal of such "government plan"
from the LLC to such extent would be required if it were an "employee benefit
plan" within the meaning of, and subject to the provisions of, ERISA, to enable
such "government plan" to avoid a violation of, or breach of the fiduciary
duties of any person under (other than a breach of the fiduciary duties of any
such person based upon the investment strategy or performance of the LLC),
ERISA or any provision of the Code related to ERISA in the manner which would
be required were it an "employee benefit plan" within the meaning of, and
subject to the provisions of, ERISA, or (ii) all or any portion of the assets
of the LLC would constitute assets of such "government plan" for the purposes
of ERISA, if such "government plan" were an "employee benefit plan" within the
meaning of, and subject to the provisions of, ERISA and would be subject to the
provisions of ERISA to substantially the same extent as if owned directly by
such "government plan."
5.7 WITHDRAWAL BY TAX EXEMPT MEMBERS. Notwithstanding any other
provision of the Agreement (including, without limitation, the provisions of
this Annex), any Member that is exempt from taxation under Section 501(a) or
501(c)(3) of the Code may elect to withdraw from the LLC in whole or in part,
if such Member shall obtain an opinion of counsel to the effect that as a
result of applicable statutes, regulations, case law, administrative
interpretations or similar authority, the withdrawal of such Member from the
LLC to such extent is required to enable such tax exempt Member to avoid loss
of its tax exempt status under Section 501(a) or 501(c)(3) of the Code.
5.8 WITHDRAWAL BY REGISTERED INVESTMENT COMPANIES. Notwithstanding any
other provision of the Agreement (including, without limitation, the provisions
of this Annex), any Member that is an "investment company" subject to
registration under the Investment Company Act, may elect to withdraw from the
LLC in whole or in part, or upon demand by the Management Board shall withdraw
from the LLC in whole or in part, if either such Member or the Management Board
shall obtain an opinion of counsel to the effect that, as a result of the
Investment Company Act, the withdrawal of such Member from the LLC to such
extent is required to enable such Member or the LLC to avoid a violation of
applicable provisions of the Investment Company Act or the requirement that
the LLC register as an investment company under the Investment Company Act.
5.9 NOTICE AND OPINION OF COUNSEL. In the event of the issuance of an
opinion of counsel described in Sections 5.3 through 5.8, a copy of such
opinion shall be sent by the Management Board to the SBA, together with the
written notice of the election of the Member to which such opinion relates to
terminate its obligation to make further capital contributions with respect to
its Commitment or withdraw from the LLC in whole or in part, or the written
demand of the Management Board for such termination or withdrawal, as the case
may be. Any counsel rendering an opinion pursuant to Sections 5.3 through 5.8
shall be subject to the approval of the Management Board and the SBA, and any
such opinion shall be satisfactory in form and substance to the Management
Board and the SBA.
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5.10 CURE, TERMINATION OF CAPITAL CONTRIBUTIONS AND WITHDRAWAL. Unless
within ninety (90) days after the giving of written notice and satisfactory
opinion of counsel, as provided in Section 5.9, the Member or the LLC
eliminates the necessity for termination of the obligation of such Member to
make further capital contributions or for the withdrawal of such Member from
the LLC in whole or in part to the reasonable satisfaction of such Member and
the Management Board, such Member shall withdraw from the LLC in whole or in
part to the extent required, effective as of the end of such ninety (90) day
period. Subject to the provisions of Section 5.2, in its discretion the
Management Board may waive all or any part of the ninety (90) day cure period
and cause such termination of capital contributions or withdrawal to be
effective at an earlier date as set forth in such waiver.
5.11 DISTRIBUTIONS ON WITHDRAWAL. Upon withdrawal pursuant to any
provision of the Agreement, a Member shall have the rights to distributions set
forth in the Act with respect to distributions to be made to Members upon
withdrawal from a limited liability company; provided, however, that any
distribution by the LLC to a Member pursuant to its withdrawal pursuant to any
provision of the Agreement shall be subject to the provisions of the SBIC Act
and the prior written consent of the SBA.
ARTICLE VI
DISSOLUTION
The LLC shall be dissolved on the later to occur of the date of
dissolution set forth in the Agreement or two years after all Outstanding
Leverage shall have matured. The Agreement may provide that the Management
Board and the Members may elect to dissolve the LLC at any time after ten (10)
years; provided, that (i) all Outstanding Leverage has been repaid and (ii) all
amounts due SBA, its agent or trustee have been paid.
ARTICLE VII
AUDIT AND REPORT
The LLC shall maintain books and records in accordance with
Treasury Regulation Section 1.704 - 1(b), the provisions of the SBIC Act
regarding financial accounts and reporting and generally accepted accounting
principles (except as otherwise provided herein), and the financial statements
of the LLC shall be audited and certified as of the end of each fiscal year by
a firm of independent certified public accountants selected by the LLC.
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ARTICLE VIII
MISCELLANEOUS
8.1 ASSIGNABILITY. (a) The Management Board may not assign, pledge or
otherwise grant a security interest in its interest in the LLC or in this
Agreement, except with the prior written consent of the SBA.
(b) No transfer of any interest in the LLC shall be allowed if the
actions to be taken in connection with such transfer would (i) result in any
violation of the SBIC Act8; or (ii) result in a violation of any law, rule or
regulation by the LLC.
8.2 AMENDMENTS. Any amendment of the Agreement which would affect this
Annex or the rights, obligations or liabilities of the SBA shall require the
prior written consent of the SBA.
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(8)See 13 C.F.R. Section 107.400 which requires SBA approval for any
transfer which would result in any person owning more than a specified
percentage of any class of capital.
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EXHIBIT B - ANNEX LLC-OP
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SBA Annex LLC-OP, Version 1.1 June 1, 1997
___________________________________________________________________
SBA ANNEX LLC-OP
VERSION 1.1
ANNEX OF OPTIONAL PROVISIONS
_________________________________________________________
SBA ANNEX OF OPTIONAL PROVISIONS FOR
A LIMITED LIABILITY COMPANY AGREEMENT
FOR A SECTION 301(C) LICENSEE
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SBA ANNEX LLC-OP
TABLE OF CONTENTS
Page
ARTICLE I
General Provisions............................................. 1
1.1. Definitions.............................................. 1
1.2. Conflict with SBIC Act................................... 3
1.3. Conflict With Other Provisions of the Agreement.......... 3
1.4. Deletion of Certain Provisions........................... 3
1.5. Incorporation of this Annex into the Agreement........... 4
ARTICLE II
Remedies for Failure of a Private Member to Make a
Contribution to Capital........................................ 4
2.1. Interest on Overdue Contributions........................ 4
2.2. Termination of Right to Make Further Capital
Contributions.......................................... 4
2.3. Forfeiture of Interest in the LLC........................ 5
2.4. Withholding and Application of Distributions............. 5
2.5. Required Sale of Interest in the LLC..................... 5
ARTICLE III
Small Business Investment Company Matters...................... 7
ARTICLE IV
Indemnification................................................ 7
4.1. Standard of Care......................................... 7
4.2. Indemnification.......................................... 8
ARTICLE V
Amendments..................................................... 10
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SBA ANNEX LLC-OP
ARITCLE I
GENERAL PROVISIONS
1.1 DEFINITIONS. For the purposes of this Annex, the following terms
shall have the following meanings:
"Affiliate" shall have the meaning set forth in the SBIC Act.
"Agreement" shall mean the limited liability company agreement of the LLC
to which this Annex is attached and incorporated as a provision thereof.
References to the Agreement shall be deemed to include all provisions
incorporated in the Agreement by reference.
"Assets" shall mean and include common and preferred stock (including
warrants, rights and other options relating thereto or any combination
thereof), notes, bonds, debentures, trust receipts and other obligations,
instruments or evidences of indebtedness, and other properties or interests
commonly regarded as securities, and in addition, interests in real property,
whether improved or unimproved, and interests in personal property of all
kinds, tangible or intangible, choses in action, and cash, bank deposits and
so-called "money market instruments".
"Assets Under Management" shall mean, as of any specified date, the value
of all Assets owned by the LLC (such value to be determined as provided in the
Agreement), including contributions requested and due from Members and uncalled
amounts of Commitments less the amount of any liabilities of the LLC determined
in accordance with generally accepted accounting principles.
"Associate" shall have the meaning set forth in the SBIC Act.
"Capital Account" shall mean the account of each Member that reflects its
interest in the LLC determined in accordance with Article V of SBA Annex LLC-PS
(if such Annex is incorporated as part of the Agreement) or as otherwise set
forth in the Agreement.
"Commitments" shall mean the capital contributions to the LLC which the
Preferred Members have made and the other Members have made or are obligated to
make to the LLC. The terms of the Commitments of the Preferred Members shall
be as set forth in SBA Annex LLC-PS (if SBA Annex LLC-PS is incorporated in the
Agreement, or if not then as otherwise set forth in the Agreement); provided,
that any Commitment by a Preferred Member shall include only the amount such
Preferred Member has actually contributed to the LLC, and shall not include any
amount under any agreement by any such Member or SBA to provide Leverage to the
LLC which has not been contributed to the LLC. The amounts and terms of the
Commitments of the Private Members shall be as defined in the Agreement.
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"Control Person" shall have the meaning set forth in the SBIC Act.
"Investment Advisor/Manager" shall have the meaning set forth in the SBIC
Act.
"Leverage" shall have the meaning set forth in the SBIC Act.
"LLC" shall mean the LLC established by the Agreement.
"Management Board" shall mean the Management Board, if any, specified in
the Agreement; or if no Management Board is provided in the Agreement, the
"Managers".
"Manager" shall mean the Manager, if any, specified in the Agreement.
"Members" shall mean the Private Members and the Preferred Members, if
any, of the LLC.
"Officers" shall mean the Officers, if any, specified in the Agreement.
"Optionor" shall have the meaning set forth in Section 2.5.
"Optionees" shall have the meaning set forth in Section 2.5.
"Optioned LLC Interest" shall have the meaning set forth in Section 2.5.
"Option Price" shall have the meaning set forth in Section 2.5.
"Participating Security" shall have the meaning set forth in the SBIC Act.
"Preferred Member" shall mean the SBA, in its capacity as a Preferred
Member, or any other person holding one or more Preferred Membership Interests
in the LLC.
"Preferred Membership Interest" shall mean a preferred membership interest
in the LLC which qualifies as a Participating Security.
"Private Member" shall mean any members of the LLC, other than any
Preferred Member.
"Remaining Portion" shall have the meaning set forth in Section 2.5.
"SBA" shall mean the United States Small Business Administration.
"SBA Annex LLC-GDP" shall mean the version of such Annex, if any, which is
attached to and incorporated as a part of the Agreement.
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"SBA Annex LLC-PS" shall mean the version of such Annex, if any, which is
attached to and incorporated as a part of the Agreement.
"SBA Annex LLC-OP" shall mean the version of this Annex which is attached
to and incorporated as a part of the Agreement.
"SBIC Act" shall mean the Small Business Investment Act of 1958, as
amended, and the rules and regulations promulgated thereunder by the SBA, as in
effect from time to time.
1.2 CONFLICT WITH SBIC ACT. The provisions of this Annex and the
Agreement shall be interpreted to the fullest extent possible in a manner
consistent with the SBIC Act. In the event of any conflict between any
provision of the Agreement or this Annex and the provisions of the SBIC Act
(including, without limitation, any conflict with respect to the rights of the
SBA or the respective Members hereunder), the provisions of the SBIC Act shall
control.
1.3 CONFLICT WITH OTHER PROVISIONS OF THE AGREEMENT. The provisions of
the Agreement shall be interpreted to the fullest extent possible in a manner
consistent with the provisions of this Annex. In the event of any conflict
between any provision of this Annex and any other provision of the Agreement
(other than the provisions of SBA Annex LLC-PS and SBA Annex LLC-GDP, if either
of such Annexes is incorporated as part of the Agreement), the provisions of
this Annex shall control. In the event of any conflict between any provision
of this Annex and any provision of SBA Annex LLC-PS or SBA Annex LLC-GDP, the
provisions of SBA Annex LLC-PS or SBA Annex LLC-GDP (if such Annex is
incorporated as part of the Agreement) shall control.
1.4 DELETION OF CERTAIN PROVISIONS. (a) The specific sections of this
Annex identified in clauses (c) and (d) of this Section may be deleted at the
option of the LLC from the form of the Annex that is attached to and
incorporated in the Agreement. Blank spaces for periods, interest rates or
percentages appearing in any section of this Annex may be filled in by the LLC
or left blank. In the case of any such blank space in a section which is not
filled in by the LLC, the space must be lined through and the period, interest
rate or percentage which appears in bold face type immediately before such
blank space will apply. References in this Annex to the provisions or sections
of this Annex shall refer only to those provisions which have not been so
deleted, giving effect to any periods, interest rates or percentages filled in
by the LLC in such sections. The footnote numbers which appear in certain
sections and the notes which appear in certain sections and the notes which
appear at the end of this Annex are for convenience only and shall neither be
considered part of this Annex nor be given any legal effect.
(b) The deletion of any section of this Annex shall be indicated by
striking through that Section (note that subsections of an included section may
not be deleted).
(c) In Article II, the LLC may elect to delete any of the Sections.
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(d) In Article IV, the LLC may elect to delete either all sections or
Section 4.2; if Section 4.2 is included, Section 4.1 may not be deleted.
1.5 INCORPORATION OF THIS ANNEX INTO THE AGREEMENT. The Agreement shall
contain the following provision evidencing the incorporation of this Annex:
"The provisions of SBA Annex LLC-OP attached to this
Agreement are incorporated in this Agreement with the
same force and effect as if fully set forth herein."
ARTICLE II
REMEDIES FOR FAILURE OF A PRIVATE MEMBER
TO MAKE A CONTRIBUTION TO CAPITAL
2.1 INTEREST ON OVERDUE CONTRIBUTIONS. In the event that any Private
Member fails to make a contribution required under the Agreement within THIRTY
(30) DAYS (unless another period is specified here: ___________ (__) days) [1]
after the date such contribution is due, then the Management Board may, in its
sole discretion, elect to charge such Private Member interest at an annual rate
equal to TEN PERCENT (10%) (unless another rate is specified here:
___________) [2] on the amount due from the date such amount became due until
the earlier of (i) the date on which such payment is received by the LLC or
(ii) the date of any notice given to such Private Member by the Management
Board pursuant to Sections 2.3, 2.4 or 2.5. Any distributions to which such
Private Member is entitled shall be reduced by the amount of such interest, and
such interest shall be deemed to be income to the LLC. The amount of interest
charged as provided in this Section 2.1 shall not exceed the amount of such
Private Member's Capital Account. [3]
2.2 TERMINATION OF RIGHT TO MAKE FURTHER CAPITAL CONTRIBUTIONS. In the
event that any Private Member fails to make a contribution required under the
Agreement within THIRTY (30) (unless another period is specified here:
____________ (__)) days after the date such contribution is due, the Management
Board may, in its sole discretion (and with the consent of SBA given as
provided in Section 7.2 of SBA Annex LLC-PS or Section 5.2 of SBA Annex
LLC-GDP, if SBA Annex LLC-PS or SBA Annex LLC-GDP is incorporated in the
Agreement), elect to declare, by notice to such Private Member, that:
(a) Such Private Member's Commitment shall be deemed to be reduced
to the amount of any contributions of capital timely made pursuant to the
Agreement; and
(b) Upon such notice such Private Member shall have no right to
make any capital contribution thereafter (including the contribution as
to which the default occurred and any contribution otherwise required to
be made thereafter pursuant to the terms of the Agreement) and to this
Agreement shall be deemed amended to reflect such reduced Commitment.
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2.3 FORFEITURE OF INTEREST IN THE LLC. In the event that any
Private Member fails to make a contribution required under the Agreement,
within THIRTY (30) (unless another period is specified here: ____________ (__))
days after notice by the Management Board to such Private Member that it has
failed to make its contribution on the date such contribution was due, the
Management Board may in its sole discretion (and with the consent of SBA given
as provided in Section 7.2 of SBA Annex LLC-PS or Section 5.2 of SBA Annex
LLC-GDP, if SBA Annex LLC-PS or SBA Annex LLC-GDP is incorporated in the
Agreement) declare, by notice of forfeiture to such Private Member, that ONE
HUNDRED PERCENT (100%) (unless another percentage is specified here:
____________ percent (__%)) of the interest of such Private Member in the LLC
(including amounts in its Capital Account as well as any interest in future
profits, losses or distributions of the LLC) is forfeited, effective as of the
date of such Private Member's failure to make such required contribution, in
which event, as of the date of such notice of forfeiture (i) the Private Member
shall cease to be a Member with respect to such forfeited interest; provided,
however, that such forfeited Private Member shall cease to have any liability
for the payment of the forfeited percentage of any capital contributions due at
such time or in the future and (ii) the forfeited percentage of such Private
Member's Capital Account shall be held by the LLC and reallocated among the
Capital Accounts of the Private Members (other than such forfeited Private
Member) to be apportioned among such Private Members in accordance with their
respective aggregate capital contributions. [4]
2.4 WITHHOLDING AND APPLICATION OF DISTRIBUTIONS. No part of any
distribution shall be paid to any Private Member from which there is then due
and owing to the LLC, at the time of such distribution, any amount required to
be paid to the LLC. At the election of the Management Board, which it may make
in its sole discretion, the LLC may either (i) apply all or part of any such
withheld distribution in satisfaction of the amount then due to the LLC from
such Private Member or (ii) withhold such distribution until all amounts then
due are paid to the LLC by such Private Member. Upon payment of all amounts
due to the LLC (by application of withheld distributions or otherwise), the
Management Board shall distribute any unapplied balance of any such withheld
distribution to such Private Member. No interest shall be payable on the
amount of any distribution withheld by the LLC pursuant to this Section.
2.5 REQUIRED SALE OF INTEREST IN THE LLC. In the event that any Private
Member fails to make a contribution required under the Agreement within THIRTY
(30) (unless another period is specified here: ____________ (__)) days after
notice by the Management Board to such Private Member that it has failed to
make its contribution on the date such contribution is due, unless the
Management Board has acted pursuant to Sections 2.2 or 2.3 (if either of such
Sections are included in the version of this Annex incorporated in the
Agreement) the Management Board may, in its sole discretion, (and with the
consent of SBA given as provided in Section 7.2 of SBA Annex LLC-PS or Section
5.2 of SBA Annex LLC-GDP, if SBA Annex LLC-PS or SBA Annex LLC-GDP is
incorporated in the Agreement) elect to declare such Private Member in default.
If the Management Board so elects to declare such Private Member in default
(such Private Member being hereinafter referred to as the "Optionor"), then the
other Private Members of the LLC which are not in default (the "Optionees") and
the Management Board shall have the right and option to acquire ONE HUNDRED
PERCENT (100%) (unless another percentage is specified here:
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________ percent (___%)) of the LLC interest, which shall include ONE HUNDRED
PERCENT (100%) (unless another percentage is specified here: ________ percent
(___%)) of the Capital Account (the "Optioned LLC Interest") [5] of the
Optionor on the following terms:
(i) The Management Board shall give the Members notice promptly
after declaration of any such default. Such notice shall advise each
Optionee of the portion of the Optioned LLC Interest available to it and
the price therefor. The portion available to each Optionee shall be that
portion of the Optioned LLC Interest that bears the same ratio to the
Optioned LLC Interest as each Optionee's capital contributions to the LLC
bears to the aggregate capital contributions to the LLC, exclusive of the
capital contributions to the LLC of the Optionor. The aggregate price
for the Optioned LLC Interest shall be the assumption of the unpaid
Commitment obligation (both that portion then due and amounts due in the
future) of the Optionor (the "Option Price"). [5] The Option Price for
each Optionee shall be prorated according to the portion of the Optioned
LLC Interest purchased by each such Optionee so that the percentage of
the unpaid Commitment assumed by each Optionee is the same as the
percentage of the Optioned LLC Interest purchased by such Optionee. The
option granted hereunder shall be exercisable by each Optionee in whole
only at any time within thirty (30) days of the date of the notice from
the Management Board by the delivery to the Management Board of (A) a
notice of exercise of option, and (B) the capital contribution due in
accordance with clause 2.5(v)(A). The Management Board shall forward the
above notices of exercise of option received to the Optionor.
(ii) Should any Optionee not exercise its option within the period
provided in clause (i), the Management Board within TEN (10) (unless
another period is specified here: ____________ (__)) days of the end of
such period, shall notify the other Optionees who have previously
exercised their options in full, which Optionees shall have the right and
option ratably among them to acquire the portion of the Optioned LLC
Interest not so acquired (the "Remaining Portion") within TEN (10)
(unless another period is specified here: ____________ (__)) days of the
date of the notice specified in this Section 2.5(ii) on the same terms as
provided in clause (i).
(iii) The amount of the Remaining Portion not acquired by the
Optionees and the Management Board pursuant to clause (iii) may, if the
Management Board deems it in the best interest of the LLC, be sold to any
other corporations, LLCs, individuals or other entities on terms not more
favorable to such purchaser than the Optionees' option (and the
Management Board may admit any such third party purchaser as a Private
Member, subject to the approval of SBA, if required under the SBIC Act).
Any consideration received by the LLC for such amount of the Optionor's
interest in the LLC in excess of the Option Price therefor shall be
retained by the LLC and allocated among the Members' Capital Accounts in
proportion to the respective Members' capital contributions.
(iv) Upon exercise of any option hereunder, such Optionee shall be
deemed to have assumed that portion of the Optionor's unpaid Commitment
representing the Option
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Price of the purchased portion of the Optioned LLC Interest and shall be
obligated (A) to contribute to the LLC the portion of the capital
contribution then due from the Optionor equal to the percentage of the
Optioned LLC Interest purchased by such Optionee and (B) to pay the same
percentage of any further contributions which would have otherwise been
due from such Optionor.
(v) Upon the purchase of any portion of any Optioned LLC Interest
by an Optionee, the Management Board or other person pursuant to this
Section 2.5, the Optionor shall have no further rights or obligations
under this Agreement with respect to such portion.
(vi) Upon the purchase of any portion of the Optioned LLC Interest,
for purposes of computing such purchaser's aggregate capital
contributions, such purchaser shall be deemed to have aggregate capital
contributions (or the aggregate capital contributions of any Optionee,
shall be increased by an amount) equal to the percentage of the
defaulting Private Member's aggregate capital contribution which the
purchased portion of the Optioned LLC Interest represents of the
defaulting Private Member's entire LLC interest, and the aggregate
capital contributions of such defaulting Private Member shall be reduced
by a corresponding amount.
ARTICLE III
SMALL BUSINESS INVESTMENT COMPANY MATTERS
The SBA shall be deemed an express third party beneficiary of the
provisions of the Agreement (including, without limitation, this Annex) to the
extent of the rights of the SBA thereunder and under the Act, and the SBA shall
be entitled to enforce such provisions for its benefit, as if the SBA were a
party thereto.
ARTICLE IV
INDEMNIFICATION
4.1 STANDARD OF CORE. (e) Neither the Management Board, any Manager or
Officer, any Investment Advisor/Manager nor any Member, shareholder, director,
officer or employee nor any Affiliate of any thereof shall be liable to the LLC
or any Member for any action taken or omitted to be taken by it or any other
Member or other person in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the LLC, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful.
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(b) Neither any Private Member, nor any member of any LLC committee or
board who is not an Affiliate of the Management Board shall be liable to the
LLC or any Member as the result of any decision made in good faith by such
Private Member or member, in his capacity as such.
(c) The Management Board, any Manager or Officer, any Investment Advisor/
Manager, the stockholders, Members, Managers, directors, officers, employees
and Members of any thereof, any Private Member and any member of a LLC
committee or board, may consult with reputable legal counsel selected by them
and shall be fully protected, and shall incur no liability to the LLC or any
Member, in acting or refraining to act in good faith in reliance upon the
opinion of advice of such counsel.
(d) This Section 4.1 shall not constitute a modification, limitation or
waiver of Section 314(b) of the SBIC Act, or a waiver by the SBA of any of its
rights pursuant to such Section 314(b).(9)
(e) In addition to the standards of care set forth in this Section 4.1,
the Agreement may also provide for additional standards of care which must also
be met.
4.2 INDEMNIFICATION. (a) The LLC shall indemnify and hold harmless,
but only to the extent of Assets Under Management, the Management Board, any
Manager or Officer, any Investment Advisor/Manager and any Member, shareholder,
Member, Manager, director, officer, employee or any Affiliate of any thereof
from any and all costs, expenses, damages, claims, liabilities, fines and
judgments (including the reasonable cost of the defense of any claim or action
and any sums which may be paid with the consent of the LLC in settlement
thereof) which may be incurred by or asserted against such person or entity, by
reason of any action taken or omitted to be taken on behalf of the LLC and in
furtherance of its interests.
(b) The LLC shall indemnify and hold harmless, but only to the extent of
Assets Under Management, the Private Members, and members of any LLC committee
or board who are not Affiliates of the Management Board or any Investment
Advisor/Manager from any and all costs, expenses, damages, claims, liabilities,
fines and judgements (including the reasonable cost of the defense of any claim
or action and any sums which may be paid with the consent of the LLC in
settlement thereof) which may be incurred by or asserted against such person or
entity, by any third party on account of any matter or transaction of the LLC,
which matter or transaction occurred during the time that such person has been
a Private Member or such member.
(c) The LLC shall have power, in the discretion of the Management Board
to agree to indemnify on the same terms as set forth in Section 4.2(b) any
person who is or was serving, pursuant to a prior written request from the LLC,
as a consultant to, agent for or representative of the LLC as a director,
officer, employee, agent of or consultant to another corporation,
- ----------------------
(9) This provision relates to the fiduciary duty of SBIC managers.
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partnership, limited liability company, joint venture, trust or other
enterprise, against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such.
(d) No person shall be entitled to claim any indemnity or reimbursement
under Section 4.2(a), (b) or (c) in respect of any cost, expense, damage,
liability, claim, fine, judgment (including any cost of the defense of any
claim, action, suit, proceeding or investigation, by or before any court or
administrative or legislative body or authority) that may be incurred by such
person which results from the failure of such person to act in accordance with
the provisions of this Agreement and the applicable standard of care set forth
in Section 4.1. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, preclude a determination that such person
acted in accordance with the applicable standard of care set forth in Section
4.1.
(e) To the extent that a person claiming indemnification under Section
4.2(a), (b) or (c) has been successful on the merits in defense of any action,
suit or proceeding referred to in Section 4.2(a), (b) or (c) or in defense of
any claim, issue or matter therein, such person shall be indemnified with
respect to such matter as provided in such Section. Except as provided in the
foregoing sentence and as provided in Section 4.2(h) with respect to advance
payments, any indemnification under this Section 4.2 shall be paid only upon
determination that the person to be indemnified has met the applicable standard
of conduct set forth in Section 4.1(a) or (b).
(f) A determination that a person to be indemnified under this Section
4.2 has met the applicable standard set forth in Section 4.1(a) or (b) shall be
made by (i) the Management Board with respect to the indemnification of any
person other than a person claiming indemnification under Section 4.2(a), (ii)
a committee of the LLC whose members are not affiliated with the Management
Board, Manager, Officer, or any Investment Advisor/Manager with respect to
indemnification of any person indemnified under Section 4.2(a) or (iii) at the
election of the Management Board, independent legal counsel selected by the
Management Board with respect to the indemnification of any person indemnified
under Section 4.2, in a written opinion.
(g) In making any such determination with respect to indemnification
under Section 4.2(f), the Management Board, a committee of the LLC whose
members are not affiliated with the Management Board, Manager, Officer, or any
Investment Advisor/Manager or independent legal counsel, as the case may be,
shall be authorized to make such determination on the basis of its evaluation
of the records of the Management Board, the LLC or any Investment
Advisor/Manager to the LLC and of the statements of the party seeking
indemnification with respect to the matter in question and shall not be
required to perform any independent investigation in connection with any such
determination. Any party making any such determination is authorized, however,
in its sole discretion, to take such other actions (including engaging counsel)
as it deems advisable in making such determination.
(h) Expenses incurred by any person in respect of any such costs,
expenses, damages, claims, liabilities, fines, and judgments (including any
cost of the defense of any claim, action,
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suit, proceeding or investigation, by or before any court or administrative or
legislative body or authority) may be paid by the LLC in advance of the final
disposition of any such claim or action upon receipt of an undertaking by or on
behalf of such person to repay such amount unless it shall ultimately be
determined as provided in Section 4.2(e) or (f) that such person is entitled to
be indemnified by the LLC as authorized in this Section.
(i) The rights provided by this Section 4.2 shall inure to the benefit of
the heirs, executors, administrators, successors, and assigns of each person
eligible for indemnification hereunder.
(j) The rights to indemnification provided in this Section 4.2 shall be
the exclusive rights of all Members to indemnification by the LLC. No Member
shall enter into, or make any claim under, any other agreement with the LLC
(whether direct or indirect) providing for indemnification. The General Member
shall not enter into any agreement with any person which is an employee,
Manager, Officer, director, Member or shareholder, or an Affiliate, Associate
or Control Person of any of the foregoing, providing for indemnification of any
such person unless such agreement provides for a determination with respect to
such indemnification as provided under Section 4.2(f)(ii) or (iii). The
provisions of this Section 4.2 shall not apply to indemnification of any person
which is not at the expense (whether in whole or in part) of the LLC.
(k) The LLC may purchase and maintain insurance on its own behalf, or on
behalf of any person or entity, with respect to liabilities of the types
described in this Section 4.2. The LLC may purchase such insurance regardless
of whether such person is acting in a capacity described in this Section 4.2 or
whether the LLC would have the power to indemnify such person against such
liability under the provisions of this Section 4.2.
ARTICLE V
AMENDMENTS
Any amendment of the Agreement which would affect (i) this Annex, (ii) or
the rights, obligations or liabilities of the SBA shall require the prior
written consent of the SBA.
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NOTES
1. All notice periods are variable.
2. Any interest rate may be selected.
3. The limitation on the amount of interest is optional.
4. Forfeitures may be in whole or in part. The sum of the reallocation
percentages to the Private Members must equal 100%. The elimination of
liability after forfeiture is optional; a forfeited Private Member may
remain liable for capital contributions. Reallocation of a forfeited
interest can be freely determined.
5. Any percentage of a defaulted Private Member's interest can be sold. A
variety of pricing mechanisms can be used: fixed, formula or appraisal.
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EXHIBIT C - VALUATION GUIDELINES
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VALUATION POLICY
The following valuation policy is adopted from SBA Valuation Guidelines.
A. General
1. The Managing Board has sole responsibility for determining the Asset
Value of each of the Loans and Investments and of the portfolio in the
aggregate.
2. Loans and Investments shall be valued individually and in the
aggregate at least once quarterly for the quarters ending March 31, June 30,
September 30 and December 31. Fiscal year-end valuations are audited as set
forth in 13 CFR Part 107 Appendix III, Section II, paragraph D.
3. This Valuation Policy is intended to provide a consistent,
conservative basis for establishing the Asset Value of the portfolio. The
Policy presumes that Loans and Investments are acquired with the intent that
they are to be held until maturity or disposed of in the ordinary course of
business.
B. Interest-Bearing Securities
1. Loans shall be valued in an amount not greater than cost, with
Unrealized Depreciation being recognized when value is impaired. The valuation
of loans and associated interest receivables on interest-bearing securities
should reflect the portfolio concern's current and projected financial
condition and operating results, its payment history and its ability to
generate sufficient cash flow to make payments when due.
2. When a valuation relies more heavily on asset versus earnings
approaches, additional criteria should include the seniority of the debt, the
nature of any pledged collateral, the extent to which the security interest is
perfected, the net liquidation value of tangible business assets, and the
personal integrity and overall financial standing of the owners of the
business. In those instances where a loan valuation is based on an analysis of
certain collateralized assets of a business or assets outside the business, the
valuation should, at a minimum, consider the net liquidation value of the
collateral after reasonable selling expenses. Under no circumstances, however,
shall a valuation based on the underlying collateral be considered as
justification for any type of loan appreciation.
3. Appropriate unrealized depreciation on past due interest which is
converted into a security (or added to an existing security) should be
recognized when collection is doubtful. Collection is presumed to be in doubt
when one or both of the following conditions occur: (i) Interest payments are
more than 120 days past due; or (ii) the small concern is in bankruptcy,
insolvent, or there is substantial doubt about its ability to continue as a
going concern.
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4. The carrying value of interest-bearing securities shall not be
adjusted for changes in interest rates.
5. The valuation of convertible debt may be adjusted to reflect the value
of underlying equity security net of the conversion price.
C. Equity Securities-Private Companies
1. Investment cost is presumed to represent value except as indicated
elsewhere in these guidelines.
2. Valuation should be reduced if a company's performance and potential
have significantly deteriorated. If the factors which led to the reduction in
valuation are overcome, the valuation may be restored.
3. The anticipated pricing of a Small Concem's future equity financing
should be considered as a basis for recognizing Unrealized Depreciation, but
not for Unrealized Appreciation. If it appears likely that equity will be sold
in the foreseeable future at a price below the Licensee's current valuation,
then that prospective offering price should be weighed in the valuation
process.
4. Valuation should be adjusted to a subsequent significant equity
financing that includes a meaningful portion of the financing by a
sophisticated, unrelated new investor. A subsequent significant equity
financing that includes substantially the same group of investors as the prior
financing would generally not be the basis for an adjustment in valuation. A
financing at a lower price by a sophisticated new investor should cause a
reduction in value of prior securities.
5. If substantially all of a significant equity financing is invested by
an investor whose objectives are in large part strategic, or if the financing
is led by such an investor, it is generally presumed that no more than 50% of
the increase in investment price compared to the prior significant equity
financing is attributable to an increased valuation of the company.
6. Where a company has been self-financing and has had positive cash flow
from operations for at least the past two fiscal years, Asset Value may be
increased based on a very conservative financial measure regarding P/E ratios
or cash flow multiples, or other appropriate financial measures of similar
publicly-traded companies, discounted for illiquidity. Should the chosen
valuation cease to be meaningful, the valuation may be restored to a cost
basis, or in the event of significant deterioration in performance or
potential, to a valuation below cost to reflect impairment.
7. With respect to portfolio companies that are likely to face bankruptcy
or discontinue operations for some other reason, liquidating value may be
employed. This value may be determined by estimating the realizable value
(often through professional appraisals or firm offers to purchase) of all
assets and then subtracting all liabilities and all associated liquidation
costs.
8. Warrants should be valued at the excess of the value of the underlying
security over the exercise price.
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D. Equity Securities - Public Companies
1. Public securities should be valued as follows: (a) For
over-the-counter stocks, take the average of the bid price at the close for the
valuation date and the preceding two days, and (b) for listed stocks, take the
average of the close for the valuation date and the preceding two days.
2. The valuation of public securities that are restricted should be
discounted appropriately until the securities may be freely traded. Such
discounts typically range from 10% to 40%, but the discounts can be more or
less, depending upon the resale restrictions under securities laws or
contractual agreements.
3. When the number of shares held is substantial in relation to the
average daily trading volume, the valuation should be discounted by at least
10%, and generally by more.
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Exhibit (4)
Copies of all custodian agreements with respect
to portfolio securities of the registrant --
Letter Agreement, dated October 13, 1997, between
Berthel SBIC, LLC and Firstar Bank Cedar Rapids, N.A.
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Firstar Bank Iowa, N.A.
222 Second Avenue, S.E..
Cedar Rapids, Iowa 52401
RE: SAFEKEEPING AGREEMENT
This letter will evidence that Berthel SBIC, LLC, a Delaware limited liability
company (the "SBIC"), which has elected to become a business development
company under Section 54 of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), has appointed Firstar Bank Iowa, N.A., a national
banking firm as its Safekeeping Agent (the "Agent"), and the Agent has agreed
to serve as the Safekeeping Agent for the securities and similar investments of
the SBIC. The Agent has been duly designated and appointed by the SBIC as the
Safekeeping Agent for the SBIC's securities and similar investments pursuant to
Rule 17f-2 of the rules and regulations of the Securities and Exchange
Commission (the "Commission") promulgated under the Investment Company Act.
Except as otherwise permitted under the Investment Company Act, the securities
and similar investments of the SBIC shall be deposited in the safekeeping of,
or in a vault or other depository maintained by, the Agent, and the securities
and similar investments so deposited shall be physically segregated at all
times from those of any other person, firms or corporations. In lieu thereof,
any of such securities or similar investments as qualify may be maintained or
deposited (and the income from such deposits shall be collected by the Agent
and remitted to the SBIC in accounts established by the Agent that include only
assets held by it for its customers in (i) the Federal Reserve/treasury book
entry system for United States and federal agency securities, its successor(s)
or nominee(s) or (ii) with the Depository Trust Company, its successors(s) or
nominee(s), or any other such person as is or becomes authorized to act as a
depository under the Investment Company Act, and as is designated as such by
the SBIC as evidenced by a written certificate executed by the SBIC addressed
to the Agent and specifically approving the maintaining or depositing of the
qualifying securities or similar investments of the SBIC therein. Any such
maintenance or depositing shall be done in conformity with the applicable
notice and other prevision of Rule 17F-4 of the rules and regulations of the
Commission promulgated under The Investment Company Act (a copy of Rule 17f-4
is attached hereto as Exhibit C). In particular, the Agent shall comply with
the confirmation and report notice provisions of Rule 17f-4(d)(3) and (4). In
connection with the use of any system or authorized depository, the Agent will
be liable to the SBIC for any losses or damages relating to the failure to
effectively enforce such rights as may exist against any such system or
authorized depository.
Any two of the persons, not to exceed five in number (the "Designated Person"),
named in Exhibit A hereto (as from time to time modified by the SBIC) are
authorized and permitted to have access to the securities and similar
investments so deposited, and such access to such securities and similar
investments shall be had only by two or more of such persons jointly.
Access to such securities and similar investments shall also be permitted to
the properly authorized officers and employees of the Agent. Access to such
securities and similar
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investments shall be permitted, jointly with any two of the Designated Persons
or with any officer or employee of the Agent, to an independent public
accountant for the purpose of conducting the examinations of the SBIC's
securities and similar investments, as required by Rule 17f-2 of the rules and
regulations of the Commission.
Such securities and similar investments shall at all times be subject to
inspection by the Commission through its authorized employees or agents,
accompanied, unless otherwise directed by order of the Commission, by one or
more of the Designated Persons or one or more of the officers or employees of
the Agent.
Each Designated Person when depositing such securities or similar investments
in or withdrawing them from the Agent or when ordering their withdrawal or
delivery from the safekeeping of the Agent, shall sign a notation in duplicate
in respect of such deposit, withdrawal or order which shall show (1) the date
and time of deposit, withdrawal or order, (2) the title and amount of the
securities or similar investments deposited, withdrawn or ordered to be
withdrawn, and an identification thereof, by certificate numbers or otherwise,
(3) the manner of acquisition of the securities or similar investments
deposited or the purpose for which they have been withdrawn or ordered to be
withdrawn, and (4) if withdrawn and delivered to any other person, the name of
such person. A copy of such notation shall be transmitted promptly by the
Agent to Les Smith, who is the Secretary of Berthel SBIC, LLC (the "SBIC").
Les Smith shall not be a Designated Person. Such notation shall be on
serially-numbered forms and shall be preserved for at least one year.
Such securities and similar investments shall be verified by complete
examination of an independent public accountant to be retained by the SBIC,
presently Deloitte & Touche, LLP, one time during each fiscal year end audit.
The examination time shall be chosen by such accountant without prior notice to
the SBIC. The SBIC shall give you written notice of any change in the
accountants retained by the SBIC.
The SBIC does hereby certify that the names and signatures subscribed below are
the names and signatures of the Designated Persons set opposite their names on
Exhibit A are the genuine and correct signatures of the respective Designated
Persons.
The SBIC shall pay you the fees set forth in Exhibit B attached hereto for the
services to be rendered by you hereunder. In no event shall you be held liable
for any loss with respect to the safekeeping and condition of the SBIC's
securities or similar investments unless such loss is due to negligence,
willful misconduct or other malfeasance on the part of you or your agents or
employees. You shall be under no obligation or duty to provide or maintain
insurance of any kind in connection with the securities or similar investments
held pursuant to the terms of this Agreement nor shall you be held responsible
for the genuineness, validity, or alteration of or any defect in any of the
securities or similar investments. Either you or the SBIC may terminate this
Agreement upon 90 days prior written notice to the other party of the desire to
terminate. After such notice of termination, but until such time as your
successor shall have been appointed by the
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SBIC, you shall continue to serve hereunder upon the same terms and subject to
the same conditions as are applicable to your service in the circumstances set
forth herein.
From time to time the fee schedule set forth in Exhibit B may be amended by
written notice thereof to the SBIC by you and the acceptance thereof within 30
days of such notice. If the amended fee schedule is not so accepted, then you
may resign upon the earlier of the designation of your successor by the SBIC or
90 days after your original notice to them. Until you have resigned, you shall
continue to hold in safekeeping the SBIC's securities and similar investments
under the terms of this Agreement as hereafter amended from time to time and,
in any event, shall continue to hold such securities and similar investments in
safekeeping until a bank or other company whose functions and physical
facilities are supervised by a Federal or State authority within the meaning of
the Investment Company Act is appointed to assume your duties hereunder,
whereupon the securities and similar investments held by you shall be turned
over to the successor bank or other company.
If the above correctly states our understanding and agreement, kindly indicate
your acceptance thereof by signing the name of the Agent, by its duly
authorized officer, in the space provided below, and returning a copy of this
agreement to the SBIC.
Very truly yours.
Berthel SBIC, LLC
By: /s/ James D. Thorp
------------------------
President
TERMS AGREED TO:
Firstar Bank Iowa, N.A.
By: /s/
- ------------------------
Title: Vice President As of October 13, 1997
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EXHIBIT A
Name and Title Signature
- -------------- ---------
Thomas J. Berthel
Chairman of the Board /s/ Thomas J. Berthel
---------------------------
James D. Thorp
President /s/ James D. Thorp
---------------------------
Ronald O. Brendengen
Treasurer and Chief Financial Officer /s/ Ronald O. Brendengen
---------------------------
Diane Anderson /s/ Diane Anderson
---------------------------
Rhonda Vawter /s/ Rhonda Vawter
---------------------------
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EXHIBIT B
Minimum Annual Fee: The Minimum Annual Fee shall be the greater of $1 ,000 or
the sum of the Annual Fee plus the Transaction Fees.
Annual Fee: $500.00
Transaction Fees: $20 per item annual holding charge
$25 per receipt or delivery of security
$8 per adjustment of security balance or par value within
the account $50 minimum per meeting with auditors
concerning investment holdings (subject to hourly fee
schedule per employee time)
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EXHIBIT C
Rule 17f-4. Deposits of Securities and Securities Depositors
(a) For the purpose of this rule, a "securities depository" is a
system for the central handling of securities where all securities of any
particular class or series of any issuer deposited within the system are
treated as tangible and may be transferred or pledged by, bookkeeping entry
without physical delivery of the securities.
(b) A registered management investment company (investment company) or
any qualified custodian may deposit all or any part of the securities owned by
the investment company in a foreign securities depository or clearing agency in
accordance with rule 17f-5 or in (1) a clearing agency registered with the
Commission under section 17A of the Securities Exchange Act of 1934 (clearing
agency), which acts as a securities depository, or (2) the book-entry system is
provided in Subpart O of Treasury Circular No. 300, and the book-entry
regulations of federal agencies substantially in the form of Subpart O, in
accordance with the following paragraphs of this rule.
(c) An investment company may deposit the securities in a clearing
agency which acts as a securities depository under an arrangement that contains
the following elements:
(1) The investment company has a system that is reasonably designed to
prevent unauthorized officer's instructions and which provides, at least,
for the form, content, and means of giving, recording, and reviewing the
instructions. An "officer's instruction" is a request or direction to a
clearing agency in the name of the investment company by one or more
persons authorized by its board of directors to give it.
(2) Upon ceasing to act for an investment company, and subject to its
own rules on contributions to a participants fund, the clearing agency
shall deliver all securities held for the investment company to a successor
clearing agency, custodian, or safekeeper under Rule 17f-2, to be named by
the investment company. Where the investment company has not named one,
the clearing agency shall deliver the investment company securities to a
bank having the qualifications prescribed in Section 26(a)(1) of the Act
for the trustees of unit investment trusts, to be held by the bank as
custodian for the investment company under terms customary to a custodian
agreement between banks and investment companies.
(3) The investment company, by resolution of its board of directors,
initially approved the arrangement, and any subsequent changes thereto.
(d) The custodian may deposit the securities in a clearing agency
which acts as securities depository or the book-entry system, or bank, under an
arrangement that contains the following elements:
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(1) The custodian may deposit the securities directly or through one
or more agents which are also qualified to act as custodians for investment
companies.
(2) The custodian for its agent shall deposit the securities in an
account that includes only assets held by it for customers.
(3) The custodian shall send the investment company a confirmation of
any transfers to or from the account of the investment company. Where
securities are transferred to that account, the custodian shall also, by
book-entry or otherwise, identify as belonging to the investment company a
quantity of securities in a tangible bulk of securities (i) registered in the
name of the custodian (or its nominee) or (ii) shown on the custodian's account
on the books of the clearing agency, the book-entry system, or the custodian's
agent. For this purpose, the term "confirmation" means advice or notice of a
transaction; it is not intended to requirement preparation by a custodian of
the confirmation required of broker-dealers under the Securities Exchange Act
of 1934.
(4) The custodian, or its agent which deposits the securities, shall
promptly send to the investment company reports it receives from the
appropriate Federal Reserve Bank or clearing agency on its respective system of
internal accounting control. The custodian and all agents through which the
securities are deposited shall send to the investment company such reports on t
heir own systems of internal accounting control as the investment company may
reasonably request from time to time.
(5) The investment company, by resolution of the board of directors,
initially approved the arrangement, and any subsequent changes thereto.
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Exhibit (6)(i)
Copies of all investment advisory contracts to which the
registrant is a party -- Management Services Agreement,
dated May 13, 1997, between Berthel SBIC, LLC and
Berthel Fisher & Company Planning, Inc.
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MANAGEMENT SERVICES AGREEMENT
This Agreement is made on May 13, 1997, by and between Berthel SBIC, LLC,
a Delaware limited liability company ("Company"), and Berthel Fisher & Company
Planning, Inc., an Iowa corporation ("Manager").
The following is a recital of facts underlying this Agreement:
A. Company has applied to be licensed as a small business investment
company ("SBIC") by the U.S. Small Business Administration ("SBA") pursuant to
the Small Business Investment Act of 1958, as amended, and regulations
promulgated pursuant to such legislation (such legislation and regulations
being collectively referred to as the "SBIC Act").
B. Manager desires to offer management and advisory services to Company
and Company wishes to retain the services of Manager to provide such services.
C. The Limited Liability Agreement (the "LLC Agreement") pursuant to which
Company is being organized provides for the retention by the Company of a
management services company such as Manager. Capitalized terms not otherwise
defined in the Agreement shall have the meanings set forth in the LLC
Agreement.
NOW THEREFORE, the parties agree as follows:
1. ENGAGEMENT. Company retains Manager to provide the services specified
in this Agreement, and Manager accepts such retention and shall provide such
services during the term of this Agreement.
2. SERVICES. Manager shall provide the following services to Company in
connection with the Company's business operations:
(a) location, development, investigation, analysis
and presentation to Company of suitable investment
opportunities, which are consistent with the Company's status
as an SBIC and with the policies of the Company as established
from time to time by the Company's Management Board;
(b) preparation of reports, research and economic and
statistical data relating to proposed and existing investments
of Company;
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(c) review of investment guidelines for Company and
proposal of revisions thereto in light of changing business
and economic factors and portfolio growth;
(d) monitoring of investments, and making recommendations
with respect to enforcement of Company rights and sale or
other disposition of investments;
(e) preparing or causing to be prepared such reports
as the Company's officers and Management Board may from time
to time request;
(f) preparing or causing to be prepared all tax
returns and tax information required by Company;
(g) preparing or causing to be prepared and filing or
causing to be filed all reports Company is required to record
or file with governmental entities, including the SBA;
(h) administration of the day-to-day operations of
Company, including maintenance of accounts, books and records
as required under applicable laws and SBA rules and
regulations;
(i) furnishing Company suitable office space which is
identified as Company's place of business;
(j) attendance to or arrangement for clerical and
accounting services; and
(k) such other services as may be mutually agreed
upon.
3. MAINTENANCE OF STAFF AND FACILITIES. Manager shall maintain a staff
trained and experienced in the business of Company of sufficient size to enable
the Company to adequately carry on its business. Compensation for such staff
shall be at rates which are competitive within the industry. In addition to
the service of its own staff, Manager shall, when necessary, arrange for and
coordinate the services of other professionals and consultants. Manager shall
properly equip its office with such equipment and supplies as are reasonably
necessary for performance of its obligations pursuant to this Agreement. All
costs and expenses incurred by Manager in connection with the hiring of
employees and maintaining and equipping its office shall be borne by the
Manager and shall be incurred in the name of Manager and not in the name of
Company.
4. OPERATIONAL EXPENSES. Manager shall pay all Management Expenses of
Company as set forth in Company's LLC Agreement, and Manager shall not seek
reimbursement from Company for payment of Management Expenses. If Manager pays
any expenses of
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Company which are not Management Expenses, Company promptly shall
reimburse Manager upon presentation of reasonable documentation of such
expenses.
5. MANAGEMENT FEE. For services under this Agreement, Company shall pay
Manager an annual fee calculated as set forth in Section 9.2.1 of the LLC
Agreement. The management fee shall be payable quarterly, in advance. During
the term of this Agreement Manager shall be considered to be a third party
beneficiary of those provisions of the LLC Agreement which pertain to the
payment of the Management Fee, the definition of Management Expenses,
indemnification of Manager and its related parties and otherwise apply or
pertain to the Manager or the terms pursuant to which the Manager provides
services to Company pursuant to this Agreement, and such provisions of the LLC
Agreement may not be amended r deleted without Manager's consent.
6. TERM. This Agreement shall expire upon the first to occur of: (a)
completion of liquidation of the Company pursuant to the LLC Agreement; or (b)
thirty (30) days following either party giving notice of termination to the
other party. This Agreement shall automatically terminate if it is assigned by
Manager.
7. INDEMNIFICATION. Company shall indemnify Manager and its owners
(whether shareholders, partners, members or otherwise), directors, officers,
employees and other representatives to the fullest extent permitted by the LLC
Agreement. Such indemnification shall continue as to a person who has ceased
to hold the position which entitled such person to indemnification and such
indemnification shall inure to the benefit of the successors, assigns, heirs,
personal representatives, executors, trustees, and administrators of such
person.
8. MANAGER'S ACTIVITIES. Manager may perform management services for
entities other than Company and may give advice and take action in the
performance of its duties which may differ from the advice given or action
taken with respect to Company and the Company's investments.
9. BOOKS AND RECORDS. Manager shall make its books, records and employees
pertaining to the Company available for inspection and consultation by
Company's Management Board and officers.
10. MATERIAL CHANGES. This Agreement may not be materially changed
without the prior approval of the Company's Management Board without prior
approval of the SBA.
11. MISCELLANEOUS. This Agreement is binding upon the parties hereto and
their successors and assigns and shall be governed by and construed according
to the laws of the State of Iowa. This Agreement may be amended only in a
writing signed by each of the parties, and
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terms of this Agreement may be waived only by a writing signed by the party to
be charged with such waiver.
12. NOTICES. Whenever any notice is required to be or may be given
pursuant to this Agreement it shall be deemed given when sent to the party to
receive such notice by registered or certified mail, by overnight courier, by
facsimile or other electronic communication or personal delivery at the
following address:
If to Company:
BERTHEL SBIC, LLC
100 Second Street, SE
P.O. Box 74250
Cedar Rapids, IA 52407-4250
Telephone No.: 319/365-2506
Facsimile No.: 319/365-4538
If to Manager:
BERTHEL FISHER & COMPANY PLANNING, INC.
100 Second Street, SE
P.O. Box 74250
Cedar Rapids, IA 52407-4250
Telephone No.: 319/365-2506
Facsimile No.: 319/365-4538
IN WITNESS WHEREOF, and intending to be legally bound thereby, the parties
hereto have executed and delivered this Agreement as of the date set forth
above.
BERTHEL SBIC,LLC
By: /s/ James D. Thorp
-------------------------------
Its: President
------------------------------
BERTHEL FISHER & COMPANY
PLANNING, INC.
By: /s/ James D. Thorp
-------------------------------
Its: President
------------------------------
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