<PAGE> 1
As filed with the Securities and Exchange Commission on January 25, 1999
Investment Company Act File No. 811-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[ ] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No. _______________
[ ] Post-Effective Amendment No. ______________
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. _____
---------------------
XANTHUS FUND, L.L.C.
(Exact name of Registrant as specified in Charter)
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (212) 667-4225
---------------------
c/o HOWARD M. SINGER
Managing Director
CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Name and address of agent for service)
Copy to:
KENNETH S. GERSTEIN, ESQ.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
- --------------------------------------------------------------------------------
This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. Interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), and will be issued solely in private placement transactions
which do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in Registrant may only be made by individuals or
entities which are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any interests in Registrant.
<PAGE> 2
FORM N-2
XANTHUS FUND, L.L.C.
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ------- ------------------
<S> <C> <C>
1. Outside Front Cover Outside Front Cover of Confidential Memorandum
2. Inside Front and Outside Back Cover Outside Front Cover of Confidential Memorandum
Page
3. Fee Table and Synopsis Summary of Terms; Fees and Expenses; Capital Accounts
and Allocations - Incentive Allocation
4. Financial Highlights Not Applicable
5. Plan of Distribution Not Applicable
6. Selling Shareholders Not Applicable
7. Use of Proceeds Not Applicable
8. General Description of the Registrant Summary of Terms; The Company; Investment Program;
Types of Investments and Related Risk Factors;
Additional Risk Factors
9. Management Summary of Terms; The Company; Board of Managers; The
Adviser and CIBC Opco; Brokerage; Fees and Expenses;
Capital Accounts and Allocations - Incentive
Allocation; Additional Information and Summary of
Limited Liability Company Agreement - Custodian
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
- ----------- ------- ------------------
<S> <C> <C>
10. Capital Stock, Long-Term Debt, and Summary of Terms; Voting; Capital Accounts and
Other Securities Allocations; Subscription for Interests; Tax Aspects;
Additional Information and Summary of Limited
Liability Company Agreement
11. Defaults and Arrears on Senior Not Applicable
Securities
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement of Not Applicable
Additional Information
</TABLE>
<TABLE>
<CAPTION>
PART B
ITEM NUMBER CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ----------- ------- -------------------------------------------
<S> <C> <C>
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information and History Not Applicable
17. Investment Objective and Policies Summary of Terms; Investment Program; Types of
Investments and Related Risk Factors; Additional Risk
Factors; Brokerage
18. Management Summary of Terms; Board of Managers
19. Control Persons and Principal Holders Board of Managers
of Securities
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
PART B
ITEM NUMBER CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ----------- ------- -------------------------------------------
<S> <C> <C>
20. Investment Advisory and Other Services Summary of Terms; The Adviser and CIBC Opco; Fees and
Expenses; Capital Accounts and Allocations -
Incentive Allocations; Additional Information and
Summary of Limited Liability Company Agreement
21. Brokerage Allocation and Other Conflicts of Interest; Brokerage
Practices
22. Tax Status Summary of Terms; Tax Aspects
23. Financial Statements As Registrant has no assets, financial statements are
omitted.
</TABLE>
4
<PAGE> 5
Copy Number: ________________
XANTHUS FUND, L.L.C.
CONFIDENTIAL MEMORANDUM
[FEBRUARY] 1999
CIBC OPPENHEIMER ADVISERS, L.L.C.
INVESTMENT ADVISER
CIBC OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER, 31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
(212) 667-4225
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION
OF XANTHUS FUND, L.L.C. AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED. THE LIMITED LIABILITY COMPANY INTERESTS ("INTERESTS") OF XANTHUS
FUND, L.L.C. HAVE NOT BEEN REGISTERED WITH OR APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL
AGENCY OR REGULATORY AUTHORITY OR ANY NATIONAL SECURITIES EXCHANGE. NO AGENCY,
AUTHORITY OR EXCHANGE HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
CONFIDENTIAL MEMORANDUM OR THE MERITS OF AN INVESTMENT IN THE INTERESTS OF
XANTHUS FUND, L.L.C. OFFERED HEREBY. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 6
TO ALL INVESTORS
THE INTERESTS ARE NOT INSURED BY THE UNITED STATES FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. THE INTERESTS ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE NOT GUARANTEED BY, CANADIAN IMPERIAL
BANK OF COMMERCE OR ANY OTHER BANK. THE INTERESTS ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF THE FULL AMOUNT INVESTED.
THE INTERESTS OF XANTHUS FUND, L.L.C. WHICH ARE DESCRIBED IN THIS
CONFIDENTIAL MEMORANDUM HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY OF THE STATES
OF THE UNITED STATES. THE OFFERING CONTEMPLATED BY THIS CONFIDENTIAL MEMORANDUM
WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OF 1933, AS AMENDED, FOR OFFERS AND SALES OF SECURITIES WHICH
DO NOT INVOLVE ANY PUBLIC OFFERING, AND ANALOGOUS EXEMPTIONS UNDER STATE
SECURITIES LAWS.
THIS CONFIDENTIAL MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF INTERESTS
IN XANTHUS FUND, L.L.C. IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR
SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER, SOLICITATION OR SALE. NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY
REPRESENTATIONS CONCERNING XANTHUS FUND, L.L.C. THAT ARE INCONSISTENT WITH THOSE
CONTAINED IN THIS CONFIDENTIAL MEMORANDUM. PROSPECTIVE INVESTORS SHOULD NOT RELY
ON ANY INFORMATION NOT CONTAINED IN THIS CONFIDENTIAL MEMORANDUM OR THE EXHIBITS
HERETO.
THIS CONFIDENTIAL MEMORANDUM IS INTENDED SOLELY FOR THE USE OF THE
PERSON TO WHOM IT HAS BEEN DELIVERED FOR THE PURPOSE OF EVALUATING A POSSIBLE
INVESTMENT BY THE RECIPIENT IN THE INTERESTS DESCRIBED HEREIN, AND IS NOT TO BE
REPRODUCED OR DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN PROFESSIONAL ADVISERS
OF THE PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS
CONFIDENTIAL MEMORANDUM AS LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE
INVESTOR SHOULD CONSULT HIS OR HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL,
TAX, FINANCIAL OR OTHER MATTERS RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN
XANTHUS FUND, L.L.C. FOR SUCH INVESTOR.
THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE LIMITED LIABILITY COMPANY AGREEMENT OF XANTHUS FUND, L.L.C.,
THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR UP TO
TWO (2) YEARS FROM THE DATE THAT A REPURCHASE REQUEST HAS BEEN MADE BY AN
INVESTOR.
FOR GEORGIA RESIDENTS ONLY
THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH
(13) OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
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<PAGE> 7
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS........................................................... iii
THE COMPANY................................................................ 1
STRUCTURE.................................................................. 1
INVESTMENT PROGRAM......................................................... 2
TYPES OF INVESTMENTS AND RELATED RISK FACTORS.............................. 4
ADDITIONAL RISK FACTORS.................................................... 17
PERFORMANCE INFORMATION.................................................... 18
BOARD OF MANAGERS.......................................................... 19
THE ADVISER AND CIBC OPCO.................................................. 21
VOTING..................................................................... 24
CONFLICTS OF INTEREST...................................................... 24
BROKERAGE.................................................................. 27
FEES AND EXPENSES.......................................................... 29
CAPITAL ACCOUNTS AND ALLOCATIONS........................................... 31
SUBSCRIPTION FOR INTERESTS................................................. 35
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS........................ 36
TAX ASPECTS................................................................ 40
ERISA CONSIDERATIONS....................................................... 54
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY COMPANY
AGREEMENT.................................................................. 56
APPENDIX A - LIMITED LIABILITY COMPANY AGREEMENT........................... A-1
APPENDIX B-1 - PERFORMANCE INFORMATION FOR U.S. FUND AND
OFFSHORE FUND...............................................B-1-1
APPENDIX B-2 - PAST PERFORMANCE OF THE PORTFOLIO MANAGER
RELATED TO PROPRIETARY TRADING LINE.........................B-2-1
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<PAGE> 8
SUMMARY OF TERMS
The following summary is qualified entirely by the detailed information
appearing elsewhere in this Confidential Memorandum and by the terms
and conditions of the Limited Liability Company Agreement of Xanthus
Fund, L.L.C. (the "Company Agreement"), each of which should be read
carefully and retained by any prospective investor.
The Company Xanthus Fund, L.L.C. (the "Company") is a newly
organized Delaware limited liability company,
registered under the Investment Company Act of 1940
(the "1940 Act") as a closed-end, non-diversified,
management investment company.
The Company is a specialized investment vehicle that
may be referred to as a registered private investment
fund. The Company is similar to an unregistered
private investment fund in that (i) the Company's
portfolio may be more actively managed than most
other investment companies, (ii) interests in the
Company will be sold in large minimum denominations
in private placements solely to high net worth
individual and institutional investors, and thus will
be restricted as to transfer, and (iii) the capital
accounts of persons who purchase interests in the
Company offered hereby ("Members") will be subject to
both asset-based charges and performance-based
allocations in connection with the Company's
activities. Unlike a private investment fund but like
other registered investment companies, however, the
Company has registered under the 1940 Act to be able
to offer its interests without limiting the number of
investors that can participate in its investment
program.
Investment Program The Company's objective is to achieve maximum
capital appreciation. It pursues this objective
by investing in a portfolio consisting primarily
of equity securities of technology companies and
of companies which derive a major portion of their
revenue directly or indirectly from business lines
which will benefit from technological events and
advances. Technology companies include those
companies whose processes, products or services,
in the judgment of the investment adviser, are or
may be expected to be significantly benefited by
scientific developments in the application of
technical advances in manufacturing and commerce.
Examples of the types of industries in which the
Company may invest are: aerospace; electronics;
information sciences (including computer hardware
and software, and the Internet); life sciences
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<PAGE> 9
(including pharmacology and biotechnology);
networking; semiconductors; and telecommunications
(including equipment makers and service providers).
The Company will focus on technology companies that
its investment adviser believes are well positioned
to benefit from accelerating demand for their
products. For example, the Company will seek
investments in companies that can benefit from trends
in various sectors of the technology market such as:
deregulation of global telecommunication markets and
the associated need for upgrading existing network
infrastructure; increased corporate spending on
information technology for both hardware and
software; the dramatic growth of the Internet and
electronic commerce; the use of semiconductor
technology in industrial applications that involve
extensive computation; pharmaceutical advances
resulting from biotechnological innovations; and
increasingly complex media applications.
The Company's portfolio is expected to include long
and short positions primarily in equity securities of
U.S. and non-U.S. companies. Equity securities
include common and preferred stocks and other
securities having equity characteristics, including
convertible debt securities, stock options, warrants
and rights. The Company may also invest in debt
securities, swaps, swaptions, and other derivative
instruments such as forward contracts and options on
stock indices and structured equity related products.
Depending upon market conditions and the availability
of suitable investment opportunities, the Company
expects to utilize leverage by purchasing securities
on margin as part of its investment program. The
Company may use all or any of these investment
techniques and instruments to pursue its investment
objective or for hedging purposes. The use of these
investment techniques and instruments involve certain
risks. (See "Types of Investments and Related Risk
Factors.")
Although under normal market conditions, the Company
will principally invest its assets in the securities
of companies engaged in the technology sector, during
periods of adverse market conditions in the
technology sector or in the equity securities markets
generally, the Company may temporarily invest all or
any portion of its assets in equity securities of
non-technology related issuers or in high quality
fixed-income securities, including money market
instruments, or hold its assets as cash.
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<PAGE> 10
The Company may also invest in money market
instruments or hold cash for liquidity purposes.
CIBC Oppenheimer Advisers, L.L.C. will serve as the
investment adviser of the Company (the "Adviser"). It
will rely primarily on investment research and
fundamental analysis of company financial data in
seeking to identify attractive investment
opportunities for the Company. The research process
involves company visits, continuous updating of
valuation models, review and analysis of published
research and discussions with industry sources.
The Adviser has chosen Mr. Panayotis ("Takis")
Sparaggis as the portfolio manager of the Company.
Mr. Sparaggis, an employee of CIBC Oppenheimer Corp.
("CIBC Opco"), also serves as the portfolio manager
for two other investment funds: CIBC Oppenheimer
Technology Partners, L.L.C. (the "U.S. Fund"), a
private investment company organized as a limited
liability company under Delaware law for which the
Adviser serves as investment adviser, and CIBC
Oppenheimer Technology International, Ltd. (the
"Offshore Fund"), a company incorporated and governed
by the laws of the Cayman Islands for which CIBC Opco
serves as investment adviser. Both the U.S. Fund and
Offshore Fund have investment programs substantially
similar to that of the Company. Additionally, Mr.
Sparaggis is a portfolio manager for Oppenheimer's
Investment Advisers ("OIA") investment management
program, with primary responsibility for the OIA
MidCap Managed Account Portfolios (the "MidCap
Portfolios").
Risk Factors The Company's investment program is speculative
and entails substantial risks. There can be no
assurance that the Company's investment objective
will be achieved. In particular, the Company's
use of leverage, short sales and derivative
transactions and limited diversification can, in
certain circumstances, result in significant
losses to the Company. Additionally, because the
Company will normally invest primarily in the
securities of companies engaged in the technology
sector, the Company's investments and its
performance will be affected by risk factors
particular to the technology sector, as well as
general market and economic conditions affecting
the securities markets generally.
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<PAGE> 11
Investing in securities of technology companies
involves substantial risks. These risks include: the
fact that certain companies in the Company's
portfolio may have limited operating histories;
rapidly changing technologies and products which may
quickly become obsolete; cyclical patterns in
information technology spending which may result in
inventory write-offs, cancellation of orders and
operating losses; scarcity of management, engineering
and marketing personnel with appropriate
technological training; the possibility of lawsuits
related to technological patents; changing investors'
sentiments and preferences with regard to technology
sector investments (which are generally perceived as
risky) with their resultant effect on the price of
underlying securities; and volatility in the U.S. and
non-U.S. stock markets affecting the prices of
technology company securities, which may cause the
Company's performance to experience substantial
volatility.
As a non-diversified investment company, there are no
percentage limitations on the portion of the
Company's assets that may be invested in the
securities of any one issuer. The Company generally
will not invest more than 15% of the value of its
total assets (unleveraged and measured at the time of
purchase) in a single company. As a result, its
investment portfolio may be subject to greater risk
and volatility than if investments had been made in
the securities of a broader range of issuers.
The Company may invest a significant portion of its
assets in the securities of foreign issuers.
Investments in foreign securities are affected by
risk factors generally not thought to be present in
the U.S., including, among other things, increased
political, regulatory, contractual and economic risk
and exposure to currency fluctuations. Certain other
types of investments, such as derivatives and
illiquid investments, also involve particular risks
as described herein. In addition, the Company's use
of leverage and short selling can result in
significant losses to the Company's investment
portfolio.
The Incentive Allocation (defined below) that may be
debited to the capital account of each Member and
credited to the Special Advisory Account (defined
below) of the Adviser may create an incentive for the
Adviser to cause the Company to make investments that
are riskier or more speculative than would be the
case in the absence of the Incentive Allocation. In
addition,
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<PAGE> 12
because the Incentive Allocation is calculated on a
basis that includes unrealized appreciation of the
Company's assets, the allocation may be greater than
if it were based solely on realized gains.
There are special tax risks associated with an
investment in the Company.
The Company is a newly formed entity and has no
operating history upon which investors can
evaluate its performance. However, personnel of
CIBC Opco, which, as a member of the Adviser is
responsible for managing the Company's investment
portfolio, have substantial experience in managing
investments, and private investment companies. In
addition, Mr. Sparaggis has experience in managing
the U.S. Fund and the Offshore Fund, both of which
have investment programs that are substantially
similar to that of the Company. (See "Performance
Information.")
Interests in the Company will not be traded on any
securities exchange or other market and are subject
to substantial restrictions on transfer. Although the
Company may offer to repurchase Interests from time
to time, a Member may not be able to liquidate its
interest in the Company for up to two years. (See
"Types of Investments and Related Risk Factors," "Tax
Aspects," and "Redemptions, Repurchases of Interests
and Transfers.")
Management The Board of Managers of the Company (the "Board
of Managers") has overall responsibility for the
management and supervision of the operations of
the Company. None of the Managers is an
"interested person," as defined by the 1940 Act,
of CIBC Opco or the Adviser. The initial Managers
serving on the Board of Managers have been elected
by the organizational Member of the Company (who
is not affiliated with CIBC Opco). By signing the
Company Agreement, each Member will be deemed to
have voted for the election of each of the initial
Managers. Any vacancy may be filled by the
remaining Managers, or, if required by the 1940
Act, by a vote of a plurality of the outstanding
voting securities of the Company (other than any
such securities held by the Members affiliated
with CIBC Opco) at a meeting of the Members at
which a quorum of Members is present in person or
by proxy. (See "Board of Managers" and
"Voting.") The Managers also serve as Individual
General Partners of Wynstone Partners, L.P.
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<PAGE> 13
("Wynstone"), a Delaware limited partnership
registered under the 1940 Act as a closed-end,
non-diversified, management investment company for
which the Adviser serves as the investment adviser.
Adviser CIBC Oppenheimer Advisers, L.L.C. (the "Adviser"), a
Delaware limited liability company, serves as the
investment adviser of the Company and will be
responsible for managing the Company's investment
portfolio pursuant to the terms of an investment
advisory agreement with the Company. As noted
above, the Adviser has chosen Mr. Panayotis
("Takis") Sparaggis as portfolio manager of the
Company. Mr. Sparaggis is an employee of CIBC Opco,
which is the managing member and controlling person
of the Adviser. The Adviser holds a non-voting
Special Advisory Member interest (the "Special
Advisory Account") in the Company solely for the
purpose of receiving the Incentive Allocation.
Affiliates of the Adviser have made a significant
investment in the U.S. Fund and in an account
managed by Mr. Sparaggis on a pari passu basis with
the U.S. Fund and the Offshore Fund. Additionally,
at the initial closing the Adviser will make a
capital contribution to the Company as a Member in
the approximate amount of 1% of the aggregate
outstanding capital account balances of all Members.
(See "Additional Information and Summary of Limited
Liability Company Agreement - Member Interests.")
The Company has entered into an investment advisory
agreement (the "Investment Advisory Agreement") with
the Adviser which is effective for an initial term
expiring [ ], 2001, and may be continued in effect
from year to year thereafter if the continuance is
approved annually by the Board of Managers. The Board
of Managers may terminate the Investment Advisory
Agreement on 60 days' prior written notice to the
Adviser.
The Adviser serves as an investment adviser and holds
a non-voting Special Advisory Limited Partner
interest in Wynstone. The Adviser also has made a
capital contribution to Wynstone as a limited partner
which currently exceeds 25% of the aggregate
outstanding balances of all limited partners of
Wynstone. As long as the Adviser holds more than 4.9%
of the aggregate outstanding balances of all limited
partners of Wynstone, the Adviser may be deemed to
"control" Wynstone for purposes of the Bank Holding
Company Act of 1956 (the "BHC Act"), to which the
Adviser, CIBC Opco and affiliates
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<PAGE> 14
of CIBC Opco are subject. Because the Managers also
serve as Individual General Partners of Wynstone, the
Adviser may also be deemed to "control" the Company
for purposes of the BHC Act. As a result, certain
activities of the Company may be restricted by the
BHC Act and rules and regulations thereunder, as
described elsewhere in this Confidential Memorandum.
CIBC Opco, the managing member of the Adviser,
(directly or through affiliates, including the
Adviser) provides investment advisory services to
registered investment companies, private investment
companies and individual client accounts, including
the U.S. Fund and the Offshore Fund.
Placement Agent CIBC Opco acts as the non-exclusive placement
agent for the Company, without special
compensation from the Company, and will bear its
own costs associated with its activities as
placement agent. The Board of Managers may
terminate CIBC Opco as placement agent upon 30
days' prior written notice. CIBC Opco intends to
compensate its account executives for their
ongoing servicing of clients with whom it has
placed interests in the Company. This
compensation will be based upon a formula that
takes into account the amount of client assets
being serviced as well as the investment results
attributable to clients' assets invested in the
Company. (See "Conflicts Of Interest - CIBC
Opco.")
CIBC Opco (subject to the approval of the Board of
Managers) may delegate any of its duties, functions
or powers as placement agent to unaffiliated
third-parties to act as sub-placement agents for the
Company. The Company will not bear any costs
associated with any such arrangements.
Conflicts of Interest Certain conflicts of interest may arise from the
following: (i) CIBC Opco and its affiliates,
including the Adviser, may each engage in
investment management activities for their own
accounts and the accounts of others in which the
Company has no interest and may have actual or
potential conflicts of interest with respect to
investments made by the Adviser on behalf of the
Company; (ii) situations may occur where the
Company could be disadvantaged because of the
investment activities conducted by CIBC Opco and
its affiliates for their own or for their other
managed accounts; (iii) the Adviser and any of
its affiliates may in the future provide
investment advisory services from time to time to
other private investment companies, entities or
accounts, as well as the U.S. Fund and the
Offshore Fund;
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<PAGE> 15
(iv) from time to time, in the ordinary course of its
brokerage, investment or dealer activities, CIBC Opco
and its affiliates may trade, position or invest in,
for their own account, the same securities as those
in which the Company invests; (v) the Portfolio
Manager also serves as portfolio manager of the U.S.
Fund, the Offshore Fund and the Mid Cap Portfolios;
(vi) the Company may be subject to the same
restrictions relating to the purchase and sale of
securities contained on CIBC Opco's recommended and
restricted list as are imposed on CIBC Opco's
proprietary accounts; (vii) the investment banking
and corporate finance activities of CIBC Opco,
Canadian Imperial Bank of Commerce (the parent
company of CIBC Opco) or their respective affiliates
may restrict the ability of the Company to purchase
or sell certain securities; and (viii) the Adviser,
CIBC Opco and affiliates of CIBC Opco are subject to
regulation under the Bank Holding Company Act and to
restrictions imposed by the Board of Governors of the
Federal Reserve System on their transactions and
relationships with the Company and these restrictions
may affect the investments made by the Company.
Future activities of CIBC Opco, including its
directors, principals, officers and employees, or of
its affiliates, may give rise to additional conflicts
of interest. (See "Conflicts Of Interest.")
Fees and Expenses CIBC Opco provides certain administration and
investor services to the Company, including, among
other things, providing office space and other
support services to the Company, maintaining and
preserving certain records of the Company,
preparing and filing various materials with state
and Federal regulators, providing legal and
regulatory advice in connection with
administrative functions and reviewing and
arranging for payment of the Company's expenses.
In consideration for these services, the Company
will pay CIBC Opco a monthly management fee of
0.08333% (1% on an annualized basis) of the
Company's net assets for the month (the "CIBC Opco
Fee"). The CIBC Opco Fee will be an expense paid
to CIBC Opco out of the Company's assets, and will
be reflected in each Member's capital account
(including the Adviser's capital account but
excluding the Special Advisory Account) as a
reduction to net profits or an increase to net
losses credited to or debited against each
Member's capital account. (See "Capital Accounts
and Allocations.").
The Company will bear all expenses incurred in the
business of the Company, including, but not limited
to, the following: all
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<PAGE> 16
costs and expenses related to portfolio transactions
and positions for the Company's account; legal fees;
accounting fees; costs of insurance; organizational
and registration expenses; certain offering expenses;
expenses of meetings of the Board of Managers and
Members; and fees payable to PFPC Inc. for providing
certain administration, accounting and investor
services to the Company. (See "Fees and Expenses.")
These expenses will not be charged to the Special
Advisory Account.
Allocation of Profit and The net profits or net losses of the Company
Loss (including, without limitation, net realized gain or
loss and the net change in unrealized appreciation or
depreciation of securities positions) will be
credited to or debited against the capital accounts
of the Members at the end of each fiscal period in
accordance with their respective investment
percentages for the period. Each Member's investment
percentage will be determined by dividing as of the
start of a fiscal period the balance of the Member's
capital account by the sum of the balances of the
capital accounts of all Members. (See "Capital
Accounts and Allocations Allocation of Net Profits
and Net Losses.")
Incentive Allocation Generally at the end of each fiscal year, an
incentive allocation of 20% of the net profits, if
any, that have been credited to the capital
account of the Member during the period (an
"Incentive Allocation") will be debited from the
Member's capital account (including the Adviser's
capital account) and credited to the Special
Advisory Account. The Incentive Allocation will
be charged to a Member only to the extent that
cumulative net profits with respect to the Member
through the close of any period exceeds the
highest level of cumulative net profits with
respect to the Member through the close of any
prior period. For this purpose, cumulative net
profits will be adjusted to reflect any
repurchases of a Member's interests in the
Company. The Adviser may withdraw any Incentive
Allocation credited to its Special Advisory
Account by the last business day of the month
following the date on which the Incentive
Allocation was made. (See "Capital Accounts and
Allocations - Incentive Allocation.")
Subscription for The minimum initial investment in the Company is
Interests $150,000 and the minimum additional investment in the
Company is $25,000, subject to the discretion of the
Board of Managers to accept initial and additional
investments in lesser amounts. For
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the first nine months from the date that the Company
commences operations, the Board of Managers may
accept initial and additional subscriptions for
interests by eligible investors as of the first day
of each month. Thereafter, during any period in which
the Adviser is deemed to control the Company for
purposes of the BHC Act, the Board of Managers may
accept initial and additional subscriptions for
interests by eligible investors as of the first day
of each calendar quarter. At all other times, the
Board of Managers may accept initial and additional
subscriptions for interests by eligible investors as
of the first day of each month. All subscriptions are
subject to the receipt of cleared funds on or before
the acceptance date and require the investor to
submit a completed subscription document before the
acceptance date. The Board of Managers reserves the
right to reject any subscription for interests in the
Company and may, in its sole discretion, suspend
subscriptions for interests at any time. Interests
may not be purchased by nonresident aliens, foreign
corporations, foreign partnerships, foreign trusts or
foreign estates, all as defined in the Internal
Revenue Code of 1986, as amended (the "Code"). In
addition, because the Company may generate "unrelated
business taxable income" with respect to tax-exempt
investors, charitable remainder trusts may not want
to purchase interests in the Company.
Initial Closing Date The initial closing date for subscriptions of
interests in the Company is [April 1, 1999.] The
Company, in its sole discretion, may postpone the
closing date for up to 90 days.
Transfer Restrictions Interests in the Company held by Members may be
transferred only (i) by operation of law pursuant
to the death, bankruptcy, insolvency or
dissolution of a Member or (ii) under certain
limited circumstances, with the written consent of
the Management Board (which may be withheld in its
sole and absolute discretion and is expected to be
granted, if at all, only under extenuating
circumstances). The Management Board generally
will not consent to a transfer unless the
following conditions, among others, are met: (i)
the transferring Member has been a Member for at
least six months; (ii) the proposed transfer is to
be made on the effective date of an offer by the
Company to repurchase interests; and (iii) the
transfer does not constitute a change in
beneficial ownership. The foregoing permitted
transferees will not be allowed to become
substituted Members without the consent of the
Board of Managers, which may be withheld in its
sole and absolute discretion. A Member
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who transfers an interest may be charged reasonable
expenses, including attorneys' and accountants' fees,
incurred by the Company in connection with the
transfer. (See "Redemptions, Repurchases of Interests
and Transfers - Transfers of Interests.")
Withdrawals and No Member will have the right to require the Company
Repurchases of Interests to redeem its Interest. The Company may from time to
by the Company time offer to repurchase interests pursuant to
written tenders by Members. Repurchases will be made
at such times and on such terms as may be determined
by the Board of Managers, in its complete and
exclusive discretion. In determining whether the
Company should repurchase interests or portions
thereof from Members pursuant to written tenders, the
Board of Managers will consider the recommendation of
the Adviser. The Adviser expects that it will
recommend to the Board of Managers that the Company
offer to repurchase Interests from Members at the end
of 1999. Thereafter, the Adviser expects that
generally it will recommend to the Board of Managers
that the Company offer to repurchase interests from
Members twice each year, effective at the end of the
second fiscal quarter and again at the end of the
year. The Board of Managers will also consider the
following factors, among others, in making this
determination: (i) whether any Members have requested
to tender interests or portions thereof to the
Company; (ii) the liquidity of the Company's assets;
(iii) the investment plans and working capital
requirements of the Company; (iv) the relative
economies of scale with respect to the size of the
Company; (v) the history of the Company in
repurchasing interests or portions thereof; (vi) the
economic condition of the securities markets; and
(vii) the anticipated tax consequences of any
proposed repurchases of interests or portions
thereof. (See "Redemptions, Repurchases of Interests
and Transfers - No Right of Redemption" and
"Repurchases of Interests.")
The Company Agreement provides that the Company shall
be dissolved if the interest of any Member that has
submitted a written request, in accordance with the
terms of the Company Agreement, to tender its entire
interest for repurchase by the Company has not been
repurchased within a period of two years after the
request.
Summary of Taxation Counsel to the Company will render an opinion that
the Company will be treated as a partnership and
not as an association taxable as a corporation for
Federal income tax
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<PAGE> 19
purposes. Counsel to the Company also will render its
opinion that, under a "facts and circumstances" test
set forth in regulations adopted by the U.S. Treasury
Department, the Company will not be treated as a
"publicly traded partnership" taxable as a
corporation. Accordingly, the Company should not be
subject to Federal income tax, and each Member will
be required to report on its own annual tax return
such Member's distributive share of the Company's
taxable income or loss.
If it were determined that the Company should be
treated as an association or a publicly traded
partnership taxable as a corporation (as a result
of a successful challenge to the opinions rendered
by counsel to the Company or otherwise), the
taxable income of the Company would be subject to
corporate income tax and any distributions of
profits from the Company would be treated as
dividends. (See "Tax Aspects.")
ERISA Plans and Other Investors subject to the Employee Retirement Income
Tax-Exempt Entities Security Act of 1974, as amended ("ERISA"), and other
tax-exempt entities (each a "tax-exempt" entity) may
purchase interests in the Company with the approval
of the Management Board. The Company may utilize
leverage in connection with its trading activities.
Therefore, a tax-exempt Member may incur income tax
liability with respect to its share of the net
profits from these leveraged transactions to the
extent they are treated as giving rise to "unrelated
business taxable income." The Company will provide to
tax-exempt Members such accounting information as
they require to report their "unrelated business
taxable income" for income tax purposes.
Investment in the Company by tax-exempt entities
requires special consideration. Trustees or
administrators of these entities are urged to
carefully review the matters discussed in this
Confidential Memorandum.
Term The Company's term is perpetual unless the Company is
otherwise terminated under the terms of the Company
Agreement.
Reports to Members The Company will furnish to Members as soon as
practicable after the end of each taxable year such
information as is necessary for them to complete
Federal and state income tax or information returns,
along with any other tax information required by law.
The Company will also send Members an unaudited
semi-annual and an audited annual report within 60
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<PAGE> 20
days after the close of the period for which the
report is being made. Members also will be sent
quarterly reports regarding the Company's operations
during each quarter.
Fiscal Year The 12-month period ending December 31. The first
fiscal year of the Company will commence on the date
of the initial closing and will end on December 31,
1999.
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<PAGE> 21
THE COMPANY
Xanthus Fund, L.L.C. (the "Company") is registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified, closed-end
management investment company. The Company was organized as a limited liability
company under the laws of Delaware in January, 1999, and has no operating
history. The Company's principal office is located at CIBC Oppenheimer Tower,
One World Financial Center, 31st Floor, 200 Liberty Street, New York, New York
10281, and its telephone number is (212) 667-4225. CIBC Oppenheimer Advisers,
L.L.C. (the "Adviser"), a Delaware limited liability company, serves as the
investment adviser to the Company and is responsible for the Company's
investment activities pursuant to an investment advisory agreement.
Responsibility for the overall management and supervision of the operations of
the Company is vested in the individuals who serve as the Board of Managers of
the Company (the " Board of Managers ").
(See " Board of Managers.")
STRUCTURE
The Company is a specialized investment vehicle that combines many
of the features of a private investment fund with those of a closed-end
investment company. Private investment funds are typically unregistered,
commingled asset pools that are often aggressively managed and offered in large
minimum denominations (often over $1 million) through private placements to a
limited number of high net worth individual and institutional investors. The
investment advisers of these funds are typically compensated through asset-based
fees and performance-based allocations. Closed-end investment companies
typically are 1940 Act registered pools typically organized as corporations or
business trusts that usually are managed more conservatively than most private
investment funds, subject to relatively modest minimum investment requirements
(often less than $2,000) and publicly offered to a broad range of investors. The
advisers to these companies are typically compensated through asset-based (but
not performance-based) fees.
The Company is similar to private investment funds in that its
investment portfolio may be actively managed and interests in the Company will
be sold in comparatively large minimum denominations ($150,000) in private
placements solely to high net worth individual and institutional investors,
whose capital accounts will be subject to both asset-based fees and
performance-based allocations. However, the Company, like other closed-end
investment companies, has registered under the 1940 Act to be able to offer its
interests without limiting the number of investors that can participate in its
investment program. This permits a larger number of investors that have a higher
tolerance for investment risk to participate in an aggressive investment program
without making the more substantial minimum capital commitment that is required
by many private investment funds.
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<PAGE> 22
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE
The Company's objective is to achieve maximum capital appreciation.
It pursues this objective by actively investing in a portfolio consisting
primarily of equity securities of technology companies and of companies which
derive a major portion of their revenue directly or indirectly from business
lines which benefit from technological events and advances (collectively,
"Technology Sector Issuers"). Technology Sector Issuers include those companies
whose processes, products or services, in the judgment of the Adviser, are or
may be expected to be significantly benefited by scientific developments in the
application of technical advances in manufacturing and commerce. Examples of the
types of industries in which the Company may invest are: aerospace; electronics;
information sciences (including computer hardware and software, and the
Internet); life sciences (including pharmacology and biotechnology) networking;
semiconductors; and telecommunications (including equipment makers and service
providers).
The Company will focus on Technology Sector Issuers that the Adviser
believes will be instrumental in, or will benefit from, accelerating demand for
their products. The Company's portfolio of securities in the technology area is
expected to include long and short positions primarily in equity securities of
U.S. and non-U.S. companies. Equity securities include common and preferred
stock and other securities having equity characteristics, including convertible
debt securities, stock options, warrants and rights. The Company may also invest
in debt securities swaps, swaptions and other derivative instruments such as
forward contracts and options on stock indices and structured equity related
products. If the Adviser perceives profit opportunities in securities other than
common stock (e.g., convertible preferred, fixed income securities), the Company
may, over time, more heavily weight its portfolio in favor of such securities.
Depending upon market conditions and the availability of suitable investment
opportunities, the Company expects to utilize leverage by purchasing securities
on margin as part of its investment program. The Company may, but is not
required to, use all or any of these investment techniques and instruments to
pursue its investment objective or for hedging purposes. The use of these
investment techniques and instruments involve certain risks. (See Types of
Investments and Related Risk Factors.") The Company will comply with applicable
regulatory requirements, including the asset coverage requirements under the
1940 Act, in connection with its use of these techniques and strategies.
INVESTMENT METHODOLOGY
Under normal market conditions, the Company will principally invest
its assets in the securities of U.S. and non-U.S. Technology Sector Issuers.
During periods of adverse market conditions in the technology sector or in the
equity securities market generally, the Company may deviate from its investment
objective and invest all or any portion of the Company's assets in securities of
issuers not engaged in the technology sector or in high quality fixed-income
securities, including money market instruments, or hold its assets in cash. The
Company may
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<PAGE> 23
also invest in money market instruments or hold cash for liquidity purposes.
(See "Types of Investments and related Risk Factors - Temporary Investments.")
In selecting investments, the Adviser considers industry-wide trends
and company-specific factors. Trends in the past have included: deregulation of
global telecommunication markets and the associated need for upgrading existing
network infrastructure; increased corporate spending on information technology
for both hardware and software; the dramatic growth of the Internet and
electronic commerce; the use of semiconductor technology in industrial
applications that involve extensive computation; pharmaceutical advances
resulting from biotechnological innovations; and increasingly complex media
applications. Such trends tend to impact particular sectors of the technology
market, and, on the long side of the Company's portfolio, investments generally
will be in companies that the Adviser believes have or are developing
technologies that will have a substantial and prolonged impact on particular
business segments of the economy and that are expected to become instrumental in
accelerating economic growth in those business segments.
Company-specific factors are important indicators of a company's
ability to compete effectively in rapidly changing technological markets.
Factors considered include: investment in research and development at a level
that represents a significant portion of the company's sales; a strong and
experienced management team; a customer-oriented corporate philosophy; the
ability to create an organizational structure that can attract engineering
talent and motivate such talent through appropriate incentives; and, where
applicable, a demonstrated track record in making acquisitions in emerging
technologies that can help a company successfully augment its existing product
line and accelerate revenues and earnings.
In managing the investments of the Company, the Adviser will rely
primarily on investment research and fundamental analysis of company financial
data in seeking to identify attractive investment opportunities. The research
process involves company visits, continuous updating of valuation models, review
and analysis of published research and discussions with industry sources.
Additional information about the types of investments that will be
made by the Company, its investment practices and related risk factors is
provided below. Except as otherwise indicated, the Company's investment policies
and restrictions are not fundamental and may be changed without a vote of
Members (the "Members"). (See "Types of Investments and Related Risk Factors -
Fundamental Investment Policies.")
The Company's investment program emphasizes active management of the
Company's portfolio. Consequently, the Company's portfolio turnover and
brokerage commission expenses may exceed those of other investment entities of
comparable size. Additionally, a high portfolio turnover rate may also result in
the realization of capital gains, including short-term gains which will be
taxable to Members as ordinary income. Nevertheless, the tax implications of the
Company's active trading style generally will not be a factor in the management
of the Company's portfolio.
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<PAGE> 24
THE COMPANY'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS
SUBSTANTIAL RISKS. THERE CAN BE NO ASSURANCE THAT THE COMPANY'S INVESTMENT
OBJECTIVE WILL BE ACHIEVED. IN PARTICULAR, THE COMPANY'S USE OF LEVERAGE, SHORT
SELLING AND DERIVATIVES TRANSACTIONS, AND ITS LIMITED DIVERSIFICATION CAN, IN
CERTAIN CIRCUMSTANCES, RESULT IN SIGNIFICANT LOSSES TO THE COMPANY.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
TECHNOLOGY SECTOR AND SECTOR CONCENTRATION
Because the Company will principally invest its assets in the
securities of companies engaged in the technology sector, the Company's
investments and its performance will be affected by risk factors particular to
the technology sector, as well as market and economic conditions affecting the
securities markets generally. Investing in equity and other securities of
Technology Sector Issuers involves substantial risks. These risks include: the
fact that certain companies in the Company's portfolio may have limited
operating histories; rapidly changing technologies and products which may
quickly become obsolete; cyclical patterns in information technology spending
which may result in inventory write-offs, cancellation of orders and operating
losses; scarcity of management, engineering and marketing personnel with
appropriate technological training; the possibility of lawsuits related to
technological patents; changing investors' sentiments and preferences with
regard to technology sector investments (which are generally perceived as risky)
with their resultant effect on the price of underlying securities; and
volatility in the stock markets affecting the prices of technology company
securities, which may cause the Company's performance to experience substantial
volatility.
EQUITY SECURITIES
A significant portion of the Company's investment portfolio normally
will consist of long and short positions in common stocks and other equity
securities. The value of the Company's equity securities will vary in response
to many factors, including, but not limited to, the activities and financial
condition of individual companies, the business market in which individual
companies compete and general market and economic conditions.
The Company's investments in equity securities of U.S. companies
will include securities that are listed on U.S. securities exchanges as well as
unlisted securities that are traded over-the-counter. Equity securities of
companies traded over-the-counter may not be traded in the volumes typically
found on a national securities exchange. Consequently, the Company may be
required to dispose of these securities over a longer (and potentially less
favorable) period of time than is required to dispose of the securities of
exchange listed companies. There is no minimum required market capitalization of
the companies in which the Company may invest. Thus, the Company may invest a
portion of its assets in securities of companies having smaller market
capitalization. Investments in companies with smaller market capitalizations are
generally riskier than investments in larger, well-established companies.
Smaller companies often are more recently formed than larger companies and may
have limited product lines, distribution channels and financial and managerial
resources. There is often less publicly available
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<PAGE> 25
information about these companies than there is for larger, more established
issuers, making it more difficult for the Adviser to analyze the value of the
company. The equity securities of smaller companies are often traded
over-the-counter or on regional exchanges and those securities may not be traded
in the volume typical for securities that are traded on a national securities
exchange. Consequently, the Company may be required to sell these securities
over a longer period of time (and potentially at less favorable prices) than
would be the case for securities of larger companies. In addition, the prices of
the securities of smaller companies may be more volatile than those of larger
companies.
COMMON STOCKS. Common stocks are shares of a corporation or other
entity that entitle the holder to a pro rata share of the profits, if any, of
the entity without preference over any other shareholder or claim of
shareholders, after making required payments to holders of the entity's
preferred stock and other senior equity. Common stock usually carries with it
the right to vote and frequently an exclusive right to do so.
PREFERRED STOCKS. Preferred stock generally has a preference as to
dividends and upon the event of liquidation, over an issuer's common stock, but
it ranks junior to debt securities in an issuer's capital structure. Preferred
stock generally pays dividends in cash (or additional shares of preferred stock)
at a defined rate, but unlike interest payments on debt securities, preferred
stock dividends are payable only if declared by the issuer's board of directors.
Dividends on preferred stock may be cumulative, meaning that, in the event the
issuer fails to make one or more dividend payments on the preferred stock, no
dividends may be paid on the issuer's common stock until all unpaid preferred
stock dividends have been paid. Preferred stock may also be subject to optional
or mandatory redemption provisions.
CONVERTIBLE SECURITIES. Convertible securities are bonds,
debentures, notes, preferred stocks or other securities that may be converted
into or exchanged for a specified amount of common stock of the same or
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest that is
generally paid or accrued on debt or a dividend that is paid or accrued on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics, in
that they generally (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying common stock due to their fixed-income
characteristics and (3) provide the potential for capital appreciation if the
market price of the underlying common stock increases.
The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates
decline. The credit standing of the issuer and other factors may also have an
effect on the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying
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<PAGE> 26
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value. Generally, the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed-income security.
A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Company is called for
redemption, the Company will be required to permit the issuer to redeem the
security, convert it into the underlying common stock or sell it to a third
party. Any of these actions could have an adverse effect on the Company's
ability to achieve its investment objective.
BONDS AND OTHER FIXED-INCOME SECURITIES
GENERALLY. The Company may invest in bonds and other fixed-income
securities. The Adviser (subject to any policies established by the Board of
Managers) will invest in these securities when they offer opportunities for
capital appreciation and may also invest in these securities for temporary
defensive purposes and to maintain liquidity. For these reasons, the Company
may, over time, more heavily weight its portfolio in favor of such securities.
Fixed-income securities include, among other securities: bonds,
notes and debentures issued by corporations; debt securities issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities
("U.S. Government Securities") or by a foreign government; municipal securities;
and mortgage-backed and asset-backed securities. These securities may pay fixed,
variable or floating rates of interest, and may include zero coupon obligations.
Fixed-income securities are subject to the risk of the issuer's inability to
meet principal and interest payments on its obligations (i.e., credit risk) and
are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (i.e., market risk).
The Company may invest in both investment grade and non-investment
grade debt securities. Investment grade debt securities are securities that have
received a rating from at least one nationally recognized statistical rating
organization ("NRSRO") in one of the four highest rating categories or, if not
rated by any NRSRO, have been determined by the Adviser to be of comparable
quality. Non-investment grade debt securities (typically called "junk bonds")
are securities that have received a rating from a NRSRO of below investment
grade or have been given no rating, and are considered by the NRSRO to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Non-investment grade debt securities in the lowest rating
categories may involve a substantial risk of default or may be in default.
Adverse changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuers of non-investment
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<PAGE> 27
grade debt securities to make principal and interest payments than is the case
for higher grade debt securities. An economic downturn affecting an issuer of
non-investment grade debt securities may result in an increased incidence of
default. In addition, the market for lower grade debt securities may be thinner
and less active than for higher grade debt securities.
LIMITED DIVERSIFICATION
The Company is a "non-diversified" investment company. Thus, there
are no percentage limitations on the percentage of the Company's assets that may
be invested in the securities of any one issuer. Because a relatively high
percentage of the Company's assets were to be invested in the securities of a
limited number of issuers within the technology sector, the Company's investment
portfolio will be more susceptible to any single economic, political or
regulatory occurrence than the portfolio of a diversified investment company
which does not concentrate its investments in a limited number of issuers in a
that particular market sector. However, the Company generally will not invest
more than 15% of the value of its total assets (unleveraged and measured at the
time of purchase) in a single company. The Adviser believes that this approach
helps to reduce risk due to unexpected company- or industry-specific events.
FOREIGN SECURITIES
The Company may invest a significant portion of the value of its
total assets in securities of foreign issuers and in depository receipts, such
as American Depository Receipts ("ADRs"), that represent indirect interests in
securities of foreign issuers. Foreign securities in which the Company may
invest may be listed on foreign securities exchanges or traded in foreign
over-the-counter markets. Investments in foreign securities are affected by risk
factors generally not thought to be present in the U.S. These factors include,
but are not limited to, the following: varying custody, brokerage and settlement
practices; difficulty in pricing; less public information about issuers of
foreign securities; less governmental regulation and supervision over the
issuance and trading of securities than in the U.S.; the unavailability of
financial information regarding the foreign issuer or the difficulty of
interpreting financial information prepared under foreign accounting standards;
less liquidity and more volatility in foreign securities markets; the
possibility of expropriation or nationalization; the imposition of withholding
and other taxes; adverse political, social or diplomatic developments;
limitations on the movement of funds or other assets of the Company between
different countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in
foreign countries. Moreover, governmental issuers of foreign securities may be
unwilling to repay principal and interest due, and may require that the
conditions for payment be renegotiated. Investment in foreign countries also
involves higher brokerage and custodian expenses than does investment in
domestic securities.
Other risks of investing in foreign securities include changes in
currency exchange rates (in the case of securities that are not denominated in
U.S. dollars) and currency exchange control regulations or other foreign or U.S.
laws or restrictions, or devaluations of foreign currencies. A decline in the
exchange rate would reduce the value of certain of the Company's foreign
currency denominated portfolio securities irrespective of the performance of
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<PAGE> 28
the underlying investment. In addition, the Company may incur costs in
connection with conversion between various currencies. The foregoing risks may
be greater in emerging industrialized and less developed countries.
The Company may enter into forward currency exchange contracts
("forward contracts") for hedging purposes and non-hedging purposes to pursue
its investment objective. Forward contracts are transactions involving the
Company's obligation to purchase or sell a specific currency at a future date at
a specified price. Forward contracts may be used by the Company for hedging
purposes to protect against uncertainty in the level of future foreign currency
exchange rates, such as when the Company anticipates purchasing or selling a
foreign security. This technique would allow the Company to "lock in" the U.S.
dollar price of the security. Forward contracts may also be used to attempt to
protect the value of the Company's existing holdings of foreign securities.
There may be, however, imperfect correlation between the Company's foreign
securities holdings and the forward contracts entered into with respect to those
holdings. Forward contracts may also be used for non-hedging purposes to pursue
the Company's investment objective (subject to any policies established by the
Board of Managers), such as when the Adviser anticipates that particular foreign
currencies will appreciate or depreciate in value, even though securities
denominated in those currencies are not then held in the Company's investment
portfolio. There is no requirement that the Company hedge all or any portion of
its exposure to foreign currency risks.
LEVERAGE
The Company may make margin purchases of securities and, in that
regard, borrow money from brokers and banks for investment purposes. This
practice, which is known as "leverage," is speculative and involves certain
risks. The Company may also borrow money for temporary or emergency purposes or
in connection with the repurchase of interests in the Company.
Trading equity securities on margin involves an initial cash
requirement representing at least 50% of the underlying security's value with
respect to transactions in U.S. markets and varying (typically lower)
percentages with respect to transactions in foreign markets. Borrowings to
purchase equity securities typically will be secured by the pledge of those
securities. The financing of securities purchases may also be effected through
reverse repurchase agreements with banks, brokers and other financial
institutions. This involves the transfer by the Company of the underlying
security to a counterparty in exchange for cash proceeds based on a percentage
(which can be as high as 95% to 100%) of the value of the debt instrument.
Although leverage will increase investment return if the Company
earns a greater return on the investments purchased with borrowed funds than it
pays for the use of those funds, the use of leverage will decrease investment
return if the Company fails to earn as much on investments purchased with
borrowed funds as it pays for the use of those funds. The use of leverage will
therefore magnify the volatility of the value of the Company's investment
portfolio. In the event that the Company's equity or debt instruments decline in
value, the Company could be subject to a "margin call" or "collateral call,"
pursuant to which the Company must either deposit additional collateral with the
lender or suffer mandatory liquidation of the pledged securities to
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compensate for the decline in value. In the event of a sudden, precipitous drop
in value of the Company's assets, the Company might not be able to liquidate
assets quickly enough to pay off its borrowing. Money borrowed for leveraging
will be subject to interest costs that may or may not be recovered by return on
the securities purchased. The Company also may be required to maintain minimum
average balances in connection with its borrowings or to pay a commitment or
other fee to maintain a line of credit; either of these requirements would
increase the cost of borrowing over the stated interest rate.
The 1940 Act requires the Company to satisfy an asset coverage
requirement of 300% of its indebtedness, including amounts borrowed, measured at
the time the Company incurs the indebtedness (the "Asset Coverage Requirement").
This means that the value of the Company's total indebtedness may not exceed
one-third the value of its total assets (including such indebtedness), measured
at the time the Company incurs the indebtedness. The staff of the SEC's Division
of Investment Management (the "SEC Staff") takes the position that short sales
of securities, reverse repurchase agreements, use of margin, sales of put and
call options on specific securities or indices, investments in certain other
types of instruments (including certain derivatives such as swap agreements),
and the purchase and sale of securities on a when-issued or forward commitment
basis, may be deemed to constitute indebtedness subject to the Asset Coverage
Requirement.
The SEC Staff has stated, however, that it will not deem a portfolio
position involving such instruments to be subject to the Asset Coverage
Requirement if an investment company "covers" its position by segregating liquid
securities on its books or in an account with its custodian in amounts
sufficient to offset the liability associated with the position. Generally, in
conjunction with portfolio positions that are deemed to constitute senior
securities, the Company must: (1) observe the Asset Coverage Requirement; (2)
maintain daily a segregated account in cash or liquid securities at such a level
that the amount segregated plus any amounts pledged to a broker as collateral
will equal the current value of the position; or (3) otherwise cover the
portfolio position with offsetting portfolio securities. Segregation of assets
or covering portfolio positions with offsetting portfolio securities may limit
the Company's ability to otherwise invest those assets or dispose of those
securities.
In order to obtain "leveraged" market exposure in certain
investments and to increase the overall return to the Company of various
investments, the Company may purchase options and other synthetic instruments
that do not constitute "indebtedness" for purposes of the Asset Coverage
Requirement. These instruments may nevertheless involve significant economic
leverage and therefore may, in some cases, involve significant risks of loss.
SHORT SALES
The Company may attempt to limit exposure to a possible market
decline in the value of its portfolio securities through short sales of
securities that the Adviser (subject to any policies established by the Board of
Managers) believes possess volatility characteristics similar to those being
hedged. In addition, the Company may use short sales for non-hedging purposes to
pursue its investment objective. For example, the Company may "short" a security
of a company if,
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in the Adviser's view, the security is over-valued in relation to the issuer's
prospects for earnings growth.
To effect a short sale, the Company will borrow a security from a
brokerage firm to make delivery to the buyer. The Company is then obligated to
replace the borrowed security by purchasing it at the market price at the time
of replacement. Until the security is replaced, the Company is required to pay
to the brokerage firm any accrued interest or dividend and may be required to
pay a premium.
The Company will realize a gain if the borrowed security declines in
price between the date of the short sale and the date on which the Company
replaces the security. The Company will incur a loss if the price of the
borrowed security increases between those dates. This loss can increase rapidly
and without effective limit. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium or interest the
Company may be required to pay in connection with a short sale. There is a risk
that the borrowed securities would need to be returned to the brokerage firm on
short notice. If a request for return of securities occurs at a time when other
short sellers of the subject security are receiving similar requests, a "short
squeeze" can occur, wherein the Company might be compelled, at the most
disadvantageous time, to replace borrowed securities previously sold short with
purchases on the open market, possibly at prices significantly in excess of the
price at which the securities were sold short. The successful use of short
selling may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged. Short
selling may exaggerate the volatility of the Company's investment portfolio.
Short selling may also produce higher than normal portfolio turnover and may
result in increased transaction costs to the Company.
The Company may also make short sales against-the-box, in which it
sells short securities it owns or has the right to obtain without payment of
additional consideration. If the Company makes a short sale against-the-box, it
will be required to set aside securities equivalent in kind and amount to the
securities sold short (or securities convertible or exchangeable into those
securities) and will be required to hold those securities while the short sale
is outstanding. The Company will incur transaction costs, including interest
expenses, in connection with opening, maintaining and closing short sales
against-the-box.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the Company's sale of a
security to a bank or securities dealer and the Company's simultaneous agreement
to repurchase that security for a fixed price (reflecting a market rate of
interest) on a specific date. These transactions involve a risk that the other
party to a reverse repurchase agreement will be unable or unwilling to complete
the transaction as scheduled, which may result in losses to the Company. Reverse
repurchase transactions are a form of leverage which may also increase the
volatility of the Company's investment portfolio. The Company has adopted
procedures designed to minimize certain of the risks of loss associated with
reverse repurchase transactions.
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SPECIAL INVESTMENT INSTRUMENTS AND TECHNIQUES
The Company may utilize a variety of special investment instruments
and techniques (described below) to hedge its investment portfolio against
various risks (such as changes in interest rates or other factors that affect
security values) or for non-hedging purposes to pursue the Company's investment
objective. These strategies may be executed through derivative transactions. The
instruments the Company may use and the particular manner in which they may be
used may change over time as new instruments and techniques are developed or
regulatory changes occur. Certain of the special investment instruments and
techniques that the Company may use are speculative and involve a high degree of
risk, particularly in the context of non-hedging transactions to pursue the
Company's investment objective. In addition, there is no requirement that the
Company hedge its portfolio or any of its investment positions.
CALL AND PUT OPTIONS ON INDIVIDUAL SECURITIES. The Company may
purchase call and put options in respect of specific securities, and may write
and sell covered or uncovered call and put options for hedging purposes and
non-hedging purposes to pursue its investment objective. A put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security at a stated exercise price at any time prior to the
expiration of the option. Similarly, a call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, the underlying
security at a stated exercise price at any time prior to the expiration of the
option.
A covered call option written by the Company is a call option with
respect to which the Company owns the underlying security. The sale of such an
option exposes the Company during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or to possible continued holding of a security that might otherwise
have been sold to protect against depreciation in the market price of the
security. A covered put option written by the Company is a put option with
respect to which cash or liquid securities have been placed in a segregated
account on the Company's books or with the Company's custodian to fulfill the
obligation undertaken. The sale of such an option exposes the Company during the
term of the option to a decline in price of the underlying security while
depriving the Company of the opportunity to invest the segregated assets.
The Company may close out a position when writing options by
purchasing an option on the same security with the same exercise price and
expiration date as the option that it has previously written on the security.
The Company will realize a profit or loss if the amount paid to purchase an
option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the Company
would ordinarily make a similar "closing sale transaction," which involves
liquidating the Company's position by selling the option previously purchased,
although the Company would be entitled to exercise the option should it deem it
advantageous to do so. The Company may also invest in so-called "synthetic"
options or other derivative instruments written by broker-dealers.
Options transactions may be effected on securities exchanges or in
the over-the-counter market. When options are purchased over-the-counter, the
Company bears the risk that
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the counterparty that wrote the option will be unable or unwilling to perform
its obligations under the option contract. These options may also be illiquid
and, in such cases, the Company may have difficulty closing out its position.
Over-the-counter options purchased and sold by the Company may also include
options on baskets of specific securities.
WARRANTS AND RIGHTS. Warrants are derivative instruments that
permit, but do not obligate, the holder to subscribe for other securities or
commodities. Rights are similar to warrants, but normally have a shorter
duration and are offered or distributed to shareholders of a company. Warrants
and rights do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle the holder to purchase, and they do
not represent any rights in the assets of the issuer. As a result, warrants and
rights may be considered more speculative than certain other types of
equity-like securities. In addition, the values of warrants and rights do not
necessarily change with the value of the underlying securities or commodities
and these instruments cease to have value if they are not exercised prior to
their expiration dates.
CALL AND PUT OPTIONS ON SECURITIES INDICES. The Company may purchase
and sell call and put options on stock indices (such as the Morgan Stanley High
Tech Index or the Standard & Poor's 100 Index) listed on national securities
exchanges or traded in the over-the-counter market for hedging purposes and
non-hedging purposes to pursue its investment objective. A stock index
fluctuates with changes in the market values of the stocks included in the
index. The effectiveness of purchasing or writing stock index options for
hedging purposes will depend upon the extent to which price movements in the
Company's portfolio correlate with price movements of the stock index selected.
Because the value of an index option depends upon movements in the level of the
index rather than the price of a particular stock, whether the Company will
realize a gain or loss from the purchase or writing of options on an index
depends upon movements in the level of stock prices in the stock market
generally or, in the case of certain indexes, in an industry or market segment,
rather than movements in the price of a particular stock. Accordingly,
successful use by the Company of options on stock indexes will be subject to the
Adviser's ability to predict correctly movements in the direction of the stock
market generally or of a particular industry or market segment. This requires
different skills and techniques than predicting changes in the price of
individual stocks.
LENDING PORTFOLIO SECURITIES
The Company may lend its portfolio securities to domestic and
foreign brokers, dealers and financial institutions. These loans will be secured
by collateral (consisting of cash, U.S. Government Securities or irrevocable
letters of credit) maintained in an amount equal to at least 100% of the market
value, determined daily, of the loaned securities. The Company may at any time
call the loan and obtain the return of the securities loaned. The Company will
be entitled to payments equal to the interest and dividends on the loaned
security and may receive a premium for lending the securities. Lending portfolio
securities may result in income to the Company, but there may be delays in the
recovery of the loaned securities or a loss of rights in the collateral supplied
should the borrower fail financially. Securities lending involves a form of
leverage, and the Company may incur a loss if securities purchased with the
collateral from securities loans decline in value.
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WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Company may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis in order to hedge
against anticipated changes in interest rates and prices. These transactions
involve a commitment by the Company to purchase or sell securities at a future
date (ordinarily one or two months later). The price of the underlying
securities, which is generally expressed in terms of yield, is fixed at the time
the commitment is made, but delivery and payment for the securities takes place
at a later date. No income accrues on securities that have been purchased
pursuant to a forward commitment or on a when-issued basis prior to delivery to
the Company. When-issued securities and forward commitments may be sold prior to
the settlement date. If the Company disposes of the right to acquire a
when-issued security prior to its acquisition or disposes of its right to
deliver or receive against a forward commitment, it may incur a gain or loss.
These transactions will be subject to the Company's limitation on indebtedness
unless, at the time the Company enters into such a transaction, a segregated
account consisting of cash, U.S. Government Securities or liquid securities
equal to the value of the when-issued or forward commitment securities is
established and maintained. There is a risk that securities purchased on a
when-issued basis may not be delivered and that the purchaser of securities sold
by the Company on a forward basis will not honor its purchase obligation. In
such cases, the Company may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although the Company will invest primarily in publicly traded
securities, it may invest a portion of the value of its total assets in
restricted securities and other investments which are illiquid. Restricted
securities are securities that may not be sold to the public without an
effective registration statement under the Securities Act of 1933 ("1933 Act")
or, if they are unregistered, may be sold only in a privately negotiated
transaction or pursuant to an exemption from registration. In recognition of the
increased size and liquidity of the institutional markets for unregistered
securities and the importance of institutional investors in the formation of
capital, the SEC has adopted Rule 144A under the 1933 Act, which is designed to
further facilitate efficient trading among qualified institutional investors by
permitting the sale of certain unregistered securities to qualified
institutional buyers. The Company will be eligible to purchase securities in
Rule 144A transactions if and when it and all other registered investment
companies for which the Adviser serves as an investment adviser own, in the
aggregate, at least $100 million of securities of unaffiliated issuers. To the
extent privately placed securities held by the Company qualify under Rule 144A,
and an institutional market develops for those securities, the Company likely
will be able to dispose of the securities without registering them under the
1933 Act. To the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these securities, investing in Rule 144A securities
could have the effect of increasing the level of the Company's illiquidity. The
Company may adopt procedures under which certain Rule 144A securities will not
be deemed to be illiquid, if certain criteria are satisfied with respect to
those securities and the market therefor. Foreign securities that can be freely
sold in the markets in which they are principally traded are not considered by
the Company to be restricted. Regulation S under the 1933 Act permits the sale
abroad of securities
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that are not registered for sale in the United States. Repurchase agreements
with maturities of more than seven days will be treated as illiquid.
Where registration is required to sell a security, the Company may
be obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the decision to sell and the time the Company may be
permitted to sell a security under an effective registration statement. If,
during such period, adverse market conditions were to develop, the Company might
obtain a less favorable price than prevailed when it decided to sell. Restricted
securities for which no market exists and other illiquid investments are valued
at fair value as determined in accordance with procedures approved and
periodically reviewed by the Board of Managers.
Restricted securities and other illiquid investments involve the
risk that the securities will not be able to be sold at the time desired by the
Adviser or at prices approximating the value at which the Company is carrying
the securities. As a result, in determining the proportion of the value of its
total assets that will be invested in restricted and other illiquid investments,
the Company will consider the need to maintain an adequate level of liquidity in
its portfolio in order to fund the repurchase of interests from Members without
unnecessarily adversely impacting the value of the Company's portfolio. (See
"Redemptions, Repurchases of Interests and Transfers - Repurchases of
Interests.") It is not expected that the Company will invest all or a
substantial portion of the value of its total assets in such restricted or other
illiquid investments.
TEMPORARY INVESTMENTS
For defensive purposes, the Company may temporarily invest all or a
substantial portion of its assets in high quality fixed-income securities and
money market instruments, or may temporarily hold cash or cash equivalents in
such amounts as the Adviser deems appropriate under the circumstances.
Securities will be deemed to be of high quality if they are rated in the top
four categories by an NRSRO or, if unrated, are determined to be of comparable
quality by the Adviser. Money market instruments are high quality, short-term
fixed-income obligations (which generally have remaining maturities of one year
or less), and may include: U.S. Government Securities; commercial paper;
certificates of deposit and banker's acceptances issued by domestic branches of
United States banks that are members of the Federal Deposit Insurance
Corporation; and repurchase agreements for U.S. Government Securities. In lieu
of purchasing money market instruments, the Company may purchase shares of money
market mutual funds that invest primarily in U.S. Government Securities and
repurchase agreements involving those securities, subject to certain limitations
imposed by the 1940 Act.
For non-defensive purposes, the Company may also invest in money
market instruments or purchase shares of money market mutual funds pending
investment of its assets in equity securities or non-money market fixed-income
securities, or to maintain such liquidity as may be necessary to effect
repurchases of interests from Members or for other purposes.
Repurchase agreements are agreements under which the Company
purchases securities from a bank that is a member of the Federal Reserve System,
a foreign bank or a
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securities dealer that agrees to repurchase the securities from the Company at a
higher price on a designated future date. If the seller under a repurchase
agreement becomes insolvent, the Company's right to dispose of the securities
may be restricted, or the value of the securities may decline before the Company
is able to dispose of them. In the event of the commencement of bankruptcy or
insolvency proceedings with respect to the seller of the securities before the
repurchase of the securities under a repurchase agreement is accomplished, the
Company may encounter a delay and incur costs, including a decline in the value
of the securities, before being able to sell the securities. If the seller
defaults, the value of the securities may decline before the Company is able to
dispose of them. If the Company enters into a repurchase agreement that is
subject to foreign law and the other party defaults, the Company may not enjoy
protections comparable to those provided to certain repurchase agreements under
U.S. bankruptcy law, and may suffer delays and losses in disposing of the
collateral as a result. The Company has adopted procedures designed to minimize
certain of the risks of loss from the Company's repurchase agreement
transactions.
INVESTMENT POLICIES AND RESTRICTIONS
The Company has adopted the following six fundamental investment
restrictions, which cannot be changed without the vote of a majority of the
Company's outstanding voting securities (as defined by the 1940 Act):
(1) The Company will not invest 25% or more of the value of its
total assets in the securities (other than U.S. Government
Securities) of issuers engaged in any single industry,
including any industry within the technology sector.
(2) The Company will not issue senior securities representing
stock, but may borrow money from banks, brokers and other
lenders, and may engage in transactions involving the issuance
by the Company of "senior securities" representing
indebtedness, to the extent permitted by the 1940 Act.
(3) The Company will not underwrite securities of other issuers,
except insofar as the Company may be deemed an underwriter
under the 1933 Act in connection with the disposition of its
portfolio securities.
(4) The Company will not make loans of money or securities to
other persons, except through purchasing fixed-income
securities, lending portfolio securities or entering into
repurchase agreements in a manner consistent with the
Company's investment policies.
(5) The Company will not purchase or sell commodities or commodity
contracts, but the Company may purchase and sell foreign
currency and enter into foreign currency forward contracts,
and may engage in other
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transactions in financial instruments, in each case to the
extent permitted under the Company's investment policies as in
effect from time to time.
(6) The Company will not purchase, hold or deal in real estate,
but may invest in securities that are secured by real estate
or that are issued by companies that invest or deal in real
estate.
The investment objective of the Company is also fundamental and may
not be changed without a vote of a majority of the Company's outstanding voting
securities.
Under the 1940 Act, the vote of a majority of the outstanding voting
securities of an investment company, such as the Company, means the vote, at an
annual or a special meeting of the security holders of the company duly called,
(A) of 67 percent or more of the voting securities present at the meeting, if
the holders of more than 50 percent of the outstanding voting securities of the
company are present or represented by proxy; or (B) of more than 50 percent of
the outstanding voting securities of the company, whichever is less.
With respect to these investment restrictions, and other policies
described in this Confidential Memorandum, if a percentage restriction is
adhered to at the time of an investment or transaction, a later change in
percentage resulting from a change in the values of investments or the value of
the Company's total assets, unless otherwise stated, will not constitute a
violation of the restriction or policy. In addition to the restrictions
contained in the fundamental investment policies stated above, the Company is
subject to certain restrictions imposed by the 1940 Act on registered investment
companies, including restrictions with respect to its investment in the
securities of other investment companies, insurance companies and companies
engaged in certain securities related businesses.
The Bank Holding Company Act of 1956 (the "BHC Act"), together with
the rules and regulations of the Board of Governors of the Federal Reserve (the
"Federal Reserve"), impose certain restrictions on the ability of bank holding
companies and their subsidiaries to own equity securities of certain issuers.
Canadian Imperial Bank of Commerce ("CIBC"), the parent company of CIBC Opco,
the managing member of the Adviser, is subject to the BHC Act and those rules
and regulations. CIBC may also be deemed to "control" the Company for purposes
of the BHC Act as a result of : (i) the Adviser holding more than 4.9% of the
aggregate outstanding capital account balances of all limited partners of
Wynstone Partners, L.P. ("Wynstone"), a Delaware limited partnership registered
under the 1940 Act as a non-diversified, closed-end management company for which
the Adviser serves as the investment adviser; and (ii) the Individual General
Partners of Wynstone serving as the Managers of the Company. Therefore, the
Company may also be subject to these restrictions.
In particular, CIBC generally may not own or control, directly or
indirectly, more than 5% of the outstanding shares of any class of voting
securities or more than 25% of the outstanding equity (including subordinated
debt) of a non-banking company with business activities in the United States,
or, without the approval of the Federal Reserve and other appropriate regulatory
agencies, more than 5% of the outstanding shares of any class of voting
securities or more than 25% of the outstanding equity (including subordinated
debt) of any issuer
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that is a bank, bank holding company, thrift or thrift holding company (the
"Equity Limit"). Because CIBC may be deemed to control the Company within the
meaning of the BHC Act, the Company's holdings of all such securities will be
aggregated with those of CIBC and its subsidiaries (including CIBC Opco) for
purposes of calculating the Equity Limit. Consequently, the Company generally
will be unable to purchase equity securities that, when taken together with the
equity securities of an issuer owned or controlled by CIBC and its subsidiaries,
would cause the Equity Limit to be exceeded. In addition, CIBC and its
subsidiaries generally will be precluded under the BHC Act from exerting a
"controlling influence over the management or policies" of a company with
business activities in the United States. Consequently, activities in relation
to companies in which the Company may invest will need to be conducted so as not
to result in a determination of "control" within the meaning of the BHC Act.
The Adviser does not expect that the restrictions imposed by the BHC
Act will adversely impact the investment operations of the Company.
The Adviser will not cause the Company to make loans to or receive
loans from the Adviser or its affiliates, except to the extent permitted by the
1940 Act or as otherwise permitted by applicable law. The Company may effect
brokerage transactions through the affiliates of the Adviser, subject to
compliance with the 1940 Act. (See "Conflicts Of Interest - CIBC Opco," and
"Brokerage.")
ADDITIONAL RISK FACTORS
INCENTIVE ALLOCATION
The special allocation of 20% of net profits to the Special Advisory
Account (defined below) of the Adviser may create an incentive for the Adviser
to cause the Company to make investments that are riskier or more speculative
than would be the case in the absence of the Incentive Allocation. In addition,
because the allocation is calculated on a basis that includes unrealized
appreciation of the Company's assets, the Incentive Allocation may be greater
than if it were based solely on realized gains. (See "Capital Accounts and
Allocations - Incentive Allocation.")
LACK OF OPERATING HISTORY
The Company is a newly formed entity and has no operating history
upon which investors can evaluate the performance of the Company. However, as
discussed below, personnel of CIBC Opco, which, as a member of the Adviser is
responsible for managing the Company's investment portfolio, have substantial
experience in managing investment portfolios and private investment funds. In
addition, Mr. Panayotis ("Takis") Sparaggis, the portfolio manager of the
Company, has experience in managing: (i) CIBC Oppenheimer Technology Partners,
L.L.C. (the "U.S. Fund"), a private investment company organized as a limited
liability company under Delaware law; (ii) CIBC Oppenheimer Technology
International, Ltd. (the "Offshore Fund"), a company incorporated under and
governed by the laws of the Cayman Islands; and (iii) a proprietary trading line
established by Oppenheimer & Co., Inc. ("Opco"), each of which has an investment
program substantially similar to that of the Company (See
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"Performance Information," "The Adviser and CIBC Opco" and "Conflicts of
Interest - Participation in Investment Opportunities.")
LIQUIDITY RISKS
Interests in the Company will not be traded on any securities
exchange or other market and are subject to substantial restrictions on
transfer. Although the Company may offer to repurchase Interests from time to
time, a Member may not be able to liquidate its interest in the Company for up
to two years. The Adviser expects that it will recommend to the Board of
Managers that the Company offer to repurchase interests from Members at the end
of 1999, and, for each year thereafter, twice each year, effective at the end of
the second fiscal quarter and again at the end of the year. (See "Redemptions,
Repurchases of Interests and Transfers.")
DISTRIBUTIONS TO MEMBERS AND PAYMENT OF TAX LIABILITY
The Company does not intend to make periodic distributions of its
net income or gains, if any, to Members. Whether or not distributions are made,
Members will be required each year to pay applicable Federal and state income
taxes on their respective shares of the Company's taxable income, and will have
to pay applicable taxes from other sources. The amount and times of any
distributions will be determined in the sole discretion of the Board of
Managers.
PERFORMANCE INFORMATION
Appendix B-1 contains performance information for the U.S. Fund and
the Offshore Fund, both of which are managed by the Portfolio Manager in
accordance with investment objectives and policies substantially similar to the
Company's investment objectives and policies. The future performance of the U.S.
Fund and the Offshore Fund may vary from the future performance of the Company.
(See "Conflicts of Interest - Participation in Investment Opportunities.")
Appendix B-1 also contains the combined cumulative return of the U.S. Fund and
the Trading Line (defined below) and of the Offshore Fund and the Trading Line
(defined below).
Appendix B-2 contains performance information for a $1,000,000
proprietary trading line at Opco (the "Trading Line") that was managed by the
Portfolio Manager from July 1, 1996 through January 2, 1998, utilizing an
investment program that is substantially similar to the Company's investment
program. The Trading Line did not incur certain of the fees and expenses that
will be incurred by the Company, did not reinvest realized gains, and had its
capital level reset at a predetermined level (which necessitated certain
investment decisions that might not otherwise have been required). For these
reasons, the performance results of the Trading Line may be different from those
that would have been achieved by the Company during the same period.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
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BOARD OF MANAGERS
The Board of Managers has overall responsibility for the overall
management and supervision of the operations of the Company and have approved
the Company's investment program. The Board of Managers exercises the same
powers, authority and responsibilities on behalf of the Company as are
customarily exercised by the board of directors of a registered investment
company organized as a corporation, and it has complete and exclusive authority
to oversee and to establish policies regarding the management, conduct and
operation of the Company's business. None of the Managers is (or will be) an
"interested person" (as defined in the 1940 Act) of the Company. Managers will
not contribute to the capital of the Company in their capacity as Managers, but
may subscribe for interests in the Company, subject to the eligibility
requirements described in this Confidential Memorandum.
The identity of the Board of Managers, and brief biographical
information regarding each Manager, is set forth below.
NAME AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Jesse H. Ausubel, 47 Director, Program for the Human Environment and
Senior Research Associate, The Rockefeller University
(1993 to present); Program Director, Alfred P. Sloan
Foundation (1994 to present); Adjunct Scientist,
Woods Hole Oceanographic Institution (1995 to
present). Mr. Ausubel also is an Individual General
Partner of Wynstone Partners, L.P., for which the
Adviser serves as investment adviser.
Paul Belica, 77 Advisor, Salomon Smith Barney (1988 to present);
Director, Deck House Inc. (1970 to present);
Director, Central European Value Fund (1994 to
present); Director, Surety Loan Funding Corporation
(1998 to present). Mr. Belica also is an Individual
General Partner of Wynstone Partners, L.P., for which
the Adviser serves as investment adviser.
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NAME AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
Charles Barber, 81 Consultant; Former Chairman of the Board, ASARCO
Incorporated; Director, Global Partners Income Fund
Inc., The Emerging Markets Income Fund Inc., The
Emerging Markets Income Fund II Inc., The Emerging
Markets Floating Rate Fund Inc., Salomon Brothers
High Income Fund Inc., Municipal Partners Fund Inc.,
Municipal Partners Fund II Inc., The Salomon Brothers
Fund Inc., The Salomon Brothers Series Fund Inc.,
Salomon Brothers Institutional Series Fund Inc.,
Salomon Brothers Capital Fund Inc., Salomon Brothers
Investors Fund Inc., Salomon Brothers 2008 Worldwide
Dollar Government Term Trust and Salomon Brothers
Worldwide Income Fund Inc. Mr. Barber also is an
Individual General Partner of Wynstone Partners,
L.P., for which the Adviser serves as the investment
adviser, and is a Director of the India Fund, Inc.
and the Asia Tigers Fund, Inc., for which affiliates
of the Adviser serve as investment adviser.
Each of the Managers was elected to the Board of Managers by the
organizational Member of the Company (who is not affiliated with CIBC Opco). By
signing the limited liability company agreement (the "Company Agreement") of the
Company, each Member will be deemed to have voted for the election of each of
the Managers.
The Managers serve on the Board of Managers for terms of indefinite
duration. A Manager's position in that capacity will terminate if the Manager is
removed, resigns or is subject to various disabling events such as death,
incapacity or bankruptcy. A Manager may resign, subject to giving 90 days' prior
written notice to the other Managers if such resignation is likely to affect
adversely the tax status of the Company, and may be removed either by vote of
two-thirds (2/3) of the Managers serving on the Board of Managers not subject to
the removal vote or by a vote of Members holding not less than two-thirds (2/3)
of the total number of votes eligible to be cast by all Members. In the event of
any vacancy in the position of a Manager, the remaining Managers serving on the
Board of Managers may appoint an individual to serve as a Manager on the Board
of Managers, so long as immediately after the appointment at least two-thirds
(2/3) of the Managers then serving on the Board of Managers would have been
elected by the Members. The Board of Managers may call a meeting of Members to
fill any vacancy in the position of a Manager, and must do so within 60 days
after any date on which Managers who were elected by the Members cease to
constitute a majority of the Board of Managers then serving. Any Manager
appointed in the future will not be affiliated with CIBC Opco.
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<PAGE> 41
The Managers currently are each paid an annual retainer of
$5,000 and per meeting fees of $700 (or $100 in the case of telephonic meetings)
by the Company. All Managers are reimbursed by the Company for their reasonable
out-of-pocket expenses. It is estimated that the aggregate annual compensation
paid by the Company to each Manager will be approximately $6,300 during 1999,
and that the aggregate compensation paid by all other registered investment
companies for which the Adviser or an affiliate of the Adviser serves as the
investment adviser will be approximately $7,800, $7,800 and $23,400 during 1999
for Mr. Ausubel, Mr. Belica and Mr. Barber, respectively. For 1998, the
aggregate annual compensation paid by all other registered investment companies
for which the Adviser or an affiliate of the Adviser serves as the investment
adviser to Mr. Ausubel, Mr. Belica and Mr. Barber was $2,500, $2,500 and
$18,600, respectively. The Managers do not receive any pension or retirement
benefits from the Company.
THE ADVISER AND CIBC OPCO
The Adviser serves as the Company's investment adviser and has
been given the responsibility to manage the investment portfolio of the Company,
subject to the ultimate supervision of and subject to any policies established
by the Board of Managers, pursuant to the terms of an investment advisory
agreement entered into between the Company and the Adviser dated as of
______________, 1999 (the "Investment Advisory Agreement").
The Adviser was formed as a Delaware limited liability company
in October, 1997 and is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act"). The offices of the Adviser are
located at CIBC Oppenheimer Tower, One World Financial Center, 31st Floor, 200
Liberty Street, New York, New York 10281, and its telephone number is (212)
667-4225.
The Adviser serves or will serve as an investment adviser
and/or general partner of other registered and private investment companies. The
Adviser serves as an investment adviser and holds a non-voting Special Advisory
Limited Partner interest in Wynstone. The Adviser also has made a capital
contribution to Wynstone as a limited partner which currently exceeds 25% of
aggregate outstanding balances of all limited partners of Wynstone. As long as
the Adviser holds more than 4.9% of the aggregate outstanding balances of all
limited partners of Wynstone, the Adviser may be deemed to "control" Wynstone
for purposes of the BHC Act, to which the Adviser, CIBC Opco and affiliates of
CIBC Opco are subject. Because the Managers also serve as Individual General
Partners of Wynstone, the Adviser may also be deemed to "control" the Company
for purposes of the BHC Act. As a result, certain activities of the Company may
be restricted by the BHC Act and rules and regulations thereunder, as described
elsewhere in this Confidential Memorandum.
The Adviser has chosen Mr. Sparaggis to serve as portfolio
manager of the Company. Mr. Sparaggis, who joined Oppenheimer & Co., Inc.
("Opco") in May 1995, is an Executive Director of CIBC Opco, a registered
investment adviser. Since January 1, 1996, he has been a Senior Portfolio
Manager for Oppenheimer Investment Advisers ("OIA") investment management
program, responsible for OIA's MidCap Managed Account Portfolios (the "MidCap
Portfolios"), which have approximately $100 million of assets under management.
Mr.
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Sparaggis will continue to be part of OIA while managing the Company. OIA offers
a variety of investment products and services to high net worth individuals and
institutional clients and has approximately $1.1 billion of assets under
management. From 1993 until joining Opco, Mr. Sparaggis was with Credit Suisse
First Boston Investment Management and was responsible for security analysis and
portfolio management for domestic investments, including proprietary trading on
long-short equities and convertible arbitrage.
Mr. Sparaggis, who is 32, received a Ph.D. in Electrical and
Computer Engineering and a Masters in Business Administration simultaneously
from the University of Massachusetts in 1993. He was an IBM Fellow in physical
sciences in 1992 and 1993. He received a Masters in Electrical and Computer
Engineering from the University of Massachusetts in 1990 and a Bachelor of
Science degree in Electrical Engineering and Computer Science from the National
Technical University of Athens in 1988.
Mr. Sparaggis also serves as portfolio manager for the U.S.
Fund and the Offshore Fund, each of which has a substantially similar investment
objective and investment program as, and will invest to the extent practicable
on a pari passu basis with, the Company. In addition to acting as portfolio
manager for the U.S. Fund, the Offshore Fund and the MidCap Portfolios, Mr.
Sparaggis is, and may become, involved with other investment opportunities
sponsored by CIBC Opco, including the management of one or more proprietary
accounts.
CIBC Opco is the managing member of (and therefore controls)
the Adviser and oversees the Adviser's provision of investment advisory services
to the Company. The interest of CIBC Opco in the Adviser as it relates to the
Adviser's business of providing services to the Company, is represented by a
separate series of interests in the Adviser relating specifically to that
business. Pursuant to applicable law, the debts, liabilities and obligations of
the Adviser related to that series of interests are enforceable against the
assets of that series only, and not against the assets of any other series or of
the Adviser generally. Similarly, the debts, liabilities and obligations of the
Adviser relating to any other series of interests are not enforceable against
the assets of the series relating to the Company. Other series of interests in
the Adviser represent interests in other business activities of the Adviser,
including its business of managing the U.S. Fund.
CIBC Opco is a member of the New York Stock Exchange and other
principal securities exchanges. As a registered broker-dealer, CIBC Opco is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith files reports with the Securities
and Exchange Commission (the "SEC"). Such reports filed by CIBC Opco with the
SEC will be made available to any prospective investor upon request. Canadian
Imperial Bank of Commerce ("CIBC"), the parent company of CIBC Opco, and its
affiliates, including CIBC Opco, are subject to the BHC Act and the rules and
regulations of the Board of Governors of the Federal Reserve. CIBC Opco is
registered as an investment adviser with the SEC pursuant to the Advisers Act.
CIBC Opco is the U.S. corporate, investment, institutional and
private client banking arm of CIBC, which currently is the second-largest bank
in Canada, with assets of
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approximately U.S. $182 billion and a market capitalization of U.S. $12 billion
as of October 31, 1998. Although CIBC has conducted business in the United
States for over a century, the CIBC Opco name was adopted in November, 1997 when
CIBC Wood Gundy Securities Corp. acquired Opco, one of the largest privately
owned, full-service securities firms in the U.S. At the time of the acquisition,
the combined company was renamed "CIBC Oppenheimer Corp." Known globally under
the marketing name CIBC World Markets, this worldwide business offers a complete
range of investment and corporate banking, capital markets, asset management and
brokerage activities. There are approximately 4,500 employees in the United
States and 9,000 worldwide.
Pursuant to the Investment Advisory Agreement, the Adviser is
responsible, subject to the supervision of the Board of Managers, for the
management of the Company's investment portfolio in accordance with the
investment objective and policies of the Company. The Adviser formulates a
continuing investment program for the Company. It makes all decisions regarding
investments to be purchased or sold for the Company (subject to the supervision
of the Board of Managers) and places all orders for the purchase and sale of
investments.
The Investment Advisory Agreement was approved by the Board of
Managers (each of whom is an individual who is not an "interested person," as
defined by the 1940 Act, of the Company), at a meeting held in person on
_____________ 1999, and was also approved on such date by Jesse H. Ausubel, the
then sole Member of the Company. The Investment Advisory Agreement is terminable
without penalty, on 60 days' prior written notice: by the Board of Managers; by
vote of a majority (as defined by the 1940 Act) of the outstanding voting
securities of the Company; or by the Adviser. The initial term of the Investment
Advisory Agreement expires on [ ], 2001. However, the agreement may be continued
in effect from year to year thereafter if such continuance is approved annually
by either the Board of Managers or the vote of a majority (as defined by the
1940 Act) of the outstanding voting securities of the Company; provided that in
either event the continuance is also approved by a majority of the Managers who
are not "interested persons" of the Company or the Adviser by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Investment Advisory Agreement also provides that it will terminate automatically
in the event of its "assignment," as defined by the 1940 Act and the rules
thereunder.
The Investment Advisory Agreement provides that, in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations to the Company, the Adviser and any member,
director, officer or employee thereof, or any of their affiliates, executors,
heirs, assigns, successors or other legal representative, will not be liable to
the Company for any error of judgment, for any mistake of law or for any act or
omission by such person in connection with the performance of services to the
Company. The Investment Advisory Agreement also provides for indemnification, to
the fullest extent permitted by law, by the Company of the Adviser, or any
member, director, officer or employee thereof, and any of their affiliates,
executors, heirs, assigns, successors or other legal representatives, against
any liability or expense to which such person may be liable which arise in
connection with the performance of services to the Company, provided that the
liability or expense is not incurred by
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<PAGE> 44
reason of the person's willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations to the Company.
The Investment Advisory Agreement provides that in
consideration of the services provided by the Adviser, the Adviser shall be
entitled to be the Special Advisory Member of the Company. In such capacity, the
Adviser is entitled to receive the Incentive Allocation. (See "Capital Accounts
and Allocations - Incentive Allocation.") The Incentive Allocation between the
Company and the Adviser was also initially approved by the Board of Managers,
and by vote of Jesse H. Ausubel, as the then sole Member of the Company, on
_____________,1999.
VOTING
Each Member will have the right to cast a number of votes
based on the value of the Member's respective capital account at any meeting of
Members called by the Board of Managers or by Members holding 25% or more of the
total number of votes eligible to be cast. Members will be entitled to vote on
any matter on which shareholders of a registered investment company organized as
a corporation would normally be entitled to vote, including election of Managers
to the Board of Managers, approval of the agreement with the investment adviser
of the Company, and approval of the Company's auditors, and on certain other
matters. Except for the exercise of their voting privileges, Members in their
capacity as such will not be entitled to participate in the management or
control of the Company's business, and may not act for or bind the Company. The
Interest of the Special Advisory Member is non-voting.
CONFLICTS OF INTEREST
CIBC OPCO
In addition to serving as the managing member of the Adviser,
CIBC Opco (directly or through its affiliates, including the Adviser) carries on
substantial investment activities for its own account and for other registered
investment companies, private investment funds, institutions and individual
clients (collectively, "CIBC Opco Clients"). The Company has no interest in
these activities. As a result of the foregoing, CIBC Opco and its officers or
employees who assist CIBC Opco in its oversight of the Adviser will be engaged
in substantial activities other than on behalf of the Adviser and may have
conflicts of interest in allocating their time and activity between the Adviser
and CIBC Opco Clients. Nevertheless, CIBC Opco and its officers and employees
will devote so much time to the affairs of the Adviser as in their judgment is
necessary and appropriate.
CIBC Opco acts as the non-exclusive placement agent for the
Company and will bear costs associated with its activities as placement agent.
CIBC Opco, as managing member of the Adviser and in its capacity as placement
agent for the Company, intends to compensate its account executives for their
ongoing servicing of CIBC Opco Clients with whom they have placed interests in
the Company. CIBC Opco intends to compensate its account executives based upon a
formula that takes into account the amount of client assets being serviced as
well as the investment results attributable to clients' assets invested in the
Company. (See "Fees and Expenses" and "Capital Accounts and Allocations -
Incentive Allocation.")
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Situations may arise in which accounts affiliated with CIBC
Opco or its affiliates have purchased securities which would have been suitable
for investment by the Company but which the Company, for various reasons, did
not choose to purchase. This could affect the availability (or price) of
investments to the Company at a later time. From time to time, in the course of
its brokerage, investment or dealer activities, CIBC Opco or its affiliates may
trade, position or invest in, for its own account, the same securities, as those
in which the Company invests. This could have an adverse impact on the Company's
investment performance.
Conflicts of interest also may arise because in addition to
the Portfolio Manager's responsibilities to the Company, the Portfolio Manager
will act as portfolio manager of the U.S. Fund, Offshore Fund, the MidCap
Portfolios and, possibly, one or more proprietary accounts. In addition,
personnel of the Adviser and CIBC Opco maintain accounts at CIBC Opco for
themselves, members of their families and other clients on both a discretionary
and non-discretionary basis. The Company will have execution priority over
orders for the personal accounts maintained for the Adviser's personnel and
members of their families and such orders will otherwise be subject to a Joint
Code of Ethics adopted by the Company and the Adviser in compliance with Section
17(j) of the 1940 Act, discussed below. However, assuming particular securities
are "suitable" for the respective investment programs of the Company and other
accounts managed by the Portfolio Manager, including, possibly, one or more
proprietary accounts, transactions effected by the Portfolio Manager will be
allocated among such accounts as equitably as possible, taking into
consideration their various investment programs and relative capital available
for investment, but all accounts may not necessarily invest in the same
securities. When transactions in a particular security on a given day take place
at different prices, the Company and other accounts managed by the Portfolio
Manager may receive the average of the prices (meaning the average of all prices
paid or received for a particular security on a particular day in trades for
those accounts).
The Company's investment program is substantially similar to
that of the U.S. Fund and the Offshore Fund. However, the portfolios of the
Company and the U.S. Fund and the Offshore Fund may differ as a result of
subscriptions and withdrawals being made at different times and in different
amounts, as well as because of different tax and regulatory considerations. The
portfolios of, and allocations of investment opportunities between, the Company
and these two other funds will also differ until cash contributed to the Company
upon commencement of its operations is invested in a manner similar to these two
funds. Such differences and other factors will result in variances between the
returns of the Company, the U.S. Fund and the Offshore Fund.
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<PAGE> 46
From time to time the availability of particular securities in
the technology market is limited. The allocations of a "limited availability"
security will be made on as equitable a basis as possible by the Portfolio
Manager. For example, if a "limited availability" security is an appropriate
investment for the Company, the Offshore Fund, the U.S. Fund and the MidCap
Portfolios, then, so as to treat all accounts equitably, the Portfolio Manager
may, for example, allocate the full amount purchased to the Company and the
Offshore Fund and, the next time a "limited availability" security is purchased,
allocate the full amount to the MidCap Portfolios and the U.S. Fund.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Adviser and its affiliates serve as the investment adviser
for certain private investment companies, including the U.S. Fund and the
Offshore Fund, and the Adviser presently serves as the adviser of another
registered investment company. The Adviser may be appointed in the future to
serve as the investment adviser to other registered investment companies,
private investment companies or managed accounts which may pursue investment
strategies similar to those of the Company (the "Other Accounts"). As a general
matter, the Adviser (subject to any policies established by the Board of
Managers) will consider participation by the Company in all appropriate
investment opportunities that are under consideration for investment for the
Other Accounts. There may be circumstances, however, under which the Adviser
will cause one or more of the Other Accounts to commit a larger percentage of
their respective assets to an investment opportunity than to which the Adviser
will commit the Company's assets. There may also be circumstances under which
the Adviser will consider participation by the Other Accounts in investment
opportunities in which the Adviser does not intend to invest on behalf of the
Company.
The Adviser will evaluate for the Company a variety of factors
that may be relevant in determining whether, and to what extent, a particular
investment opportunity or strategy is appropriate and feasible for the Company
at a particular time, including, but not limited to, the following: (1) the
nature of the investment opportunity taken in the context of the other
investments at the time; (2) the liquidity of the investment relative to the
needs of the particular entity or account; (3) the availability of the
opportunity (i.e., size of obtainable position); (4) the transaction costs
involved; and (5) the investment or regulatory limitations applicable to the
particular entity or account.
CIBC Opco and its directors, officers and employees, may buy
and sell securities or other investments for their own accounts and may have
actual or potential conflicts of interest with respect to investments made by
the Adviser on behalf of the Company. As a result of differing trading and
investment strategies or constraints, positions may be taken by directors,
officers and employees of CIBC Opco (including personnel of the Adviser) that
are the same, different or made at a different time than positions taken for the
Company. In order to mitigate the possibility that the Company will be adversely
affected by this personal trading, the Company and the Adviser have adopted a
Joint Code of Ethics in compliance with Rule 17j-1 under the 1940 Act that
restricts securities trading in the personal accounts of investment
professionals and others who normally come into possession of information
regarding the Company's portfolio transactions.
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OTHER MATTERS
The Adviser, CIBC Opco and their affiliates will not purchase
securities or other property from, or sell securities or other property to, the
Company except that the Company may engage in transactions with accounts which
are affiliated with the Company only because they are advised by CIBC Opco or
one of its affiliates or because they have common officers, directors or
managing members. Such transactions would be made in circumstances where the
Adviser has determined that it would be appropriate for the Company to purchase
and another CIBC Opco Client to sell, or the Company to sell and another CIBC
Opco Client to purchase, the same security or instrument on the same day. All
such purchases and sales would be made pursuant to procedures that the Company
has adopted under Rule 17a-7 under the 1940 Act. Among other things, those
procedures are intended to ensure that (1) each such transaction will be
effected for cash consideration at the current market price of the particular
securities, (2) no such transaction will involve restricted securities or
securities for which market quotations are not readily available and (3) no
brokerage commissions, fees (except for customary transfer fees) or other
remuneration will be paid in connection with any such transaction. CIBC Opco
and its affiliated broker-dealers may act as broker for the Company in
effecting securities transactions. (See "Brokerage.")
The Company is not permitted to purchase or sell securities of
any issuer as to which the Adviser has obtained material, non-public
information, until such time as the information is no longer material or has
become publicly known. This policy, on occasion, could adversely affect the
Company's investment performance because the Company may (i) hold securities of
an issuer with respect to which the Adviser has adverse information, or (ii) not
purchase securities of any issuer with respect to which the Adviser has
favorable information.
As a result of the investment banking and corporate finance
activities of CIBC Opco or CIBC, the Company may be subject to future
restrictions on its ability to purchase or sell certain securities.
Additionally, the Company may purchase securities during the existence of an
underwriting or selling syndicate in which CIBC Opco, or any of its affiliates,
is participating as an underwriter only subject to certain conditions. This
could have an adverse impact on the Company's investment performance.
Under the BHC Act, or other U.S. banking laws, and the rules,
regulations, guidelines and policies of the regulatory agencies and the staff
thereof, CIBC Opco and its affiliates are subject to restrictions on the
transactions which it may make with the Company, and their restrictions may
affect the investments made by the Company.
Future investment activities of CIBC Opco (or its affiliates)
and their principals, partners, directors, officers or employees may give rise
to additional conflicts of interest.
BROKERAGE
The Adviser is responsible for the placing of orders for the
execution of the Company's portfolio transactions and the allocation of
brokerage. Transactions on U.S. stock exchanges and on some foreign stock
exchanges involve the payment of negotiated brokerage commissions. On the great
majority of foreign stock exchanges, commissions are fixed. No stated commission
is generally applicable to securities traded in over-the-counter markets, but
the prices of those securities include undisclosed commissions or mark-ups.
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In executing transactions on behalf of the Company, the
Adviser seeks to obtain the best price and execution for the Company, taking
into account factors such as price, size of order, difficulty of execution and
operational facilities of a brokerage firm, and in the case of transactions
effected by the Company with unaffiliated brokers, the firm's risk in
positioning a block of securities. Although the Adviser generally seeks
reasonably competitive commission rates, the Company will not necessarily pay
the lowest commission available on each transaction. The Company has no
obligation to deal with any broker or group or brokers in executing transactions
in portfolio securities.
Consistent with the principle of seeking best price and
execution, the Adviser may place orders on behalf of the Company with brokers
(including affiliates of CIBC Opco) that provide the Adviser and its affiliates
with supplemental research, market and statistical information, including advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. The expenses of the Adviser are not necessarily reduced
as a result of the receipt of this supplemental information, which may be useful
to the Adviser and its affiliates in providing services to clients other than
the Company. In addition, not all of the supplemental information is used by the
Adviser in connection with the Company. Conversely, the information provided to
the Adviser by brokers and dealers through which other clients of the Adviser
and its affiliates effect securities transactions may be useful to the Adviser
in providing services to the Company.
Although the Company cannot accurately predict its portfolio
turnover, the Company generally expects that its annual portfolio turnover rate
will not exceed 100%. Higher portfolio turnover rates usually generate
additional brokerage commissions and expenses and the short-term gains realized
from these transactions are taxable to the Members as ordinary income.
The Company may execute portfolio brokerage transactions
through CIBC Opco or its affiliates. These transactions would be effected
pursuant to procedures adopted by the Company pursuant to Section 17(e) of the
1940 Act and Rule 17e-1 thereunder. Among other things, those procedures provide
that when acting as broker for the Company in connection with the sale of
securities to or by the Company, neither CIBC Opco nor any of its affiliates may
receive any compensation exceeding the following limits: (1) if the sale is
effected on a securities exchange, the compensation may not exceed the "usual
and customary broker's commission" (as defined in Rule 17e-1 under the 1940
Act); (2) if the sale is effected in connection with a secondary distribution of
securities, the compensation cannot exceed 2% of the sale price; and (3) the
compensation for sales otherwise effected cannot exceed 1% of the sales price.
Rule 17e-1 defines a "usual and customary broker's commission" as one that is
fair compared to the commission received by other brokers in connection with
comparable transactions involving similar securities being purchased or sold on
an exchange during a comparable period of time.
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FEES AND EXPENSES
CIBC Opco provides certain administration and investor
services to the Company, including, among other things, providing office space
and other support services to the Company, screening potential investors,
preparing marketing and investor communications, maintaining and preserving
certain records of the Company, preparing and filing various materials with
state and Federal regulators, providing legal and regulatory advice in
connection with administrative functions and reviewing and arranging for payment
of the Company's expenses. In consideration for these services, the Company will
pay CIBC Opco a monthly fee of 0.08333% (1% on an annualized basis) of the
Company's net assets (the "CIBC Opco Fee"). Net assets means the total value of
all assets of the Company, less an amount equal to all accrued debts,
liabilities and obligations of the Company, calculated before giving effect to
any repurchases of interests. The CIBC Opco Fee will be computed based on the
net assets of the Company as of the start of business on the first business day
of each month, after adjustment for any subscriptions effective on that date,
and will be due and payable in arrears within five business days after the end
of that month. The CIBC Opco Fee will be an expense paid to CIBC Opco out of the
Company's assets, and will be reflected in each Member's capital account (except
the Special Advisory Account (defined below)) as a reduction to net profits or
an increase to net losses credited to or debited against each Member's Capital
Account.
PFPC Inc. ("PFPC") provides administration, accounting and
investor services to the Company, which are in addition to the services provided
by CIBC Opco to the Company, as described above. In consideration for these
services, the Company will pay PFPC a fee (the "PFPC Fee") that is not
anticipated to exceed 0.35% (annualized) of the Company's net assets (as defined
above), plus reimbursement of certain out-of-pocket expenses.
In addition, the capital accounts of Members (except the
Special Advisory Account (defined below)) may be subject to an Incentive
Allocation depending upon the investment performance of the Company. (See
"Capital Accounts and Allocations - Incentive Allocation.")
The Company will bear all expenses incurred in the business of
the Company other than those specifically required to be borne by CIBC Opco.
Expenses to be borne by the Company include, but are not limited to, the
following:
- all costs and expenses directly related to portfolio
transactions and positions for the Company's account,
including, but not limited to, brokerage commissions,
research fees, interest and commitment fees on loans
and debit balances, borrowing charges on securities
sold short, dividends on securities sold but not yet
purchased, custodial fees, margin fees, transfer
taxes and premiums, taxes withheld on foreign
dividends and indirect expenses from investments in
investment funds;
- all costs and expenses associated with the
organization and registration of the Company, certain
offering costs and the costs of compliance with any
applicable Federal or state laws;
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- Attorneys' fees and disbursements associated with
updating the Company's Confidential Memorandum and
subscription documents (the "Offering Materials");
the costs of printing the Offering Materials; the
costs of distributing the Offering Materials to
prospective investors; and attorneys' fees and
disbursements associated with the review of
subscription documents executed and delivered to the
Company in connection with offerings of interests in
the Company;
- the costs and expenses of holding meetings of the
Board of Managers and any meetings of Members;
- fees and disbursements of any attorneys, accountants,
auditors and other consultants and professionals
engaged on behalf of the Company;
- the CIBC Opco Fee and the fees of custodians and
persons (such as PFPC) providing administrative
services to the Company;
- the costs of a fidelity bond and any liability
insurance obtained on behalf of the Company or the
Board of Managers;
- all expenses of computing the Company's net asset
value, including any equipment or services obtained
for these purposes;
- all charges for equipment or services used in
communicating information regarding the Company's
transactions among the Adviser and any custodian or
other agent engaged by the Company; and
- such other types of expenses as may be approved from
time to time by the Board of Managers.
The Adviser will be reimbursed by the Company for any of the
above expenses that it pays on behalf of the Company.
The Company's organizational expenses are estimated at
$200,000, and the Company will also bear certain expenses, not to exceed
$50,000, associated with the initial offering of interests in the Company.
Before a recent change to the guidelines followed by the American Institute of
Certified Public Accountants applicable to the Company, the Company would have
been able to amortize the organizational expenses over a 60 month period.
Because of that change, however, the organizational expenses now must be
expensed as incurred. In order to achieve a more equitable distribution of the
impact of those expenses among the Company's Members, an amount equal to the
organizational expenses incurred by the Company will be allocated among and
credited to or debited against the capital accounts (described below) of all
Members based on the percentage that a Member's contributed capital to the
Company bears to the total capital contributed to the Company by all Members as
of the relevant allocation date. An initial allocation of organizational costs
will be made as of the first date on which capital contributions of Members are
made. These allocations will thereafter be adjusted as of
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each date, through and including December 1, 1999, on which additional capital
is contributed to the Company by Members. Offering costs cannot be deducted by
the Company or the Members.
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Company will maintain a separate capital account for each
Member (including the Adviser in respect of the Adviser's capital contribution
to the Company, as Member), which will have an opening balance equal to the
Member's initial contribution to the capital of the Company. Each Member's
capital account will be increased by the sum of the amount of cash and the value
of any securities constituting additional contributions by the Member to the
capital of the Company, plus any amounts credited to the Member's capital
account as described above with respect to organization expenses or as described
below. Similarly, each Member's capital account will be reduced by the sum of
the amount of any repurchase by the Company of the interest, or portion thereof,
of the Member, plus the amount of any distributions to the Member which are not
reinvested, plus any amounts debited against the Member's capital account as
described above with respect to organization expenses or as described below.
Capital accounts of Members are adjusted as of the close of
business on the last day of each fiscal period. Fiscal periods begin on the day
after the last day of the preceding fiscal period and end at the close of
business on (1) the last day of each year, (2) the day preceding the date on
which a contribution to the capital of the Company is made, (3) the day on which
the Company repurchases any interest or portion of an interest of any Member, or
(4) the day on which any amount is credited to or debited from the capital
account of any Member other than an amount to be credited to or debited from the
capital accounts of all Members in accordance with their respective investment
percentages. An investment percentage will be determined for each Member as of
the start of each fiscal period by dividing the balance of the Member's capital
account as of the commencement of the period by the sum of the balances of all
capital accounts of all Members as of that date.
The Company will maintain a "Special Advisory Account" for the
Adviser solely for the purpose of receiving the Incentive Allocation, as
described below.
ALLOCATION OF NET PROFITS AND NET LOSSES
Net profits or net losses of the Company for each fiscal
period will be allocated among and credited to or debited against the capital
accounts of all Members (but not the Special Advisory Account) as of the last
day of each fiscal period in accordance with Members' respective investment
percentages for the fiscal period. Net profits or net losses will be measured as
the net change in the value of the net assets of the Company (including any net
change in unrealized appreciation or depreciation of investments and realized
income and gains or losses and expenses (including organizational expenses)
during a fiscal period), before giving effect to any repurchases by the Company
of interests or portions thereof, and excluding the amount of any items to be
allocated among the capital accounts of the Members other than in accordance
with the Members' respective investment percentages.
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Allocations for Federal income tax purposes generally will be
made among the Members so as to reflect equitably amounts credited or debited to
each Member's capital account for the current and prior fiscal years. (See "Tax
Aspects - Allocation of Profits and Losses.")
INCENTIVE ALLOCATION
So long as the Adviser serves as the investment adviser of the
Company, the Adviser will be entitled to be the Special Advisory Member of the
Company. In such capacity, the Adviser will be entitled to receive an incentive
allocation (the "Incentive Allocation"), charged to the capital account of each
Member as of the last day of each "allocation period," of 20% of the amount by
which any "allocated gain" during an "allocation period" exceeds the positive
balance in the Member's "loss recovery account." The Incentive Allocation will
be credited to the Special Advisory Account of the Adviser.
For purposes of calculating the Incentive Allocation,
"allocated gain" means the excess of the balance of a Member's capital account
at the end of an "allocation period" (after giving effect to allocations other
than the Incentive Allocation, but before giving effect to repurchases of
interests by the Company or debits to the Member's capital account to reflect
any item not chargeable ratably to all Members), over the balance of the
Member's capital account at the start of the "allocation period." Consequently,
any Incentive Allocation to be credited to the Adviser will be increased by a
portion of the amount of any net unrealized appreciation, as well as net
realized gains, allocable to a Member.
An Incentive Allocation will be charged only with respect to
any "allocated gain" in excess of the positive balance of a "loss recovery
account" maintained for each Member. A "loss recovery account" is a memorandum
account maintained by the Company for each Member, which has an initial balance
of zero and is (1) increased after the close of each "allocation period" by the
amount of any negative performance for the Member during the "allocation
period," and (2) decreased (but not below zero) after the close of each
"allocation period" by the amount of any allocated gain for the Member during
the "allocation period." Any positive balance in a Member's "loss recovery
account" would be reduced as the result of a repurchase or certain transfers
with respect to the Member's interest in the Company in proportion to the
reduction of the Member's capital account attributable to the repurchase or
transfer.
An "allocation period" as to each Member is a period
commencing on the admission of the Member to the Company, and thereafter each
period commencing as of the day following the last day of the preceding
allocation period with respect to such Member, and ending as of the close of
business on the first to occur of (1) the last day of a fiscal year of the
Company, (2) the day as of which the Company repurchases the entire interest of
the Member, (3) the day as of which the Company admits as a substitute Member a
person to whom the entire interest of the Member has been transferred or (4) the
day as of which the Investment Advisory Agreement terminates. The measurement of
any Incentive Allocation for an "allocation period" must take into account any
negative performance from a prior allocation period to the extent reflected in
the "loss recovery account." Therefore, the Incentive Allocation for any
allocation period after the initial allocation period in effect is a reflection
of the extent to which cumulative performance achieved with respect
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to a Member's account since the Member's admission to the Company exceeds the
highest previous level of performance achieved through the close of any prior
allocation period. By the last business day of the month following the date on
which an Incentive Allocation is made, the Adviser may withdraw up to 100% of
the Incentive Allocation (computed on the basis of unaudited data) that was
credited to the Special Advisory Account and debited from the Member's capital
account with respect to the allocation period. Within 30 days after the
completion of the audit of the Company's books, the Company will pay to the
Adviser any additional amount determined to be owed to the Adviser based upon
the audit, and the Adviser will pay to the Company any excess amount determined
to be owed to the Company.
ALLOCATION OF SPECIAL ITEMS - CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES
Withholding taxes or other tax obligations incurred by the
Company which are attributable to any Member will be debited against the capital
account of that Member as of the close of the fiscal period during which the
Company paid those obligations, and any amounts then or thereafter distributable
to the Member will be reduced by the amount of those taxes. If the amount of
those taxes is greater than the distributable amounts, then the Member and any
successor to the Member's interest is required to pay upon demand to the
Company, as a contribution to the capital of the Company, the amount of the
excess. The Company is not obligated to apply for or obtain a reduction of or
exemption from withholding tax on behalf of any Member, although in the event
that the Company determines that a Member is eligible for a refund of any
withholding tax, it may, at the request and expense of that Member, assist the
Member in applying for a refund.
Generally, any expenditures payable by the Company, to the
extent paid or withheld on behalf of, or by reason of particular circumstances
applicable to, one or more, but fewer than all of the Members, will be charged
to only those Members on whose behalf the payments are made or whose particular
circumstances gave rise to the payments. These charges shall be debited to the
capital accounts of the applicable Members as of the close of the fiscal period
during which the items were paid or accrued by the Company.
RESERVES
Appropriate reserves may be created, accrued and charged
against net assets and proportionately against the capital accounts of the
Members for contingent liabilities as of the date the contingent liabilities
become known to the Company. Reserves will be in such amounts (subject to
increase or reduction) which the Company may deem necessary or appropriate. The
amount of any reserve (or any increase or decrease therein) will be
proportionately charged or credited, as appropriate, to the capital accounts of
those investors who are Members at the time when the reserve is created,
increased or decreased, as the case may be; provided, however, that if the
reserve (or any increase or decrease therein) exceeds the lesser of $500,000 or
1% of the aggregate value of the capital accounts of all those Members, the
amount of the reserve, increase, or decrease shall instead be charged or
credited to those investors who were Members at the time, as determined by the
Company, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
capital accounts at that time.
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NET ASSET VALUATION
The value of the net assets of the Company will be determined
as of the close of business at the end of any fiscal period in accordance with
the procedures set forth below or as may be determined from time to time
pursuant to policies established by the Board of Managers.
Domestic exchange traded and Nasdaq listed equity securities
(other than options) will be valued at their last composite sale prices as
reported on the exchanges where those securities are traded. If no sales of
those securities are reported on a particular day, the securities will be
valued based upon their composite bid prices for securities held long, or their
composite ask prices for securities held short, as reported by those exchanges.
Securities traded on a foreign securities exchange will be valued at their last
sale prices on the exchange where the securities are primarily traded, or in
the absence of a reported sale on a particular day, at their bid prices (in the
case of securities held long) or ask prices (in the case of securities held
short) as reported by that exchange. Other securities for which market
quotations are readily available will be valued at their bid prices (or ask
prices in the case of securities held short) as obtained from one or more
dealers making markets for those securities. If market quotations are not
readily available, securities and other assets will be valued at fair value as
determined in good faith by, or under the supervision of, the Board of
Managers.
Debt securities (other than convertible debt securities) will
be valued in accordance with the procedures described above, which with respect
to these securities may include the use of valuations furnished by a pricing
service which employs a matrix to determine valuations for normal institutional
size trading units. The Board of Managers will periodically monitor the
reasonableness of valuations provided by the pricing service. Such debt
securities with remaining maturities of 60 days or less will, absent unusual
circumstances, be valued at amortized cost, so long as this method of valuation
is determined by the Board of Managers to represent fair value.
If in the view of the Adviser, the bid price of a listed
option or convertible debt security (or ask price in the case of any such
security held short) does not fairly reflect the market value of the security,
the Adviser may request a valuation committee comprised of two Managers to
instead value the security at fair value. In any such situation, the valuation
committee will consider the recommendation of the Adviser, and, if it
determines in good faith that an override of the value assigned to the security
under the procedures described above is warranted, will value the security at
fair value as determined by the valuation committee in good faith.
All assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars using foreign exchange rates
provided by a pricing service compiled as of 4:00 p.m. London time. Trading in
foreign securities generally is completed, and the values of foreign securities
are determined, prior to the close of securities markets in the U.S. Foreign
exchange rates
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are also determined prior to such close. On occasion, the values of foreign
securities and exchange rates may be affected by events occurring between the
time as of which determination of values or exchange rates are made and the time
as of which the net asset value of the Company is determined. When an event
materially affects the values of securities held by the Company or its
liabilities, such securities and liabilities may be valued at fair value as
determined in good faith by, or under the supervision of, the Board of Managers.
Prospective investors should be aware that situations
involving uncertainties as to the valuation of portfolio positions could have an
adverse effect on the Company's net assets if the Board's judgments regarding
appropriate valuations should prove incorrect.
SUBSCRIPTION FOR INTERESTS
SUBSCRIPTION TERMS
For the first nine months from the date the Company commences
operations, the Board of Managers may accept initial and additional
subscriptions for interest by eligible investors (as described below) as of the
first day of each month. Thereafter, during any period in which the Adviser is
deemed to control the Company for purposes of the BHC Act, the Board of Managers
may accept initial and additional subscriptions for interests by eligible
investors as of the first day of each calendar quarter. At all other times, the
Board of Managers may accept initial and additional subscriptions for interests
by eligible investors as of the first day of each month. All subscriptions are
subject to the receipt of cleared funds on or before the acceptance date and
require the investor to submit a completed subscription document before the
acceptance date. The Board of Managers may, in its discretion, suspend
subscriptions for interests at any time. The Board of Managers reserves the
right to reject any subscription for interests. The minimum required initial
investment in the Company from each investor is $150,000, and the minimum
additional investment in the Company is $25,000, subject to the discretion of
the Board of Managers to accept initial and additional investments in lesser
amounts. However, the Company may accept initial subscriptions for interests in
the Company from eligible investors who are directors, officers or employees of
CIBC Opco or its affiliates in amounts of $50,000 or more. The initial closing
date for subscriptions of interests in the Company is [April 1, 1999]. The Board
of Managers, in its sole discretion, may postpone the closing date for up to 90
days. Interests may not be purchased by nonresident aliens, foreign
corporations, foreign partnerships, foreign trusts or foreign estates, all as
defined in the Code. In addition, because the Company may generate "unrelated
business taxable income" ("UBTI") with respect to tax-exempt investors,
charitable remainder trusts may not want to purchase interests in the Company
because a charitable remainder trust will not be exempt from Federal income tax
under Section 664(c) of the Code for any year in which it has UBTI.
Except as otherwise permitted by the Board of Managers,
initial and any additional contributions to the capital of the Company by any
Member will be payable in cash, and all contributions must be transmitted by the
time and in such the manner as is specified in the subscription documents of the
Company. Initial and any additional contributions to the capital of the Company
will be payable in one installment and will be due at least three business days
prior to
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the proposed acceptance of the contribution, although the Board of Managers may
accept, in its discretion, a subscription prior to its receipt of cleared funds.
Each new Member will be obligated to agree to be bound by all
of the terms of the Company Agreement. Each potential investor will also be
obligated to represent and warrant in a subscription agreement, among other
things, that the investor is purchasing an interest for its own account, and not
with a view to the distribution, assignment, transfer or other disposition of
the interest.
If and when the Board of Managers determines to accept
securities as a contribution to the capital of the Company, the Company will
charge each Member making a contribution of securities an amount determined by
the Board of Managers and not exceeding 2% of the value of the contribution in
order to reimburse the Company for any costs it incurs in liquidating and
accepting the securities. This charge will be due and payable by the
contributing Member in full at the time the contribution to the capital of the
Company to which the charge relates is due.
ELIGIBLE INVESTORS
Each prospective investor will be required to certify that the
interest subscribed for is being acquired directly or indirectly for the account
of an "accredited investor" as defined in Regulation D under the 1933 Act, and
that the investor (as well as each of the investor's beneficial owners under
certain circumstances) has a net worth immediately prior to the time of
subscription of at least $1.5 million or such greater amounts as may be required
by applicable law or by the Board of Managers, in its sole discretion. Existing
Members who subscribe for additional interests in the Company will be required
to meet the foregoing eligibility criteria at the time of the additional
subscription. The relevant investor qualifications will be set forth in a
subscription agreement to be provided to prospective investors, which must be
completed by each prospective investor.
REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Member or other person holding an interest or a portion of
an interest acquired from a Member will have the right to require the Company to
redeem that interest or portion thereof. There is no public market for interests
in the Company, and none is expected to develop. Consequently, investors may not
be able to liquidate their investment other than as a result of repurchases of
interests by the Company, as described below. (The Adviser will have certain
rights to withdraw amounts from its Special Advisory Account.)
REPURCHASES OF INTERESTS
The Board of Managers may, from time to time and in its
complete and exclusive discretion, determine to cause the Company to repurchase
interests or portions thereof from Members other than the Adviser in its
capacity as the Special Advisory Member pursuant to written
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tenders by Members on such terms and conditions as it may determine. In
determining whether the Company should repurchase interests or portions thereof
from Members pursuant to written tenders, the Board of Managers will consider
the recommendation of the Adviser. The Adviser expects that it will recommend to
the Board of Managers that the Company offer to repurchase interests from
Members at the end of 1999. Thereafter, the Adviser expects that generally it
will recommend to the Board of Managers that the Company offer to repurchase
interests from Members twice in each year, effective at the end of the second
fiscal quarter and again at the end of the year. The Board of Managers will also
consider the following factors, among others, in making its determination:
- whether any Members have requested to tender
interests or portions thereof to the Company;
- the liquidity of the Company's assets;
- the investment plans and working capital requirements
of the Company;
- the relative economies of scale with respect to the
size of the Company;
- the history of the Company in repurchasing interests
or portions thereof;
- the economic condition of the securities markets; and
- the anticipated tax consequences of any proposed
repurchases of interests or portions thereof.
The Board of Managers will determine that the Company
repurchase interests or portions thereof from Members pursuant to written
tenders only on the terms and conditions it determines to be fair to the Company
and to all Members or persons holding interests acquired from Members, or to one
or more classes of Members, as applicable. When the Board of Managers determines
that the Company shall repurchase interests in the Company or portions thereof,
notice will be provided to Members describing the terms thereof, containing
information Members should consider in deciding whether to participate in the
repurchase opportunity and containing information on how to participate. Members
who are deciding whether to tender their interests or portions thereof during
the period that a repurchase offer is open may ascertain the net asset value of
their interest in the Company from PFPC during the period.
The Company Agreement provides that the Company shall be
dissolved if the interest of any Member that has submitted a written request to
tender its entire interest for repurchase by the Company has not been
repurchased within a period of two years after such request.
Repurchases of interests or portions thereof from Members by
the Company may be made, in the discretion of the Company, in part or in whole
for cash or for securities of equivalent value and shall be effective after
receipt by the Company of all eligible written tenders of interests or portions
thereof from Members. The amount due to any Member whose interest or portion
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thereof is repurchased shall be equal to the value of the Member's capital
account or portion thereof based on the net asset value of the Company's assets
as of the expiration date of the tender offer (the "expiration date"), after
giving effect to all allocations to be made to the Member's capital account as
of that date. Payment of the purchase price pursuant to a tender of interests
will consist of, first, cash and/or marketable securities traded on an
established securities exchange (valued at net asset value in accordance with
the Company Agreement and distributed to tendering Members on a pari passu
basis) in an aggregate amount equal to at least 95% of the estimated unaudited
net asset value of the interests tendered, determined as of the expiration date.
Payment of this amount will be made promptly after the expiration date (the
"cash payment") in accordance with the terms of any written offer from the
Company to repurchase interests. Generally, payment pursuant to a tender will
also consist of a promissory note that neither bears interest nor is
transferable (the "note") entitling the holder thereof to a contingent payment
equal to the excess, if any, of (a) the net asset value of the interests
tendered as of the expiration date, determined based on the audited financial
statements of the Company, over (b) the cash payment. The note would be
delivered to the tendering Member promptly after the expiration date and would
be payable in cash promptly after completion of the audit of the financial
statements of the Company. The audit of the Company's financial statements will
be completed within 60 days after the end of each year. The Company does not
impose any charges on a repurchase of interests or portion of interests in the
Company.
The Company intends to maintain daily a segregated account
with its custodian consisting of cash or liquid securities in an amount equal to
the aggregate estimated dollar amount of the notes. Payment for repurchased
interests may require the Company to liquidate portfolio holdings earlier than
the Adviser would otherwise liquidate these holdings, potentially resulting in
losses, and may increase the Company's portfolio turnover. The Adviser intends
to take measures (subject to such policies as may be established by the Board of
Managers) to attempt to avoid or minimize potential losses and turnover
resulting from the repurchase of interests.
A Member who tenders for repurchase only a portion of such
Member's interest will be required to maintain a capital account balance equal
to the greater of: (1) $150,000, net of the Incentive Allocation, if any, that
would be debited against the capital account if the date of repurchase of the
interest or portion thereof were a date on which an Incentive Allocation would
otherwise be made (the "Tentative Incentive Allocation") or (2) the amount of
the Tentative Incentive Allocation.
The Company may repurchase an interest in the Company or
portion thereof of a Member or any person acquiring an interest or portion
thereof from or through a Member in the event that:
- the interest or a portion thereof has been
transferred or the interest or a portion thereof has
vested in any person by operation of law as the
result of the death, dissolution, bankruptcy or
incompetency of a Member;
- ownership of the interest by a Member or other person
will cause the Company to be in violation of, or
require registration of any interest or
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portion thereof under, or subject the Company to
additional registration or regulation under, the
securities, commodities or other laws of the United
States or any other relevant jurisdiction;
- continued ownership of the interest may be harmful or
injurious to the business or reputation of the
Company, the Board of Managers or the Adviser, or may
subject the Company or any Members to an undue risk
of adverse tax or other fiscal consequences;
- any of the representations and warranties made by a
Member in connection with the acquisition of an
interest in the Company or portion thereof was not
true when made or has ceased to be true; or
- it would be in the best interests of the Company for
the Company to repurchase the interest or a portion
thereof.
In the event that the Adviser holds any interests in its
capital account in its capacity as a Member, such interest or a portion thereof
may be tendered for repurchase in connection with any repurchase offer made by
the Company. The Adviser is also entitled to withdraw its interests from its
Special Advisory Account at the times described under "Capital Accounts and
Allocations - Incentive Allocation."
TRANSFERS OF INTERESTS
Except as otherwise described below, no person shall become a
substituted Member without the written consent of the Board of Managers, which
consent may be withheld for any reason in its sole and absolute discretion.
Interests in the Company held by Members may be transferred only (i) by
operation of law pursuant to the death, bankruptcy, insolvency or dissolution of
a Member or (ii) under certain limited circumstances, with the written consent
of the Board of Managers (which may be withheld in its sole and absolute
discretion and is expected to be granted, if at all, only under extenuating
circumstances). The Board of Managers generally will not consent to a transfer
unless the following conditions are met: (i) the transferring Member has been a
Member for at least six months; (ii) the proposed transfer is to be made on the
effective date of an offer by the Company to repurchase interests; and (iii) the
transfer does not constitute a change in beneficial ownership. Notice to the
Company of any proposed transfer must include evidence satisfactory to the Board
of Managers that the proposed transfer is exempt from registration under the
1933 Act, that the proposed transferee meets any requirements imposed by the
Company with respect to investor eligibility and suitability, including the
requirement that any investor (or investor's beneficial owners in certain
circumstances) has a net worth immediately prior to the time of subscription of
at least $1.5 million or such greater amounts as may be required by applicable
law or by the Board of Managers, in its sole discretion, and must be accompanied
by a properly completed subscription agreement. The Board of Managers is not
authorized under the Company Agreement to consent to a transfer of an interest
of a Member unless the entire interest of the Member is transferred to a single
transferee and after the transfer the balance of the capital account of the
transferee is not less than $150,000. A Member who transfers an interest may be
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charged reasonable expenses, including attorneys' and accountants' fees,
incurred by the Company in connection with the transfer.
Any transferee that acquires an interest or portion thereof in
the Company by operation of law as the result of the death, dissolution,
bankruptcy or incompetency of a Member or otherwise, shall be entitled to the
allocations and distributions allocable to the interest so acquired and to
transfer the interest in accordance with the terms of the Company Agreement, but
shall not be entitled to the other rights of a Member unless and until the
transferee becomes a substituted Member as provided in the Company Agreement. If
a Member transfers an interest or portion thereof with the approval of the Board
of Managers, the Company shall promptly take all necessary actions so that each
transferee or successor to whom the interest or portion thereof is transferred
is admitted to the Company as a Member. Each Member and transferee may be
charged for all expenses, including attorneys' and accountants' fees, incurred
by the Company in connection with the transfer.
By subscribing for an interest in the Company, each Member has
agreed to indemnify and hold harmless the Company, the Managers, the Adviser,
each other Member and any affiliate of the foregoing against all losses, claims,
damages, liabilities, costs and expenses (including legal or other expenses
incurred in investigating or defending against any losses, claims, damages,
liabilities, costs and expenses or any judgments, fines and amounts paid in
settlement), joint or several, to which such persons may become subject by
reason of or arising from any transfer made by that Member in violation of these
provisions or any misrepresentation made by that Member in connection with any
such transfer.
The Adviser may not transfer its interest as the Special
Advisory Member.
TAX ASPECTS
The following is a summary of certain aspects of the income
taxation of the Company and its Members which should be considered by a
prospective Member. The Company has not sought a ruling from the Internal
Revenue Service (the "Service") or any other Federal, state or local agency with
respect to any of the tax issues affecting the Company, nor has it obtained an
opinion of counsel with respect to any Federal tax issues other than the
characterization of the Company as a partnership for Federal income tax
purposes.
This summary of certain aspects of the Federal income tax
treatment of the Company is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), judicial decisions, Treasury Regulations (the
"Regulations") and rulings in existence on the date hereof, all of which are
subject to change. This summary does not discuss the impact of various proposals
to amend the Code which could change certain of the tax consequences of an
investment in the Company. This summary also does not discuss all of the tax
consequences that may be relevant to a particular investor or to certain
investors subject to special treatment under the Federal income tax laws, such
as insurance companies.
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EACH PROSPECTIVE MEMBER SHOULD CONSULT WITH ITS OWN TAX
ADVISER IN ORDER FULLY TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
In addition to the particular matters set forth in this
section, tax-exempt organizations should review carefully those sections of the
Memorandum regarding liquidity and other financial matters to ascertain whether
the investment objectives of the Company are consistent with their overall
investment plans. Each prospective tax-exempt Member is urged to consult its own
counsel regarding the acquisition of Interests.
TAX TREATMENT OF COMPANY OPERATIONS
Classification of the Company. The Company will receive an
opinion of Schulte Roth & Zabel LLP, counsel to the Company, that under the
provisions of the Code and the Regulations, as in effect on the date of the
opinion, as well as under the relevant authority interpreting the Code and the
Regulations, and based upon certain representations of the Board of Managers,
the Company will be treated as a partnership for Federal income tax purposes and
not as an association taxable as a corporation.
Under Section 7704 of the Code, "publicly traded partnerships"
are generally treated as corporations for Federal income tax purposes. A
publicly traded partnership is any partnership the interests in which are traded
on an established securities market or which are readily tradable on a secondary
market (or the substantial equivalent thereof). Interests in the Company will
not be traded on an established securities market. Regulations concerning the
classification of partnerships as publicly traded partnerships (the "Section
7704 Regulations") provide certain safe harbors under which interests in a
partnership will not be considered readily tradable on a secondary market (or
the substantial equivalent thereof). The Company may not be eligible for any of
those safe harbors. In particular, it will not qualify under the private
placement safe harbor set forth in the Section 7704 Regulations if the Company
has more than 100 Members.
The Section 7704 Regulations specifically provide that the
fact that a partnership does not qualify for the safe harbors is disregarded for
purposes of determining whether interests in a partnership are readily tradable
on a secondary market (or the substantial equivalent thereof). Rather, in this
event the partnership's status is examined under a general facts and
circumstances test set forth in the Section 7704 Regulations. Schulte Roth &
Zabel LLP also will render its opinion that, under this "facts and
circumstances" test, and based upon the anticipated operations of the Company as
well as the legislative history to Section 7704, the text of the Section 7704
Regulations and certain representations of the Board of Managers, the interests
in the Company will not be readily tradable on a secondary market (or the
substantial equivalent thereof) and, therefore, that the Company will not be
treated as a publicly traded partnership taxable as a corporation.
Neither of the opinions of counsel described above, however,
is binding on the Service or the courts. If it were determined that the Company
should be treated as an association or a publicly traded partnership taxable as
a corporation for Federal income tax purposes (as a
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result of a successful challenge to such opinions by the Service, changes in the
Code, the Regulations or judicial interpretations thereof, a material adverse
change in facts, or otherwise), the taxable income of the Company would be
subject to corporate income tax when recognized by the Company; distributions of
such income, other than in certain redemptions of Interests, would be treated as
dividend income when received by the Members to the extent of the current or
accumulated earnings and profits of the Company; and Members would not be
entitled to report profits or losses realized by the Company.
As an entity taxable as a partnership, the Company is not
itself subject to Federal income tax. The Company files an annual partnership
information return with the Service which reports the results of operations.
Each Member is required to report separately on its income tax return its
distributive share of the Company's net long-term capital gain or loss, net
short-term capital gain or loss and all other items of ordinary income or loss.
Each Member is taxed on its distributive share of the Company's taxable income
and gain regardless of whether it has received or will receive a distribution
from the Company.
Recently enacted legislation generally allows certain
partnerships or entities taxable as partnerships such as the Company with 100 or
more partners to elect to have a special set of rules and procedures apply that
are intended to simplify the calculation and reporting of certain partnership
items, and the handling of partnership audits. Among the items that would be
affected by the election are the calculation of long-term capital gains and the
tax treatment of expenses, if any, that are treated as itemized deductions by
the partners. If the Company is eligible, the Board of Managers may elect to
have such rules and procedures apply to the Company if it believes that they may
be beneficial to a majority of the Members. Once the election is made, it cannot
be revoked without the consent of the Service. There can be no assurance that,
if such an election is made, the anticipated benefits will be realized.
Furthermore, in certain cases, it is possible that the election would have an
adverse effect on the Members.
Allocation of Profits and Losses. Under the Company Agreement,
the Company's net capital appreciation or net capital depreciation for each
accounting period is allocated among the Members and to their capital accounts
without regard to the amount of income or loss actually recognized by the
Company for Federal income tax purposes. The Company Agreement provides that
items of income, deduction, gain, loss or credit actually recognized by the
Company for each fiscal year generally are to be allocated for income tax
purposes among the Members pursuant to Regulations issued under Sections 704(b)
and 704(c) of the Code, based upon amounts of the Company's net capital
appreciation or net capital depreciation allocated to each Member's capital
account for the current and prior fiscal years.
Under the Company Agreement, the Board of Managers has the
discretion to allocate specially an amount of the Company's capital gain and
loss for Federal income tax purposes to the Special Advisory Member and to a
withdrawing Member, in either case to the extent that the Member's capital
account exceeds, or is less than, as the case may be, its Federal income tax
basis in its partnership interest. There can be no assurance that, if the Board
of Managers makes any such special allocations, the Service will accept such
allocations. If such
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allocations are successfully challenged by the Service, the Company's gains or
losses allocable to the remaining Members would be increased.
Tax Elections; Returns; Tax Audits. The Code provides for
optional adjustments to the basis of partnership property upon distributions of
partnership property to a partner and transfers of partnership interests
(including by reason of death) provided that a partnership election has been
made pursuant to Section 754. Under the Company Agreement, at the request of a
Member, the Board of Managers, in its sole discretion, may cause the Company to
make such an election. Any such election, once made, cannot be revoked without
the Service's consent. As a result of the complexity and added expense of the
tax accounting required to implement such an election, the Board of Managers
presently does not intend to make such election.
The Board of Managers decides how to report the partnership
items on the Company's tax returns, and all Members are required under the Code
to treat the items consistently on their own returns, unless they file a
statement with the Service disclosing the inconsistency. In the event the income
tax returns of the Company are audited by the Service, the tax treatment of the
Company's income and deductions generally is determined at the limited liability
company level in a single proceeding rather than by individual audits of the
Members. A Manager who has been delegated the power and authority to act as the
"Tax Matters Partner" has considerable authority to make decisions affecting the
tax treatment and procedural rights of all Members. In addition, the Tax Matters
Partner has the authority to bind certain Partners to settlement agreements and
the right on behalf of all Members to extend the statute of limitations relating
to the Members' tax liabilities with respect to Company items.
TAX CONSEQUENCES TO A WITHDRAWING MEMBER
A Member receiving a cash liquidating distribution from the
Company, in connection with a complete withdrawal from the Company, generally
will recognize capital gain or loss to the extent of the difference between the
proceeds received by such Member and such Member's adjusted tax basis in its
partnership interest. Such capital gain or loss will be short-term or long-term
depending upon the Member's holding period for its interest in the Company.
However, a withdrawing Member will recognize ordinary income to the extent such
Member's allocable share of the Company's "unrealized receivables" exceeds the
Member's basis in such unrealized receivables (as determined pursuant to the
Regulations). For these purposes, accrued but untaxed market discount, if any,
on securities held by the Company will be treated as an unrealized receivable,
with respect to which a withdrawing Member would recognize ordinary income. A
Member receiving a cash nonliquidating distribution will recognize income in a
similar manner only to the extent that the amount of the distribution exceeds
such Member's adjusted tax basis in its partnership interest.
As discussed above, the Company Agreement provides that the
Board of Managers may specially allocate items of Company capital gain and loss
to a withdrawing Member to the extent its capital account would otherwise exceed
or be less than, as the case may be, its adjusted tax basis in its partnership
interest. Such a special allocation of gain may result
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in the withdrawing Member recognizing capital gain, which may include short-term
gain, in the Member's last taxable year in the Company, thereby reducing the
amount of long-term capital gain recognized during the tax year in which it
receives its liquidating distribution upon withdrawal. Such a special allocation
of loss may result in the withdrawing Member recognizing capital loss, which may
include long-term loss, in the Member's last taxable year in the Company,
thereby reducing the amount of short-term loss recognized during the tax year in
which it receives its liquidating distribution upon withdrawal.
Distributions of Property. A partner's receipt of a
distribution of property from a partnership is generally not taxable. However,
under Section 731 of the Code, a distribution consisting of marketable
securities generally is treated as a distribution of cash (rather than property)
unless the distributing partnership is an "investment partnership" within the
meaning of Section 731(c)(3)(C)(i) and the recipient is an "eligible partner"
within the meaning of Section 731(c)(3)(C)(iii). The Company will determine at
the appropriate time whether it qualifies as an "investment partnership."
Assuming it so qualifies, if a Member is an "eligible partner", which term
should include a Member whose contributions to the Company consisted solely of
cash, the recharacterization rule described above would not apply.
TAX TREATMENT OF COMPANY INVESTMENTS
In General. The Company expects to act as a trader or
investor, and not as a dealer, with respect to its securities transactions. A
trader and an investor are persons who buy and sell securities for their own
accounts. A dealer, on the other hand, is a person who purchases securities for
resale to customers rather than for investment or speculation.
Generally, the gains and losses realized by a trader or
investor on the sale of securities are capital gains and losses. Thus, subject
to the treatment of certain currency exchange gains as ordinary income (see
"Currency Fluctuations - 'Section 988' Gains or Losses" below) and certain other
transactions described below, the Company expects that its gains and losses from
its securities transactions typically will be capital gains and capital losses.
These capital gains and losses may be long-term or short-term depending, in
general, upon the length of time the Company maintains a particular investment
position and, in some cases, upon the nature of the transaction. Property held
for more than one year generally will be eligible for long-term capital gain or
loss treatment. The application of certain rules relating to short sales, to
so-called "straddle" and "wash sale" transactions and to Section 1256 Contracts
(defined below) may serve to alter the manner in which the Company's holding
period for a security is determined or may otherwise affect the characterization
as short-term or long-term, and also the timing of the realization, of certain
gains or losses. Moreover, the straddle rules and short sale rules may require
the capitalization of certain related expenses of the Company.
The maximum ordinary income tax rate for individuals is 39.6%
and, in general, the maximum individual income tax rate for long-term capital
gains is 20% (unless the taxpayer elects to be taxed at ordinary rates - see
"Limitation on Deductibility of Interest" below), although in all cases the
actual rates may be higher due to the phase out of certain tax deductions,
exemptions and credits. The excess of capital losses over capital gains may be
offset against the
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ordinary income of an individual taxpayer, subject to an annual deduction
limitation of $3,000. For corporate taxpayers, the maximum income tax rate is
35%. Capital losses of a corporate taxpayer may be offset only against capital
gains, but unused capital losses may be carried back three years (subject to
certain limitations) and carried forward five years.
The Company may realize ordinary income from accruals of
interest and dividends on securities. The Company may hold debt obligations with
"original issue discount." In such case, the Company would be required to
include amounts in taxable income on a current basis even though receipt of such
amounts may occur in a subsequent year. The Company may also acquire debt
obligations with "market discount." Upon disposition of such an obligation, the
Company generally would be required to treat gain realized as interest income to
the extent of the market discount which accrued during the period the debt
obligation was held by the Company. Income or loss from transactions involving
certain derivative instruments, such as swap transactions, will also generally
constitute ordinary income or loss. In addition, periodic amounts, if any,
payable by the Company in connection with equity swaps, interest rate swaps,
caps, floors and collars likely would be considered "miscellaneous itemized
deductions" which, for a noncorporate Member, may be subject to restrictions on
their deductibility. See "Deductibility of Company Investment Expenditures by
Noncorporate Members" below. Moreover, gain recognized from certain "conversion
transactions" will be treated as ordinary income.(1)
Currency Fluctuations - "Section 988" Gains or Losses. To the
extent that its investments are made in securities denominated in a foreign
currency, gain or loss realized by the Company frequently will be affected by
the fluctuation in the value of such foreign currencies relative to the value of
the dollar. Generally, gains or losses with respect to the Company's investments
in common stock of foreign issuers will be taxed as capital gains or losses at
the time of the disposition of such stock. However, under Section 988 of the
Code, gains and losses of the Company on the acquisition and disposition of
foreign currency (e.g., the purchase of foreign currency and subsequent use of
the currency to acquire stock) will be treated as ordinary income or loss.
Moreover, under Section 988, gains or losses on disposition of debt securities
denominated in a foreign currency to the extent attributable to fluctuation in
the value of the foreign currency between the date of acquisition of the debt
security and the date of disposition will be treated as ordinary income or loss.
Similarly, gains or losses attributable to fluctuations in exchange rates that
occur between the time the Company accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the
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(1) Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is attributable to
the time value of the net investment in the transaction. The enumerated
transactions are (i) the holding of any property (whether or not actively
traded) and entering into a contract to sell such property (or substantially
identical property) at a price determined in accordance with such contract, but
only if such property was acquired and such contract was entered into on a
substantially contemporaneous basis, (ii) certain straddles, (iii) generally any
other transaction that is marketed or sold on the basis that it would have the
economic characteristics of a loan but the interest-like return would be taxed
as capital gain or (iv) any other transaction specified in Regulations.
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Company actually collects such receivables or pays such liabilities may be
treated as ordinary income or ordinary loss.
As indicated above (see "Types of Investments and Related Risk
Factors - Foreign Securities"), the Company may acquire foreign currency forward
contracts. Generally, any gain or loss realized by the Company with respect to
such forward contracts will be ordinary, unless (i) the contract is a capital
asset in the hands of the Company and is not a part of a straddle transaction
and (ii) the Company makes an election (by the close of the day the transaction
is entered into) to treat the gain or loss attributable to such contract as
capital gain or loss.
Section 1256 Contracts. In the case of Section 1256 Contracts,
the Code generally applies a "mark to market" system of taxing unrealized gains
and losses on such contracts and otherwise provides for special rules of
taxation. A Section 1256 Contract includes certain regulated futures contracts,
certain foreign currency forward contracts, and certain options contracts. Under
these rules, Section 1256 Contracts held by the Company at the end of each
taxable year of the Company are treated for Federal income tax purposes as if
they were sold by the Company for their fair market value on the last business
day of such taxable year. The net gain or loss, if any, resulting from such
deemed sales (known as "marking to market"), together with any gain or loss
resulting from actual sales of Section 1256 Contracts, must be taken into
account by the Company in computing its taxable income for such year. If a
Section 1256 Contract held by the Company at the end of a taxable year is sold
in the following year, the amount of any gain or loss realized on such sale will
be adjusted to reflect the gain or loss previously taken into account under the
"mark to market" rules.
Capital gains and losses from such Section 1256 Contracts
generally are characterized as short-term capital gains or losses to the extent
of 40% thereof and as long-term capital gains or losses to the extent of 60%
thereof. Such gains and losses will be taxed under the general rules described
above. Gains and losses from certain foreign currency transactions will be
treated as ordinary income and losses. (See "Currency Fluctuations - 'Section
988' Gains or Losses.") If an individual taxpayer incurs a net capital loss for
a year, the portion thereof, if any, which consists of a net loss on Section
1256 Contracts may, at the election of the taxpayer, be carried back three
years. Losses so carried back may be deducted only against net capital gain to
the extent that such gain includes gains on Section 1256 Contracts.
Mixed Straddle Election. The Code allows a taxpayer to elect
to offset gains and losses from positions which are part of a "mixed straddle."
A "mixed straddle" is any straddle in which one or more but not all positions
are Section 1256 Contracts. Pursuant to Temporary Regulations, the Company may
be eligible to elect to establish one or more mixed straddle accounts for
certain of its mixed straddle trading positions. The mixed straddle account
rules require a daily "marking to market" of all open positions in the account
and a daily netting of gains and losses from positions in the account. At the
end of a taxable year, the annual net gains or losses from the mixed straddle
account are recognized for tax purposes. The application of the Temporary
Regulations' mixed straddle account rules is not entirely clear. Therefore,
there is no assurance that a mixed straddle account election by the Company will
be accepted by the Service.
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Short Sales. Gain or loss from a short sale of property is
generally considered as capital gain or loss to the extent the property used to
close the short sale constitutes a capital asset in the Company's hands. Except
with respect to certain situations where the property used to close a short sale
has a long-term holding period on the date the short sale is entered into, gains
on short sales generally are short-term capital gains. A loss on a short sale
will be treated as a long-term capital loss if, on the date of the short sale,
"substantially identical property" has been held by the Company for more than
one year. In addition, these rules may also terminate the running of the holding
period of "substantially identical property" held by the Company.
Gain or loss on a short sale will generally not be realized
until such time that the short sale is closed. However, if the Company holds a
short sale position with respect to stock, certain debt obligations or
partnership interests that has appreciated in value and then acquires property
that is the same as or substantially identical to the underlying property, the
Company generally will recognize gain on the date it acquires such property as
if the short sale were closed on such date with such property. Similarly, if the
Company holds an appreciated financial position with respect to stock, certain
debt obligations, or partnership interests and then enters into a short sale
with respect to the same or substantially identical property, the Company
generally will recognize gain as if the appreciated financial position were sold
at its fair market value on the date it enters into the short sale. The
subsequent holding period for any appreciated financial position that is subject
to these constructive sale rules will be determined as if such position were
acquired on the date of the constructive sale.
Effect of Straddle Rules on Members' Securities Positions. The
Service may treat certain positions in securities held (directly or indirectly)
by a Member and its indirect interest in similar securities held by the Company
as "straddles" for Federal income tax purposes. The application of the
"straddle" rules in such a case could affect a Member's holding period for the
securities involved and may defer the recognition of losses with respect to such
securities.
Limitation on Deductibility of Interest and Short Sale
Expenses. For noncorporate taxpayers, Section 163(d) of the Code limits the
deduction for "investment interest" (i.e., interest or short sale expenses for
"indebtedness properly allocable to property held for investment"). Investment
interest is not deductible in the current year to the extent that it exceeds the
taxpayer's "investment income," consisting of net gain and ordinary income
derived from investments in the current year. For this purpose, any long-term
capital gain is excluded from investment income unless the taxpayer elects to
pay tax on such amount at ordinary income tax rates.
For purposes of this provision, the Company's activities will
be treated as giving rise to investment income for a Member, and the investment
interest limitation would apply to a noncorporate Member's share of the interest
and short sale expenses attributable to the Company's operation. In such case, a
noncorporate Member would be denied a deduction for all or part of that portion
of its distributive share of the Company's ordinary losses attributable to
interest and short sale expenses unless it had sufficient investment income from
all sources including the Company. A Member that could not deduct losses
currently as a result of the application of Section 163(d) would be entitled to
carry forward such losses to future years,
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subject to the same limitation. The investment interest limitation would also
apply to interest paid by a noncorporate Member on money borrowed to finance its
investment in the Company. Potential investors are advised to consult with their
own tax advisers with respect to the application of the investment interest
limitation in their particular tax situations.
Deductibility of Company Investment Expenditures by
Noncorporate Members. Investment expenses (e.g., investment advisory fees) of an
individual, trust or estate are deductible only to the extent they exceed 2% of
adjusted gross income.(2) In addition, the Code further restricts the ability of
an individual with an adjusted gross income in excess of a specified amount (for
1999, $126,600 or $63,300 for a married person filing a separate return) to
deduct such investment expenses. Under such provision, investment expenses in
excess of 2% of adjusted gross income may only be deducted to the extent such
excess expenses (along with certain other itemized deductions) exceed the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
specified amount or (ii) 80% of the amount of certain itemized deductions
otherwise allowable for the taxable year. Moreover, such investment expenses are
miscellaneous itemized deductions which are not deductible by a noncorporate
taxpayer in calculating its alternative minimum tax liability.
It is unclear whether all or a portion of the Company's
operations will qualify as trading -- rather than investment -- activities, the
expenses for which would not be treated as investment expenses. Therefore,
pursuant to Temporary Regulations issued by the Treasury Department, these
limitations on deductibility may apply to a noncorporate Member's share of the
expenses of the Company, including the CIBC Opco Fee.
The consequences of these limitations will vary depending upon
the particular tax situation of each taxpayer. Accordingly, noncorporate Members
should consult their tax advisers with respect to the application of these
limitations.
Application of Rules for Income and Losses from Passive
Activities. The Code restricts the deductibility of losses from a "passive
activity" against certain income which is not derived from a passive activity.
This restriction applies to individuals, personal service corporations and
certain closely held corporations. Pursuant to Temporary Regulations issued by
the Treasury Department, income or loss from the Company's securities investment
and trading activity generally will not constitute income or loss from a passive
activity. Therefore, passive losses from other sources generally could not be
deducted against a Member's share of such income and gain from the Company.
(2) However, Section 67(e) of the Code provides that, in the case of a trust or
an estate, such limitation does not apply to deductions or costs which are paid
or incurred in connection with the administration of the estate or trust and
would not have been incurred if the property were not held in such trust or
estate. The Federal Court of Appeals for the Sixth Circuit, reversing a Tax
Court decision, has held that the investment advisory fees incurred by a trust
were exempt (under Section 67(e)) from the 2% of adjusted gross income floor on
deductibility. The Service, however, has stated that it will not follow this
decision outside of the Sixth Circuit. Members that are trusts or estates should
consult their tax advisors as to the applicability of this case to the
investment expenses that are allocated to them.
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"Phantom Income" From Company Investments. Pursuant to various
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign
investment company" and "foreign personal holding company" provisions),
investments (if any) by the Company in certain foreign corporations may cause a
Member to (i) recognize taxable income prior to the Company's receipt of
distributable proceeds, (ii) pay an interest charge on receipts that are deemed
as having been deferred or (iii) recognize ordinary income that, but for the
"anti-deferral" provisions, would have been treated as long-term or short-term
capital gain.
FOREIGN TAXES
It is possible that certain dividends and interest received by
the Company from sources within foreign countries will be subject to withholding
taxes imposed by such countries. In addition, the Company may also be subject to
capital gains taxes in some of the foreign countries where it purchases and
sells securities. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to predict in advance the
rate of foreign tax the Company will pay since the amount of the Company's
assets to be invested in various countries is not known.
The Members will be informed by the Company as to their
proportionate share of the foreign taxes paid by the Company, which they will be
required to include in their income. The Members generally will be entitled to
claim either a credit (subject, however, to various limitations on foreign tax
credits) or, if they itemize their deductions, a deduction (subject to the
limitations generally applicable to deductions) for their share of such foreign
taxes in computing their Federal income taxes. A Member that is tax exempt will
not ordinarily benefit from such credit or deduction.
UNRELATED BUSINESS TAXABLE INCOME
Generally, an exempt organization is exempt from Federal
income tax on its passive investment income, such as dividends, interest and
capital gains, whether realized by the organization directly or indirectly
through a partnership in which it is a partner.(3) This type of income is exempt
even if it is realized from securities trading activity which constitutes a
trade or business.
This general exemption from tax does not apply to the
"unrelated business taxable income" ("UBTI") of an exempt organization. UBTI
includes "unrelated debt-financed income," which generally consists of (i)
income derived by an exempt organization (directly or through a partnership)
from income-producing property with respect to which there is "acquisition
indebtedness" at any time during the taxable year, and (ii) gains derived by an
exempt organization (directly or through a partnership) from the disposition of
property with respect to
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(3) With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net investment
income." The rate of the excise tax for any taxable year may be reduced to 1% if
the private foundation meets certain distribution requirements for the taxable
year. A private foundation will be required to make payments of estimated tax
with respect to this excise tax.
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which there is "acquisition indebtedness" at any time during the twelve-month
period ending with the date of such disposition.
The Company may incur "acquisition indebtedness" with respect
to certain of its transactions, such as the purchase of securities on margin.
Based upon a published ruling issued by the Service which generally holds that
income and gain with respect to short sales of publicly traded stock does not
constitute income from debt financed property for purposes of computing UBTI,
the Company will treat its short sales of securities as not involving
acquisition indebtedness and therefore not resulting in UBTI.(4) To the extent
the Company recognizes income (i.e., dividends and interest) from securities
with respect to which there is "acquisition indebtedness" during a taxable year,
the percentage of such income which will be treated as UBTI generally will be
based on the percentage which the "average acquisition indebtedness" incurred
with respect to such securities is of the "average amount of the adjusted basis"
of such securities during the taxable year.
To the extent the Company recognizes capital gain from
securities with respect to which there is "acquisition indebtedness" at any time
during the twelve-month period ending with the date of their disposition, the
percentage of such gain which will be treated as UBTI will be based on the
percentage which the highest amount of such "acquisition indebtedness" is of the
"average amount of the adjusted basis" of such securities during the taxable
year. In determining the unrelated debt-financed income of the Company, an
allocable portion of deductions directly connected with the Company's
debt-financed property is taken into account. Thus, for instance, a percentage
of capital losses from debt-financed securities (based on the debt/basis
percentage calculation described above) would offset gains treated as UBTI.
Since the calculation of the Company's "unrelated
debt-financed income" is complex and will depend in large part on the amount of
leverage, if any, used by the Company from time to time,(5) it is impossible to
predict what percentage of the Company's income and gains will be treated as
UBTI for a Member which is an exempt organization. An exempt organization's
share of the income or gains of the Company which is treated as UBTI may not be
offset by losses of the exempt organization either from the Company or
otherwise, unless such losses are treated as attributable to an unrelated trade
or business (e.g., losses from securities for which there is acquisition
indebtedness).
To the extent that the Company generates UBTI, the applicable
Federal tax rate for such a Member generally would be either the corporate or
trust tax rate depending upon the nature of the particular exempt organization.
An exempt organization may be required to support, to the satisfaction of the
Service, the method used to calculate its UBTI. The Company
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(4) Moreover, income realized from option writing and futures contract
transactions generally would not constitute UBTI.
(5) The calculation of a particular exempt organization's UBTI would also be
affected if it incurs indebtedness to finance its investment in the Company. An
exempt organization is required to make estimated tax payments with respect to
UBTI.
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will be required to report to a Member which is an exempt organization
information as to the portion of its income and gains from the Company for each
year which will be treated as UBTI. The calculation of such amount with respect
to transactions entered into by the Company is highly complex, and there is no
assurance that the Company's calculation of UBTI will be accepted by the
Service.
In general, if UBTI is allocated to an exempt organization
such as a qualified retirement plan or a private foundation, the portion of the
Company's income and gains which is not treated as UBTI will continue to be
exempt from tax, as will the organization's income and gains from other
investments which are not treated as UBTI. Therefore, the possibility of
realizing UBTI from its investment in the Company generally should not affect
the tax-exempt status of such an exempt organization.(6) However, a charitable
remainder trust will not be exempt from Federal income tax under Section 664(c)
of the Code for any year in which it has UBTI. A title-holding company will not
be exempt from tax if it has certain types of UBTI. Moreover, the charitable
contribution deduction for a trust under Section 642(c) of the Code may be
limited for any year in which the trust has UBTI. A prospective investor should
consult its tax adviser with respect to the tax consequences of receiving UBTI
from the Company. (See "ERISA Considerations.")
CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS
Private Foundations. Private foundations and their managers
are subject to excise taxes if they invest "any amount in such a manner as to
jeopardize the carrying out of any of the foundation's exempt purposes." This
rule requires a foundation manager, in making an investment, to exercise
"ordinary business care and prudence" under the facts and circumstances
prevailing at the time of making the investment, in providing for the short-term
and long-term needs of the foundation to carry out its exempt purposes. The
factors which a foundation manager may take into account in assessing an
investment include the expected rate of return (both income and capital
appreciation), the risks of rising and falling price levels, and the need for
diversification within the foundation's portfolio.
In order to avoid the imposition of an excise tax, a private
foundation may be required to distribute on an annual basis its "distributable
amount," which includes, among other things, the private foundation's "minimum
investment return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets (assets not used or held for use in carrying out
the foundation's exempt purposes), over certain indebtedness incurred by the
foundation in connection with such assets. It appears that a foundation's
investment in the Company would most probably be classified as a nonfunctionally
related asset. A determination that an interest in the Company is a
nonfunctionally related asset could conceivably cause cash flow problems for a
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(6) Certain exempt organizations which realize UBTI in a taxable year will not
constitute "qualified organizations" for purposes of Section 514(c)(9)(B)(vi)(I)
of the Code, pursuant to which, in limited circumstances, income from certain
real estate partnerships in which such organizations invest might be treated as
exempt from UBTI. A prospective tax-exempt Member should consult its tax adviser
in this regard.
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<PAGE> 72
prospective Member which is a private foundation. Such an organization could be
required to make distributions in an amount determined by reference to
unrealized appreciation in the value of its interest in the Company. Of course,
this factor would create less of a problem to the extent that the value of the
investment in the Company is not significant in relation to the value of other
assets held by a foundation.
In some instances, an investment in the Company by a private
foundation may be prohibited by the "excess business holdings" provisions of the
Code. For example, if a private foundation (either directly or together with a
"disqualified person") acquires more than 20% of the capital interest or profits
interest of the Company, the private foundation may be considered to have
"excess business holdings." If this occurs, such foundation may be required to
divest itself of its interest in the Company in order to avoid the imposition of
an excise tax. However, the excise tax will not apply if at least 95% of the
gross income from the Company is "passive" within the applicable provisions of
the Code and Regulations. Although there can be no assurance, the Board of
Managers believes that the Company will meet this 95% gross income test.
A substantial percentage of investments of certain "private
operating foundations" may be restricted to assets directly devoted to their
tax-exempt purposes. Otherwise, generally, rules similar to those discussed
above govern their operations.
Qualified Retirement Plans. Employee benefit plans subject to
the provisions of ERISA, Individual Retirement Accounts and Keogh Plans should
consult their counsel as to the implications of such an investment under ERISA.
(See "ERISA Considerations.")
Endowment Funds. Investment managers of endowment funds should
consider whether the acquisition of an Interest is legally permissible. This is
not a matter of Federal law, but is determined under state statutes. It should
be noted, however, that under the Uniform Management of Institutional Funds Act,
which has been adopted, in various forms, by a large number of states,
participation in investment partnerships or similar organizations in which funds
are commingled and investment determinations are made by persons other than the
governing board of the endowment fund is allowed.
STATE AND LOCAL TAXATION
In addition to the Federal income tax consequences described
above, prospective investors should consider potential state and local tax
consequences of an investment in the Company. State and local tax laws differ in
the treatment of limited liability companies such as the Company. A few
jurisdictions may impose entity level taxes on a limited liability company if it
is found to have sufficient contact with that jurisdiction. Such taxes are
frequently based on the income and capital of the entity that is allocated to
the jurisdiction. Although there can be no assurance, except as noted below, the
Company intends to conduct its activities so that it will not be subject to
entity level taxation by any state or local jurisdiction.
State and local laws often differ from Federal income tax laws
with respect to the treatment of specific items of income, gain, loss, deduction
and credit. A Member's distributive
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share of the taxable income or loss of the Company generally will be required to
be included in determining its reportable income for state and local tax
purposes in the jurisdiction in which it is a resident.
The Company, which is treated as a partnership for New York
State and New York City income tax purposes, should not be subject to the New
York City unincorporated business tax, which is not imposed on a partnership
which purchases and sells securities for its "own account." By reason of a
similar "own account" exemption, it is also expected that a nonresident
individual Member should not be subject to New York State personal income tax
with respect to his share of income or gain realized directly by the Company. A
nonresident individual Member will not be subject to New York City earnings tax
on nonresidents with respect to his investment in the Company.
Individual Members who are residents of New York State and New
York City should be aware that the New York State and New York City personal
income tax laws limit the deductibility of itemized deductions for individual
taxpayers at certain income levels. These limitations may apply to a Member's
share of some or all of the Company's expenses. Prospective Members are urged to
consult their tax advisers with respect to the impact of these provisions and
the Federal limitations on the deductibility of certain itemized deductions and
investment expenses on their New York State and New York City tax liability.
For purposes of the New York State corporate franchise tax and
the New York City general corporation tax, a corporation generally is treated as
doing business in New York State and New York City, respectively, and is subject
to such corporate taxes as a result of the ownership of a partnership interest
in a partnership which does business in New York State and New York City,
respectively.(7) Each of the New York State and New York City corporate taxes
are imposed, in part, on the corporation's taxable income or capital allocable
to the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a non-managing member in a New York partnership may, under certain
circumstances, elect to compute its New York State corporate franchise tax by
taking into account only its distributive share of such partnership's income and
loss. There is currently no similar provision in effect for purposes of the New
York City general corporation tax.
Regulations under both the New York State corporate franchise
tax and the New York City general corporation tax, however, provide an exception
to this general rule in the case of a "portfolio investment partnership", which
is defined, generally, as a partnership which meets the gross income
requirements of Section 851(b)(2) of the Code. New York State (but not New
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(7) New York State (but not New York City) generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a partnership
doing business in New York and (ii) has a tax basis in such limited partnership
interest not greater than $1 million.
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<PAGE> 74
York City) has adopted regulations that also include income and gains from
commodity transactions described in Section 864(b)(2)(B)(iii) as qualifying
gross income for this purpose. The Company's qualification as such a portfolio
investment partnership must be determined on an annual basis and, with respect
to a taxable year, the Company may not qualify as a portfolio investment
partnership.
A trust or other unincorporated organization which by reason
of its purposes or activities is exempt from Federal income tax is also exempt
from New York State and New York City personal income tax. A non-stock
corporation which is exempt from Federal income tax is generally presumed to be
exempt from New York State corporate franchise tax and New York City general
corporation tax. New York State imposes a tax with respect to such exempt
entities on UBTI (including unrelated debt-financed income) at a rate which is
currently equal to the New York State corporate franchise tax rate (plus the
corporate surtax). There is no New York City tax on the UBTI of an otherwise
exempt entity.
Each prospective corporate Member should consult its tax
adviser with regard to the New York State and New York City tax consequences of
an investment in the Company.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee
benefit plan, IRA, Keogh plan or other arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the Code (an
"ERISA Plan") should consider, among other things, the matters described below
before determining whether to invest in the Company.
ERISA imposes certain general and specific responsibilities on
persons who are fiduciaries with respect to an ERISA Plan, including prudence,
diversification, prohibited transaction and other standards. In determining
whether a particular investment is appropriate for an ERISA Plan, Department of
Labor ("DOL") regulations provide that a fiduciary of an ERISA Plan must give
appropriate consideration to, among other things, the role that the investment
plays in the ERISA Plan's portfolio, taking into consideration whether the
investment is designed reasonably to further the ERISA Plan's purposes, an
examination of the risk and return factors, the portfolio's composition with
regard to diversification, the liquidity and current return of the total
portfolio relative to the anticipated cash flow needs of the ERISA Plan, the
income tax consequences of the investment (see "TAX ASPECTS - Unrelated Business
Taxable Income" and "- Certain Issues Pertaining to Specific Exempt
Organizations"), and the projected return of the total portfolio relative to the
ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan in
the Company, a fiduciary should determine whether such an investment is
consistent with its fiduciary responsibilities and the foregoing regulations.
For example, a fiduciary should consider whether an investment in the Company
may be too illiquid or too speculative for a particular ERISA Plan, and whether
the assets of the ERISA Plan would be sufficiently diversified. If a fiduciary
with respect to any such ERISA Plan breaches his responsibilities with regard to
selecting an investment or an investment course of action for such ERISA Plan,
the fiduciary may be held personally liable for losses incurred by the ERISA
Plan as a result of such breach.
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<PAGE> 75
Because the Company will register as an investment company
under the 1940 Act, the underlying assets of the Company should not be
considered to be "plan assets" of the ERISA Plans investing in the Company for
purposes of ERISA's fiduciary responsibility and prohibited transaction rules.
Thus, neither the Adviser nor any of the Managers will be fiduciaries within the
meaning of ERISA.
The Board of Managers will require an ERISA Plan proposing to
invest in the Company to represent that it, and any fiduciaries responsible for
the Plan's investments, are aware of and understand the Company's investment
objective, policies and strategies, that the decision to invest plan assets in
the Company was made with appropriate consideration of relevant investment
factors with regard to the ERISA Plan and is consistent with the duties and
responsibilities imposed upon fiduciaries with regard to their investment
decisions under ERISA.
Certain prospective Plan investors may currently maintain
relationships with the Adviser or the Managers, or with other entities which are
affiliated with the Adviser or the Managers. Each of such persons may be deemed
to be a party in interest to and/or a fiduciary of any ERISA Plan to which it
provides investment management, investment advisory or other services. ERISA
prohibits ERISA Plan assets to be used for the benefit of a party in interest
and also prohibits an ERISA Plan fiduciary from using its position to cause the
ERISA Plan to make an investment from which it or certain third parties in which
such fiduciary has an interest would receive a fee or other consideration. ERISA
Plan investors should consult with counsel to determine if participation in the
Company is a transaction which is prohibited by ERISA or the Code. Fiduciaries
of ERISA or Benefit Plan investors will be required to represent that the
decision to invest in the Company was made by them as fiduciaries that are
independent of such affiliated persons, that are duly authorized to make such
investment decision and that have not relied on any individualized advice or
recommendation of such affiliated persons, as a primary basis for the decision
to invest in the Company.
The provisions of ERISA are subject to extensive and
continuing administrative and judicial interpretation and review. The discussion
of ERISA contained in this Confidential Memorandum, is, of necessity, general
and may be affected by future publication of regulations and rulings. Potential
investors should consult with their legal advisors regarding the consequences
under ERISA of the acquisition and ownership of interests.
ADDITIONAL INFORMATION AND SUMMARY OF
LIMITED LIABILITY COMPANY AGREEMENT
The following is a summary description of additional items and
of select provisions of the Company Agreement which are not described elsewhere
in this Confidential Memorandum. The description of such items and provisions is
not definitive and reference should be made to the complete text of the Company
Agreement, which is attached hereto as Appendix A.
MEMBER INTERESTS
Persons who purchase interests in the Company in the offering
being made hereby will be Members. The Adviser and its affiliates may contribute
capital to and maintain an
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<PAGE> 76
investment in the Company in an amount not exceeding 4.9% of the total
outstanding capital of the Company, and to that extent will be a Member of the
Company. The Adviser, or its successor as investment adviser of the Company,
will also be a Special Advisory Member of the Company. In that regard, the
Company has established a Special Advisory Account solely for the purpose of
receiving the Incentive Allocation. The interest of the Special Advisory Member
has no right to participate in the income or gains of the Company, no voting
rights and no right to a share of the assets of the Company upon its
liquidation, except to the extent that the Special Advisory Member has received
or is entitled to receive the Incentive Allocation credited to the Special
Advisory Account and all or a portion of that allocation has not been withdrawn.
The Adviser may not contribute to the Company as Special Advisory Member.
LIABILITY OF MEMBERS
Under Delaware law and the Company Agreement, each Member will
be liable for the debts and obligations of the Company only to the extent of any
contributions to the capital of the Company (plus any accretions in value
thereto prior to withdrawal) and a Member, in the discretion of the Board of
Managers, may be obligated to return to the Company amounts distributed to him
in accordance with the Company Agreement in certain circumstances where after
giving effect to the distribution, certain liabilities of the Company exceed the
fair market value of the Company's assets.
DUTY OF CARE OF BOARD OF MANAGERS
The Company Agreement provides that a Manager shall not be
liable to the Company or any of the Members for any loss or damage occasioned by
any act or omission in the performance of the Manager's services as such in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the Manager's office. The
Company Agreement also contains provisions for the indemnification, to the
extent permitted by law, of a Manager by the Company (but not by the Members
individually) against any liability and expense to which the Manager may be
liable which arise in connection with the performance of the Manager's
activities on behalf of the Company. Managers shall not be personally liable to
any Member for the repayment of any positive balance in the Member's capital
account or for contributions by the Member to the capital of the Company or by
reason of any change in the Federal or state income tax laws applicable to the
Company or its investors. The rights of indemnification and exculpation provided
under the Company Agreement shall not be construed so as to provide for
indemnification of a Manager for any liability (including liability under
Federal securities laws which, under certain circumstances, impose liability
even on persons that act in good faith), to the extent (but only to the extent)
that such indemnification would be in violation of applicable law, but shall be
construed so as to effectuate the applicable provisions of the Company Agreement
to the fullest extent permitted by law.
AMENDMENT OF THE COMPANY AGREEMENT
The Company Agreement may generally be amended, in whole or in
part, with the approval of the Board of Managers (subject to the approval of a
majority of the Managers who are not "interested persons," as defined by the
1940 Act, of the Company, if required by the 1940 Act)
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<PAGE> 77
without the approval of other Members and if required by the 1940 Act, the
approval of the Members by such vote as is required by the 1940 Act. In
addition, certain amendments to the Company Agreement involving capital accounts
and allocations thereto may not be made without the written consent of any
Member adversely affected thereby or unless each Member has received written
notice of the amendment and any Member objecting to the amendment has been
allowed a reasonable opportunity (pursuant to any procedures as may be
prescribed by the Board of Managers) to tender its entire interest for
repurchase by the Company. However, the Board of Managers may at any time,
without the consent of the other Members of the Company, amend the Company
Agreement, among other things, to satisfy the requirements or to reflect any
relaxation of such requirements in the future of the Bank Holding Company Act or
other U.S. or Canadian banking laws or any regulations, guidelines or policies
or interpretations of the banking regulatory agencies or the staff thereof.
POWER OF ATTORNEY
By subscribing for an interest in the Company, each Member
will appoint each of the Managers his attorney-in-fact for purposes of filing
required certificates and documents relating to the formation and maintenance of
the Company as a Limited Liability Company under Delaware law or signing all
instruments effecting authorized changes in the Company or the Company Agreement
and conveyances and other instruments deemed necessary to effect the dissolution
or termination of the Company.
The power-of-attorney granted as part of each Member's
subscription agreement is a special power-of-attorney and is coupled with an
interest in favor of the Board of Managers and as such shall be irrevocable and
will continue in full force and effect notwithstanding the subsequent death or
incapacity of any Member granting the power-of-attorney, and shall survive the
delivery of a transfer by a Member of the whole or any portion of the Member's
interest, except that where the transferee thereof has been approved by the
Board of Managers for admission to the Company as a substitute Member, or upon
the withdrawal of a Member from the Company pursuant to a periodic tender or
otherwise this power-of-attorney given by the transferor shall terminate.
TERM, DISSOLUTION AND LIQUIDATION
The Company shall be dissolved:
- upon the affirmative vote to dissolve the Company by:
(1) the Board of Managers or (2) Members holding at
least two-thirds (2/3) of the total number of votes
eligible to be cast by all Members;
- upon the expiration of any two year period which
commences on the date on which any Member has
submitted a written notice to the Company requesting
to tender its entire interest for repurchase by the
Company if that interest has not been repurchased by
the Company;
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<PAGE> 78
- upon the failure of Members to elect successor
Managers at a meeting called by the Adviser when no
Manager remains to continue the business of the
Company; or
- as required by operation of law.
Upon the occurrence of any event of dissolution, the Board of
Managers or CIBC Opco, acting as liquidator under appointment by the Board of
Managers (or another liquidator, if the Board of Managers does not appoint CIBC
Opco to act as liquidator or is unable to perform this function) are charged
with winding up the affairs of the Company and liquidating its assets. Net
profits or net loss during the fiscal period including the period of liquidation
will be allocated as described in the section titled "Capital Accounts and
Allocations - Allocation of Net Profits and Net Loss."
Upon the liquidation of the Company, its assets are to be
distributed (1) first to satisfy the debts, liabilities and obligations of the
Company (other than debts to Members) including actual or anticipated
liquidation expenses, (2) next to repay debts owing to the Members, and (3)
finally to the Members proportionately in accordance with the balances in their
respective capital accounts. Assets may be distributed in kind on a pro rata
basis if the Board of Managers or liquidator determines that the distribution of
assets in kind would be in the interests of the Members in facilitating an
orderly liquidation.
REPORTS TO MEMBERS
The Company will furnish to Members as soon as practicable
after the end of each taxable year such information as is necessary for them to
complete Federal and state income tax or information returns, along with any
other tax information required by law. The Company will send to Members an
unaudited semi-annual and an audited annual report within 60 days after the
close of the period for which it is being made, or as otherwise required by the
1940 Act. Quarterly reports regarding the Company's operations during the period
will also be sent to Members.
FISCAL YEAR
The Company's fiscal year is the 12-month period ending on
December 31. The first fiscal year of the Company will commence on the date of
the initial closing and will end on December 31, 1999.
ACCOUNTANTS AND LEGAL COUNSEL
The Board of Managers has selected Ernst & Young LLP as the
independent public accountants of the Company. Ernst & Young LLP's principal
business address is located at 787 Seventh Avenue, 15th Floor, New York, New
York.
Schulte Roth & Zabel LLP, New York, New York, acts as legal
counsel to the Company and to the Adviser in connection with this Confidential
Memorandum and as legal
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<PAGE> 79
counsel to the Adviser, CIBC Opco and its affiliates with respect to certain
other matters. Stroock & Stroock & Lavan LLP, New York, New York, acts as legal
counsel to the Board of Managers.
CUSTODIAN
Chase Manhattan Bank, N.A. ("Chase") serves as the primary
custodian of the Company's assets, and may maintain custody of the Company's
assets with domestic and foreign subcustodians (which may be banks, trust
companies, securities depositories and clearing agencies), approved by the Board
of Managers of the Company in accordance with the requirements set forth in
Section 17(f) of the 1940 Act and the rules adopted thereunder. Assets of the
Company are not held by the Adviser or commingled with the assets of other
accounts other than to the extent that securities are held in the name of a
custodian in a securities depository, clearing agency or omnibus customer
account of a custodian. Chase's principal business address is 270 Park Avenue,
New York, New York 10017-2070.
INQUIRIES
Inquiries concerning the Company and interests in the Company
(including information concerning subscription and withdrawal procedures) should
be directed to:
CIBC Oppenheimer Advisers, L.L.C.
c/o CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
Telephone: 212-667-4225
Telecopier: 212-667-5689
For additional information contact:
Howard M. Singer
Managing Director
CIBC Oppenheimer Corp.
* * * * *
All potential investors in the Company are encouraged to
consult appropriate legal and tax counsel.
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<PAGE> 80
APPENDIX A
LIMITED LIABILITY COMPANY AGREEMENT
A-1
[To Come}
<PAGE> 81
APPENDIX B-1
PERFORMANCE INFORMATION
FOR U.S. FUND AND OFFSHORE FUND
The Adviser and CIBC Opco employ investment programs for CIBC
Oppenheimer Technology Partners, L.L.C. (the "U.S. Fund"), a private investment
company organized as a limited liability company under Delaware law, and CIBC
Oppenheimer Technology International, Ltd. (the "Offshore Fund"), a company
incorporated and governed by the laws of the Cayman Islands, respectively, that
are substantially similar to the investment program that will be employed by the
Adviser for the Company.
Because of the similarity of the investment programs, as a
general matter, the Adviser (subject to policies established by the Board of
Managers) will consider participation by the Company in all appropriate
investment opportunities that are under consideration by the Adviser for
investment by the U.S. Fund and by CIBC Opco for the Offshore Fund. The Adviser
will evaluate for the Company and the U.S. Fund, and it is anticipated that CIBC
Opco will evaluate for the Offshore Fund, a variety of factors that may be
relevant in determining whether a particular investment opportunity or strategy
is appropriate and feasible for the Company, the U.S. Fund or the Offshore Fund
at a particular time. Because these considerations may differ for the Company,
the U.S. Fund and the Offshore Fund in the context of any particular investment
opportunity, the investment activities (and resulting performance) of the
Company, the U.S. Fund and the Offshore Fund may differ from time to time.
Prospective investors should recognize that there are certain
differences between the investment policies of the Company and those of the U.S.
Fund and the Offshore Fund. The investment results of the U.S. Fund and the
Offshore Fund are not intended to predict or suggest the returns that may be
experienced by the Company. Future performance of the Company and of the U.S.
Fund and the Offshore Fund may differ.
THE FOLLOWING TABLES SET FORTH THE PERFORMANCE RECORD OF THE
U.S. FUND AND THE OFFSHORE FUND FOR THE PERIODS INDICATED. THEY SHOULD BE READ
IN CONJUNCTION WITH THE NOTES THERETO. THIS PERFORMANCE AND STATISTICAL
INFORMATION INCLUDED HEREIN HAVE BEEN OBTAINED FROM SOURCES BELIEVED TO BE
RELIABLE BUT ARE NOT WARRANTED AS TO ACCURACY OR COMPLETENESS.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
B-1-1
<PAGE> 82
INVESTMENT PERFORMANCE FOR U.S. FUND
(INCEPTION THROUGH DECEMBER 31, 1998) (1)
<TABLE>
<CAPTION>
S&P 500
CIBC OPPENHEIMER MORGAN STANLEY NASDAQ COMPOSITE INDEX
TECHNOLOGY PARTNERS, L.L.C. HIGH TECH INDEX INDEX RATE OF RATE OF
PERIOD RATE OF RETURN(2)(3) RATE OF RETURN (4) RETURN (5) RETURN (6)
------ --------------------------- ------------------ ---------- ----------
<S> <C> <C> <C> <C>
1Q
1998 (JAN 5-MAR 31) 12.53% 18.05% 15.15% 13.07%
2Q 6.13% 9.83% 3.22% 3.30%
3Q -7.92% -3.69% -10.60% -9.95%
4Q 27.87% 52.41% 29.45% 21.29%
1998 40.62% 90.31% 37.55% 27.57%
CUMULATIVE RETURN (7)
JANUARY 5, 1998 - DECEMBER 31, 1998 40.62% 90.31% 37.55% 27.57%
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY HIGH NASDAQ
COMPOUNDED TECH INDEX COMPOSITE INDEX S&P 500 INDEX
---------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
CUMULATIVE RETURN OF U.S. FUND
AND TRADING LINE
JULY 1, 1996 - DECEMBER 31, 1998 (8) 129.87% 167.68% 83.60% 90.95%
</TABLE>
THIS TABLE MUST BE READ IN CONJUNCTION WITH THE ACCOMPANYING FOOTNOTES WHICH ARE
AN INTEGRAL PART HEREOF.
B-1-2
<PAGE> 83
The table on the prior page reflects the U.S. Fund's
investment performance as well as the results of the Morgan Stanley High Tech
Index, the Nasdaq Composite Index and the Standard Poor's Composite Index of 500
Stocks (the "S&P 500 Index"). The table was compiled in accordance with the
following facts and assumptions.
1. The U.S. Fund commenced operations on January 5, 1998 with
approximately $27.8 million in capital. The U.S. Fund has a December 31 fiscal
year end. The information is based on the U.S. Fund's unaudited financial
statements through December 31, 1998. Since January 5, 1998, the U.S. Fund's
portfolio has been managed by Takis Sparaggis. PAST PERFORMANCE IS NOT A
GUARANTY OF FUTURE PERFORMANCE.
2. At all times under consideration, the U.S. Fund's capital
was between $27.8 million and $70.2 million adjusted for additions and
withdrawals of capital. As of January 1, 1999, the U.S. Fund's capital was
approximately $70.2 million. The U.S. Fund accepts new investors on a monthly
basis. A limited partner generally may withdraw 50% of its capital account and
additional contributions at the end of the first three full fiscal quarters and
may withdraw any amount at the end of any fiscal year.
3. The U.S. Fund's Rate of Return is equal to its net income
(loss) for the indicated period divided by the U.S. Fund's beginning capital for
the period, adjusted to reflect an incentive allocation to CIBC Oppenheimer
Advisers, L.L.C. (the "Adviser") for an investor admitted to the Company at
inception who has not added or withdrawn capital, as well as payment of
expenses, including a 1.00% administration fee. The Adviser is entitled to an
annual incentive allocation equal to 20% of the net capital appreciation
tentatively allocated to an investor each fiscal year. No Incentive Allocation
is made to the extent an investor has a balance in its loss recovery account.
While the incentive allocation generally is reallocated to the Adviser at the
end of a fiscal year, it has been included as a periodic allocation for purposes
of this computation. Although the Company will have a 1.00% administration fee
and investors' capital accounts will be subject to a 20% incentive allocation,
other expenses of the U.S. Fund and the Company will differ.
4. The Morgan Stanley High Tech Index is an equal US
dollar-weighted index of 35 stocks from nine technology subsectors. The U.S.
Fund does not restrict its selection of securities to those comprising the
Morgan Stanley High Tech Index. Performance of the Morgan Stanley High Tech
Index is provided for comparison purposes only.
5. The Nasdaq Composite Index is a broad-based,
capitalization-weighted index of all Nasdaq national market and small-cap
stocks. The U.S. Fund did not restrict its selection of securities to those
comprising the Nasdaq Composite index. Performance of the Nasdaq Composite Index
is provided for comparison purposes only.
6. The S&P 500 Index is a well known, broad-based stock market
index which contains only seasoned equity securities. The U.S. Fund does not
restrict its selection of securities to those comprising the S&P 500 Index.
Performance of the S&P 500 Index is provided for comparison purposes only.
7. The Cumulative Return is calculated by using a compounded,
time-weighted return.
8. The information shown reflects the results of performance
of a proprietary trading line (the "Trading Line"), established by Oppenheimer &
Co., Inc. from July 1, 1996 through January 2, 1998
B-1-3
<PAGE> 84
combined with the performance of the U.S. Fund from January 5, 1998 through
December 31, 1998. The performance results of the Trading Line, which was
managed by Takis Sparaggis during all times shown, is set forth in Appendix
B-2. The compounded cumulative return of the U.S. Fund and the Trading Line is
calculated by using a compounded, time-weighted return. This performance
information is provided solely to illustrate the historical performance of the
Trading Line and the U.S. Fund, investment portfolios managed by Takis Sparaggis
that invested in securities of companies engaged in the technology sector. The
information shown must be read in conjunction with the footnotes accompanying
Appendix B-2, showing the performance information related to the Trading Line.
Those footnotes are incorporated herein by reference.
B-1-4
<PAGE> 85
INVESTMENT PERFORMANCE FOR OFFSHORE FUND
(INCEPTION THROUGH DECEMBER 31, 1998) (1)
<TABLE>
<CAPTION>
S&P 500
CIBC OPPENHEIMER MORGAN STANLEY NASDAQ COMPOSITE INDEX
TECHNOLOGY INTERNATIONAL, LTD. HIGH TECH INDEX INDEX RATE RATE OF
PERIOD RATE OF RETURN (2)(3) RATE OF RETURN (4) OF RETURN (5) RETURN (6)
------ --------------------- ------------------ ------------- ----------
<S> <C> <C> <C> <C>
1997 DEC 23 - DEC 31 -0.51% 5.16% 4.00% 3.33%
1997 -0.51% 5.16% 4.00% 3.33%
1998 1Q 12.72% 21.22% 16.90% 13.95%
2Q 6.38% 9.83% 3.22% 3.30%
3Q -7.55% -3.69% -10.60% -9.95%
4Q 33.46% 52.41% 29.45% 21.29%
1998 47.95% 95.42% 39.64% 28.57%
CUMULATIVE RETURN (7)
DECEMBER 23, 1997 - DECEMBER 31, 1998 47.20% 105.51% 45.23% 32.85%
</TABLE>
<TABLE>
<CAPTION>
MORGAN STANLEY HIGH NASDAQ
COMPOUNDED TECH INDEX COMPOSITE INDEX S&P 500 INDEX
---------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
CUMULATIVE RETURN OF
OFFSHORE FUND AND TRADING LINE
JULY 1, 1996 - DECEMBER 31, 1998 (8) 137.72% 167.68% 83.60% 90.95%
</TABLE>
THIS TABLE MUST BE READ IN CONJUNCTION WITH THE ACCOMPANYING FOOTNOTES WHICH ARE
AN INTEGRAL PART HEREOF.
B-1-5
<PAGE> 86
The performance table on the prior page reflects the
percentage change in the Net Asset Value ("NAV") of the Offshore Fund's Shares
as well as the results of the Morgan Stanley High Tech Index, the Nasdaq
Composite Index and the S&P 500 Index. The table was compiled in accordance with
the following facts and assumptions.
1. The Offshore Fund commenced operations on December 23, 1997
with $7.18 million in capital. The Offshore Fund has a December 31 fiscal year
end. The information is based on the Offshore Fund's unaudited financial
statements through December 31, 1998. Since December 23, 1997, the Offshore
Fund's portfolio has been managed by Takis Sparaggis. PAST PERFORMANCE IS NOT A
GUARANTY OF FUTURE PERFORMANCE.
2. At all times under consideration, the Offshore Fund's
capital was between $ 7.14 and $18.5 million adjusted for additional
subscriptions and redemptions of shares. As of January 1, 1999, the Offshore
Fund's capital was approximately $18.5 million. The Offshore Fund accepts new
investors on a monthly basis and permits investors to redeem shares monthly.
3. The Offshore Fund rate of return reflects the percentage
increase or decrease in the Fund's NAV per share for the periods indicated. Per
share NAV reflects the monthly accrual of a 20% incentive fee, as well as
payment of all other expenses, including a 1.00% management fee. The incentive
fee is paid with respect to the appreciation in the NAV of the Offshore Fund in
excess of the prior high NAV used to determine the last incentive fee paid to
the Offshore Fund's investment adviser.
4. The Morgan Stanley High Tech Index is an equal US
dollar-weighted index of 35 stocks from nine technology sectors. The Company
does not restrict its selection of securities to those comprising the Morgan
Stanley High Tech Index. Performance of the Morgan Stanley High Tech Index is
provided for comparison purposes only.
5. The Nasdaq Composite Index is a broad-based,
capitalization-weighted index of all Nasdaq national market and small cap
stocks. The Offshore Fund did not restrict its selection of securities to those
comprising the Nasdaq Composite Index. Performance of the Nasdaq Composite Index
is provided for comparison purposes only.
6. The S&P 500 Index is a well known, broad-based stock market
index which contains only seasoned equity securities. The Offshore Fund does not
restrict its selection of securities to those comprising the S&P 500 Index.
Performance of the S&P 500 Index is provided for comparison purposes only.
7. The Cumulative Return is calculated by using a compounded,
time-weighted return.
8. The information shown reflects the results of performance
of the Trading Line from July 1, 1996 through December 31, 1997 combined with
the performance of the Offshore Fund from January 1, 1998 through December 31,
1998. The performance results of the Trading Line is set forth in Appendix B-2.
The compounded cumulative return of the Offshore Fund and the Trading Line is
calculated by using a compounded, time-weighted return. This performance
information is provided solely to illustrate the historical performance of the
Trading Line and the Offshore Fund, investment portfolios managed by Takis
Sparaggis that invested in securities of companies engaged in the technology
sector. The information shown must be read in
B-1-6
<PAGE> 87
conjunction with the footnotes accompanying Appendix B-2, showing the
performance information related to the Trading Line. Those footnotes are
incorporated herein by reference.
B-1-7
<PAGE> 88
APPENDIX B-2
PAST PERFORMANCE OF THE PORTFOLIO MANAGER
RELATED TO PROPRIETY TRADING LINE (1)
The following performance information presents the performance
of the Portfolio Manager in his capacity as portfolio manager of a $1,000,000
proprietary trading line at Oppenheimer & Co., Inc. during the period July 1,
1996 through January 2, 1998. The performance has been presented on a pro forma
basis giving effect to an incentive allocation, administration fee and certain
other expenses to be borne by the Company. The trading line managed by the
Portfolio Manager had investment objectives substantially similar to those of
the Company; however, since the trading line did not incur certain of the fees
and expenses that will be incurred by the Company, does not reinvest realized
gains, has its capital level reset at a predetermined level, and may make
investment decisions to maintain the predetermined capital level, its results
may vary from those that would have been achieved by the Company during the same
period. The performance and statistical information have been obtained from
sources believed to be reliable but is not warranted as to accuracy or
completeness. PAST PERFORMANCE IS NOT A GUARANTY OF FUTURE RESULTS.
JULY 1, 1996 - JANUARY 2, 1998
<TABLE>
<CAPTION>
MORGAN NASDAQ
STANLEY COMPOSITE S&P
GROSS AVERAGE AVERAGE MONTHLY TECH INDEX INDEX 500 INDEX
TRADING LONG MARKET SHORT MARKET NET INCOME MONTHLY NET MONTHLY RATE OF RATE OF
INCOME (LOSS) VALUE (2) VALUE (2) (LOSS) (3) RETURN (4) RETURN (5) RETURN (6) RETURN (7)
------------- --------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
July ($ 19,037) $ 951,366 $185,945 ($ 19,688) -1.97% -5.71% -8.81% -4.42%
August 45,040 1,003,827 148,244 39,296 3.93% 3.67% 5.64% 2.11%
September 48,860 1,067,591 378,412 36,746 3.67% 10.95% 7.48% 5.63%
October (475) 1,083,455 292,778 (4,141) -0.41% -0.87% -0.44% 2.76%
November 66,245 1,112,761 314,229 50,939 5.09% 14.72% 5.82% 7.56%
December (20,773) 1,074,035 259,947 (24,366) -2.44% -4.45% -0.12% -1.98%
January 119,512 1,070,368 308,140 96,656 9.67% 6.68% 6.88% 6.25%
February (405) 1,016,775 357,636 (4,951) -0.50% -8.63% -5.13% 0.78%
March (17,756) 924,852 297,204 (18,928) -1.89% -5.02% -6.67% -4.11%
April 101,883 909,895 336,125 84,150 8.41% 5.76% 3.20% 5.97%
May 131,900 987,487 375,556 104,560 10.46% 14.52% 11.07% 6.09%
June (4,505) 1,062,286 358,243 (5,926) -0.59% -0.75% 2.98% 4.48%
July 177,802 1,318,398 337,171 141,200 14.12% 18.60% 10.52% 7.96%
August 43,721 1,059,017 328,062 32,493 3.25% -1.05% -0.41% -5.60%
September 91,871 1,271,765 363,652 72,219 7.22% 4.03% 6.20% 5.48%
October (31,710) 898,708 268,822 (34,263) -3.43% -12.40% -5.46% -3.34%
November (26,009) 1,118,982 206,492 (28,908) -2.89% -0.63% 0.44% 4.63%
December (11,246) 960,599 204,578 (13,267) -1.33% -1.21% -1.89% 1.72%
January 1998* 18,073 1,099,347 199,378 17,412 1.74% 2.15% 0.71% 0.48%
------ --------- ------- ------ ---- ---- ---- ----
TOTAL $712,991 $521,231
======== ========
</TABLE>
RATES OF RETURN
JULY 1, 1996 - JANUARY 2, 1998
<TABLE>
<CAPTION>
MORGAN STANLEY TECHNOLOGY
TRADING LINE INDEX (5) NASDAQ COMPOSITE INDEX S&P 500 INDEX
------------ --------- ---------------------- -------------
<S> <C> <C> <C> <C>
Non-Compounded (8) 52.11% 40.36% 32.01% 42.45%
Compounded (8) 63.47% 40.65% 33.47% 49.68%
</TABLE>
THIS TABLE MUST BE READ IN CONJUNCTION WITH THE ACCOMPANYING FOOTNOTES WHICH ARE
AN INTEGRAL PART HEREOF.
- ------------------------
* Through January 2, 1998
B-2-1
<PAGE> 89
The table on the prior page reflects the performance of a
proprietary trading line (the "Trading Line") established by Oppenheimer & Co.,
Inc. and managed by Takis Sparaggis, as well as the results of the Morgan
Stanley High Tech Index and the Standard & Poor's Composite Index of 500 Stocks
(the "S&P 500 Index"). The table was compiled in accordance with the following
facts and assumptions.
1. Mr. Sparaggis commenced management of a proprietary trading
line (the "Trading Line") in March 1996. The Trading Line was initially
established with a long equity cost limit of $1,000,000 and was invested from
March 25, 1996 through June 30, 1996 on a predominantly long basis. The
performance of the Trading Line between March 25, 1996 and June 30, 1996 was
.39% on a non-compounded basis and .14% on a compounded basis as compared with
the Morgan Stanley High Tech Index which had returns of 1.77% on a
non-compounded basis and 1.08% on a compounded basis. (See Footnote 7 below.)
Beginning in July 1996, Mr. Sparaggis managed the Trading Line
maintaining both long and short market positions, which the Adviser believes
most accurately reflects the strategy anticipated to be pursued by the Adviser
in managing the investment portfolio of the Company. For purposes of the
foregoing table, the invested capital equals $1,000,000, which was the long
equity cost limit imposed on the Trading Line. Intermittently, but not less
frequently than monthly, capital in excess of the $1,000,000 Trading Line was
taken out of the Trading Line's account and if the Trading Line depreciated
below $1,000,000, capital would be added to restore the $1,000,000 cost limit.
The performance of the Trading Line reflects the results of an account which had
regular withdrawals to maintain a predetermined capital level. To fund such
withdrawals, certain investment decisions were made to generate cash, which in
turn was removed from the Trading Line's account. The results of the Trading
Line might not reflect the results that would have been achieved by the Company
during the same periods because the Company provides only limited withdrawal
rights to investors, will reinvest gains and distributions received and,
generally will not make investment decisions to generate cash for distribution
and will not necessarily have cash inflow to return capital to a pre-determined
level. The information in the foregoing tables is based on unaudited financial
information.
2. Average long market value is the actual average of the
daily market value of the securities held long in the Trading Line. Average
short market value is the actual average of the daily market value of the
securities held short in the Trading Line.
3. Net income generally consists of dividends and interest
accrued, realized and unrealized gains and losses in the account for the
applicable periods, less pro forma fees and expenses anticipated to be incurred
by the Company, including a 20% incentive allocation which would have been borne
had such return been earned by the Company and a 1.00% administration fee.
Additionally, pro forma adjustments have been made for (i) margin interest or
interest credit if the average long market value was greater than or less than
the Trading Line's $1,000,000 long equity limit, as the case may be, (ii)
credits on short positions (at the rate of 50% of the federal funds rate plus
1/2%) and (iii) commissions on all transactions in exchange listed securities
(at the rate of 6 cents per share). Although these pro forma adjustments are
believed to approximately reflect market practices, there is no guarantee that
the Company will be able to operate on terms as favorable as the foregoing
assumptions.
4. Monthly Net Return is calculated by taking the "monthly net
income" as defined in footnote 3 above and dividing it by $1,000,000 (the long
equity limit).
B-2-2
<PAGE> 90
5. The Morgan Stanley High Tech Index is an equal
dollar-weighted index of 35 stocks from nine technology subsectors. The Trading
Line did not restrict its selection of securities to those comprising the Morgan
Stanley High Tech Index. Performance of the Morgan Stanley High Tech Index is
provided for comparison purposes only.
6. The Nasdaq Composite Index is a broad-based,
capitalization-weighted index of all Nasdaq national market and small cap
stocks. The Trading Line did not restrict its selection of securities to those
comprising the Nasdaq Composite Index. Performance of the Nasdaq Composite Index
is provided for comparison purposes only.
7. The S&P 500 Index is a well known, broad-based stock market
index which contains only seasoned equity securities. The Trading Line did not
restrict its selection of securities to those comprising the S&P 500 Index.
Performance of the S&P 500 Index is provided for comparison purposes only.
8. The non-compounded rates of return are calculated by adding
the monthly rates of return. The compounded rates of return are calculated by
using a compounded, time-weighted return.
B-2-3
<PAGE> 91
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
As Registrant has no assets, financial statements are
omitted.
(2) Exhibits:
(a) (1) Certificate of Formation of Limited Liability
Company.
(2) Form of Limited Liability Company Agreement.
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(2).
(e) Not Applicable.
(f) Not Applicable.
(g) Form of Investment Advisory Agreement.
(h) Form of Placement Agency Agreement.
(i) Not Applicable.
(j) Form of Custody Agreement.
(k) (1) Form of Administrative Services Agreement.
(2) Form of Administration, Accounting and Investor
Services Agreement.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
C-1
<PAGE> 92
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Blue Sky Fees and Expenses (including fees
of counsel).................................... 10,000
Transfer Agent fees.............................. N/A
Accounting fees and expenses..................... 10,000
Legal fees and expenses.......................... 150,000
Printing and engraving........................... 25,000
Offering Expenses................................ 50,000
Miscellaneous.................................... 5,000
----------
$250,000
==========
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, Registrant
expects that no person will be directly or indirectly under common control with
Registrant.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
-------------- ------------------------
Limited Liability Company Interests 1 (Registrant anticipates that
as a result of the initial
private offering of interests
there will be more than 100
record holders of such
interests.)
ITEM 29. INDEMNIFICATION
Reference is made to Section 3.7 of Registrant's Form of Limited
Liability Company Agreement (the "Company Agreement") filed as Exhibit 2(a)(2)
hereto. Registrant hereby undertakes that it will apply the indemnification
provision of the Company Agreement in a manner consistent with Release 40-11330
of the Securities and Exchange Commission under the Investment Company Act of
1940, so long as the interpretation therein of Sections 17(h) and 17(i) of such
Act remains in effect.
Registrant, in conjunction with the CIBC Oppenheimer Advisers, L.L.C.
(the "Adviser") and Registrant's Managers, maintains insurance on behalf of any
person who is or was a Independent Manager, officer, employee, or agent of
Registrant, against certain liability asserted against him or her and incurred
by him or her or arising out of his or her position. However, in no event will
Registrant pay that portion of the premium, if any, for insurance to indemnify
any such person or any act for which Registrant itself is not permitted to
indemnify.
C-2
<PAGE> 93
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or
employment of a substantial nature in which the Adviser, and each director,
executive officer, managing member or partner of the Adviser, is or has been, at
any time during the past two fiscal years, engaged in for his or her own account
or in the capacity of director, officer, employee, managing member, partner or
trustee, is set forth in Registrant's Confidential Memorandum in the section
entitled "THE ADVISER AND CIBC OPCO." Information as to the directors and
officers of the Adviser is included in its Form ADV as filed with the Commission
(File No. 801-55640), and is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of Registrant at PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809. The other required books and records are maintained
by the Adviser, CIBC Oppenheimer Tower, One World Financial Center, 200 Liberty
Street, New York, New York 10281.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
C-3
<PAGE> 94
FORM N-2
XANTHUS FUND, L.L.C.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Briarcliff
Manor, and State of New York, on the 8th day of January, 1999.
XANTHUS FUND, L.L.C.
By: /s/ Paul Belica
--------------------------------------
Name: Paul Belica
Title: Manager
C-4
<PAGE> 95
FORM N-2
XANTHUS FUND, L.L.C.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
- -------------- --------------------
(a) (1) Certificate of Formation of Limited Liability Company
(2) Form of Limited Liability Company Agreement
(c) Not Applicable
(d) See Exhibit (a)(2) above
(e) Not Applicable
(f) Not Applicable
(g) Form of Investment Advisory Agreement
(h) Form of Placement Agency Agreement
(i) Not Applicable
(j) Form of Custody Agreement.
(k) (1) Form of Administrative Services Agreement
(2) Form of Administration, Accounting and Investor Services
Agreement.
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
C-5
<PAGE> 1
CERTIFICATE OF FORMATION
OF
XANTHUS FUND, L.L.C.
UNDER SECTION 18-201 OF THE LIMITED LIABILITY COMPANY ACT
OF THE STATE OF DELAWARE
Article 1. Name. The name of the limited liability company (the "Company")
is XANTHUS FUND, L.L.C.
Article 2. Registered Office; Registered Agent. The registered office of
the Company in the State of Delaware is Corporation Service Company, 1013 Centre
Road, Wilmington, Delaware 19805-1297, County of New Castle. The name and
address of the registered agent of the Company for service of process on the
Company in the State of Delaware is Corporation Service Company, 1013 Centre
Road, Wilmington, Delaware 19805-1297, County of New Castle.
Article 3. Effective Date. The Certificate of Formation shall be effective
upon filing.
IN WITNESS WHEREOF, this certificate has been subscribed on this 6th day of
January, 1999 by the undersigned who affirms that the statements made herein are
true under the penalties of perjury.
/s/ Paul Belica
-----------------
Name: Paul Belica
Title: Manager
<PAGE> 1
------------------------------------
XANTHUS FUND, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
------------------------------------
LIMITED LIABILITY COMPANY AGREEMENT
DATED AS OF _________, 1999
------------------------------------
CIBC OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER, 31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
(212) 667-4225
<PAGE> 2
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS........................................................1
ARTICLE II ORGANIZATION; ADMISSION OF MEMBERS...............................10
2.1 Formation of Limited Liability Company...............................10
2.2 Name.................................................................10
2.3 Principal and Registered Office......................................10
2.4 Duration.............................................................10
2.5 Objective and Business of the Company................................11
2.6 Board of Managers....................................................11
2.7 Members..............................................................12
2.8 Special Advisory Member..............................................12
2.9 Organizational Member................................................12
2.10 Both Managers and Members...........................................12
2.11 Limited Liability...................................................13
ARTICLE III MANAGEMENT......................................................13
3.1 Management and Control...............................................13
3.2 Actions by the Board of Managers.....................................14
3.3 Meetings of Members..................................................14
3.4 Custody of Assets of the Company.....................................15
3.5 Other Activities of Members and Managers.............................15
3.6 Duty of Care.........................................................15
3.7 Indemnification......................................................16
3.8 Fees, Expenses and Reimbursement.....................................18
-i-
<PAGE> 3
ARTICLE IV TERMINATION OF STATUS OF ADVISER AND MANAGERS,
TRANSFERS AND REPURCHASES........................................19
4.1 Termination of Status of the Adviser.................................19
4.2 Termination of Status of a Manager...................................20
4.3 Removal of the Managers..............................................20
4.4 Transfer of Interests of Members.....................................20
4.5 Transfer of Interests of Special Advisory Member.....................21
4.6 Repurchase of Interests..............................................21
ARTICLE V CAPITAL 23
5.1 Contributions to Capital.............................................23
5.2 Rights of Members to Capital.........................................24
5.3 Capital Accounts.....................................................24
5.4 Allocation of Net Profit and Loss....................................25
5.5 Allocation of Insurance Premiums and Proceeds........................25
5.6 Allocation of Certain Withholding Taxes and Other Expenditures.......25
5.7 Reserves.............................................................26
5.8 Incentive Allocation.................................................27
5.9 Allocation of Organizational Expenses................................27
5.10 Tax Allocations.....................................................28
5.11 Distributions.......................................................29
5.12 Foreign Withholding.................................................30
ARTICLE VI DISSOLUTION AND LIQUIDATION......................................30
6.1 Dissolution..........................................................30
6.2 Liquidation of Assets................................................31
ARTICLE VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS....................32
7.1 Accounting and Reports...............................................32
-ii-
<PAGE> 4
7.2 Determinations by the Board of Managers..............................32
7.3 Valuation of Assets..................................................33
ARTICLE VIII MISCELLANEOUS PROVISIONS.......................................33
8.1 Amendment of Limited Liability Company Agreement.....................33
8.2 Special Power of Attorney............................................34
8.3 Notices..............................................................36
8.4 Agreement Binding Upon Successors and Assigns........................36
8.5 Applicability of 1940 Act and Form N-2...............................36
8.6 Choice of Law; Arbitration...........................................36
8.7 Not for Benefit of Creditors.........................................37
8.8 Consents.............................................................38
8.9 Merger and Consolidation.............................................38
8.10 Pronouns............................................................38
8.11 Confidentiality.....................................................38
8.12 Certification of Non-Foreign Status.................................39
8.13 Severability........................................................39
8.14 Filing of Returns...................................................39
8.15 Tax Matters Partner.................................................39
8.16 Section 754 Election................................................40
-iii-
<PAGE> 5
XANTHUS FUND, L.L.C
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of Xanthus Fund, L.L.C. (the
"Company") is dated as of ______, 1999 by and among Jesse H. Ausubel, Paul
Belica and Jeswald Salacuse as the Managers, CIBC Oppenheimer Advisers, L.L.C.,
as the Special Advisory Member, Jesse H. Ausubel as the Organizational Member,
and those persons hereinafter admitted as Members.
W I T N E S S E T H:
WHEREAS, the Company has heretofore been formed as a limited liability
company under the Delaware Limited Liability Company Act pursuant to an initial
Certificate of Formation (the "Certificate") dated and filed with the Secretary
of State of Delaware on January [7], 1999;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants hereinafter set forth, it is hereby agreed as follows:
----------------------
ARTICLE I
DEFINITIONS
----------------------
For purposes of this Agreement:
ADMINISTRATOR The person who provides administrative services to
the Company pursuant to an administrative services
agreement.
ADVISER CIBC Oppenheimer Advisers, L.L.C., a limited
liability company organized under Delaware law, or
any person who may hereinafter serve as the
investment adviser to the Company pursuant to an
Investment Advisory Agreement.
ADVISERS ACT The Investment Advisers Act of 1940 and the
rules, regulations and orders thereunder, as amended
from time to time, or any successor law.
AFFILIATE An affiliated person of a person as such term is
defined in the 1940 Act.
<PAGE> 6
AGREEMENT This Limited Liability Company Agreement, as amended
from time to time.
ALLOCATION CHANGE With respect to each Member for each Allocation
Period, the difference between:
(1) the sum of (a) the balance of such
Member's Capital Account as of the
close of the Allocation Period
(after giving effect to all
allocations to be made to such
Member's Capital Account as of such
date other than any Incentive
Allocation to be debited against
such Member's Capital Account),
plus (b) any debits to such
Member's Capital Account during the
Allocation Period to reflect any
actual or deemed distributions or
repurchases with respect to such
Member's Interest, plus (c) any
debits to such Member's Capital
Account during the Allocation
Period to reflect any Insurance
premiums allocable to such Member,
plus (d) any debits to such
Member's Capital Account during the
Allocation Period to reflect any
items allocable to such Member's
Capital Account pursuant to Section
5.6 hereof; and
(2) the sum of (a) the balance of such
Member's Capital Account as of the
commencement of the Allocation
Period, plus (b) any credits to
such Member's Capital Account
during the Allocation Period to
reflect any contributions by such
Member to the capital of the
Company, plus (c) any credits to
such Member's Capital Account
during the Allocation Period to
reflect any Insurance proceeds
allocable to such Member.
If the amount specified in clause (1)
exceeds the amount specified in clause (2),
such difference shall be a POSITIVE
ALLOCATION Change, and if the amount
specified in clause (2) exceeds the amount
specified in clause (1), such difference
shall be a NEGATIVE ALLOCATION CHANGE.
-2-
<PAGE> 7
ALLOCATION PERIOD With respect to each Member, the period commencing as
of the date of admission of such Member to the
Company, and thereafter each period commencing as of
the day following the last day of the preceding
Allocation Period with respect to such Member, and
ending at the close of business on the first to occur
of the following:
(1) the last day of a Fiscal Year;
(2) the day as of which the Company
repurchases the entire Interest of
such Member;
(3) the day as of which the Company
admits as a substituted Member a
person to whom the Interest of such
Member has been Transferred (unless
there is no change of beneficial
ownership); and
(4) the day as of which the Adviser's
status as the Special Advisory
Member is terminated pursuant to
Section 4.1 hereof.
BOARD OF MANAGERS The Board of Managers established pursuant to Section
2.6.
CAPITAL ACCOUNT With respect to each Member, the capital account
established and maintained on behalf of each Member
pursuant to Section 5.3 hereof.
CAPITAL PERCENTAGE A percentage established for each Member on the
Company's books as of each Expense Allocation Date.
The Capital Percentage of a Member on an Expense
Allocation Date shall be determined by dividing the
amount of capital contributed to the Company by the
Member pursuant to Section 5.1 hereof by the sum of
the capital contributed to the Company by each Member
pursuant to Section 5.1 hereof on or prior to such
Expense Allocation Date. The sum of the Capital
Percentages of all Members on each Expense Allocation
Date shall equal 100%.
CERTIFICATE The Certificate of Formation of the Company and any
amendments thereto as filed with the office of the
Secretary of State of Delaware.
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CIBC OPCO CIBC Oppenheimer Corp., or any successor thereto.
CIBC OPCO SERVICES Such administrative services as CIBC
Opco shall provide to the Company pursuant to a
separate written agreement with the Company as
contemplated by Section 3.8(a) hereof.
CLOSING DATE The first date on or as of which a Member other
than the Organizational Member is admitted to the
Company.
CODE The United States Internal Revenue Code of 1986, as
amended and as hereafter amended from time to time,
or any successor law.
COMPANY The limited liability company governed hereby, as
such limited liability company may from time to time
be constituted.
DELAWARE ACT The Delaware Limited Liability Company Act as in
effect on the date hereof and as amended from time to
time, or any successor law.
EXPENSE ALLOCATION DATE The Closing Date, and thereafter each
day on or before December 1, 1999, as of which a
contribution to the capital of the Company is made
pursuant to Section 5.1 hereof.
FISCAL PERIOD The period commencing on the Closing Date, and
thereafter each period commencing on the day
immediately following the last day of the preceding
Fiscal Period, and ending at the close of business on
the first to occur of the following dates:
(1) the last day of a Fiscal Year;
(2) the day preceding any day as of
which a contribution to the capital
of the Company is made pursuant to
Section 5.1; or
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(3) any day (other than one specified
in clause (2) above) as of which
this Agreement provides for any
amount to be credited to or debited
against the Capital Account of any
Member, other than an amount to be
credited to or debited against the
Capital Accounts of all Members in
accordance with their respective
Investment Percentages.
FISCAL YEAR The period commencing on the Closing Date and ending
on December 31, 1999, and thereafter each period
commencing on January 1 of each year and ending on
December 31 of each year (or on the date of a final
distribution pursuant to Section 6.2 hereof), unless
the Board of Managers shall elect another fiscal year
for the Company that is a permissible taxable year
under the Code.
FORM N-2 The Company's Registration Statement on Form N-2
filed with the Securities and Exchange Commission, as
amended from time to time.
INCENTIVE ALLOCATION With respect to each Member, 20% of the amount,
determined as of the close of each Allocation Period
with respect to such Member, by which such Member's
Positive Allocation Change for such Allocation
Period, if any, exceeds any positive balance in such
Member's Loss Recovery Account as of the most recent
prior date as of which any adjustment has been made
thereto.
INDEPENDENT MANAGERS Those Managers who are not "interested persons" of
the Company as such term is defined in the 1940 Act.
INSURANCE One or more "key man" insurance policies on the life
of any principal of a member of the Adviser, the
benefits of which are payable to the Company.
INTEREST The entire ownership interest in the Company at any
particular time of a Member or the Special Advisory
Member, or other person to whom an Interest of a
Member or portion thereof has been transferred
pursuant to Section 4.4 hereof, including the rights
and obligations of such Member or other person under
this Agreement and the Delaware Act.
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INVESTMENT ADVISORY A separate written agreement
AGREEMENT entered into by the Company pursuant to which the
Adviser provides investment advisory services to the
Company.
INVESTMENT PERCENTAGE A percentage established for each Member on the
Company's books as of the first day of each Fiscal
Period. The Investment Percentage of a Member for a
Fiscal Period shall be determined by dividing the
balance of the Member's Capital Account as of the
commencement of such Fiscal Period by the sum of the
Capital Accounts of all of the Members as of the
commencement of such Fiscal Period. The sum of the
Investment Percentages of all Members for each Fiscal
Period shall equal 100%.
LOSS RECOVERY ACCOUNT A memorandum account to be recorded in the books and
records of the Company with respect to each Member,
which shall have an initial balance of zero and which
shall be adjusted as follows:
(1) As of the first day after the close
of each Allocation Period for such
Member, the balance of the Loss
Recovery Account shall be increased
by the amount, if any, of such
Member's Negative Allocation Change
for such Allocation Period and
shall be reduced (but not below
zero) by the amount, if any, of
such Member's Positive Allocation
Change for such Allocation Period.
(2) The balance of the Loss Recovery
Account shall be reduced (but not
below zero) as of the first date as
of which the Capital Account
balance of any Member is reduced as
a result of repurchase or transfer
with respect to such Member's
Interest by an amount determined by
multiplying (a) such positive
balance by (b) a fraction, (i) the
numerator of which is equal to the
amount of the repurchase or
transfer, and (ii) the denominator
of which is equal to the balance of
such Member's Capital Account
immediately before giving effect to
such repurchase or transfer.
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No transferee of any Interest shall succeed to any
Loss Recovery Account balance or portion thereof
attributable to the transferor unless the Transfer by
which such transferee received such Interest did not
involve a change of beneficial ownership.
MANAGER An individual designated as a manager of the Company
pursuant to the provisions of Section 2.6 of the
Agreement and who serves on the Board of Managers of
the Company.
MEMBER Any person who shall have been admitted to the
Company as a member (including any Manager in such
person's capacity as a member of the Company but
excluding any Manager in such person's capacity as a
Manager of the Company) until the Company repurchases
the entire Interest of such person as a member
pursuant to Section 4.6 hereof or a substituted
Member or Members are admitted with respect to any
such person's entire Interest as a member pursuant to
Section 4.4 hereof; such term includes the Adviser to
the extent the Adviser makes a capital contribution
to the Company and shall have been admitted to the
Company as a member, and shall not include the
Special Advisory Member.
NEGATIVE ALLOCATION CHANGE The meaning given such term in the definition of
Allocation Change.
NET ASSETS The total value of all assets of the Company, less an
amount equal to all accrued debts, liabilities and
obligations of the Company, calculated before giving
effect to any repurchases of Interests.
NET PROFIT OR NET LOSS The amount by which the Net Assets as of the close of
business on the last day of a Fiscal Period exceed
(in the case of Net Profit) or are less than (in the
case of Net Loss) the Net Assets as of the
commencement of the same Fiscal Period (or, with
respect to the initial Fiscal Period of the Company,
at the close of business on the Closing Date), such
amount to be adjusted to exclude:
(1) the amount of any Insurance
premiums or proceeds to be
allocated among the Capital
Accounts of the Members pursuant to
Section 5.5 hereof;
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(2) any items to be allocated among the
Capital Accounts of the Members on
a basis which is not in accordance
with the respective Investment
Percentages of all Members as of
the commencement of such Fiscal
Period pursuant to Sections 5.6 and
5.7 hereof; and
(3) Organizational Expenses allocated
among the Capital Accounts of the
Members pursuant to Section 5.9
hereof.
1940 ACT The Investment Company Act of 1940 and the rules,
regulations and orders thereunder, as amended from
time to time, or any successor law.
1934 ACT The Securities Exchange Act of 1934 and the rules,
regulations and orders thereunder, as amended from
time to time, or any successor law.
ORGANIZATIONAL EXPENSES The expenses incurred by the Company in connection
with its formation, its initial registration as an
investment company under the 1940 Act, and the
initial offering of Interests.
ORGANIZATIONAL MEMBER Jesse H. Ausubel
POSITIVE ALLOCATION CHANGE The meaning given such term in the definition of
Allocation Change.
SECURITIES Securities (including, without limitation, equities,
debt obligations, options, and other "securities" as
that term is defined in Section 2(a)(36) of the 1940
Act) and any contracts for forward or future delivery
of any security, debt obligation or currency, or
commodity, all manner of derivative instruments and
any contracts based on any index or group of
securities, debt obligations or currencies, or
commodities, and any options thereon.
SPECIAL ADVISORY ACCOUNT A capital account established and maintained on
behalf of the Special Advisory Member pursuant to
Section 5.3 hereof solely for the purpose of
receiving the Incentive Allocation.
SPECIAL ADVISORY MEMBER The Adviser in its capacity as the investment
adviser to the Company.
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TRANSFER The assignment, transfer, sale, encumbrance, pledge
or other disposition of all or any portion of an
Interest, including any right to receive any
allocations and distributions attributable to an
Interest.
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<PAGE> 14
-------------------------
ARTICLE II
ORGANIZATION; ADMISSION OF MEMBERS
-------------------------
2.1 FORMATION OF LIMITED LIABILITY COMPANY.
The Board of Managers shall execute and file in accordance
with the Delaware Act any amendment to the Certificate and shall execute and
file with applicable governmental authorities any other instruments, documents
and certificates which, in the opinion of the Company's legal counsel, may from
time to time be required by the laws of the United States of America, the State
of Delaware or any other jurisdiction in which the Company shall determine to do
business, or any political subdivision or agency thereof, or which such legal
counsel may deem necessary or appropriate to effectuate, implement and continue
the valid existence and business of the Company.
2.2 NAME.
The name of the Company shall be "Xanthus Fund, L.L.C." or
such other name as the Board of Managers may hereafter adopt upon (i) causing an
appropriate amendment to the Certificate to be filed in accordance with the
Delaware Act and (ii) sending notice thereof to each Member.
2.3 PRINCIPAL AND REGISTERED OFFICE.
The Company shall have its principal office at CIBC
Oppenheimer Tower, One World Financial Center, 31st Floor, 200 Liberty Street,
New York, New York 10281, or at such other place designated from time to time by
the Board of Managers.
The Company shall have its registered office in Delaware at
1013 Center Road, Wilmington, Delaware 19805-1297, and shall have Corporation
Service Company as its registered agent for service of process in Delaware,
unless a different registered office or agent is designated from time to time by
the Board of Managers.
2.4 DURATION.
The term of the Company commenced on the filing of the
Certificate with the Secretary of State of Delaware and shall continue until the
Company is dissolved pursuant to Section 6.1 hereof.
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2.5 OBJECTIVE AND BUSINESS OF THE COMPANY.
(a) The objective and business of the Company is to purchase,
sell (including short sales), invest and trade in Securities, on margin or
otherwise, and to engage in any financial or derivative transactions relating
thereto or otherwise. The Company may execute, deliver and perform all
contracts, agreements and other undertakings and engage in all activities and
transactions as may in the opinion of the Board of Managers be necessary or
advisable to carry out its objective or business.
(b) The Company shall operate as a closed-end,
non-diversified, management investment company in accordance with the 1940 Act
and subject to any fundamental policies and investment restrictions set forth in
the Form N-2.
2.6 BOARD OF MANAGERS.
(a) Prior to the Closing Date, the Organizational Member may
designate such persons who shall agree to be bound by all of the terms of this
Agreement to serve as the initial Managers on the Board of Managers, subject to
the election of such persons prior to the Closing Date by the Organizational
Member. By signing this Agreement or the signature page of the Company's
subscription agreement, a Member admitted on the Closing Date shall be deemed to
have voted for the election of each of the initial Managers to the Board of
Managers. After the Closing Date, the Board of Managers may, subject to the
provisions of paragraphs (a) and (b) of this Section 2.6 with respect to the
number of and vacancies in the position of Manager of and the provisions of
Section 3.3 hereof with respect to the election of Managers to the Board of
Managers by Members, designate any person who shall agree to be bound by all of
the terms of this Agreement as a Manager. The names and mailing addresses of the
Managers shall be set forth in the books and records of the Company. The number
of Managers shall be fixed from time to time by the Board of Managers but, at
the Closing Date, shall not be less than three. At and after the Closing Date,
all of the Managers shall be Independent Managers.
(b) Each Manager shall serve on the Board of Managers for the
duration of the term of the Company, unless his status as a Manager shall be
sooner terminated pursuant to Section 4.2 hereof. In the event of any vacancy in
the position of Manager, the remaining Managers may appoint an individual to
serve in such capacity, so long as immediately after such appointment at least
two-thirds (2/3) of the Managers then serving would have been elected by the
Members. The Board of Managers may call a meeting of Members to fill any vacancy
in the position of member of Manager, and shall do so within 60 days after any
date on which Managers who were elected by the Members cease to constitute a
majority of the Managers then serving on the Board of Managers.
(c) In the event that no Manager remains to continue the
business of the Company, the Adviser shall promptly call a meeting of the
Members, to be held within 60 days after the date on which the last Manager
ceased to act in that capacity, for the purpose of determining whether to
continue the business of the Company and, if the business shall be continued, of
electing the required number of Managers to the Board of Managers. If the
Members shall determine at such meeting not to continue the business of the
Company or if the required number of Managers is not elected within 60 days
after the date on which the last Manager ceased
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<PAGE> 16
to act in that capacity, then the Company shall be dissolved pursuant to Section
6.1 hereof and the assets of the Company shall be liquidated and distributed
pursuant to Section 6.2 hereof.
2.7 MEMBERS.
For the first nine months from the Closing Date, the Board of
Managers may admit one or more Members as of the beginning of each calendar
month. Thereafter, the Board of Managers may admit one or more Members as of the
beginning of each calendar quarter, provided, however, that after the Board of
Managers has received notice from the Adviser that the Adviser does not control
the Company for purposes of the Bank Holding Company Act of 1956, as amended,
the Board of Managers may admit one or more Members as of the beginning of each
calendar month or at such other times, but not more frequently than monthly, as
the Board of Managers may determine. Subject to the foregoing terms, Members may
be admitted to the Company subject to the condition that each such Member shall
execute an appropriate signature page of this Agreement or of the Company's
subscription agreement pursuant to which such Member agrees to be bound by all
the terms and provisions hereof. The Board of Managers may in its absolute
discretion reject subscriptions for member Interests in the Company. The
admission of any person as a Member shall be effective upon the revision of the
books and records of the Company to reflect the name and the contribution to the
capital of the Company of such additional Member.
2.8 SPECIAL ADVISORY MEMBER.
Upon signing this Agreement, the Adviser shall be admitted to
the Company as the Special Advisory Member, subject to due approval, in
accordance with the requirements of the 1940 Act, of the Investment Advisory
Agreement. The Interest of the Special Advisory Member shall be non-voting. If
at anytime the Investment Advisory Agreement between the Company and the person
then serving as Adviser terminates, the Board of Managers shall admit as a
substitute Special Advisory Member, upon its signing this Agreement, such person
as may be retained by the Company to provide investment advisory services
pursuant to an Investment Advisory Agreement, subject to the due approval of
such Investment Advisory Agreement in accordance with the requirements of the
1940 Act.
2.9 ORGANIZATIONAL MEMBER.
Upon the admission of any Member, the Organizational Member
shall withdraw from the Company as the Organizational Member and shall be
entitled to the return of his Capital Contribution, if any, without interest or
deduction.
2.10 BOTH MANAGERS AND MEMBERS.
A Member may at the same time be a Manager and a Member, or a
Special Advisory Member and Member, in which event such Member's rights and
obligations in each capacity shall be determined separately in accordance with
the terms and provisions hereof or as provided in the Delaware Act.
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2.11 LIMITED LIABILITY.
Except as provided under applicable law, a Member and the
Special Advisory Member shall not be liable for the Company's debts, obligations
and liabilities in any amount in excess of the capital account balance of such
Member, plus such Member's share of undistributed profits and assets. Except as
provided under applicable law, a Manager shall not be liable for Company's
debts, obligations and liabilities.
--------------------------
ARTICLE III
MANAGEMENT
--------------------------
3.1 MANAGEMENT AND CONTROL.
(a) Management and control of the business of the Company
shall be vested in the Board of Managers, which shall have the right, power and
authority, on behalf of the Company and in its name, to exercise all rights,
powers and authority of Managers under the Delaware Act and to do all things
necessary and proper to carry out the objective and business of the Company and
their duties hereunder. No Manager shall have the authority individually to act
on behalf of or to bind the Company except within the scope of such Manager's
authority as delegated by the Board of Managers. The parties hereto intend that,
except to the extent otherwise expressly provided herein, (i) each Manager shall
be vested with the same powers, authority and responsibilities on behalf of the
Company as are customarily vested in each director of a Delaware corporation and
(ii) each Independent Manager shall be vested with the same powers, authority
and responsibilities on behalf of the Company as are customarily vested in each
director of a closed-end management investment company registered under the 1940
Act that is organized as a Delaware corporation who is not an "interested
person" of such company as such term is defined in the 1940 Act. During any
period in which the Company shall have no Managers, the Adviser shall continue
to serve as the Adviser to the Company. During such time period, CIBC Opco shall
continue to provide the CIBC Opco Services to the Company.
(b) Each Member agrees not to treat, on his personal income
tax return or in any claim for a tax refund, any item of income, gain, loss,
deduction or credit in a manner inconsistent with the treatment of such item by
the Company. The Board of Managers shall have the exclusive authority and
discretion to make any elections required or permitted to be made by the Company
under any provisions of the Code or any other revenue laws.
(c) Members shall have no right to participate in and shall
take no part in the management or control of the Company's business and shall
have no right, power or authority to act for or bind the Company. Members shall
have the right to vote on any matters only as provided in this Agreement or on
any matters that require the approval of the holders of voting securities under
the 1940 Act or as otherwise required in the Delaware Act.
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<PAGE> 18
(d) The Board of Managers may delegate to any other person any
rights, power and authority vested by this Agreement in the Board of Managers to
the extent permissible under applicable law.
3.2 ACTIONS BY THE BOARD OF MANAGERS.
(a) Unless provided otherwise in this Agreement, the Board of
Managers shall act only: (i) by the affirmative vote of a majority of the
Managers (which majority shall include any requisite number of Independent
Managers required by the 1940 Act) present at a meeting duly called at which a
quorum of the Managers shall be present (in person or, if in person attendance
is not required by the 1940 Act, by telephone) or (ii) by unanimous written
consent of all of the Managers without a meeting, if permissible under the 1940
Act.
(b) The Board of Managers may designate from time to time a
Principal Manager who shall preside at all meetings. Meetings of the Board of
Managers may be called by the Principal Manager or by any two Managers, and may
be held on such date and at such time and place as the Board of Managers shall
determine. Each Manager shall be entitled to receive written notice of the date,
time and place of such meeting within a reasonable time in advance of the
meeting. Notice need not be given to any Manager who shall attend a meeting
without objecting to the lack of notice or who shall execute a written waiver of
notice with respect to the meeting. Managers may attend and participate in any
meeting by telephone except where in person attendance at a meeting is required
by the 1940 Act. A majority of the Managers shall constitute a quorum at any
meeting.
3.3 MEETINGS OF MEMBERS.
(a) Actions requiring the vote of the Members may be taken at
any duly constituted meeting of the Members at which a quorum is present.
Meetings of the Members may be called by the Board of Managers or by Members
holding 25% or more of the total number of votes eligible to be cast by all
Members, and may be held at such time, date and place as the Board of Managers
shall determine. The Board of Managers shall arrange to provide written notice
of the meeting, stating the date, time and place of the meeting and the record
date therefor, to each Member entitled to vote at the meeting within a
reasonable time prior thereto. Failure to receive notice of a meeting on the
part of any Member shall not affect the validity of any act or proceeding of the
meeting, so long as a quorum shall be present at the meeting, except as
otherwise required by applicable law. Only matters set forth in the notice of a
meeting may be voted on by the Members at a meeting. The presence in person or
by proxy of Members holding a majority of the total number of votes eligible to
be cast by all Members as of the record date shall constitute a quorum at any
meeting. In the absence of a quorum, a meeting of the Members may be adjourned
by action of a majority of the Members present in person or by proxy without
additional notice to the Members. Except as otherwise required by any provision
of this Agreement or of the 1940 Act, (i) those candidates receiving a plurality
of the votes cast at any meeting of Members shall be elected as Managers and
(ii) all other actions of the Members taken at a meeting shall require the
affirmative vote of Members holding a majority of the total number of votes
eligible to be cast by those Members who are present in person or by proxy at
such meeting.
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(b) Each Member shall be entitled to cast at any meeting of
Members a number of votes equivalent to such Member's Investment Percentage as
of the record date for such meeting. The Board of Managers shall establish a
record date not less than 10 nor more than 60 days prior to the date of any
meeting of Members to determine eligibility to vote at such meeting and the
number of votes which each Member will be entitled to cast thereat, and shall
maintain for each such record date a list setting forth the name of each Member
and the number of votes that each Member will be entitled to cast at the
meeting.
(c) A Member may vote at any meeting of Members by a proxy
properly executed in writing by the Member and filed with the Company before or
at the time of the meeting. A proxy may be suspended or revoked, as the case may
be, by the Member executing the proxy by a later writing delivered to the
Company at any time prior to exercise of the proxy or if the Member executing
the proxy shall be present at the meeting and decide to vote in person. Any
action of the Members that is permitted to be taken at a meeting of the Members
may be taken without a meeting if consents in writing, setting forth the action
taken, are signed by Members holding a majority of the total number of votes
eligible to be cast or such greater percentage as may be required in order to
approve such action.
3.4 CUSTODY OF ASSETS OF THE COMPANY.
The physical possession of all funds, Securities or other
properties of the Company shall at all times, be held, controlled and
administered by one or more custodians retained by the Company in accordance
with the requirements of the 1940 Act and the rules thereunder.
3.5 OTHER ACTIVITIES OF MEMBERS AND MANAGERS.
(a) The Managers shall not be required to devote full time to
the affairs of the Company, but shall devote such time as may reasonably be
required to perform their obligations under this Agreement.
(b) Any Member or Manager, and any Affiliate of any Member or
Manager, may engage in or possess an interest in other business ventures or
commercial dealings of every kind and description, independently or with others,
including, but not limited to, acquisition and disposition of Securities,
provision of investment advisory or brokerage services, serving as directors,
officers, employees, advisors or agents of other companies, partners of any
partnership, members of any limited liability company, or trustees of any trust,
or entering into any other commercial arrangements. No Member shall have any
rights in or to such activities of any other Member or Manager, or any profits
derived therefrom.
3.6 DUTY OF CARE.
(a) A Manager shall not be liable to the Company or to any of
its Members for any loss or damage occasioned by any act or omission in the
performance of his services under this Agreement, unless it shall be determined
by final judicial decision on the merits from which there is no further right to
appeal that such loss is due to an act or omission of such Manager constituting
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willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Manager's office.
(b) Members not in breach of any obligation hereunder or under
any agreement pursuant to which the Member subscribed for an Interest shall be
liable to the Company, any Member or third parties only as provided under the
Delaware Act.
3.7 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Company shall,
subject to Section 3.7(b) hereof, indemnify each Manager (including for this
purpose their executors, heirs, assigns, successors or other legal
representatives), against all losses, claims, damages, liabilities, costs and
expenses, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise, or as fines or penalties, and reasonable counsel fees,
incurred in connection with the defense or disposition of any action, suit,
investigation or other proceeding, whether civil or criminal, before any
judicial, arbitral, administrative or legislative body, in which such indemnitee
may be or may have been involved as a party or otherwise, or with which such
indemnitee may be or may have been threatened, while in office or thereafter, by
reason of being or having been a Manager of the Company or the past or present
performance of services to the Company by such indemnitee, except to the extent
such loss, claim, damage, liability, cost or expense shall have been finally
determined in a decision on the merits in any such action, suit, investigation
or other proceeding to have been incurred or suffered by such indemnitee by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such indemnitee's office. The
rights of indemnification provided under this Section 3.7 shall not be construed
so as to provide for indemnification of a Manager for any liability (including
liability under federal securities laws which, under certain circumstances,
impose liability even on persons that act in good faith) to the extent (but only
to the extent) that such indemnification would be in violation of applicable
law, but shall be construed so as to effectuate the applicable provisions of
this Section 3.7 to the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred
by any such indemnitee (but excluding amounts paid in satisfaction of judgments,
in compromise, or as fines or penalties), may be paid from time to time by the
Company in advance of the final disposition of any such action, suit,
investigation or proceeding upon receipt of an undertaking by or on behalf of
such indemnitee to repay to the Company amounts so paid if it shall ultimately
be determined that indemnification of such expenses is not authorized under
Section 3.7(a) hereof; provided, however, that (i) such indemnitee shall provide
security for such undertaking, (ii) the Company shall be insured by or on behalf
of such indemnitee against losses arising by reason of such indemnitee's failure
to fulfill his or its undertaking, or (iii) a majority of the Managers
(excluding any Manager who is either seeking advancement of expenses hereunder
or is or has been a party to any other action, suit, investigation or proceeding
involving claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for advancement of expenses hereunder) or
independent legal counsel in a written opinion shall determine based on a review
of readily available facts (as opposed to a full trial-type inquiry) that there
is reason to believe such indemnitee ultimately will be entitled to
indemnification.
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(c) As to the disposition of any action, suit, investigation
or proceeding (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication or a decision on the merits by a court, or by
any other body before which the proceeding shall have been brought, that an
indemnitee is liable to the Company or its Members by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office, indemnification shall be
provided pursuant to Section 3.7(a) hereof if (i) approved as in the best
interests of the Company by a majority of the Managers (excluding any Manager
who is either seeking indemnification hereunder or is or has been a party to any
other action, suit, investigation or proceeding involving claims similar to
those involved in the action, suit, investigation or proceeding giving rise to a
claim for indemnification hereunder) upon a determination based upon a review of
readily available facts (as opposed to a full trial-type inquiry) that such
indemnitee acted in good faith and in the reasonable belief that such actions
were in the best interests of the Company and that such indemnitee is not liable
to the Company or its Members by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
indemnitee's office, or (ii) the Board of Managers secures a written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry) to the effect that such indemnification
would not protect such indemnitee against any liability to the Company or its
Members to which such indemnitee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office.
(d) Any indemnification or advancement of expenses made
pursuant to this Section 3.7 shall not prevent the recovery from any indemnitee
of any such amount if such indemnitee subsequently shall be determined in a
decision on the merits in any action, suit, investigation or proceeding
involving the liability or expense that gave rise to such indemnification or
advancement of expenses to be liable to the Company or its Members by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office. In (i) any suit
brought by a Manager (or other person entitled to indemnification hereunder) to
enforce a right to indemnification under this Section 3.7 it shall be a defense
that, and (ii) in any suit in the name of the Company to recover any
indemnification or advancement of expenses made pursuant to this Section 3.7 the
Company shall be entitled to recover such expenses upon a final adjudication
that, the Manager or other person claiming a right to indemnification under this
Section 3.7 has not met the applicable standard of conduct set forth in this
Section 3.7. In any such suit brought to enforce a right to indemnification or
to recover any indemnification or advancement of expenses made pursuant to this
Section 3.7, the burden of proving that the Manager or other person claiming a
right to indemnification is not entitled to be indemnified, or to any
indemnification or advancement of expenses, under this Section 3.7 shall be on
the Company (or any Member acting derivatively or otherwise on behalf of the
Company or its Members).
(e) An indemnitee may not satisfy any right of indemnification
or advancement of expenses granted in this Section 3.7 or to which he or it may
otherwise be entitled except out of the assets of the Company, and no Member
shall be personally liable with respect to any such claim for indemnification or
advancement of expenses.
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(f) The rights of indemnification provided hereunder shall not
be exclusive of or affect any other rights to which any person may be entitled
by contract or otherwise under law. Nothing contained in this Section 3.7 shall
affect the power of the Company to purchase and maintain liability insurance on
behalf of any Manager or other person.
3.8 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as CIBC Opco provides CIBC Opco Services to the
Company, it shall be entitled to receive fees for such services as may be agreed
to by CIBC Opco and the Company pursuant to a separate written agreement.
(b) The Board of Managers may cause the Company to compensate
each Manager for his services as such. In addition, the Managers shall be
reimbursed by the Company for reasonable out-of-pocket expenses incurred by them
in performing their duties under this Agreement.
(c) The Company shall bear all expenses incurred in the
business of the Company other than those specifically required to be borne by
the Adviser pursuant to the Investment Advisory Agreement or by CIBC Opco
pursuant to the agreement referred to in Section 3.8(a) hereof. Expenses to be
borne by the Company include, but are not limited to, the following:
(1) all costs and expenses related to portfolio
transactions and positions for the Company's
account, including, but not limited to,
brokerage commissions, research fees,
interest and commitment fees on loans and
debit balances, borrowing charges on
Securities sold short, dividends on
Securities sold short but not yet purchased,
custodial fees, margin fees, transfer taxes
and premiums, taxes withheld on foreign
dividends and indirect expenses from
investments in investment funds;
(2) all costs and expenses associated with the
organization and registration of the
Company, certain offering costs and the
costs of compliance with any applicable
federal or state laws;
(3) Attorneys' fees and disbursements associated
with updating the Company's Confidential
Memorandum and subscription documents (the
"Offering Materials"); the costs of printing
the Offering Materials; the costs of
distributing the Offering Materials to
prospective investors; and attorneys' fees
and disbursements associated with the review
of subscription documents executed and
delivered to the Company in connection with
offerings of interests in the Company;
(4) the costs and expenses of holding meetings
of the Board of Managers and any meetings of
Members;
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(5) fees and disbursements of any attorneys,
accountants, auditors and other consultants
and professionals engaged on behalf of the
Company;
(6) the costs of a fidelity bond and any
liability insurance obtained on behalf of
the Company or its Managers;
(7) any fees payable to CIBC Opco for CIBC Opco
Services and the fees of custodians and
persons providing administrative services to
the Company;
(8) all expenses of computing the Company's net
asset value, including any equipment or
services obtained for such purposes;
(9) all charges for equipment or services used
in communicating information regarding the
Company's transactions among the Adviser and
any custodian or other agent engaged by the
Company; and
(10) such other types of expenses as may be
approved from time to time by the Board of
Managers, other than those required to be
borne by the Adviser or CIBC Opco.
The Adviser shall be entitled to reimbursement from the Company for any of the
above expenses that it pays on behalf of the Company.
(d) Subject to procuring any required regulatory
approvals, from time to time the Company may, alone or in conjunction with other
accounts for which the Adviser, or any Affiliate of the Adviser, acts as general
partner or investment adviser, purchase Insurance in such amounts, from such
insurers and on such terms as the Board of Managers shall determine.
---------------------------------
ARTICLE IV
TERMINATION OF STATUS OF ADVISER
AND MANAGERS, TRANSFERS AND REPURCHASES
---------------------------------
4.1 TERMINATION OF STATUS OF THE ADVISER.
The status of the Adviser as the Special Advisory Member shall
terminate if the Investment Advisory Agreement with the Adviser terminates and
the Company does not enter into a new Investment Advisory Agreement with the
Adviser, effective as of the date of such termination.
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4.2 TERMINATION OF STATUS OF A MANAGER.
The status of a Manager shall terminate if the Manager (i)
shall die; (ii) shall be adjudicated incompetent; (iii) shall voluntarily
withdraw as a Manager (upon not less than 90 days' prior written notice to the
other Managers); (iv) shall be removed; (v) shall be certified by a physician to
be mentally or physically unable to perform his duties hereunder; (vi) shall be
declared bankrupt by a court with appropriate jurisdiction, file a petition
commencing a voluntary case under any bankruptcy law or make an assignment for
the benefit of creditors; (vii) shall have a receiver appointed to administer
the property or affairs of such Manager; or (viii) shall otherwise cease to be a
Manager of the Company under the Delaware Act.
4.3 REMOVAL OF THE MANAGERS.
Any Manager may be removed either by (a) the vote or written
consent of at least two-thirds (2/3) of the Managers not subject to the removal
vote or (b) the vote or written consent of Members holding not less than
two-thirds (2/3) of the total number of votes eligible to be cast by all
Members.
4.4 TRANSFER OF INTERESTS OF MEMBERS.
(a) An Interest of a Member may be Transferred only (i) by
operation of law pursuant to the death, bankruptcy, insolvency or dissolution of
such Member or (ii) with the written consent of the Board of Managers (which may
be withheld in its sole and absolute discretion); provided, however, that the
Board of Managers may not consent to any Transfer other than a Transfer (i) in
which the tax basis of the interest in the hands of the transferee is
determined, in whole or in part, by reference to its tax basis in the hands of
the transferor (e.g., certain Transfers to affiliates, gifts and contributions
to family partnerships), (ii) to members of the Member's immediate family
(brothers, sisters, spouse, parents and children), or (iii) a distribution from
a qualified retirement plan or an individual retirement account, unless it
consults with counsel to the Company and counsel to the Company confirms that
such Transfer will not cause the Company to be treated as a "publicly traded
partnership" taxable as a corporation.
(b) The Board of Managers may not consent to a Transfer of an
Interest or a portion thereof of a Member unless: (i) the person to whom such
Interest is Transferred (or each of such person's beneficial owners if such a
person is a "private investment company" as defined in paragraph (d)(3) of Rule
205-3 under the Advisers Act) is a person whom the Board of Managers believe
meets the requirements of paragraph (d)(1) of Rule 205-3 under the Advisers Act
or successor rule thereto; (ii) the entire Interest of the Member is Transferred
to a single transferee; and (iii) after the Transfer, the balance of the Capital
Account of the Transferee is not less than $150,000. Any transferee which
acquires an Interest by operation of law as the result of the death, bankruptcy,
insolvency or dissolution of a Member or otherwise, shall be entitled to the
allocations and distributions allocable to the Interest so acquired and to
Transfer such Interest in accordance with the terms of this Agreement, but shall
not be entitled to the other rights of a Member unless and until such transferee
becomes a substituted Member. If a Member transfers an Interest with the
approval of the Board of Managers, the Board of Managers shall promptly take all
necessary actions so that the transferee to whom such Interest is transferred is
admitted to the Company as a
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Member. Each Member effecting a Transfer and its transferee agree to pay all
expenses, including attorneys' and accountants' fees, incurred by the Company in
connection with such Transfer.
(c) Each Member shall indemnify and hold harmless the Company,
the Managers, the Adviser, each other Member and any Affiliate of the foregoing
against all losses, claims, damages, liabilities, costs and expenses (including
legal or other expenses incurred in investigating or defending against any such
losses, claims, damages, liabilities, costs and expenses or any judgments, fines
and amounts paid in settlement), joint or several, to which such persons may
become subject by reason of or arising from (i) any Transfer made by such Member
in violation of this Section 4.4 and (ii) any misrepresentation by such Member
in connection with any such Transfer.
4.5 TRANSFER OF INTERESTS OF SPECIAL ADVISORY MEMBER.
The Adviser may not Transfer its Interest as the Special
Advisory Member.
4.6 REPURCHASE OF INTERESTS.
(a) Except as otherwise provided in this Agreement, no Member
or other person holding an Interest or portion thereof shall have the right to
withdraw or tender to the Company for repurchase that Interest or portion
thereof. The Board of Managers may from time to time, in its complete and
exclusive discretion and on such terms and conditions as it may determine, cause
the Company to repurchase Interests or portions thereof pursuant to written
tenders. However, the Company shall not offer to repurchase Interests on more
than two occasions during any one Fiscal Year unless it has received an opinion
of counsel to the effect that such more frequent offers would not cause any
adverse tax consequences to the Company or the Members. In determining whether
to cause the Company to repurchase Interests or portions thereof pursuant to
written tenders, the Board of Managers shall consider the recommendation of the
Adviser, and shall also consider the following factors, among others:
(1) whether any Members have requested to tender
Interests or portions thereof to the
Company;
(2) the liquidity of the Company's assets;
(3) the investment plans and working capital
requirements of the Company;
(4) the relative economies of scale with respect
to the size of the Company;
(5) the history of the Company in repurchasing
Interests or portions thereof;
(6) the economic condition of the securities
markets; and
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(7) the anticipated tax consequences of any
proposed repurchases of Interests or
portions thereof.
The Board of Managers shall cause the Company to repurchase Interests or
portions thereof pursuant to written tenders only on terms fair to the Company
and to all Members or one or more classes of Members (including persons holding
Interests acquired from Members), as applicable.
(b) A Member who tenders for repurchase only a portion of such
Member's Interest shall be required to maintain a Capital Account balance equal
to the greater of (i) $150,000, net of the Incentive Allocation, if any, that
would be debited against such Capital Account if the date of repurchase of such
Interest or portion thereof were a date on which an Incentive Allocation would
otherwise be made (the "Tentative Incentive Allocation") or (ii) the amount of
the Tentative Incentive Allocation.
(c) The Adviser may tender its Interest or a portion thereof
as a Member or Special Advisory Member of the Company under Section 4.6(a)
hereof.
(d) If the Adviser's status as Special Advisory Member is
terminated pursuant to Section 4.1 hereof, it (or its trustee or other legal
representative) may, by written notice to the Board of Managers within 60 days
of the effective date of such termination, tender to the Company for repurchase
all or any portion of its Special Advisory Account. Not later than thirty (30)
days after the receipt of such notice, the Board of Managers shall cause such
tendered portion of the Special Advisory Account to be repurchased by the
Company for cash.
(e) The Board of Managers may cause the Company to repurchase
an Interest or portion thereof of a Member or any person acquiring an Interest
or portion thereof from or through a Member in the event that the Board of
Managers determines or has reason to believe that:
(1) such an Interest or portion thereof has been
transferred in violation of Section 4.4
hereof, or such an Interest or portion
thereof has vested in any person by
operation of law as the result of the death,
dissolution, bankruptcy or incompetency of a
Member;
(2) ownership of such an Interest by a Member or
other person will cause the Company to be in
violation of, or require registration of any
Interest or portion thereof under, or
subject the Company to additional
registration or regulation under, the
securities laws of the United States or any
other relevant jurisdiction;
(3) continued ownership of such an Interest may
be harmful or injurious to the business or
reputation of the Company, the Managers or
the Adviser, or may subject the Company or
any of the Members to an undue risk of
adverse tax or other fiscal consequences;
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(4) any of the representations and warranties
made by a Member in connection with the
acquisition of an Interest or portion
thereof was not true when made or has ceased
to be true; or
(5) it would be in the best interests of the
Company, as determined by the Board of
Managers in their absolute discretion, for
the Company to repurchase such an Interest
or portion thereof.
(f) Repurchases of Interests or portions thereof by the
Company shall be payable promptly after the expiration date of such repurchase
in accordance with the terms of the Company's repurchase offer. Payment of the
purchase price shall consist of: (i) cash in an aggregate amount equal to such
percentage, as may be determined by the Board of Managers, of the estimated
unaudited net asset value of Interests repurchased by the Company determined as
of the expiration date of such repurchase (the "Cash Payment"); and, if
determined to be necessary or appropriate by the Board of Managers, (ii) a
promissory note entitling the holder thereof to a contingent payment equal to
the excess, of any, of (x) the net asset value of the Interests repurchased by
the Company as of the expiration date of such repurchases, determined based on
the audited financial statements of the Company for the Fiscal Year in which
such repurchases were effective, over (y) the Cash Payment. Notwithstanding
anything in the foregoing to the contrary, the Board of Managers, in its
discretion, may pay any portion of the purchase price in marketable Securities
(or any combination of marketable Securities and cash) having a value,
determined as of the date of repurchase, equal to the amount to be repurchased.
All such repurchases shall be subject to any and all conditions as the Board of
Managers may impose in its sole discretion. The amount due to any Member whose
Interest or portion thereof is repurchased shall be equal to the value of such
Member's Capital Account or portion thereof as applicable as of the effective
date of repurchase, after giving effect to all allocations to be made to such
Member's Capital Account as of such date.
ARTICLE V
CAPITAL
5.1 CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Member to the
capital of the Company shall be such amount as the Board of Managers, in its
discretion, may determine from time to time, but in no event shall be less than
$150,000; provided, however, that the minimum initial contribution of each
Member that is a director, officer or employee of CIBC Opco or its affiliates
may be as determined by the Board of Managers from time to time. The amount of
the initial contribution of each Member shall be recorded on the books and
records of the Company upon acceptance as a contribution to the capital of the
Company. The Managers shall not be entitled to make voluntary contributions of
capital to the Company as Managers of the Company,
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but may make voluntary contributions to the capital of the Company as Members.
The Adviser may make voluntary contributions to the capital of the Company as a
Member.
(b) The Members and the Adviser, as a Member, may make
additional contributions to the capital of the Company of at least $25,000,
effective as of such times as the Board of Managers in its discretion may
permit, subject to Section 2.7 hereof, but no Member shall be obligated to make
any additional contribution to the capital of the Company except to the extent
provided in Section 5.7 hereof.
(c) Except as otherwise permitted by the Board of Managers,
(i) initial and any additional contributions to the capital of the Company by
any Member shall be payable in cash or in such Securities that the Board of
Managers, in its absolute discretion, may agree to accept on behalf of the
Company, and (ii) initial and any additional contributions in cash shall be
payable in readily available funds at the date of the proposed acceptance of the
contribution. The Company shall charge each Member making a contribution in
Securities to the capital of the Company such amount as may be determined by the
Board of Managers not exceeding 2% of the value of such contribution in order to
reimburse the Company for any costs incurred by the Company by reason of
accepting such Securities, and any such charge shall be due and payable by the
contributing Member in full at the time the contribution to the capital of the
Company to which such charges relate is due. The value of contributed Securities
shall be determined in accordance with Section 7.3 hereof as of the date of
contribution.
(d) The minimum initial and additional contributions set forth
in (a) and (b) of this Section 5.1 may be reduced by the Board of Managers.
5.2 RIGHTS OF MEMBERS TO CAPITAL.
No Member shall be entitled to interest on his contribution to
the capital of the Company, nor shall any Member be entitled to the return of
any capital of the Company except (i) upon the repurchase by the Company of a
part or all of such Member's Interest pursuant to Section 4.6 hereof, (ii)
pursuant to the provisions of Section 5.7(c) hereof or (iii) upon the
liquidation of the Company's assets pursuant to Section 6.2 hereof. No Member
shall be liable for the return of any such amounts. No Member shall have the
right to require partition of the Company's property or to compel any sale or
appraisal of the Company's assets.
5.3 CAPITAL ACCOUNTS.
(a) The Company shall maintain a separate Capital Account for
each Member.
(b) Each Member's Capital Account shall have an initial
balance equal to the amount of cash and the value of any Securities (determined
in accordance with Section 7.3 hereof) constituting such Member's initial
contribution to the capital of the Company.
(c) Each Member's Capital Account shall be increased by the
sum of (i) the amount of cash and the value of any Securities (determined in
accordance with Section 7.3 hereof) constituting additional contributions by
such Member to the capital of the Company permitted
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pursuant to Section 5.1 hereof, plus (ii) all amounts credited to such Member's
Capital Account pursuant to Sections 5.4 through 5.7 or 5.9 hereof.
(d) Each Member's Capital Account shall be reduced by the sum
of (i) the amount of any repurchase of the Interest, or portion thereof, of such
Member or distributions to such Member pursuant to Sections 4.6, 5.11 or 6.2
hereof which are not reinvested, plus (ii) any amounts debited against such
Capital Account pursuant to Sections 5.4 through 5.9 hereof.
(e) The Company shall maintain a Special Advisory Account for
the Adviser in its capacity as Special Advisory Member solely for purposes of
receiving the Incentive Allocation pursuant to Section 5.8 hereof. The Special
Advisory Account shall have an initial balance of zero.
5.4 ALLOCATION OF NET PROFIT AND LOSS.
As of the last day of each Fiscal Period, any Net Profit or
Net Loss for the Fiscal Period shall be allocated among and credited to or
debited against the Capital Accounts of the Members in accordance with their
respective Investment Percentages for such Fiscal Period.
5.5 ALLOCATION OF INSURANCE PREMIUMS AND PROCEEDS.
(a) Any premiums payable by the Company for Insurance
purchased pursuant to Section 3.8(d) hereof shall be apportioned evenly over
each Fiscal Period or portion thereof falling within the period to which such
premiums relate under the terms of such Insurance, and the portion of the
premiums so apportioned to any Fiscal Period shall be allocated among and
debited against the Capital Accounts of each Member who is a member of the
Company during such Fiscal Period in accordance with such Member's Investment
Percentage for such Fiscal Period.
(b) Proceeds, if any, to which the Company may become entitled
pursuant to such Insurance shall be allocated among and credited to the Capital
Accounts of each Member who is a member of the Company during the Fiscal Period
in which the event which gives rise to recovery of proceeds occurs in accordance
with such Member's Investment Percentage for such Fiscal Period.
5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER
EXPENDITURES.
(a) If the Company incurs a withholding tax or other tax
obligation with respect to the share of Company income allocable to any Member,
then the Board of Managers, without limitation of any other rights of the
Company or the Managers, shall cause the amount of such obligation to be debited
against the Capital Account of such Member when the Company pays such
obligation, and any amounts then or thereafter distributable to such Member
shall be reduced by the amount of such taxes. If the amount of such taxes is
greater than any such distributable amounts, then such Member and any successor
to such Member's Interest shall pay to the Company as a contribution to the
capital of the Company, upon demand of the Board of Managers, the amount of such
excess. The Board of Managers shall not be obligated to apply for or obtain a
reduction of or exemption from withholding tax on behalf of any Member that may
be eligible for such reduction or exemption; provided, that in the event that
the Board of Managers determines that a Member is
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eligible for a refund of any withholding tax, the Board of Managers may, at the
request and expense of such Member, assist such Member in applying for such
refund.
(b) Except as otherwise provided for in this Agreement and
unless prohibited by the 1940 Act, any expenditures payable by the Company, to
the extent determined by the Board of Managers to have been paid or withheld on
behalf of, or by reason of particular circumstances applicable to, one or more
but fewer than all of the Members, shall be charged to only those Members on
whose behalf such payments are made or whose particular circumstances gave rise
to such payments. Such charges shall be debited from the Capital Accounts of
such Members as of the close of the Fiscal Period during which any such items
were paid or accrued by the Company.
5.7 RESERVES.
(a) Appropriate reserves may be created, accrued and charged
against Net Assets and proportionately against the Capital Accounts of the
Members for contingent liabilities, if any, as of the date any such contingent
liability becomes known to the Adviser or the Board of Managers, such reserves
to be in the amounts which the Board of Managers in its sole discretion deems
necessary or appropriate. The Board of Managers may increase or reduce any such
reserves from time to time by such amounts as the Board of Managers in its sole
discretion deems necessary or appropriate. The amount of any such reserve, or
any increase or decrease therein, shall be proportionately charged or credited,
as appropriate, to the Capital Accounts of those parties who are Members at the
time when such reserve is created, increased or decreased, as the case may be;
provided, however, that if any such individual reserve item, adjusted by any
increase therein, exceeds the lesser of $500,000 or 1% of the aggregate value of
the Capital Accounts of all such Members, the amount of such reserve, increase,
or decrease shall instead be charged or credited to those parties who were
Members at the time, as determined by the Board of Managers in its sole
discretion, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
Capital Accounts at that time.
(b) If at any time an amount is paid or received by the
Company (other than contributions to the capital of the Company, distributions
or repurchases of Interests or portions thereof) and such amount exceeds the
lesser of $500,000 or 1% of the aggregate value of the Capital Accounts of all
Members at the time of payment or receipt and such amount was not accrued or
reserved for but would nevertheless, in accordance with the Company's accounting
practices, be treated as applicable to one or more prior Fiscal Periods, then
such amount shall be proportionately charged or credited, as appropriate, to
those parties who were Members during such prior Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this
Section 5.7 to be charged or credited to a party who is no longer a Member, such
amount shall be paid by or to such party, as the case may be, in cash, with
interest from the date on which the Board of Managers determines that such
charge or credit is required. In the case of a charge, the former Member shall
be obligated to pay the amount of the charge, plus interest as provided above,
to the Company on demand; provided, however, that (i) in no event shall a former
Member be obligated to make a payment exceeding the amount of such Member's
Capital Account at the time to which the charge
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relates; and (ii) no such demand shall be made after the expiration of three
years since the date on which such party ceased to be a Member. To the extent
that a former Member fails to pay to the Company, in full, any amount required
to be charged to such former Member pursuant to paragraph (a) or (b), whether
due to the expiration of the applicable limitation period or for any other
reason whatsoever, the deficiency shall be charged proportionately to the
Capital Accounts of the Members at the time of the act or omission giving rise
to the charge to the extent feasible, and otherwise proportionately to the
Capital Accounts of the current Members.
5.8 INCENTIVE ALLOCATION.
(a) So long as the Adviser serves as the Special Advisory
Member of the Company, the Incentive Allocation shall be debited against the
Capital Account of each Member as of the last day of each Allocation Period with
respect to such Member and the amount so debited shall simultaneously be
credited to the Special Advisory Account or, subject to compliance with the 1940
Act and the Advisers Act, to the Capital Accounts of such Members who are
directors, officers or employees of CIBC Opco or its Affiliates, or with respect
to which such directors, officers or employees are the sole beneficial owners,
as have been designated in any written notice delivered by the Adviser to the
Board of Managers within 90 days after the close of such Allocation Period.
(b) By the last business day of the month following the date
on which an Incentive Allocation is made, the Special Advisory Member may
withdraw up to 100% of the Incentive Allocation (computed on the basis of
unaudited data) that was credited to the Special Advisory Account. Within 30
days after the completion of the audit of the books of the Company for the year
in which allocations to the Special Advisory Account are made, the Company shall
pay to the Special Advisory Member any additional amount of Incentive Allocation
determined to be owed to the Special Advisory Member based on the audit, and the
Special Advisory Member shall pay to the Company any excess amount of Incentive
Allocation determined to be owed to the Company.
5.9 ALLOCATION OF ORGANIZATIONAL EXPENSES.
(a) As of the first Expense Allocation Date, Organizational
Expenses shall be allocated among and debited against the Capital Accounts of
the Members in accordance with their respective Capital Percentages on such
Expense Allocation Date.
(b) As of each Expense Allocation Date following the first
Expense Allocation Date, all amounts previously debited against the Capital
Account of a Member pursuant to this Section 5.9 on the preceding Expense
Allocation Date will be credited to the Capital Account of such Member, and
Organizational Expenses shall then be re-allocated among and debited against the
Capital Accounts of all Members in accordance with their respective Capital
Percentages on such Expense Allocation Date.
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5.10 TAX ALLOCATIONS.
For each fiscal year, items of income, deduction, gain, loss
or credit shall be allocated for income tax purposes among the Members in such
manner as to reflect equitably amounts credited or debited to each Member's
Capital Account for the current and prior fiscal years (or relevant portions
thereof). Allocations under this Section 5.10 shall be made pursuant to the
principles of Sections 704(b) and 704(c) of the Code and in conformity with
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e)
promulgated thereunder, as applicable, or the successor provisions to such
Section and Regulations. Notwithstanding anything to the contrary in this
Agreement, there shall be allocated to the Members such gains or income as shall
be necessary to satisfy the "qualified income offset" requirement of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d).
If the Company realizes capital gains (including short-term
capital gains) for Federal income tax purposes ("gains") for any fiscal year
during or as of the end of which one or more Positive Basis Members (as
hereinafter defined) withdraw from the Company pursuant to Article IV or VI, the
Board of Managers, unless otherwise determined by the Board of Managers, in its
sole discretion, shall allocate such gains as follows: (i) to allocate such
gains among such Positive Basis Members, pro rata in proportion to the
respective Positive Basis (as hereinafter defined) of each such Positive Basis
Member, until either the full amount of such gains shall have been so allocated
or the Positive Basis of each such Positive Basis Member shall have been
eliminated and (ii) to allocate any gains not so allocated to Positive Basis
Members to the other Members in such manner as shall equitably reflect the
amounts allocated to such Members' Capital Accounts pursuant to Section 5.3;
provided, however, that if, following such fiscal year, the Company realizes
gains from a sale of Securities the proceeds of which are designated on the
Company's books and records as being used to effect payments of all or part of
the interest in the Company of any Positive Basis Member, there shall be
allocated to any Positive Basis Member an amount of such gains equal to the
amount, if any, by which his or its Positive Basis as of the effective date of
his or its withdrawal exceeds the amount allocated to him or it pursuant to
clause (i) of this sentence.
If the Company realizes capital losses (including long-term
capital losses) for Federal income tax purposes ("losses") for any fiscal year
during or as of the end of which one or more Negative Basis Members (as
hereinafter defined) withdraw from the Company pursuant to Article IV or VI, the
Board of Managers, unless otherwise determined by the Board of Managers, in its
sole discretion, shall allocate such losses as follows: (i) to allocate such
losses among such Negative Basis Members, pro rata in proportion to the
respective Negative Basis (as hereinafter defined) of each such Negative Basis
Member, until either the full amount of such losses shall have been so allocated
or the Negative Basis of each such Negative Basis Member shall have been
eliminated and (ii) to allocate any losses not so allocated to Negative Basis
Members to the other Members in such manner as shall equitably reflect the
amounts allocated to such Members' Capital Accounts pursuant to Section 5.3;
provided, however, that if, following such fiscal year, the Company realizes
losses from a sale of Securities the proceeds of which are designated on the
Company's books and records as being used to effect payments of all or part of
the interest in the Company of any Negative Basis Member, there shall be
allocated to any Negative Basis Member an amount of such losses equal to the
amount, if any by which his or its Negative Basis as of the
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effective date of his or its withdrawal exceeds the amount allocated to him or
it pursuant to clause (i) of this sentence.
As used herein, (i) the term "Positive Basis" shall mean, with
respect to any Member and as of any time of calculation, the amount by which its
interest in the Company as of such time exceeds its "adjusted tax basis", for
Federal income tax purposes, in its interest in the Company as of such time
(determined without regard to any adjustments made to such "adjusted tax basis"
by reason of any transfer or assignment of such interest, including by reason of
death, and without regard to such Member's share of the liabilities of the
Company under Section 752 of the Code), and (ii) the term "Positive Basis
Member" shall mean any Member who withdraws from the Company and who has
Positive Basis as of the effective date of its withdrawal, but such Member shall
cease to be a Positive Basis Member at such time as it shall have received
allocations pursuant to clause (i) of the second paragraph of this Section 5.10
equal to its Positive Basis as of the effective date of its withdrawal.
As used herein, (i) the term "Negative Basis" shall mean, with
respect to any Member and as of any time of calculation, the amount by which its
interest in the Company as of such time is less than its "adjusted tax basis",
for Federal income tax purposes, in its interest in the Company as of such time
(determined without regard to any adjustments made to such "adjusted tax basis"
by reason of any transfer or assignment of such interest, including by reason of
death, and without regard to such Member's share of the liabilities of the
Company under Section 752 of the Code), and (ii) the term "Negative Basis
Member" shall mean any Member who withdraws from the Company and who has
Negative Basis as of the effective date of its withdrawal, but such Member shall
cease to be a Negative Basis Member at such time as it shall have received
allocations pursuant to clause (i) of the third paragraph of this Section 5.10
equal to its Negative Basis as of the effective date of its withdrawal.
Notwithstanding anything to the contrary in the foregoing, if
the Company realizes taxable gains in any fiscal year with respect to which the
Special Advisory Member is entitled to an Incentive Allocation under Section 5.8
hereof, the Board of Managers (at the request of the Special Advisory Member)
may specially allocate such gains to the Special Advisory Member in an amount by
which the Incentive Allocation exceeds the Special Advisory Member's "adjusted
tax basis" (determined without regard to any allocation to be made pursuant to
this paragraph) in its interest in the Company as of the time it withdraws such
Incentive Allocation. The Special Advisory Member's "adjusted tax basis", for
these purposes, shall be increased by any amount of the Incentive Allocation
withdrawal which it elects to contribute as a Member to the Company as of the
date of the withdrawal of the Incentive Allocation.
5.11 DISTRIBUTIONS.
(a) The Board of Managers may, in its sole
discretion, authorize the Company to make distributions in cash at any time to
all of the Members on a pro rata basis in accordance with the Members'
Investment Percentages.
(b) The Board of Managers may withhold taxes from any
distribution to any Member to the extent required by the Code or any other
applicable law. For purposes of
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this Agreement, any taxes so withheld by the Company with respect to any amount
distributed by the Company to any Member shall be deemed to be a distribution or
payment to such Member, reducing the amount otherwise distributable to such
Member pursuant to this Agreement and reducing the Capital Account of such
Member.
5.12 FOREIGN WITHHOLDING.
Notwithstanding any provision of this Agreement to the
contrary, the Board of Managers shall withhold and pay over to the Internal
Revenue Service, pursuant to Section 1441, 1442, 1445 or 1446 of the Code, or
any successor provisions, at such times as required by such Sections, such
amounts as the Company is required to withhold under such Sections, as from time
to time are in effect. To the extent that a foreign Member claims to be entitled
to a reduced rate of, or exemption from, U.S. withholding tax pursuant to an
applicable income tax treaty, or otherwise, the foreign Member shall furnish the
Board of Managers with such information and forms as such foreign Member may be
required to complete where necessary to comply with any and all laws and
regulations governing the obligations of withholding tax agents. Each foreign
Member represents and warrants that any such information and forms furnished by
such foreign Member shall be true and accurate and agrees to indemnify the
Company and each of the Members from any and all damages, costs and expenses
resulting from the filing of inaccurate or incomplete information or forms
relating to such withholding taxes.
Any amount of withholding taxes withheld and paid
over by the Board of Managers with respect to a foreign Member's distributive
share of the Company's gross income, income or gain shall be treated as a
distribution to such foreign Member and shall be charged against the Capital
Account of such foreign Member.
ARTICLE VI
DISSOLUTION AND LIQUIDATION
6.1 DISSOLUTION.
The Company shall be dissolved:
(1) upon the affirmative vote to dissolve the
Company by: (i) the Board of Managers or
(ii) Members holding at least two-thirds
(2/3) of the total number of votes eligible
to be cast by all Members;
(2) upon the failure of Members to elect a
successor Manager at a meeting called by the
Adviser in accordance with Section 2.6(c)
hereof when no Manager remains to continue
the business of the Company;
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(3) upon the expiration of any two year period
which commences on the date on which any
Member has submitted a written notice to the
Company requesting to tender its entire
Interest for repurchase by the Company if
such Interest has not been repurchased by
the Company;
(4) as required by operation of law.
Dissolution of the Company shall be effective on the later of the day on which
the event giving rise to the dissolution shall occur or the conclusion of any
applicable 60 day period during which the Board of Managers and Members may
elect to continue the business of the Company as provided above, but the Company
shall not terminate until the assets of the Company have been liquidated in
accordance with Section 6.2 hereof and the Certificate has been canceled.
6.2 LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Company as provided in Section
6.1 hereof, the Board of Managers shall promptly appoint the Administrator as
the liquidator and the Administrator shall liquidate the business and
administrative affairs of the Company, except that if the Board of Managers does
not appoint the Administrator as the liquidator or the Administrator is unable
to perform this function, a liquidator elected by Members holding a majority of
the total number of votes eligible to be cast by all Members shall promptly
liquidate the business and administrative affairs of the Company. Net Profit and
Net Loss during the period of liquidation shall be allocated pursuant to Section
5.4 hereof. The proceeds from liquidation (after establishment of appropriate
reserves for contingencies in such amount as the Board of Managers or liquidator
shall deem appropriate in its sole discretion as applicable) shall be
distributed in the following manner:
(1) the debts of the Company, other than debts,
liabilities or obligations to Members, and
the expenses of liquidation (including legal
and accounting expenses incurred in
connection therewith), up to and including
the date that distribution of the Company's
assets to the Members has been completed,
shall first be paid on a pro rata basis;
(2) such debts, liabilities or obligations as
are owing to the Members shall next be paid
in their order of seniority and on a pro
rata basis;
(3) The Special Advisory Member shall next be
paid any balance in the Special Advisory
Account after giving effect to the Incentive
Allocation, if any, to be made pursuant to
Section 5.8 hereof; and
(4) the Members shall next be paid on a pro rata
basis the positive balances of their
respective Capital Accounts after giving
effect to all allocations to be made to such
Members' Capital Accounts for the Fiscal
Period ending on the date of the
distributions under this Section 6.2(a)(3).
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(b) Anything in this Section 6.2 to the contrary
notwithstanding, upon dissolution of the Company, the Board of Managers or other
liquidator may distribute ratably in kind any assets of the Company; provided,
however, that if any in-kind distribution is to be made (i) the assets
distributed in kind shall be valued pursuant to Section 7.3 hereof as of the
actual date of their distribution and charged as so valued and distributed
against amounts to be paid under Section 6.2(a) above, and (ii) any profit or
loss attributable to property distributed in-kind shall be included in the Net
Profit or Net Loss for the Fiscal Period ending on the date of such
distribution.
ARTICLE VII
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
7.1 ACCOUNTING AND REPORTS.
(a) The Company shall adopt for tax accounting purposes any
accounting method which the Board of Managers shall decide in its sole
discretion is in the best interests of the Company. The Company's accounts shall
be maintained in U.S. currency.
(b) After the end of each taxable year, the Company shall
furnish to each Member such information regarding the operation of the Company
and such Member's Interest as is necessary for Members to complete Federal,
state and local income tax or information returns and any other tax information
required by Federal, state or local law.
(c) Except as otherwise required by the 1940 Act, or as may
otherwise be permitted by rule, regulation or order, within 60 days after the
close of the period for which a report required under this Section 7.1(c) is
being made, the Company shall furnish to each Member a semi-annual report and an
annual report containing the information required by such Act. The Company shall
cause financial statements contained in each annual report furnished hereunder
to be accompanied by a certificate of independent public accountants based upon
an audit performed in accordance with generally accepted accounting principles.
The Company may furnish to each Member such other periodic reports as it deems
necessary or appropriate in its discretion.
7.2 DETERMINATIONS BY THE BOARD OF MANAGERS.
(a) All matters concerning the determination and allocation
among the Members of the amounts to be determined and allocated pursuant to
Article V hereof, including any taxes thereon and accounting procedures
applicable thereto, shall be determined by the Board of Managers unless
specifically and expressly otherwise provided for by the provisions of this
Agreement or required by law, and such determinations and allocations shall be
final and binding on all the Members.
(b) The Board of Managers may make such adjustments to the
computation of Net Profit or Net Loss, the Allocation Change with respect to any
Member, or any components
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comprising any of the foregoing as it considers appropriate to reflect fairly
and accurately the financial results of the Company and the intended allocation
thereof among the Members.
7.3 VALUATION OF ASSETS.
(a) Except as may be required by the 1940 Act, the Board of
Managers shall value or have valued any Securities or other assets and
liabilities of the Company as of the close of business on the last day of each
Fiscal Period in accordance with such valuation procedures as shall be
established from time to time by the Board of Managers and which conform to the
requirements of the 1940 Act. In determining the value of the assets of the
Company, no value shall be placed on the goodwill or name of the Company, or the
office records, files, statistical data or any similar intangible assets of the
Company not normally reflected in the Company's accounting records, but there
shall be taken into consideration any items of income earned but not received,
expenses incurred but not yet paid, liabilities, fixed or contingent, and any
other prepaid expenses to the extent not otherwise reflected in the books of
account, and the value of options or commitments to purchase or sell Securities
or commodities pursuant to agreements entered into prior to such valuation date.
(b) The value of Securities and other assets of the Company
and the net worth of the Company as a whole determined pursuant to this Section
7.3 shall be conclusive and binding on all of the Members and all parties
claiming through or under them.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this
Agreement may be amended, in whole or in part, with: (i) the approval of the
Board of Managers (including the vote of a majority of the Independent Managers,
if required by the 1940 Act) and (ii) if required by the 1940 Act, the approval
of the Members by such vote as is required by the 1940 Act.
(b) Any amendment that would:
(1) increase the obligation of a Member to make
any contribution to the capital of the
Company;
(2) reduce the Capital Account of a Member or
Special Advisory Account other than in
accordance with Article V; or
(3) modify the events causing the dissolution of
the Company;
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may be made only if (i) the written consent of each Member adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Member has received written notice of
such amendment and (B) any Member objecting to such amendment has been afforded
a reasonable opportunity (pursuant to such procedures as may be prescribed by
the Board of Managers) to tender his entire Interest for repurchase by the
Company.
(c) The power of the Board of Managers to amend this Agreement
at any time without the consent of the other Members as set forth in paragraph
(a) of this Section 8.01 shall specifically include the power to:
(1) restate this Agreement together with any
amendments hereto which have been duly
adopted in accordance herewith to
incorporate such amendments in a single,
integrated document;
(2) amend this Agreement (other than with
respect to the matters set forth in Section
8.1(b) hereof) to effect compliance with any
applicable law or regulation, including but
not limited to, to satisfy the requirements,
or to reflect any relaxation of such
requirements in the future, of the Bank
Holding Company Act or other U.S. or
Canadian banking laws, or any regulations,
guidelines or policies or interpretations of
the banking regulatory agencies or the staff
thereof, or to cure any ambiguity or to
correct or supplement any provision hereof
which may be inconsistent with any other
provision hereof, provided that such action
does not adversely affect the rights of any
Member in any material respect; and
(3) amend this Agreement to make such changes as
may be necessary or advisable to ensure that
the Partnership will not be treated as an
association taxable as a corporation or as a
publicly traded partnership as defined in
Section 7704(b) of the Code.
(d) The Board of Managers shall cause written notice to be
given of any amendment to this Agreement (other than any amendment of the type
contemplated by clause (1) of Section 8.1(c) hereof) to each Member, which
notice shall set forth (i) the text of the amendment or (ii) a summary thereof
and a statement that the text thereof will be furnished to any Member upon
request.
8.2 SPECIAL POWER OF ATTORNEY.
(a) Each Member hereby irrevocably makes, constitutes and
appoints each Manager, acting severally, and any liquidator of the Company's
assets appointed pursuant to Section 6.2 hereof with full power of substitution,
the true and lawful representatives and attorneys-in-fact of, and in the name,
place and stead of, such Member, with the power from time to time to make,
execute, sign, acknowledge, swear to, verify, deliver, record, file and/or
publish:
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(1) any amendment to this Agreement which
complies with the provisions of this
Agreement (including the provisions of
Section 8.1 hereof);
(2) any amendment to the Certificate required
because this Agreement is amended,
including, without limitation, an amendment
to effectuate any change in the membership
of the Company; and
(3) all such other instruments, documents and
certificates which, in the opinion of legal
counsel to the Company, may from time to
time be required by the laws of the United
States of America, the State of Delaware or
any other jurisdiction in which the Company
shall determine to do business, or any
political subdivision or agency thereof, or
which such legal counsel may deem necessary
or appropriate to effectuate, implement and
continue the valid existence and business of
the Company as a limited liability company
under the Delaware Act.
(b) Each Member is aware that the terms of this Agreement
permit certain amendments to this Agreement to be effected and certain other
actions to be taken or omitted by or with respect to the Company without such
Member's consent. If an amendment to the Certificate or this Agreement or any
action by or with respect to the Company is taken in the manner contemplated by
this Agreement, each Member agrees that, notwithstanding any objection which
such Member may assert with respect to such action, the attorneys-in-fact
appointed hereby are authorized and empowered, with full power of substitution,
to exercise the authority granted above in any manner which may be necessary or
appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Member is fully aware that each Member will rely on the
effectiveness of this special power-of-attorney with a view to the orderly
administration of the affairs of the Company.
(c) This power-of-attorney is a special power-of-attorney and
is coupled with an interest in favor of each of the Managers and as such:
(1) shall be irrevocable and continue in full
force and effect notwithstanding the
subsequent death or incapacity of any party
granting this power-of-attorney, regardless
of whether the Company or Board of Managers
shall have had notice thereof; and
(2) shall survive the delivery of a Transfer by
a Member of the whole or any portion of such
Member's Interest, except that where the
transferee thereof has been approved by the
Board of Managers for admission to the
Company as a substituted Member, this
power-of-attorney given by the transferor
shall survive the delivery of such
assignment for the sole purpose of enabling
the Board of Managers to execute,
acknowledge and file any instrument
necessary to effect such substitution.
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8.3 NOTICES.
Notices which may or are required to be provided under this
Agreement shall be made, if to a Member, by regular mail, or if to the Board of
Managers or the Adviser, by hand delivery, registered or certified mail return
receipt requested, commercial courier service, telex or telecopier, and shall be
addressed to the respective parties hereto at their addresses as set forth in
the books and records of the Company. Notices shall be deemed to have been
provided when delivered by hand, on the date indicated as the date of receipt on
a return receipt or when received if sent by regular mail, commercial courier
service, telex or telecopier. A document that is not a notice and that is
required to be provided under this Agreement by any party to another party may
be delivered by any reasonable means.
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors, assigns,
executors, trustees or other legal representatives, but the rights and
obligations of the parties hereunder may not be Transferred or delegated except
as provided in this Agreement and any attempted Transfer or delegation thereof
which is not made pursuant to the terms of this Agreement shall be void.
8.5 APPLICABILITY OF 1940 ACT AND FORM N-2.
The parties hereto acknowledge that this Agreement is not
intended to, and does not, set forth the substantive provisions contained in the
1940 Act and the Form N-2 which affect numerous aspects of the conduct of the
Company's business and of the rights, privileges and obligations of the Members.
Each provision of this Agreement shall be subject to and interpreted in a manner
consistent with the applicable provisions of the 1940 Act and the Form N-2.
8.6 CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed under the laws of the State of
Delaware, including the Delaware Act without regard to the conflict of law
principles of such State.
(b) UNLESS OTHERWISE AGREED IN WRITING, EACH MEMBER AND THE
SPECIAL ADVISORY MEMBER AGREES TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN
MEMBERS OR ONE OR MORE MEMBERS OR THE SPECIAL ADVISORY MEMBER AND THE COMPANY TO
ARBITRATION IN ACCORDANCE WITH THE PROVISIONS SET FORTH BELOW AND UNDERSTANDS
THAT:
(1) ARBITRATION IS FINAL AND BINDING ON THE
PARTIES;
(2) THEY ARE WAIVING THEIR RIGHT TO SEEK
REMEDIES IN COURT, INCLUDING THE RIGHT TO A
JURY TRIAL;
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(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE
LIMITED AND DIFFERENT FROM COURT
PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO
INCLUDE FACTUAL FINDINGS OR LEGAL REASONING
AND A PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY ARBITRATORS IS
STRICTLY LIMITED; AND
(5) THE PANEL OF ARBITRATORS WILL TYPICALLY
INCLUDE A MINORITY OF ARBITRATORS WHO WERE
OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
(c) ALL CONTROVERSIES THAT MAY ARISE AMONG MEMBERS AND ONE OR
MORE MEMBERS OR THE SPECIAL ADVISORY MEMBER AND THE COMPANY CONCERNING THIS
AGREEMENT SHALL BE DETERMINED BY ARBITRATION IN NEW YORK CITY IN ACCORDANCE WITH
THE FEDERAL ARBITRATION ACT, TO THE FULLEST EXTENT PERMITTED BY LAW. ANY
ARBITRATION UNDER THIS AGREEMENT SHALL BE DETERMINED BEFORE AND IN ACCORDANCE
WITH THE RULES THEN OBTAINING OF EITHER THE NEW YORK STOCK EXCHANGE, INC. (THE
"NYSE") OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"), AS
THE MEMBER OR SPECIAL ADVISORY MEMBER OR ENTITY INSTITUTING THE ARBITRATION MAY
ELECT. IF THE NYSE OR NASD DOES NOT ACCEPT THE ARBITRATION FOR CONSIDERATION,
THE ARBITRATION SHALL BE SUBMITTED TO, AND DETERMINED IN ACCORDANCE WITH THE
RULES THEN OBTAINING OF, THE CENTER FOR PUBLIC RESOURCES, INC. IN NEW YORK CITY.
JUDGMENT ON ANY AWARD OF ANY SUCH ARBITRATION MAY BE ENTERED IN THE SUPREME
COURT OF THE STATE OF NEW YORK OR IN ANY OTHER COURT HAVING JURISDICTION OF THE
PERSON OR PERSONS AGAINST WHOM SUCH AWARD IS RENDERED. ANY NOTICE OF SUCH
ARBITRATION OR FOR THE CONFIRMATION OF ANY AWARD IN ANY ARBITRATION SHALL BE
SUFFICIENT IF GIVEN IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. EACH
MEMBER AGREES THAT THE DETERMINATION OF THE ARBITRATORS SHALL BE BINDING AND
CONCLUSIVE UPON THEM.
(d) NO MEMBER SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION
TO ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT
AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; OR WHO IS
A MEMBER OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO
ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (i) THE CLASS
CERTIFICATION IS DENIED; OR (ii) THE CLASS IS DECERTIFIED; OR (iii) THE MEMBER
IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE AN
AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS
AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the
regulation of relations among past, present and future Members, Managers, the
Special Advisory Member and the Company. This Agreement is not intended for the
benefit of non-Member creditors and no rights are granted to non-Member
creditors under this Agreement.
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8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Company.
8.9 MERGER AND CONSOLIDATION.
(a) The Company may merge or consolidate with or into one or
more limited liability companies formed under the Delaware Act or other business
entities pursuant to an agreement of merger or consolidation which has been
approved in the manner contemplated by Section 18-209(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, an agreement of merger or consolidation approved in
accordance with Section 18-209(b) of the Delaware Act may, to the extent
permitted by Section 18-209(f) of the Delaware Act, (i) effect any amendment to
this Agreement, (ii) effect the adoption of a new limited liability company
agreement for the Company if it is the surviving or resulting limited liability
company in the merger or consolidation, or (iii) provide that the limited
liability company agreement of any other constituent partnership to the merger
or consolidation (including a limited liability company formed for the purpose
of consummating the merger or consolidation) shall be the limited liability
company agreement of the surviving or resulting limited liability company.
8.10 PRONOUNS.
All pronouns shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the person or persons,
firm or corporation may require in the context thereof.
8.11 CONFIDENTIALITY.
(a) A Member may obtain from the Company such information
regarding the affairs of the Company as is just and reasonable under the
Delaware Act, subject to reasonable standards (including standards governing
what information and documents are to be furnished, at what time and location
and at whose expense) established by the Board of Managers.
(b) Each Member covenants that, except as required by
applicable law or any regulatory body, it will not divulge, furnish or make
accessible to any other person the name and/or address (whether business,
residence or mailing) of any Member (collectively, "Confidential Information")
without the prior written consent of the Board of Managers, which consent may be
withheld in their sole discretion.
(c) Each Member recognizes that in the event that this Section
8.11 is breached by any Member or any of its principals, partners, members,
directors, officers, employees or agents or any of its affiliates, including any
of such affiliates' principals, partners, members, directors, officers,
employees or agents, irreparable injury may result to the non-breaching Members
and the
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Company. Accordingly, in addition to any and all other remedies at law or in
equity to which the non-breaching Members and the Company may be entitled, such
Members shall also have the right to obtain equitable relief, including, without
limitation, injunctive relief, to prevent any disclosure of Confidential
Information, plus reasonable attorneys' fees and other litigation expenses
incurred in connection therewith. In the event that any non-breaching Member or
the Company determines that any of the other Members or any of its principals,
partners, members, directors, officers, employees or agents or any of its
affiliates, including any of such affiliates' principals, partners, members,
directors, officers, employees or agents should be enjoined from or required to
take any action to prevent the disclosure of Confidential Information, each of
the other non-breaching Members agrees to pursue in a court of appropriate
jurisdiction such injunctive relief.
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Member or transferee of an Interest from a Member shall
certify, upon admission to the Company and at such other times thereafter as the
Board of Managers may request, whether he is a "United States Person" within the
meaning of Section 7701(a)(30) of the Code on forms to be provided by the
Company, and shall notify the Company within 30 days of any change in such
Member's status. Any Member who shall fail to provide such certification when
requested to do so by the Board of Managers may be treated as a non-United
States Person for purposes of U.S. federal tax withholding.
8.13 SEVERABILITY.
If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Member agrees that it is the intention of the Members that such
provision should be enforceable to the maximum extent possible under applicable
law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
8.14 FILING OF RETURNS.
The Board of Managers or their designated agent shall prepare
and file, or cause the accountants of the Company to prepare and file, a Federal
information tax return in compliance with Section 6031 of the Code and any
required state and local income tax and information returns for each tax year of
the Company.
8.15 TAX MATTERS PARTNER.
(a) A Manager who is a Member shall be designated on the
Company's annual Federal income tax return, and have full powers and
responsibilities, as the Tax Matters Partner of the Company for purposes of
Section 6231(a)(7) of the Code. In the event that no Manager is a Member, a
Member shall be so designated. Should any Member be designated as the Tax
Matters Partner for the Company pursuant to Section 6231(a)(7) of the Code, it
shall, and each Member hereby does, to the fullest extent permitted by law,
delegate to a Manager selected by the Board of Managers all of its rights,
powers and authority to act as such Tax Matters Partner
-39-
<PAGE> 44
and hereby constitutes and appoints such Manager as its true and lawful
attorney-in-fact, with power to act in its name and on its behalf, including the
power to act through such agents or attorneys as it shall elect or appoint, to
receive notices, to make, execute and deliver, swear to, acknowledge and file
any and all reports, responses and notices and to do any and all things required
or advisable, in the Manager's judgment, to be done by such a Tax Matters
Partner. Any Member designated as the Tax Matters Partner for the Company under
Section 6231(a)(7) of the Code shall be indemnified and held harmless by the
Company from any and all liabilities and obligations that arise from or by
reason of such designation.
(b) Each person (for purposes of this Section 8.15, called a
"Pass-Thru Partner") that holds or controls an interest as a Member on behalf
of, or for the benefit of, another person or persons, or which Pass-Thru Partner
is beneficially owned (directly or indirectly) by another person or persons,
shall, within 30 days following receipt from the Tax Matters Partner of any
notice, demand, request for information or similar document, convey such notice
or other document in writing to all holders of beneficial interests in the
Company holding such interests through such Pass-Thru Partner. In the event the
Company shall be the subject of an income tax audit by any Federal, state or
local authority, to the extent the Company is treated as an entity for purposes
of such audit, including administrative settlement and judicial review, the Tax
Matters Partner shall be authorized to act for, and its decision shall be final
and binding upon, the Company and each Member thereof. All expenses incurred in
connection with any such audit, investigation, settlement or review shall be
borne by the Company.
8.16 SECTION 754 ELECTION.
In the event of a distribution of Company property to a Member
or an assignment or other transfer (including by reason of death) of all or part
of the interest of a Member in the Company, at the request of a Member, the
Board of Managers, in its discretion, may cause the Company to elect, pursuant
to Section 754 of the Code, or the corresponding provision of subsequent law, to
adjust the basis of the Company property as provided by Sections 734 and 743 of
the Code.
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<PAGE> 45
THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS ENTIRETY
BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSE SET FORTH IN
SECTION 8.6 AND THE CONFIDENTIALITY CLAUSE SET FORTH IN SECTION 8.11.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MANAGERS:
/s/____________________________________
/s/____________________________________
/s/____________________________________
ORGANIZATIONAL MEMBER:
/s/____________________________________
MEMBERS:
Each person who shall sign
a Member Signature Page and
who shall be accepted by
the Board of Managers to
the Company as a Member.
SPECIAL ADVISORY MEMBER:
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC Oppenheimer Corp.
Managing Member
By: /s/___________________________
Name:
Title:
-41-
<PAGE> 1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made the ____ day of ________, 1999, by and between
Xanthus Fund, L.L.C., a Delaware limited liability company (the "Fund"), and
CIBC Oppenheimer Advisers, L.L.C., a Delaware limited liability company (the
"Adviser"):
W I T N E S S E T H:
WHEREAS, the Fund intends to engage in business as a closed-end,
non-diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and engages in the business of
acting as an investment adviser; and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund in the manner and on the terms and conditions
hereinafter set forth; and
WHEREAS, the Adviser desires to be retained to perform such services
on said terms and conditions:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the Fund and the Adviser agree as follows:
1. The Fund hereby retains the Adviser to act as its investment
adviser and, subject to the supervision and control of the Board of Managers of
the Fund (the "Board"), to manage the investment activities of the Fund as
hereinafter set forth. Without limiting the generality of the foregoing, the
Adviser shall: obtain and evaluate such information and advice relating to the
economy, securities markets, and securities as it deems necessary or useful to
discharge its duties hereunder; continuously manage the assets of the Fund in a
manner consistent with the investment objective, policies and restrictions of
the Fund, as set forth in the Confidential Memorandum of the Fund and as may be
adopted from time to time by the Board, and applicable laws and regulations;
determine the securities to be purchased, sold or otherwise disposed of by the
Fund and the timing of such purchases, sales and dispositions; and take such
further action, including the placing of purchase and sale orders and the voting
of securities on behalf of the Fund, as the Adviser shall deem necessary or
appropriate. The Adviser shall furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Adviser in the discharge of its duties as the Fund may, from
time to time, reasonably request.
2. Without limiting the generality of paragraph 1 hereof, the
Adviser shall be authorized to open, maintain and close accounts in the name and
on behalf of the Fund with brokers and dealers as it determines are appropriate;
to select and place orders with brokers, dealers or other financial
intermediaries for the execution, clearance or settlement of any
<PAGE> 2
transactions on behalf of the Fund on such terms as the Adviser considers
appropriate and which are consistent with the policies of the Fund; and, subject
to any policies adopted by the Board and to the provisions of applicable law, to
agree to such commissions, fees and other charges on behalf of the Fund as it
shall deem reasonable in the circumstances taking into account all such factors
as it deems relevant (including the quality of research and other services made
available to it even if such services are not for the exclusive benefit of the
Fund and the cost of such services does not represent the lowest cost available)
and shall be under no obligation to combine or arrange orders so as to obtain
reduced charges unless otherwise required under the federal securities laws. The
Adviser may use, subject to such procedures as may be adopted by the Board,
affiliates of the Adviser as brokers to effect the Fund's securities
transactions and the Fund may pay such commissions to such brokers in such
amounts as are permissible under applicable law.
3. The Adviser shall, at its own expense, maintain such staff and
employ or retain such personnel and consult with such other persons as may be
necessary to render the services required to be provided by the Adviser or
furnished to the Fund under this Agreement. Without limiting the generality of
the foregoing, the staff and personnel of the Adviser shall be deemed to include
persons employed or otherwise retained by the Adviser or made available to the
Adviser by its members.
4. The Fund will, from time to time, furnish or otherwise make
available to the Adviser such financial reports, proxy statements, policies and
procedures and other information relating to the business and affairs of the
Fund as the Adviser may reasonably require in order to discharge its duties and
obligations hereunder.
5. The Adviser shall bear the cost of rendering the services to be
performed by it under this Agreement.
6. The Fund assumes and shall pay or cause to be paid all expenses
of the Fund not expressly assumed by the Adviser under this Agreement, including
without limitation: all costs and expenses directly related to portfolio
transactions and positions for the Fund's account, including, but not limited
to, brokerage commissions, research fees, interest and commitment fees on loans
and debit balances, borrowing charges on securities sold short, dividends on
securities sold but not yet purchased, custodial fees, margin fees, transfer
taxes and premiums, taxes withheld on foreign dividends and indirect expenses
from investments in investment funds; all costs and expenses associated with the
organization and registration of the Fund, certain offering costs and the costs
of compliance with any applicable Federal or state laws; attorneys' fees and
disbursements associated with updating the Fund's Confidential Memorandum and
subscription documents (the "Offering Materials"); the costs of printing the
Offering Materials; the costs of distributing the Offering Materials to
prospective investors; and attorneys' fees and disbursements associated with the
review of subscription documents executed and delivered to the Fund in
connection with offerings of interests of the Fund; the costs and expenses of
holding meetings of the Board and any meetings of members of the Fund; fees and
disbursements of any attorneys, accountants, auditors and other consultants and
professionals engaged on behalf of the Fund; the administrative services fee
paid to CIBC Oppenheimer Corp. pursuant to the Administrative Services Agreement
and the fees of custodians and persons
-2-
<PAGE> 3
providing administrative services to the Fund; the costs of a fidelity bond and
any liability insurance obtained on behalf of the Fund or the Board; all
expenses of computing the Fund's net asset value, including any equipment or
services obtained for these purposes; and all charges for equipment or services
used in communicating information regarding the Fund's transactions among the
Adviser and any custodian or other agent engaged by the Fund.
7. As full compensation for the services provided to the Fund and
the expenses assumed by the Adviser under this Agreement, the Adviser shall be
entitled to be the Special Advisory Member of the Fund pursuant to the terms of
the Limited Liability Company Agreement of the Fund (the "L.L.C. Agreement"). As
the Special Advisory Member, the Adviser shall be entitled to receive an
incentive allocation in accordance with the terms and conditions of Section 5.8
of the L.L.C. Agreement.
8. The Adviser will use its best efforts in the supervision and
management of the investment activities of the Fund and in providing services
hereunder, but in the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations hereunder, neither the
Adviser nor any of its members, directors, officers or employees thereof, nor
any of their affiliates, executors, heirs, assigns, successors or other legal
representatives (collectively, the "Affiliates") shall be liable to the Fund for
any error of judgment for any mistake of law or for any act or omission by the
Adviser and its Affiliates.
9. (a) The Fund shall indemnify the Adviser, its members, directors,
officers or employees and any of their affiliates, executors, heirs, assigns,
successors or other legal representatives (each an "Indemnified Person") against
any and all costs, losses, claims, damages or liabilities, joint or several,
including, without limitation, reasonable attorneys' fees and disbursements,
resulting in any way from the performance or non-performance of any Indemnified
Person's duties in respect of the Fund, except those resulting from the willful
malfeasance, bad faith or gross negligence of an Indemnified Person or the
Indemnified Person's reckless disregard of such duties, and in the case of
criminal proceedings, unless such Indemnified Person had reasonable cause to
believe its actions unlawful (collectively, "disabling conduct").
Indemnification shall be made following: (i) a final decision on the merits by a
court or other body before whom the proceeding was brought that the Indemnified
Person was not liable by reason of disabling conduct or (ii) a reasonable
determination, based upon a review of the facts and reached by (A) the vote of a
majority of the Managers serving on the Board ("Managers") who are not parties
to the proceeding or (B) legal counsel selected by a vote of a majority of the
Board in a written advice, that the Indemnified Person is entitled to
indemnification hereunder. The Fund shall advance to an Indemnified Person (to
the extent that it has available assets and need not borrow to do so) reasonable
attorneys' fees and other costs and expenses incurred in connection with defense
of any action or proceeding arising out of such performance or non-performance.
The Adviser agrees, and each other Indemnified Person will agree as a condition
to any such advance, that in the event it or he receives any such advance, it or
he shall reimburse the Fund for such fees, costs and expenses to the extent that
it shall be determined that it or he was not entitled to indemnification under
this paragraph 9.
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<PAGE> 4
(b) Notwithstanding any of the foregoing to the contrary, the
provisions of this paragraph 9 shall not be construed so as to relieve the
Indemnified Person of, or provide indemnification with respect to, any liability
(including liability under Federal Securities laws, which, under certain
circumstances, impose liability even on persons who act in good faith) to the
extent (but only to the extent) that such liability may not be waived, limited
or modified under applicable law or that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
provisions of this paragraph 9 to the fullest extent permitted by law.
10. Nothing contained in this Agreement shall prevent the Adviser or
any affiliated person of the Adviser from acting as investment adviser or
manager for any other person, firm or corporation and, except as required by
applicable law (including Rule 17j-1 under the 1940 Act), shall not in any way
bind or restrict the Adviser or any such affiliated person from buying, selling
or trading any securities or commodities for their own accounts or for the
account of others for whom they may be acting. Nothing in this Agreement shall
limit or restrict the right of any member, officer or employee of the Adviser to
engage in any other business or to devote his or her time and attention in part
to the management or other aspects of any other business whether of a similar or
dissimilar nature.
11. This Agreement shall remain in effect for an initial term
expiring _________________, 2001, and shall continue in effect from year to year
thereafter provided such continuance is approved at least annually by the vote
of a majority of the outstanding voting securities of the Fund, as defined by
the 1940 Act and the rules thereunder, or by the Board; and provided that in
either event such continuance is also approved by a majority of the Managers who
are not parties to this Agreement or "interested persons" (as defined by the
1940 Act) of any such party (the "Independent Managers"), by vote cast in person
at a meeting called for the purpose of voting on such approval. The Fund may at
any time, without payment of any penalty, terminate this Agreement upon sixty
days' prior written notice to the Adviser, either by majority vote of the Board
or by the vote of a majority of the outstanding voting securities of the Fund
(as defined by the 1940 Act and the rules thereunder). The Adviser may at any
time, without payment of penalty, terminate this Agreement upon sixty days'
prior written notice to the Fund. This Agreement shall automatically terminate
in the event of its assignment (to the extent required by the 1940 Act and the
rules thereunder) unless such automatic termination shall be prevented by an
exemptive order of the Securities and Exchange Commission.
12. Any notice under this Agreement shall be given in writing and
shall be deemed to have been duly given when delivered by hand or facsimile or
five days after mailed by certified mail, post-paid, by return receipt requested
to the other party at the principal office of such party.
13. This Agreement may be amended only by the written agreement of
the parties. Any amendment shall be required to be approved by the Board and by
a majority of the Independent Managers in accordance with the provisions of
Section 15(c) of the 1940 Act and the rules thereunder. If required by the 1940
Act, any amendment shall also be required to be approved by such vote of members
of the Fund as is required by the 1940 Act and the rules thereunder.
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<PAGE> 5
14. This Agreement shall be construed in accordance with the laws of
the state of New York and the applicable provisions of the 1940 Act. To the
extent the applicable law of the State of New York, or any of the provisions
herein, conflict with the applicable provisions of the 1940 Act, the latter
shall control.
15. The Fund represents that this Agreement has been duly approved
by the Board, including a majority of the Independent Managers, and by the sole
initial member of the Fund, in accordance with the requirements of the 1940 Act
and the rules thereunder.
16. The parties to this Agreement agree that the obligations of the
Fund under this Agreement shall not be binding upon any of the Managers, members
of the Fund or any officers, employees or agents, whether past, present or
future, of the Fund, individually, but are binding only upon the assets and
property of the Fund.
{The remainder of this page has intentionally been left blank}
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
XANTHUS FUND, L.L.C.
By:_______________________________________
Attest: Name:
Title: Manager
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC Oppenheimer Corp.,
its Managing Member
By:_______________________________________
Attest: Howard M. Singer
Managing Director
__________________________
-6-
<PAGE> 1
XANTHUS FUND, L.L.C.
CIBC OPPENHEIMER TOWER
ONE WORLD FINANCIAL CENTER
31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
One World Financial Center - 31st Floor
200 Liberty Street
New York, New York 10281
Re: Appointment as Placement Agent
Ladies and Gentlemen:
Xanthus Fund, L.L.C., a limited liability company organized under
the laws of the State of Delaware (the "Fund"), hereby agrees with you as
follows:
1. Fund Offering.
The Fund proposes to issue and to sell its limited liability company
interests ("Interests") in accordance with a Confidential Memorandum issued by
the Fund dated __________ 1999, as amended from time to time (the "Memorandum").
2. Definitions.
All capitalized terms used in this Agreement which are not
separately defined herein shall have the respective meaning set forth in the
Memorandum.
3. Placement of Interests.
(a) Subject to the terms and conditions set forth herein, the Fund
hereby appoints you as its placement agent in connection with the placement of
Interests. Subject to the performance in all material respects by the Fund of
its obligations hereunder, and to the completeness and accuracy in all material
respects of all of the representations and warranties of the Fund contained
herein, you hereby accept such agency and agree on the terms and conditions
herein set forth to use your best efforts to find qualified subscribers for
Interests and to use all reasonable efforts to assist the Fund in obtaining
performance by each subscriber. You shall not have any liability to the Fund in
the event that any subscriber fails to consummate the purchase of Interests for
any reason other than your willful misconduct or gross negligence.
(b) The offers and sales of Interests are to be effected pursuant to
the exemption from the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to Section 4(2) thereof and
Regulation D under the Securities Act.
<PAGE> 2
Both you and the Fund have established the following procedures in connection
with the offer and sale of Interests and agree that neither of you will make
offers or sales of any Interests except in compliance with such procedures:
(i) Offers and sales of Interests will be made only in
compliance with Regulation D under the Securities Act and only to investors that
qualify as "accredited investors," as defined in Rule 501(a) under the
Securities Act.
(ii) No sale of Interests to any one Purchaser will be for
less than the minimum denominations as may be specified in the Memorandum.
(iii) No offer or sale of any Interest shall be made in any
state or jurisdiction, or to any prospective investor located in any state or
jurisdiction, where such Interests have not been registered or qualified for
offer and sale under applicable state securities laws unless such Interests are
exempt from the registration or qualification requirements of such laws.
(iv) Sales of Interests will be made only to investors that
are qualified clients under Rule 205-3 under the Investment Advisers Act of
1940, as amended.
(c) For purposes of the offering of Interests, the Fund has
furnished to you copies of the Memorandum and subscription documentation which
shall be furnished to prospective investors. Additional copies will be furnished
in such numbers as you may reasonably request for purposes of the offering. You
are authorized to furnish to prospective purchasers only such information
concerning the Fund and the offering as may be contained in the Memorandum or
any written supplements thereto, and such other materials as you have prepared
and which comply with applicable laws and regulations, including to the extent
applicable the rules of the National Association of Securities Dealers, Inc.
(the "NASD").
4. Subscriptions During the Initial Offering Period.
(a) The initial offering period for the Interests shall commence as
soon as practicable after the date as of which this Agreement is effective and
be closed on __________, 1999 or such later date as may be specified by the
Board of Managers of the Fund (the "Board"), in its sole discretion, which date
shall not be more than 90 days thereafter (the "Initial Offering Period").
(b) All subscriptions for Interests and payments by subscribers of
subscription amounts for Interests shall be made pursuant to the terms and
conditions set forth in the Memorandum and subscription documentation.
Subscriptions shall be subject to acceptance by you as agent for the Fund, as
described in Section 6 below.
(c) All payments received by you hereunder for subscriptions in the
name and on behalf of the Fund shall be handled by you in accordance with the
terms of the subscription documentation.
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<PAGE> 3
(d) If the offering is not completed in accordance with the
conditions set forth in the Memorandum, the Fund may terminate the offering. In
such case, you will instruct PFPC Inc. or any other escrow agent who may be
serving in such capacity for the time being to return all subscription payments
to investors.
5. Subscriptions After the Initial Offering Period.
(a) After the Initial Offering Period, the Fund may from time to
time, in the sole discretion of the Board, offer Interests to investors for
purchase ("Subsequent Offerings").
(b) In Subsequent Offerings, the minimum additional investment
requirements shall be such amounts as are specified in the Memorandum. All
subscriptions for Interests in Subsequent Offerings and payments therefor shall
be made pursuant to the terms and conditions set forth in the Memorandum, and
subscriptions shall be subject to acceptance by you as agent for the Fund, as
described in Section 6 below. In Subsequent Offerings, the procedures set forth
in Sections 4(c) and (d) shall also be applicable.
6. Acceptance of Subscriptions.
You are appointed as agent of the Fund for purposes of determining
whether to accept or to reject subscriptions for Interests. Subscriptions shall
be accepted only if the investor: (a) has supplied, or in the case of an
additional subscription by an existing member, previously supplied, to you
properly completed subscription documentation; and (b) has made proper payment
for Interests. Subscriptions shall be rejected if it appears to you that any of
the terms or conditions applicable to subscriptions for Interests as set forth
in the Memorandum or subscription documentation have not been satisfied. The
Board reserves the right to reject any subscription for Interests in the Fund.
7. Representations and Warranties of the Fund.
The Fund represents and warrants to you that:
(a) The Fund has been duly formed and is validly existing as a
limited liability company in good standing under the laws of the State of
Delaware with all requisite power and authority, all necessary authorizations,
approvals, orders, licenses, certificates and permits of and from all
governmental regulatory officials and bodies, and all necessary rights, licenses
and permits from other parties, to conduct its business as described in the
Memorandum.
(b) Interests to be or which may be issued by the Fund have been
duly authorized for issuance and sale and, when issued and delivered by the
Fund, Interests will conform to all statements relating thereto contained in the
Memorandum.
(c) The issue and sale of Interests and the execution, delivery and
performance of the Fund's obligations under the Memorandum will not result in
the violation of any applicable law.
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<PAGE> 4
(d) The Fund will apply the proceeds from the sale of Interests for
the purposes set forth in the Memorandum.
(e) The Memorandum will not contain an untrue statement of any
material fact or omit to state any material fact necessary in order to make
statements therein in the light of the circumstances under which they were made,
not misleading.
(f) This Agreement has been duly authorized, executed and delivered
by the Fund and, assuming your execution hereof, will constitute a valid and
binding agreement of the Fund.
(g) Prior to and on the effective date of this Agreement, neither
the Fund, nor to the knowledge of the Fund any person acting on behalf of the
Fund, has directly or indirectly offered or sold, or attempted to offer or sell
any Interests to or solicited offers to buy any Interests from, or otherwise
approached or negotiated with respect thereto with, any prospective investor in
connection with the placement thereof.
8. Covenants of the Fund.
The Fund covenants and agrees with you as follows:
(a) You and your counsel shall be furnished with such documents and
opinions as you and they may require, from time to time, for the purpose of
enabling you or them to pass upon the issuance and sale of Interests as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations and warranties, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Fund and in
connection with the issuance and sale of Interests as herein contemplated shall
be satisfactory in form and substance to you and your counsel.
(b) If, at any time after the commencement of an offering of
Interests and prior to its termination, an event occurs which in the opinion of
counsel to the Fund materially affects the Fund and which should be set forth in
an amendment or supplement to the Memorandum in order to make the statements
therein not misleading in light of the circumstances under which they are made,
the Fund will notify you as promptly as practical of the occurrence of such
event and prepare and furnish to you copies of an amendment or supplement to the
Memorandum, in such reasonable quantities as you may request in order that the
Memorandum will not contain any untrue statement of any material fact or omit to
state a material fact which in the opinion of such counsel is necessary to make
the statements therein not misleading in light of the circumstances under which
they are made.
9. Representations and Warranties of the Placement Agent.
You represent and warrant that:
(a) You are duly authorized to enter into and perform, and have duly
executed and delivered, this Agreement.
-4-
<PAGE> 5
(b) You have and will maintain all licenses and registrations
necessary under applicable law and regulations (including the rules of the NASD)
to provide the services required to be provided by you hereunder.
(c) You have not and will not solicit any offer to buy or offer to
sell Interests in any manner which would be inconsistent with applicable laws
and regulations, or with the procedures for solicitations contemplated by the
Memorandum or by any form of general solicitation or advertising, including, but
not limited to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio or conduct any seminar or meeting whose attendees have been
invited by any general solicitation or advertising.
(d) You will furnish each subscriber of Interests, identified either
by you or the Fund, a copy of the Memorandum and subscription documentation
prior to such person's admission as a member of the Fund.
10. Compensation of Placement Agent.
(a) You will receive no fee, payment or other remuneration for your
services under this Agreement.
(b) Except as may otherwise be agreed to by the Fund, you shall be
responsible for the payment of all costs and expenses incurred by you in
connection with the performance of your obligations under this Agreement,
including the costs associated with the preparation, printing and distribution
of any sales materials.
(c) We acknowledge that you intend to compensate your account
executives for their ongoing servicing of clients with whom they have placed
Interests in the Fund. This compensation will be based upon a formula that takes
into account the amount of client assets being serviced as well as the
investment results attributable to clients' assets invested in the Fund.
11. Indemnification and Contribution.
The parties agree to indemnify one another as follows:
(a) The Fund agrees to indemnify and hold harmless you and each
person, if any, who controls you within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), against any and all losses, liabilities, claims, damages and
expenses whatsoever (including, but not limited to, attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), joint or
several, to which you or they may become subject under the Securities Act, the
Exchange Act or any other law or statute in any jurisdiction otherwise, insofar
as such losses, liabilities, claims, damages or expense (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Memorandum or the subscription
documentation or any
-5-
<PAGE> 6
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; provided,
however, that the Fund will not be liable in any such case to the extent, but
only to the extent, that any such loss, liability, claim, damage or expense
arises out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon and in
conformity with written information furnished to the Fund by you or through you
expressly for the use therein; and further provided that this indemnity shall
not protect you or any other person who may otherwise be entitled to indemnity
hereunder from or against any liability to which you or they would be subject by
reason of your own or their own willful misfeasance, bad faith, gross negligence
or reckless disregard of your or their duties hereunder. This indemnity will be
in addition to any liability which the Fund may otherwise have included under
this Agreement.
(b) You agree to indemnify and hold harmless the Fund and each
person who controls the Fund within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, against any losses, liabilities,
claims, damages and expenses whatsoever (including, but not limited to,
attorneys' fees and any and all expenses whatsoever incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which you or they may become subject under the
Securities Act, the Exchange Act or any other law or statute in any
jurisdiction, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Memorandum or Subscription Agreement, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Fund by you or on your behalf through you expressly
for use therein. This indemnity will be in addition to any liability which you
may otherwise have incurred under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any other
liability which it may have under this Section 11 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel satisfactory to
such indemnified party; provided, however, that if, in the judgment of such
indemnified party, a conflict of interest exists where it is advisable for such
indemnified party to
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<PAGE> 7
be represented by separate counsel, the indemnified party shall have the right
to employ separate counsel in any such action, in which event the fees and
expenses of such separate counsel shall be borne by the indemnifying party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and the approval by the
indemnified party of counsel, the indemnifying party shall not be liable to such
indemnified party under such subsections for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation unless (i) the indemnified party shall have employed separate
counsel in accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party or parties shall not be liable
for the expenses of more than one such separate counsel representing the
indemnified parties under subparagraph (a) of this Section 11 who are parties to
such action), (ii) the indemnifying party or parties shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii) the
indemnifying party or parties have authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party or parties; and
except that, if clause (i) or (iii) is applicable, such liability shall be only
in respect of the counsel referred to in such clause (i) or (iii). No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
12. Representations and Indemnities to Survive Delivery.
The agreements, representations, warranties, indemnities and other
statements of the parties and their officers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
you, or the Fund, any Managers serving on the Board (the "Managers"), directors
or officers of any of the foregoing or any person controlling any of the
foregoing, and (iii) acceptance of any payment for Interests hereunder. The
provisions of this Section 12 shall survive the termination or cancellation of
this Agreement.
13. Effective Date and Term of Agreement.
This Agreement shall become effective for all purposes as of
_________, 1999, and shall remain in effect for an initial term of two years
from such date. Thereafter, this Agreement shall continue in effect from year to
year, provided that each such continuance is approved by the Board, including
the vote of a majority of the Managers who are not "interested persons," as
defined by the Investment Company Act of 1940 (the "1940 Act") and the rules
thereunder, of the Fund or of CIBC Oppenheimer Corp.
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<PAGE> 8
14. Termination.
This Agreement may be terminated as follows:
(a) Either party may terminate this Agreement without cause by
written notice to the other on not less than thirty (30) days notice, or, if
there has been a material breach of any condition, warranty, representation or
other term of this Agreement by the other, by written notice to such other at
any time.
(b) By written notice to the Fund, you may terminate this Agreement
at any time if (i) there has been, since the respective dates as of which
information is given in the Memorandum, any material adverse change in the
condition, financial or otherwise, of the Fund, which in your opinion, will make
it inadvisable to proceed with the delivery of Interests; (ii) there has
occurred any outbreak of hostilities or other domestic or international calamity
or crisis the effect of which on the financial markets is so substantial and
adverse as to make it, in your judgment, impracticable to market Interests or
enforce contracts for the sale of Interests; and (iii) any order suspending the
sale of Interests shall have been issued by any jurisdiction in which a sale or
sales of Interests shall have been made, or proceedings for that purpose shall
have been initiated or, to your best knowledge and belief, shall be
contemplated.
(c) This Agreement shall terminate automatically in the event of its
"assignment" as such term is defined by the 1940 Act and the rules thereunder.
15. Delegation of Powers.
You shall be entitled to delegate all or any of your duties,
functions or powers under this Agreement to another person as sub-agents subject
to the approval of the Fund. However, you shall be solely responsible for the
acts and omissions of any such sub-agent and for the payment of any remuneration
to such sub-agent.
16. Notices.
All communications under this Agreement shall be given in writing,
sent by (i) telecopier, (ii) telex confirmed by answerback, or (iii) registered
mail to the address set forth below or to such other address as such party shall
have specified in writing to the other party hereto, and shall be deemed to have
been delivered effective at the earlier of its receipt or within two (2) days
after dispatch,
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<PAGE> 9
If to CIBC Oppenheimer Corp.:
CIBC Oppenheimer Corp.
CIBC Oppenheimer Tower
One World Financial Center
33rd Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-7306
Attn.: Robert Blum, Assistant General Counsel
If to Xanthus Fund, L.L.C.:
Xanthus Fund, L.L.C.
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-4225
Attn.: Howard M. Singer
17. Miscellaneous.
(a) This Agreement may be executed in two or more counterparts, each
of which when so executed and delivered shall constitute one and the same
instrument. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns and no other person
shall have any right or obligation hereunder.
(b) This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof, and neither this Agreement
nor any term hereof may be changed, waived, discharged or terminated except by
an instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought. The headings in this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof.
18. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to the conflicts of laws
provisions thereof, and with the provisions of the 1940 Act. In the event of any
conflict between the provisions of the laws of New York and those of the 1940
Act, the 1940 Act provisions shall control.
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<PAGE> 10
19. The parties to this Agreement agree that the obligations of the
Fund under this Agreement shall not be binding upon any Managers, members of the
Fund or any officers, employees or agents, whether past, present or future, of
the Fund, individually, but are binding only upon the assets and property of the
Fund.
{The remainder of this page has intentionally been left blank.}
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<PAGE> 11
If the foregoing correctly sets forth our understanding with you,
please indicate your acceptance in the space provided below whereupon this
letter will form a valid and binding contract among the signers in accordance
with its terms.
Very truly yours,
XANTHUS FUND, L.L.C.
By:_______________________________________
Name:
Title: Manager
Date:
Agreed to and accepted:
CIBC OPPENHEIMER CORP.
By:_____________________________
Name: Howard M. Singer
Title: Managing Director
Date:
-11-
<PAGE> 1
CUSTODY AGREEMENT
This Custody Agreement is dated as of , 1999 between The Chase
Manhattan Bank, (the "Custodian"), and XANTHUS FUND, L.L.C., a Delaware limited
liability company (the "Client").
1. Appointment and Acceptance; Accounts. (a) The Client hereby appoints
the Custodian as a custodian of Property (as defined below) owned or under the
control of the Client that is delivered to the Custodian, or any Subcustodian as
appointed below, from time to time to be held in custody for the benefit of the
Client. In this regard, the Client agrees to deliver or cause to be delivered to
the Custodian all Property.
(b) Prior to the delivery of any Property by the Client to the
Custodian, the Client shall deliver to the Custodian each document and other
item listed in Appendix 1. In addition, the Client shall deliver to the
Custodian any additional documents or items as the Custodian may deem necessary
for the performance of its duties under this Agreement.
(c) The Client instructs the Custodian to establish on the books and
records of the Custodian the accounts listed in Appendix 2 (the "Accounts") in
the name of the Client. Upon receipt of Authorized Instructions (as defined
below) and appropriate documentation, the Custodian shall open additional
Accounts for the Client. Upon the Custodian's confirmation to the Client of the
opening of such additional Accounts, or of the closing of Accounts, Appendix 2
shall be deemed automatically amended or supplemented accordingly. The Custodian
shall record in the Accounts and shall at all times have general responsibility
for the safekeeping of all securities, including without limitation, shares,
stocks, bonds, debentures, notes, mortgages or other obligations and any
certificates, receipts or warrants (collectively, "Securities"), cash, cash
equivalents and other property (all such Securities, cash, cash equivalents and
other property being collectively the "Property") of the Client that are
delivered to the Custodian for custody. Except with respect to Securities held
in custody or deposit accounts maintained with Subcustodians, securities
depositories or clearing agencies, the Custodian shall at all times hold and
physically segregate for the Client all Securities held by the Custodian
hereunder.
(d) The procedures the Custodian and the Client will use in performing
activities in connection with this Agreement are set forth in a client services
guide provided to the Client by the Custodian, as such guide may be amended from
time to time by the Custodian by written notice to the Client (the "Client
Services Guide").
2. Subcustodians. (a) The Property may be held in custody and deposit
accounts that have been established by the Custodian with (i) one or more
domestic banks (as such term is defined by the Investment Company Act of 1940,
the "Act") which are eligible to serve as a custodian for investment companies
under Section 17 of the Act or foreign banks which are "Eligible Foreign
Custodians" (as such term is defined in Rule 17f-5(c)(2) of the Act), as listed,
together with any domestic banks, on Exhibit A, except as otherwise noted on
such Exhibit (the "Subcustodians"), as such Exhibit may be amended from time to
time by the Custodian by sixty (60) days prior written notice to the Client, or
(ii) through the facilities of (A) one or more domestic clearing agencies
<PAGE> 2
registered with the Securities and Exchange Commission (the "SEC") under Section
17A of the Securities Exchange Act of 1934 which acts as a securities depository
or the book-entry system as provided in Subpart O of Treasury Circular No. 300,
31 CFR 306, Subpart B of 31 CFR Part 350 and the book-entry regulations of
Federal agencies substantially in the form of Subpart O or (B) one or more
foreign securities depositories or clearing agencies, as such domestic clearing
agencies, foreign securities depositories or clearing agencies are listed on
Exhibit B, as such Exhibit may be amended from time to time by the Custodian by
sixty (60) days prior written notice to the Client. The Custodian agrees to
deliver any Securities in its or its Subcustodians' possession as directed by
the Client in accordance with Section 7 herein.
(b) The Custodian shall hold Property through a Subcustodian,
securities depository or clearing agency only if (i) such Subcustodian and any
securities depository or clearing agency in which such Subcustodian or the
Custodian holds Property, or any of their creditors, may not assert any right,
charge, security interest, lien, encumbrance or other claim of any kind to such
Property except a claim of payment for its safe custody or administration and
(ii) beneficial ownership of such Property may be freely transferred without the
payment of money or value other than for safe custody or administration. Any
Subcustodian may hold Property in a securities depository and may utilize a
clearing agency, subject to the terms of this Agreement.
3. Records. With respect to Property held by a Subcustodian, securities
depository or clearing agency:
(a) The Custodian may hold Property for all of its customers with a
Subcustodian in a single account identified as belonging to the Custodian for
the benefit of its customers or with a securities depository or clearing agency
in a single account identified as belonging to the Client or the Custodian or
Subcustodian for the benefit of their customers; provided that the use of such
single account is consistent with paragraph (b) in Section 2 above and that such
single account at the Subcustodian shall include only assets belonging to the
customers of the Custodian and such single account at any securities depository
or clearing agency shall include only assets belonging to the Client, customers
of the Custodian or customers of the Subcustodian, as the case may be;
(b) The Custodian shall identify on its books as belonging to the
Client any Property held by a Subcustodian, securities depository or clearing
agency;
(c) The Custodian shall require that Property held by the Subcustodian
be identified on the Subcustodian's books as separate from any other property
held by the Subcustodian other than property of the Custodian's customers held
solely for the benefit of customers of the Custodian; and
(d) The Custodian shall send the Client a confirmation of any transfers
to or from the Account. Where Securities are transferred to or from the Account,
the Custodian shall also, by book-entry or otherwise, identify as belonging to
the Client a quantity of Securities in a fungible bulk of securities (i)
registered in the name of the Custodian (or its nominee) or (ii) shown on the
Client's, Custodian's or Subcustodian's, as the case may be, account on the
books of the securities depository, clearing agency, book-entry system or the
Custodian's account on the books of the Subcustodian and
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<PAGE> 3
the Custodian shall promptly send to the Client any report it or its
Subcustodian receives from the appropriate Federal Reserve Bank or clearing
agency on its respective system of internal accounting control. The Custodian
shall send to the Client such reports on its or its Subcustodian's own system of
internal accounting control as the Client may reasonably request from time to
time.
(e) In the event the Subcustodian holds Property in a securities
depository or clearing agency, such Subcustodian shall be required by its
agreement with the Custodian to identify on its books such Property as being
held for the account of the Custodian as custodian for its customers or in such
other manner as is required by local law or market practice. Notwithstanding any
other provision in this Agreement, no Subcustodian shall be permitted to deposit
Securities in any securities depository or utilize a clearing agency,
incorporated or organized under the laws of a country other than the United
States, other than the Euro-clear System or Centrale de Livraison des Valeurs
Mobilieres S.A., without the written permission of the Custodian unless such
depository or clearing agency operates the central system for handling of
securities or equivalent book-entries in that country or pursuant to Authorized
Instructions.
4. Access to Records. The Custodian shall allow the Client's
accountants reasonable access to the Custodian's records relating to the
Property held by the Custodian as such accountants may reasonably require in
connection with their examination of the Client's affairs. The Custodian shall
also obtain from any Subcustodian (and shall require each Subcustodian to use
reasonable efforts to obtain from any securities depository or clearing agency
in which it deposits Property) an undertaking, to the extent consistent with
local practice and the laws of the jurisdiction or jurisdictions to which such
Subcustodian, securities depository or clearing agency is subject, to permit
independent public accountants such reasonable access to the records of such
Subcustodian, securities depository or clearing agency as may be reasonably
required in connection with the examination of the Client's affairs or to take
such other action as the Custodian in its judgment may deem sufficient to ensure
such reasonable access.
5. Reports. The Custodian shall provide from time to time, but in no
event less frequently than monthly, such reports and other information to the
Client and to such persons as the Client directs as the Custodian and the Client
may agree from time to time. Such reports shall identify the Property in the
Accounts and shall include without limitation (i) the identity of any entity
having custody of the Property and (ii) any transfers of Property to or from the
Accounts.
In addition, the Custodian shall furnish annually to the Client
information concerning the Subcustodians employed by the Custodian on behalf of
the Client. Such information shall be similar in kind and scope to that
furnished to the Client initially by the Custodian as of the date of this
Agreement. The Custodian agrees to promptly inform the Client in the event the
Custodian learns of a material adverse change in the financial condition of a
Subcustodian or is notified by any Subcustodian that such Subcustodian's
shareholders' equity has declined, (or there appears to be a substantial
likelihood that it will decline) below the requisite shareholder's equity
requirements identified in Rule 17f-5 of the Act or any applicable exemptive
order issued by the SEC under such Rule 17f-5.
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<PAGE> 4
6. Payment of Monies. Except as provided in Sections 9, 13 and 17, the
Custodian shall make, or cause any Subcustodian to make, payments from monies
being held in the Accounts pursuant to Authorized Instructions as follows:
(a) upon the purchase of Securities for the account of the Client and
then only upon the delivery of such Securities except as may otherwise be
consistent with local custom or market practice in the applicable jurisdiction
where settlement occurs;
(b) for payments to be made in connection with the conversion, exchange
or surrender of Securities;
(c) upon request of the Client that the Custodian transfer monies being
held in the Accounts to another custodian of the Client or to an account of the
Client at a deposit bank;
(d) to partners of the Client in connection with any distribution to
such partners or in connection with the repurchase by the Client from such
partners of interest in the Client;
(e) to third persons in payment of the fees or charges of such third
persons for services provided to the Client or for expenses incurred in the
operation of the Client;
(f) upon termination of this Custody Agreement as hereinafter set forth
in Section 17; and
(g) for any other purpose upon receipt of Authorized Instructions.
All payments pursuant to this Section 6 shall be made only upon receipt by the
Custodian of Authorized Instructions of the Client; provided, however, that: (i)
the Authorized Instructions for purposes of subparagraph (b), (c), (d), (e) or
(f) of this Section 6 shall be accepted and valid only if (A) such Authorized
Instructions explicitly state that the related payments are in connection with
the transactions contemplated by (b), (c), (d), (e) or (f) above, as the case
may be, in accordance with the procedures for processing such Authorized
Instructions set forth in Exhibit C hereto and (B) that such Authorized
Instructions have been given by an Authorized Person who is identified on
Appendix 3 as an employee of CIBC Oppenheimer Corp. ("CIBC Opco"); (ii) any
payment in accordance with subparagraphs (a), (b), (c), (d) or (e) of this
Section 6 shall be made only to such specifically identified accounts as shall
have been pre-designated by the Client to receive such payments, the initial
pre-designated accounts as of the date of this Agreement shall be limited to
those accounts at both Morgan Stanley & Co. Incorporated and PFPC, Inc. (or any
successor administrator of the Client) identified in accordance with the
procedures for processing such Authorized Instructions set forth in Exhibit C
hereto and no additional accounts shall be considered pre-designated without the
written agreement of each of the parties to this Agreement; and (iii) any
payment pursuant to subparagraph (g) shall be made only if accompanied by a
certificate of an Authorized Person who is identified on Appendix 3 as an
employee of CIBC Opco specifying the purpose of such payment and stating that
the purpose thereof is a proper one which has been duly authorized by all
necessary action of the Client in accordance with the procedures for processing
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<PAGE> 5
such Authorized Instructions set forth in Exhibit C hereto. In the event that it
is not possible to make a payment in accordance with Authorized Instructions of
the Client, the Custodian shall proceed in accordance with the procedures set
forth in the Client Services Guide, except as may be otherwise provided by this
Agreement.
The Custodian may act as the Client's agent or act as a principal in
foreign exchange transactions at such rates as are agreed from time to time
between the Client and the Custodian.
7. Transfer of Securities and Non-Cash Property. Except as provided in
Sections 9, 13 and 17, the Custodian shall make, or cause any Subcustodian to
make, transfers, exchanges or deliveries of Securities or other non-cash
Property pursuant to Authorized Instructions as follows:
(a) upon sale of such Securities for the account of the Client and then
only upon receipt of payment therefor except as may otherwise be consistent with
local custom or market practice in the applicable jurisdiction where settlement
occurs;
(b) upon exercise of conversion, subscription, purchase or other
similar rights represented by such Securities;
(c) in the case of warrant, rights or similar securities, upon the
surrender thereof in the exercise of such warrants, rights or similar
securities;
(d) for delivery in connection with any loans of securities made by the
Client, but only against receipt of such collateral as agreed upon from time to
time by the Custodian and the Client;
(e) to partners of the Client in connection with any distributions in
kind to the specifically designated accounts described in clause (ii) below to
such partners to or in connection with the repurchase by the Client from such
partners of interests in the Client in kind;
(f) upon the termination of this Custody Agreement as hereinafter set
forth in Section 17; and
(g) for any other purpose upon receipt of Authorized Instructions.
Except as provided below, all transfer, exchanges or deliveries ("Transfers") of
Securities or other non-cash Property pursuant to this Section 7 shall be made
only upon receipt by the Custodian of Authorized Instructions of the Client;
provided, however, that: (i) the Authorized Instructions for purposes of
subparagraphs (b), (c), (d), (e) or (f) of this Section 7 shall be accepted and
valid only if (A) such Authorized Instructions explicitly state that the related
Transfer is in connection with the transactions contemplated by (b), (c), (d),
(e) or (f) of this Section 7, as the case may be, in accordance with the
procedures for processing such Authorized Instructions set forth in Exhibit C
hereto and (B) such Authorized Instructions have been given by an Authorized
Person who is identified on Appendix 3 as a director, principal, officer or
employee of CIBC Oppenheimer
5
<PAGE> 6
Advisers L.L.C., accordance with subparagraphs (a), (b), (c), (d) (e) or (f) of
this Section 7 shall be made only to such specifically identified accounts as
shall have been pre-designated by the Client to receive deliveries of Securities
or non-cash Property, the initial pre-designated accounts as of the date of this
Agreement shall be limited to those accounts at both Morgan Stanley & Co.
Incorporated and PFPC, Inc. (or any successor administrator to the Client)
identified in accordance with the procedures for processing such Authorized
Instructions set forth in Exhibit C hereto and no additional accounts shall be
considered pre-designated without the written agreement of each of the parties
to this Agreement; and (iii) any delivery pursuant to subparagraph (g) of this
Section 7 shall be made only if accompanied by a certificate of an Authorized
Person who is identified on Appendix 3 as a director, principal, officer or
employee of CIBC Oppenheimer Advisers L.L.C., specifying the purpose of such
delivery and stating that the purpose thereof is a proper one which has been
duly authorized by all necessary action of the Client in accordance with the
procedures for processing such Authorized Instructions set forth in Exhibit C
hereto. In the event that it is not possible to transfer Securities or other
non-cash Property in accordance with such Authorized Instructions, such
Transfers shall be made in accordance with the procedures set forth in the
Client Services Guide, except as may be otherwise provided by this Agreement.
8. Corporate Action. (a) The Custodian shall notify the Client of
details of all corporate actions affecting the Client's Securities promptly upon
its receipt of such information.
(b) The Custodian shall take, or cause any Subcustodian to take, such
action in response to any such corporate action as may be permissible or
necessary only in accordance with Authorized Instructions or as provided in this
Section 8 or Section 9.
(c) Neither the Custodian nor any nominee of Custodian shall vote any
of the Securities by or for the Accounts except in accordance with Authorized
Instructions. The Custodian shall promptly deliver, or cause to be executed and
delivered, to the Client all notices, proxies and proxy soliciting materials
with relation to such Securities, such proxies to be executed by the registered
holder of such Securities (if registered otherwise than in the name of the
Client), but without indicating the manner in which such proxies are to be
voted;
(d) The Custodian shall transmit promptly to the Client all written
information (including, without limitation, pendency of calls and maturities of
Securities and expiration of rights in connection therewith) received by the
Custodian from issuers of Securities being held for the Client. With respect to
tender or exchange offers, the Custodian shall transmit promptly to the Client
all written information received by the Custodian from issuers of the Securities
whose tender or exchange is sought and from the party (or its agents) making the
tender or exchange offer.
(e) In the event the Client does not provide timely Authorized
Instructions to the Custodian with respect to a corporate action, the Custodian
shall act in accordance with the default option provided by local market
practice and/or the issuer of the Securities.
(f) Fractional shares resulting from corporate action activity shall be
treated in accordance with local market practices.
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<PAGE> 7
9. General Authority. In the absence of Authorized Instructions to the
contrary, the Custodian may, and may authorize any Subcustodian to:
(a) make payments to itself or others for expenses of handling Property
or other similar items relating to its duties under this Agreement, provided
that all such payments shall be accounted for to the Client;
(b) receive and collect all income, cash dividends and principal with
respect to Securities and to credit cash receipts to the Accounts;
(c) receive and collect all stock dividends, rights and similar
securities issued with respect to any Securities held by the Custodian
hereunder;
(d) exchange Securities when the exchange is purely ministerial
(including, without limitation, the exchange of interim receipts or temporary
securities for securities in definitive form and the exchange of warrants, or
other documents of entitlement to securities, for the securities themselves);
(e) with prior notice to the Client, surrender Securities at maturity
or when called for redemption upon receiving payment therefor;
(f) execute in the Client's name such ownership and other certificates
as may be required to obtain the payment of income from Securities;
(g) pay or cause to be paid, from the Accounts, any and all taxes and
levies in the nature of taxes imposed on Property by any governmental authority
in connection with custody of and transactions in such Property;
(h) endorse for collection, in the name of the Client, checks, drafts
and other negotiable instruments;
(i) take non-discretionary action on mandatory corporate actions; and
(j) in general, attend to all nondiscretionary details in connection
with the custody, sale, purchase, transfer and other dealings with the Property.
10. Authorized Instructions; Authorized Persons. (a) Except as
otherwise provided in Sections 6 through 9, 13 and 17, all payments of monies,
all transfers, exchanges or deliveries of Property and all responses to
corporate actions shall be made or taken only upon receipt by the Custodian of
Authorized Instructions; provided that such Authorized Instructions are timely
received by the Custodian in accordance with the procedures for processing such
Authorized Instructions set forth on Exhibit C. "Authorized Instructions" of the
Client means instructions from an Authorized Person received by telecopy, tested
telex, electronic link or other electronic means or by such other means as may
be agreed in writing between the Client and the Custodian.
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<PAGE> 8
(b) "Authorized Person" means each of the persons or entities
identified on Appendix 3 as amended from time to time by written notice from the
Client to the Custodian. The Client represents and warrants to the Custodian
that each Authorized Person listed in Appendix 3, as amended from time to time,
is authorized to issue Authorized Instructions on behalf of the Client and the
Client has set forth in Appendix 3 the specific types of instructions that each
such Authorized Person is authorized to deliver pursuant to this Agreement.
Prior to the delivery of the Property to the Custodian, the Custodian shall
provide a list of designated system user ID numbers and passwords that the
Client shall be responsible for assigning to Authorized Persons. The Custodian
shall assume that an electronic transmission received and identified by a system
user ID number and password was sent by the Authorized Person assigned such user
ID number. The Custodian agrees to provide additional designated system user ID
numbers and passwords as needed by the Client. The Client authorizes the
Custodian to issue new system user ID numbers upon the request of a previously
existing Authorized Person. Upon the issuance of additional system user ID
numbers by the Custodian to the Client, Appendix 3 shall be deemed automatically
amended accordingly. The Client authorizes the Custodian to receive, act and
rely upon any Authorized Instructions received by the Custodian which have been
issued, or purport to have been issued, by an Authorized Person.
(c) Any Authorized Person may cancel/correct or otherwise amend any
Authorized Instruction received by the Custodian, but the Client agrees to
indemnify the Custodian for any liability, loss or expense incurred by the
Custodian and its Subcustodians as a result of their having relied upon or acted
on any prior Authorized Instruction. An amendment or cancellation of an
Authorized Instruction to deliver or receive any security or funds in connection
with a trade will not be processed once the trade has settled.
11. Registration of Securities. (a) In the absence of Authorized
Instructions to the contrary, Securities which must be held in registered form
shall be registered in the name of the Custodian or the Custodian's nominee or,
in the case of Securities in the custody of an entity other than the Custodian,
in the name of the Custodian, its Subcustodian or any such entity's nominee. The
Custodian may, without notice to the Client, cause any Securities to be
registered or re-registered in the name of the Client.
(b) Where the Custodian has been instructed by the Client to hold any
Securities in the name of any person or entity other than the Custodian, its
Subcustodian or any such entity's nominee, the Custodian shall not be
responsible for any failure to collect such dividends or other income or
participate in any such corporate action with respect to such Securities.
12. Deposit Accounts. All cash received by the Custodian for the
Accounts shall be held by the Custodian as a short-term credit balance in favor
of the Client and, if the Custodian and the Client have agreed in writing in
advance that such credit balances shall bear interest, the Client shall earn
interest at the rates and times as agreed between the Custodian and the Client.
The Client acknowledges that any such credit balances shall not be accompanied
by the benefit of any governmental insurance.
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<PAGE> 9
13. Short-term Credit Extensions. (a) From time to time, the Custodian
may extend or arrange short-term credit for the Client which is (i) necessary in
connection with payment and clearance of securities and foreign exchange
transactions or (ii) pursuant to an agreed schedule, as and if set forth in the
Client Services Guide, of credits for dividends and interest payments on
Securities. All such extensions of credit shall be repayable by the Client on
demand.
(b) The Custodian shall be entitled to charge the Client interest for
any such credit extension at rates to be agreed upon from time to time or, if
such credit is arranged by the Custodian with a third party on behalf of the
Client, the Client shall reimburse the Custodian for any interest charge. In
addition to any other remedies available, the Custodian shall be entitled to a
right of set-off against the Property to satisfy the repayment of such credit
extensions and the payment of, or reimbursement for, accrued interest thereon.
14. Representations and Warranties. (a) The Client represents and
warrants that (i) the execution, delivery and performance of this Agreement
(including, without limitation, the ability to obtain the short-term extensions
of credit in accordance with Section 13) are within the Client's power and
authority and have been duly authorized by all requisite action (corporate or
otherwise) of the Client and of the beneficial owner of the Property, if other
than the Client, and (ii) this Agreement (including, without each extension of
short-term credit extended to or arranged for the benefit of the Client in
accordance with Section 13) shall at all times constitute a legal, valid and
binding obligation of the Client enforceable against the Client in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights in general and
subject to the effect of general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(b) The Custodian represents and warrants that (i) the execution,
delivery and performance of this Agreement are within the Custodian's power and
authority and have been duly authorized by all requisite action (corporate or
otherwise) of the Custodian (ii) this Agreement constitutes the legal, valid and
binding obligation of the Custodian enforceable against the Custodian in
accordance with its terms, except as may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors' rights in general and
subject to the effect of general principles of equity (regardless of whether
considered in a proceeding in equity or at law) and (iii) it will maintain
insurance coverage reasonably comparable to the insurance coverage in place as
of the date of this Agreement, as described in Exhibit B hereto.
15. Standard of Care; Indemnification. (a) The Custodian shall be
responsible for the performance of only such duties as are set forth in this
Agreement or contained in Authorized Instructions given to the Custodian which
are not contrary to the provisions of any relevant law or regulation. The
Custodian shall be liable to the Client for any loss, liability or expense
incurred by the Client in connection with this Agreement to the extent that any
such loss, liability or expense results from the negligence or willful
misconduct of the Custodian or any Subcustodian.
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<PAGE> 10
(b) The Client acknowledges that the Property may be physically held
outside the United States. The Custodian shall not be liable for any loss,
liability or expense resulting from events beyond the reasonable control of the
Custodian or of a Subcustodian, including, but not limited to, force majeure.
(c) In addition, the Client shall indemnify the Custodian and
Subcustodians and any nominee for, and hold each of them harmless from, any
liability, loss or expense (including attorneys' fees and disbursements)
incurred in connection with this Agreement, including without limitation, (i) as
a result of the Custodian having acted or relied upon any Authorized
Instructions or (ii) arising out of any such person acting as a nominee or
holder of record of Securities except to the extent such loss, liability or
expenses results from the Custodian's or its Subcustodian's own negligence or
wilful misconduct of the Custodian.
16. Fees; Liens. The Client shall pay to the Custodian from time to
time such compensation for its services pursuant to this Agreement as may be
mutually agreed upon as well as the Custodian's out-of-pocket and incidental
expenses. The Client shall hold the Custodian harmless from any liability or
loss resulting from any taxes or other governmental charges, and any expenses
related thereto, which may be imposed or assessed with respect to the Accounts
or any Property held therein. The Custodian is, and any Subcustodians are,
authorized to charge the Accounts for such items and the Custodian shall have a
lien, charge and security interest on any and all Property for any amount owing
to the Custodian from time to time under this Agreement.
17. Termination. This Agreement may be terminated by the Client or the
Custodian by 60 days written notice to the other, sent by registered mail. If
notice of termination is given, the Client shall, within 30 days following the
giving of such notice, deliver to the Custodian a statement in writing
specifying the successor custodian or other person to whom the Custodian shall
transfer the Property. In either event, the Custodian, subject to the
satisfaction of any lien it may have, shall transfer the Property to the person
so specified. If the Custodian does not receive such statement the Custodian, at
its election, may transfer the Property to a bank or trust company established
under the laws of the United States or any state thereof and qualified to serve
as the custodian for a registered investment company under Section 17(f) of the
Act to be held and disposed of pursuant to the provisions of this Agreement or
may continue to hold the Property until such a statement is delivered to the
Custodian. In such event the Custodian shall be entitled to fair compensation
for its services during such period as the Custodian remains in possession of
any Property and the provisions of this Agreement relating to the duties and
obligations of the Custodian shall remain in full force and effect; provided,
however, that the Custodian shall have no obligation to settle any transactions
in Securities for the Accounts. The provisions of Sections 15 and 16 shall
survive termination of this Agreement.
18. Investment Advice. The Custodian shall not supervise, recommend or
advise the Client relative to the investment, purchase, sale, retention or other
disposition of any Property held under this Agreement.
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<PAGE> 11
19. Confidentiality. (a) The Custodian, its agents and employees shall
maintain the confidentiality of information concerning the Property held in the
Client's account, including in dealings with affiliates of the Custodian. In the
event the Custodian or any Subcustodian is requested or required to disclose any
confidential information concerning the Property, the Custodian shall, to the
extent practicable and legally permissible, promptly notify the Client of such
request or requirement so that the Client may seek a protective order or waive
any objection to the Custodian's or such Subcustodian's compliance with this
Section 19. In the absence of such a waiver, if the Custodian or such
Subcustodian is compelled, in the opinion of its counsel, to disclose any
confidential information, the Custodian or such Subcustodian may disclose such
information to such persons as, in the opinion of counsel, is so required.
(b) The Client shall maintain the confidentiality of, and not provide
to any third parties absent the written permission of the Custodian, any
computer software, hardware or communications facilities made available to the
Client or its agents by the Custodian.
20. Notices. Any notice or other communication from the Client to the
Custodian, unless otherwise provided by this Agreement or the Client Services
Guide, shall be sent by certified or registered mail to Chase Manhattan Bank,
One Pierrepont Plaza, Brooklyn, New York, 11201, Attention: President, and any
notice from the Custodian to the Client is to be mailed postage prepaid,
addressed to the Client at the address appearing below, or as it may hereafter
be changed on the Custodian's records in accordance with written notice from the
Client.
21. Assignment. This contract may not be assigned by either party
without the prior written approval of the other.
22. Miscellaneous. (a) This Agreement shall bind the successors and
assigns of the Client and the Custodian.
(b) This Agreement shall be governed by and construed in accordance
with the internal laws of the State of New York without regard to its conflicts
of law rules and to the extent not preempted by federal law. The Custodian and
the Client hereby irrevocably submit to the exclusive jurisdiction of any New
York State court or any United States District Court located in the State of New
York in any action or proceeding arising out of this Agreement and hereby
irrevocably waive any objection to the venue of any such action or proceeding
brought in any such court or any defense of an inconvenient forum.
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<PAGE> 12
In witness whereof, the parties hereto have set their hands as of the
date first above written.
XANTHUS FUND L.L.C.
By: ______________________
Name:
Title: Manager
Address for record:
CIBC Oppenheimer Tower
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
Accepted:
The Chase Manhattan Bank
By___________________________
Authorized Signature
12
<PAGE> 1
ADMINISTRATIVE SERVICES AGREEMENT
BY AND BETWEEN
CIBC OPPENHEIMER CORP.
AND
XANTHUS FUND, L.L.C.
CIBC Oppenheimer Corp. ("CIBC Opco") and Xanthus Fund, L.L.C.
(the "Fund") hereby agree as follows:
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made as
of this _____ day of __________, 1999, by and between CIBC Opco and the Fund.
WHEREAS, CIBC Opco is in the business of providing administrative
services to investment partnerships and limited liability companies; and
WHEREAS, the Fund wishes to retain CIBC Opco to provide certain
administrative services;
NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:
1. Appointment of CIBC Opco.
(a) The Fund hereby retains CIBC Opco to provide and CIBC Opco
hereby agrees to provide certain administrative services to the Fund.
These services shall include:
(i) the provision of office space, telephone and
utilities;
(ii) the provision of administrative and secretarial,
clerical and other personnel as necessary to provide the
services required to be provided under this Agreement;
(iii) the general supervision of the entities which are
retained by the Fund to provide administrative services
and custody services to the Fund;
<PAGE> 2
(iv) the handling of investor inquiries regarding the Fund
and providing them with information concerning their
investment in the Fund and capital account balances;
(v) monitoring relations and communications between
investors and the Fund;
(vi) assisting in the drafting and updating of disclosure
documents relating to the Fund and assisting in the
preparation of offering materials;
(vii) maintaining and updating investor information, such as
change of address and employment;
(viii) assisting in the preparation and mailing of investor
subscription documents and confirming the receipt of
such documents and funds;
(ix) assisting in the preparation of regulatory filings with
the Securities and Exchange Commission and state
securities regulators and other Federal and state
regulatory authorities;
(x) preparing reports to and other informational materials
for members and assisting in the preparation of proxy
statements and other member communications;
(xi) monitoring compliance with regulatory requirements and
with the Fund's investment objective, policies and
restrictions as established by the Board of Managers of
the Fund (the "Board");
(xii) reviewing accounting records and financial reports of
the Fund, assisting with the preparation of the
financial reports of the Fund and acting as liaison with
the Fund's accounting agent and independent auditors;
(xiii) assisting in preparation and filing of tax
returns;
(xiv) coordinating and organizing meetings of the Board and
meetings of the members of the Fund, in each case when
called by such persons;
(xv) preparing materials and reports for use in connection
with meetings of the Board;
(xvi) maintaining and preserving those books and records of
the Fund not maintained by the Adviser or the Fund's
accounting agent or custodian;
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<PAGE> 3
(xvii) reviewing and arranging for payment of the
expenses of the Fund;
(xviii) assisting the Fund in conducting offers to members of
the Fund to repurchase member interests; and
(xix) reviewing and approving all regulatory filings of the
Fund required under applicable law.
(b) Notwithstanding the appointment of CIBC Opco to provide
administrative services hereunder, the Board shall remain responsible for
supervising and controlling the management, business and affairs of the Fund.
2. CIBC Opco Fee; Reimbursement of Expenses.
(a) In consideration for the provision by CIBC Opco of its
services hereunder, the Fund will pay CIBC Opco a monthly management fee of
0.08333% (1% on annualized basis) of the Fund's "net assets" (the "CIBC Opco
Fee"). "Net assets" shall equal the total value of all assets of the Fund, less
an amount equal to all accrued debts, liabilities, and obligations of the Fund
calculated before giving effect to any repurchases of interests.
(b) The CIBC Opco Fee will be computed based on the net assets
of the Fund as of the start of business on the first business day of each month,
after adjustment for any subscriptions effective on such date, and will be due
and payable in arrears within five business days after the end of such month. In
the event that the CIBC Opco Fee is payable in respect of a partial month, such
fee will be appropriately pro-rated.
(c) CIBC Opco is responsible for all costs and expenses
associated with the provision of its services hereunder. The Fund shall pay all
other expenses associated with the conduct of its business.
3. Liability. CIBC Opco will not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund, the Managers serving on
the Board ("Managers") or the Fund's members in connection with the performance
of its duties under this Agreement, except a loss (as to which it will be liable
and will indemnify and hold harmless the Fund) resulting from willful
misfeasance, bad faith or gross negligence on CIBC Opco's part (or on the part
of an officer or employee of CIBC Opco) in the performance of its duties
hereunder or reckless disregard by it of its duties under this Agreement.
4. Effective Date and Termination. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an
initial term of two years from the date of its effectiveness. This Agreement may
be continued in effect from year to year after its initial term provided that
such continuance is approved annually by the Board, including the vote of a
majority of the Managers who are not "interested persons" of the Fund, as
defined by the Investment Company Act of 1940 and the rules thereunder (the
"1940 Act"). This Agreement may be terminated by CIBC Opco, by the Board or by
vote of a majority of the outstanding voting securities of the Fund at any time,
in each case upon not less than 60 days'
-3-
<PAGE> 4
prior written notice. This Agreement shall also terminate automatically in the
event of its "assignment," as such term is defined by the 1940 Act and the rules
thereunder.
5. Entire Agreement. This Agreement embodies the entire
understanding of the parties. This Agreement cannot be altered, amended,
supplemented, or abridged, or any provisions waived except by written agreement
of the parties.
6. Choice of Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York and the 1940 Act. In the event
the laws of New York conflict with the 1940 Act, the applicable provisions of
the 1940 Act shall control.
{The remainder of this page has intentionally been left blank}
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
CIBC OPPENHEIMER CORP.
By:_________________________________
Name:
Title:
XANTHUS FUND, L.L.C.
By:_________________________________
Name:
Title: Manager
-5-
<PAGE> 1
ADMINISTRATION, ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of , 1999 by and between XANTHUS
FUND, L.L.C., a Delaware limited liability company, (the "Company"), and PFPC
INC., a Delaware corporation ("PFPC"), which is an indirect subsidiary of PNC
Bank Corp.
W I T N E S S E T H :
WHEREAS, the Company is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company wishes to retain PFPC to provide certain
administration and accounting services and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby the parties
hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Company and
any other person duly authorized by the Company's Board of Managers to give Oral
Instructions and Written Instructions on behalf of the Company and listed on the
Authorized Persons Appendix attached
1
<PAGE> 2
hereto and made a part hereof or any amendment thereto as may be received by
PFPC. An Authorized Person's scope of authority may be limited by the Company by
setting forth such limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Board of Managers" and "Members" shall have the same
meanings as set forth in the Company's Limited Liability Agreement.
(f) "Oral Instructions" mean oral instructions received by
PFPC from an Authorized Person or from a person reasonably believed by PFPC to
be an Authorized Person.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Laws" means the 1933 Act, the 1934 Act, the
1940 Act and the CEA.
(i) "Written Instructions" mean written instructions signed by
an Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Company hereby appoints PFPC to provide
administration, accounting and investor services, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
3. DELIVERY OF DOCUMENTS. The Company has provided or, where
applicable, will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions
of the Company's Board of Managers, approving the
appointment of PFPC or its affiliates to provide
services and approving this Agreement;
2
<PAGE> 3
(b) a copy of the Company's most recent effective
registration statement;
(c) a copy of the limited liability company agreement;
(d) a copy of the investment advisory agreement (pursuant
to which CIBC Oppenheimer Advisers, L.L.C., as
Investment Adviser, provides investment advice to the
Company);
(e) a copy of any distribution agreement with respect to
the Company;
(f) a copy of any additional administration agreements;
(g) a copy of any other investor servicing agreement; and
(h) copies (certified or authenticated, where applicable)
of any and all amendments or supplements to the
foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply
with all applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Company.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall
act only upon Oral Instructions and Written Instructions including standing
Written Instructions related to ongoing instructions received electronically.
(b) PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC
may assume that any Oral or Written
3
<PAGE> 4
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or this Agreement or of any vote,
resolution or proceeding of the Company's Board of Managers or of the Company's
Members, unless and until PFPC receives Written Instructions to the contrary.
(c) The Company agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PFPC or its affiliates) and shall endeavor to ensure that PFPC receives the
Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to the Company
in acting upon such Oral or Written Instructions provided that PFPC's actions
comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Company. If PFPC is in doubt as to any
action it should or should not take, PFPC may request directions or advice,
including Oral Instructions or Written Instructions, from the Company.
(b) Advice of Counsel. If PFPC shall be in doubt as to any
question of law pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing.
(c) Conflicting Advice. In the event of a conflict between
directions, advice
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<PAGE> 5
or Oral Instructions or Written Instructions PFPC receives from the Company and
the advice PFPC receives from counsel, PFPC may rely upon and follow the advice
of counsel. PFPC shall promptly inform the Company of such conflict and PFPC
shall refrain from acting in the event of a conflict unless counsel advises PFPC
that a failure to take action is likely to result in additional loss, liability
or expense. In the event PFPC relies on the advice of counsel, PFPC remains
liable for any action or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PFPC of any
duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Company or (to the
extent permitted under clause (c) above) from counsel and which PFPC believes,
in good faith, to be consistent with those directions, advice and Oral
Instructions or Written Instructions. Nothing in this section shall be construed
so as to impose an obligation upon PFPC (i) to seek such directions, advice or
Oral Instructions or Written Instructions, or (ii) to act in accordance with
such directions, advice or Oral Instructions or Written Instructions unless,
under the terms of other provisions of this Agreement, the same is a condition
of PFPC's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC when an action or omission on the part of PFPC constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by PFPC
of any duties, obligations or responsibilities set forth in this Agreement.
5
<PAGE> 6
7. RECORDS; VISITS.
(a) The books and records pertaining to the Company which are
in the possession or under the control of PFPC shall be the property of the
Company. Such books and records shall be prepared and maintained as required by
the 1940 Act and other applicable securities laws, rules and regulations. The
Company and Authorized Persons shall have access to such books and records at
all times during PFPC's normal business hours. Upon the reasonable request of
the Company, copies of any such books and records shall be provided by PFPC to
the Company or to an Authorized Person, at the Company's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to the
Company's books of account;
(ii) records of the Company's securities
transactions; and
(iii) all other books and records as the Company
is required to maintain pursuant to Rule
31a-1 of the 1940 Act in connection with the
services provided by PFPC hereunder.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Company and information relating to the Company and its Members, unless the
release of such records or information is otherwise consented to, in writing, by
the Company. The Company agrees that such consent shall not be unreasonably
withheld and may not be withheld where PFPC may be exposed to civil or criminal
contempt proceedings or when required to divulge such information or records to
duly constituted authorities.
6
<PAGE> 7
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the
Company's independent public accountants and shall provide account analyses,
fiscal year summaries, and other audit-related schedules. PFPC shall take all
reasonable action in the performance of its duties under this Agreement to
assure that the necessary information is made available to such auditors and
accountants in a timely fashion for the expression of their opinion, as required
by the Company.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in
effect with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Company, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect to the
loss of data or service interruptions caused by equipment failure, provided such
loss or interruption is not caused by PFPC's own willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties or obligations under this
Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PFPC (a) has reviewed its business
and operations as they relate to the services provided hereunder, (b) has
developed or is developing a program to remediate or replace computer
applications and systems, and (c) has developed a testing plan to test the
remediation or replacement of computer applications/systems, in each case, to
address on a timely basis the risk that certain computer applications/systems
used by PFPC may be unable to recognize and perform properly date sensitive
functions involving dates prior to, including and after December 31, 1999,
including dates such as February 29, 2000 (the
7
<PAGE> 8
"Year 2000 Challenge"). To the best of PFPC's knowledge and belief, the
reasonably foreseeable consequences of the Year 2000 Challenge will not
adversely effect PFPC's ability to perform its duties and obligations under this
Agreement.
12. COMPENSATION. As compensation for services rendered by PFPC during
the term of this Agreement, the Company will pay to PFPC a fee or fees as may be
agreed to in writing by the Company and PFPC.
13. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
PFPC and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which PFPC takes (i) at the request or on the direction of or
in reliance on the advice of the Company or (ii) upon Oral Instructions or
Written Instructions; Provided, however, neither PFPC, nor any of its
affiliates, shall be indemnified against any liability (or any expenses incident
to such liability) arising out of PFPC's or its affiliates own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement.
14. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf
of the Company except as necessary to fulfill its duties and obligations as
specifically set forth herein or as may be specifically agreed to by PFPC in
writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
8
<PAGE> 9
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, gross negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) PFPC shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with the standard
of care set forth above; and (ii) PFPC shall not be liable for (A) the validity
or invalidity or authority or lack thereof of any Oral Instruction or Written
Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC reasonably believes to be
genuine; or (B) subject to Section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the
contrary, neither PFPC nor its affiliates shall be liable to the Company for any
consequential, special or indirect losses or damages which the Company or any
Portfolio may incur or suffer by or as a consequence of PFPC's or any
affiliates' performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PFPC or its affiliates.
15. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following accounting services:
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(i) Journalize investment, capital share and income and
expense activities;
(ii) Verify investment buy/sell trade tickets when
received from the investment adviser for a Portfolio
in accordance with PFPC's written procedures;
(iii) Maintain individual ledgers for investment
securities;
(iv) Maintain historical tax lots for each security;
(v) Record and reconcile corporate action activity and
all other capital changes with the Company's Adviser;
(vi) Reconcile cash and investment balances of the Company
with the Custodian, and provide the Adviser with the
beginning cash balance available for investment
purposes;
(vii) Update the cash availability throughout the day as
required by the Adviser, the Portfolio Manager or the
custodian (as necessary) including details of cash
movements related to securities and payment of
Company expenses;
(viii) Calculate contractual expenses (e.g., advisory and
custody fees) in accordance with the Company's
Confidential Memorandum;
(ix) Prepare monthly the Statement of Assets and
Liabilities, the Statement of Operations, Statement
of Changes in Partner's Capital, and the Statement of
Changes in Net Assets, Listing of Investment and
Quarterly Reports, if required;
(x) Maintain detailed line item expense budget for the
Company and notify an officer of the Company of any
proposed adjustments;
(xi) Control all disbursements and authorize such
disbursements from the Company's account at PNC Bank,
Delaware upon Written Instructions;
(xii) Calculate capital gains and losses;
(xiii) Determine net income;
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(xiv) Determine applicable foreign exchange gains and
losses on payables and receivables;
(xv) Interface with global custodian to monitor collection
of tax reclaims;
(xvi) Calculate daily asset coverage ratio;
(xvii) Obtain daily security market quotes from independent
pricing services approved by the Adviser, or if such
quotes are unavailable, then obtain such prices from
the Adviser, and in either case calculate the market
value of and the appreciation/depreciation on the
Company's Investments;
(xviii) Transmit or otherwise send a copy of the daily
portfolio valuation to the Adviser;
(xix) Compute net asset value with frequency to conform to
the terms of the Company;
(xx) Research and recommend portfolio accounting tax
treatment for unique security types; and
(xxi) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required,
portfolio average dollar-weighted maturity in
accordance with applicable regulations.
(xxii) Prepare a monthly financial statement using PFPC's
standard format, if requested by the Board of
Managers;
(xxiii) Assist with the annual audit of the Company's
financial statements; and
(xxiv) Such other services as the parties agree in writing.
16. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following administration services:
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(i) Prepare quarterly broker security transactions
summaries including principal and agency transactions
and related commissions;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary portfolio and
Company statistical data as requested on an ongoing
basis;
(iv) Provide to the extent contained in accounting records
materials required for board reporting as may be
requested from time to time;
(v) Prepare for execution and file the Company's Federal
Form 1065 and state tax returns;
(vi) Prepare and file the Company's Annual and Semi-Annual
Reports with the SEC on Form N-SAR via EDGAR;
(vii) Prepare and coordinate printing of and filing with
the SEC via EDGAR the Company's annual, semi-annual,
and quarterly shareholder reports;
(viii) Assist in the preparation of registration statements;
(ix) Transmit or otherwise send, to the extent practicable
and feasible, requested detailed information related
to the Members, including admission details, income,
capital gains and losses, and performance detail;
(x) Mail Company offering materials to prospective
investors; and
(xi) Mail quarterly reports of the Adviser and Semi-Annual
Financial Statements to investors as well as any
other necessary correspondence;
(xii) Copy the Board of Managers on routine correspondence
sent to Members;
(xiii) Coordinate contractual relationships and
communications between the Company and its
contractual service providers; and
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(xiv) Maintain certain bank accounts of the Company for
authorized purposes.
17. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following functions:
(i) Maintain the register of Members of the Company and
enter on such register all issues, transfers and
repurchases of interests in the Company;
(ii) Arrange for the calculation of the issue and
repurchase prices of interests in the Company in
accordance with the limited liability company
agreement and private offering memorandum; and
(iii) Allocate income, expenses, gains and losses to
individual Members' capital accounts in accordance
with applicable tax laws and with the private
offering memorandum;
(iv) Calculate the Incentive Allocation in accordance with
the Confidential Memorandum and reallocate
corresponding amounts from the applicable Members'
accounts to the Special Advisory Account;
(v) Mail to Members annual Form K-1's in accordance with
applicable tax regulations;
(vi) Mail tender offers to Members for purposes of
executing repurchases;
(vii) Retain in a safe place Share Registers and transfer
forms for a period of at least six years from the
time of execution;
(viii) Maintain and tabulate information regarding Company
votes;
(ix) Transmit to the Board of Managers the investor data
for inclusion in monthly investor brokerage
statements, as agreed upon by the Company and PFPC;
(x) Mail, as applicable, quarterly reports of the
Portfolio Manager as requested by the Board of
Managers to investors, as well as any
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other correspondence requested by the Board of
Managers;
(xi) Transmit or otherwise send, to the extent practical
and feasible, requested detailed information related
to the Members, including admission details, income,
capital gains and losses, and performance detail; and
(xii) Mail Company offering materials to prospective
investors in accordance with instructions from an
Authorized Person.
18. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to PFPC, at 400 Bellevue Parkway, Wilmington, Delaware 19809; Attn: Neal
Andrews (b) if to the Company, at c/o CIBC Oppenheimer Corp., One World
Financial Center, 200 Liberty Street, 31st Floor, New York, NY 10281, Attn:
Howard M. Singer; or (c) if to neither of the foregoing, at such other address
as shall have been provided by like notice to the sender of any such notice or
other communication by the other party.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
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21. DELEGATION; ASSIGNMENT. This Agreement and the rights and duties of
the parties herein may not be assigned; provided, however, that PFPC may assign
its rights and delegate its duties hereunder, at no additional cost to the
Company, to any affiliate of or any majority-owned direct or indirect subsidiary
of PFPC or PNC Bank Corp., provided that (i) PFPC gives the Company sixty (60)
days' prior written notice of such assignment or delegation; (ii) the assignee
or delegate agrees to comply with all relevant provisions of the Securities
Laws; and (iii) PFPC and such assignee or delegate promptly provide such
information as the Company may request, and respond to such questions as the
Company may ask, relative to the assignment or delegation, (including, without
limitation) the capabilities of the assignee or delegate. Except as stated
above, this Agreement may not be assigned or delegated by any party without the
written consent of each party.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
24. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their agreement,
if any, with respect to delegated duties and Oral
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Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a
contract made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement
shall be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party
to this Agreement shall constitute the valid and binding execution hereof by
such party.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: _____________________
Title: __________________
XANTHUS FUND, L.L.C.
By: _____________________
Title: __________________
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AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
Howard Singer _____________
Joyce O'Brien _____________
Carmine E. Angone _____________
Mark Vasina _____________
Veronica Marshall _____________
Alan Rappaport _____________
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