<PAGE>
As filed with the Securities and Exchange Commission on November 15, 1999
Securities Act File No. 333-
Investment Company Act File No. 811-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[X] 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. _____
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THE OXBOW FUND, LLC
(Exact name of Registrant as specified in Charter)
223 Wanaque Avenue
Pompton Lakes, New Jersey 07442
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code:
(973) 831-8020
S. Charles Musumeci, Jr.
C.J.M. Planning Corp.
223 Wanaque Avenue
Pompton Lakes, New Jersey 07442
(Name and address of agent for service)
Copy to:
PETER S. TWOMBLY, ESQ.
McCarter & English, LLP
Four Gateway Center
100 Mulberry Street
Newark, New Jersey 07102
<PAGE>
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE
OF THIS REGISTRATION STATEMENT.
If any securities being registered on this form will be offered on a
delayed or continuous basis in reliance on Rule 415 under the Securities Act of
1933, other than securities offered in connection with a dividend reinvestment
plan, check the following box. [ ]
It is proposed that this filing will become effective (check
appropriate box):
[X] when declared effective pursuant to Section 8(c).
If appropriate, check the following box:
[ ] This [post-effective] amendment designates a new effective date for
a previously filed [post-effective amendment] [registration statement].
[ ] This form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is - _______________.
----------------------------------
CALCULATION OF REGISTRATION FEE UNDER THE
SECURITIES ACT OF 1933
= = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = =
<TABLE>
<CAPTION>
Proposed Maximum
Title of Securities Amount Being Proposed Maximum Aggregate Offering Amount of
Being Registered Registered Offering Price Per Unit Price Registration Fee
---------------- ---------- ----------------------- ----- ----------------
<S> <C> <C> <C> <C>
Units 250,000 Units $100 $25,000,000 $6,950
</TABLE>
Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission
acting pursuant to said Section 8(a) may determine.
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<PAGE>
FORM N-2
THE OXBOW FUND, LLC
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
PART A
ITEM NUMBER CAPTION PROSPECTUS CAPTION
----------- ------- ------------------
<S> <C> <C> <C>
1. Outside Front Cover Cover Page of Prospectus
2. Cover Pages; Other Offering Not Applicable
Information
3. Fee Table and Synopsis Cover Page of Prospectus;
Summary of Fund Expenses
4. Financial Highlights Not Applicable
5. Plan of Distribution How to Subscribe; The Offering; Who
May Invest;
6. Selling Shareholders Not Applicable
7. Use of Proceeds Estimated Use of Proceeds
8. General Description of the Registrant Prospectus Summary; The Offering;
Investment Objective and Principal
Strategies; Risk Factors; Business
of the Fund
9. Management Prospectus Summary; The Offering;
Management of the Fund; Compensation
of the Investment Manager, Its
Affiliates and the Directors;
Summary of Operating Agreement
10. Capital Stock, Long Term Debt, and Prospectus Summary; The Offering;
other Securities Tax Allocations; Summary of
Operating Agreement
11. Defaults and Arrears on Senior Not Applicable
Securities
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement Not Applicable
of Additional Information
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF
ADDITIONAL
PART B INFORMATION
ITEM NUMBER CAPTION CAPTION
------------ ------- -------
<S> <C> <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 Prospectus Summary; The Offering;
Investment Objective and Principal
Strategies; Risk Factors; Business
of the Fund
18. Management Compensation of the Investment
Manager, Its Affiliates and the
Directors; Summary of Operating
Agreement
19. Control Persons and Principal Management of the Fund
Holders of Securities
20. Investment Advisory and Other Prospectus Summary; The Offering;
Services Management of the Fund; Compensation
of the Investment Manager, Its
Affiliates and the Directors
21. Brokerage Allocation and Other Prospectus Summary; The Offering
Practices
22. Tax Status Prospectus Summary; Income Tax
Aspects; Tax Allocations
23. Financial Statements Not Applicable
</TABLE>
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<PAGE>
PART C
ITEM NUMBER
- -----------
The information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
*Pursuant to General Instructions on Form N-2, all information required to be
set forth in Part B: Statement of Additional Information has been included in
Part A: The Prospectus. All items required to be set forth in Part C are set
forth in Part C.
<PAGE>
THE OXBOW FUND, LLC
[LOGO]
AN OFFERING OF LIMITED LIABILITY COMPANY UNITS
The Oxbow Fund, LLC (the "Fund") is a newly-formed New Jersey limited
liability company which will operate as a non-diversified, closed-end management
investment company. The Fund has also elected to be regulated as a business
development company ("BDC").
We are offering investors ownership interests in the Fund in the form
of Units.
Our investment objective is to seek long-term capital appreciation by
investing primarily in equity securities of private U.S. companies seeking
capital for start-up operations, business expansion, product development and/or
strategic acquisition opportunities. We may invest in companies of any size, but
generally expect to invest in small to medium-sized companies with annual
revenues or projected annual revenues in the $2 million to $100 million range.
We may also acquire the assets of companies, invest in commercial real estate
and invest in the equity, debt or assets of companies of any size which are
facing financial difficulties, reorganizing or seeking capital for debt or
equity restructuring.
<TABLE>
<S> <C>
o Security Offered: 250,000 units of ownership interests in the
Fund at $100 each. We will refer to the
ownership interests as "Units".
o Minimum Purchase: 25 Units ($2,500).
o Minimum Offering Size: No minimum.
o Offering Period: The offering will last up to 15 months from
the date of this Prospectus unless
terminated earlier at the discretion of the
Fund's Board of Directors.
o Investment Manager: C.J.M. Asset Management, LLC ("CJM Asset
Management" or "Investment Manager") will
manage our investments.
o Distributor: C.J.M. Planning Corp. ("CJM Planning"), a
company affiliated with CJM Asset Management,
the Fund's Investment Manager, will offer and
sell the Units on behalf of the Fund on a "best
efforts" basis. CJM Planning may contract with
other brokers who will use their best efforts
to offer and sell the Units.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
o Sales Charge: The Fund will pay a sales charge to CJM
Planning and other brokers for sales
arranged by them equal to $7 per Unit.
</TABLE>
Per Unit Total (Maximum)
-------- ---------------
Public Price.................... $100 $25,000,000
Sales Charge.................... $ 7 $ 1,743,000*
Other Offering Costs............ $ 3 $ 750,000
Proceeds to the Fund............ $ 90 $22,507,000
* No sales charge on Investment Manager's $100,000 investment.
THE UNITS WILL NOT BE PUBLICLY TRADED. AN INVESTMENT IN UNITS INVOLVES A HIGH
DEGREE OF RISK. YOU SHOULD PURCHASE UNITS ONLY IF YOU CAN AFFORD A COMPLETE LOSS
OF YOUR INVESTMENT. SEE THE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS
PROSPECTUS.
This Prospectus concisely provides the information that a prospective
investor should know about the Fund before investing. You are advised to read
this Prospectus carefully and to retain it for future reference. Additional
information about the Fund, including the Fund's agreement with the Fund's
Investment Manager, CJM Asset Management, and the Distributor of Units, CJM
Planning, has been filed with the Securities and Exchange Commission and can be
inspected at the Public Reference section of the SEC at 450 Fifth Street, N.W.
Washington, D.C. 20549 and copies of such material may be obtained at prescribed
rates by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site
that contains information electronically filed with the SEC. The address of the
SEC's web site is http://www.sec.gov.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL THEY MAKE, ANY
DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. WE CANNOT USE PROJECTIONS
IN THIS OFFERING AND WE CANNOT MAKE ANY REPRESENTATION, VERBALLY OR IN WRITING,
ABOUT THE ECONOMIC OR TAX BENEFITS YOU MIGHT RECEIVE FROM INVESTING IN THE FUND.
WE CANNOT ACCEPT YOUR SUBSCRIPTION FOR UNITS UNTIL AT LEAST FIVE BUSINESS DAYS
AFTER YOU HAVE RECEIVED THIS PROSPECTUS.
The date of this Prospectus is ________, 1999.
-iv-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...............................................................................................1
The Fund ...............................................................................................1
Risks...................................................................................................1
Investment Objective and Principal Strategies...........................................................2
The Offering............................................................................................2
The Units...............................................................................................3
Investments by the Fund.................................................................................3
Investment Manager; Fees................................................................................3
Co-Investment...........................................................................................4
Conflicts of Interest...................................................................................4
Directors of the Fund; Management Committee.............................................................4
Capital Accounts........................................................................................5
Tax Allocations.........................................................................................5
Distributions...........................................................................................6
No Trading Market.......................................................................................7
Legal and Tax Status ...................................................................................7
Summary of Fund Expenses.........................................................................................8
Investor Transaction Expenses...........................................................................8
Annual Expenses.........................................................................................8
Risk Factors.....................................................................................................9
General Risks..............................................................................................9
Newly Organized Fund
Newly-Formed Investment Manager.........................................................................9
You Will Be Relying On The Investment Manager To Make Investments
And Might Not Like The Investments Selected.............................................................9
You Will Have Little Control Over Operations...........................................................10
You May Not Receive Adequate Distributions To Pay Your Taxes...........................................10
Whether The Fund Is Profitable Or Not, Substantial Fees Will Be Paid
To The Investment Manager For Its Services.............................................................10
There Will Not Be A Market For Your Units And There Will Be Restrictions
Placed On Their Transfer...............................................................................10
You Will Not Have The Right To Receive Distributions Prior To The
Termination Of The Fund................................................................................11
The Fund May Not Be Able To Diversify Its Investments And Accomplish
All Of Its Investment Objectives.......................................................................11
The Fund Is Not Providing You With Separate Legal Or Accounting
Representation.........................................................................................11
Distributions In The Early Stages May Be A Return Of Capital...........................................12
The Fund's Venture Capital Investments Are Risky.......................................................12
The Fund May Need To Invest Additional Capital.........................................................13
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Investments Made By The Fund May Take A Long Time To Mature............................................13
Investments Made By The Fund Will Be Illiquid..........................................................13
Need For Follow-On Investment..........................................................................14
Substantial Initial Losses.............................................................................15
Dependence On Management...............................................................................15
Competition For Investments............................................................................15
Borrowings By The Fund May Exaggerate Losses And Limit the
Amount Of Assets Available For Distribution............................................................16
The Fund May Be Liable To Companies In Which The Funds Invests.........................................16
Liabilities of Investors...............................................................................16
Conflicts of Interest..................................................................................17
Regulation.............................................................................................17
General Income Tax Risks........................................................................................19
Operation Of The Fund Could Affect The Propriety Of Allocations
And Cause Additional Tax And Penalties.................................................................20
The Resale Of Investments Could Cause Gains To Be Taxed As
Ordinary Income........................................................................................20
Incorrect Allocation Of Expenses Among Start-Up, Organization And
Syndication Costs Could Cause More Taxable Income......................................................20
Who May Invest..................................................................................................22
How to Invest...................................................................................................24
Capitalization..................................................................................................25
Estimated Use of Proceeds.......................................................................................26
Business of the Fund............................................................................................28
Investment Objective and Principal Strategies...................................................................29
Long-Term Capital Appreciation.........................................................................29
Types of Investments By The Fund.......................................................................29
Temporarily Invested Funds.............................................................................29
Investment Concentration...............................................................................30
Use of Leverage........................................................................................30
Average Investment.....................................................................................31
Follow-On Investments..................................................................................31
Investment Decisions Based Upon Extensive Firm-Level Research..........................................31
The Fund May Change Its Investment Strategies..........................................................32
Management of the Fund..........................................................................................33
Fund Board of Directors................................................................................33
Management Committee...................................................................................33
Fund Investment Manager................................................................................33
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Fund Directors And Key Personnel Of Investment Manager.................................................34
Fund Administrator.....................................................................................38
Fund Custodian ........................................................................................38
Prior Performance...............................................................................................39
Sold Investments.......................................................................................39
Active Investments.....................................................................................40
Compensation of the Investment Manager,
Its Affiliates and the Directors..............................................................................42
Investment Manager.....................................................................................42
Summary Of Investment Manager Compensation And Allocations.............................................43
Independent Directors..................................................................................43
Members Of Management Committee........................................................................43
Conflicts of Interest...........................................................................................44
Lack Of Arm's-Length Negotiations With Management......................................................44
Other Activities Of The Investment Managers And The Management Committee...............................44
Competition With Managers And Other Affiliated Programs................................................45
Distribution of Units By An Affiliate..................................................................45
Possible Joint Investment With Affiliated Programs.....................................................45
Manager's Representation of Fund in Audit Proceedings..................................................46
Lack of Separate Representation........................................................................46
Affiliation of Selling Agent...........................................................................47
The Offering....................................................................................................48
Plan Of Distribution...................................................................................48
Tax Allocations.................................................................................................50
Distributions...................................................................................................52
Income Tax Aspects..............................................................................................54
Fund Status............................................................................................54
Classification Of The Fund....................................................................54
Publicly-Traded Status........................................................................55
Federal Income Taxation Of Funds And Investors Generally...............................................56
Allocations Of Profit And Loss................................................................57
Taxation of Fund Operations...................................................................59
Limitations On Deduction Of Fund Losses................................................................59
Adjusted Basis................................................................................59
Passive Losses................................................................................60
Capital Losses................................................................................61
Non-Trade Or Business Expenses................................................................61
Fund As A Trade Or Business...................................................................61
Investment Interest Expense...................................................................62
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Sale Of An Interest In The Fund...............................................................62
Fund Organizational And Syndication Expenditures..............................................63
Management Fee................................................................................63
Alternative Minimum Tax.......................................................................63
Miscellaneous Provisions...............................................................................64
No Section 754 Election.......................................................................64
Interest And Penalties........................................................................64
Fund Audit Rules..............................................................................64
Possible Changes In Federal Income Tax Laws...................................................65
Tax Treatment Of Foreign Investors............................................................65
State Law Considerations......................................................................65
ERISA Considerations............................................................................................67
Restrictions on Transfer........................................................................................70
Investment Company Act Regulation...............................................................................71
Summary of Operating Agreement..................................................................................74
Term And Dissolution...................................................................................74
Return Of Capital......................................................................................75
Voting Rights..........................................................................................75
Meetings...............................................................................................75
Liabilities Of Investors...............................................................................76
Rights, Power And Duties Of The Managers...............................................................76
Indemnification and Limitations on Liability...........................................................76
Withdrawal Or Removal Of A Manager.....................................................................77
Substituted Investors; Assignees.......................................................................77
Appointment Of The Fund's Directors As Attorneys-In-Fact...............................................78
Reports to Investors............................................................................................79
Sales Materials.................................................................................................81
Sales Materials May Be Used in Connection with this Offering Only When
Accompanied or Preceded by the Delivery of this Prospectus.............................................81
The Offering is Made Only By Means of this Prospectus..................................................81
Legal Proceedings...............................................................................................81
Legal Opinion...................................................................................................81
Independent Accountant..........................................................................................81
Exhibit A..............................................................................Form of Operating Agreement
</TABLE>
-viii-
<PAGE>
PROSPECTUS SUMMARY
This summary highlights important information about the Fund. It is not
intended to be complete and should be read with the more detailed information
contained in this Prospectus and its exhibits. Investors in the Fund are
sometimes referred to in this Prospectus as "Investors."
THE FUND (Page 28)
The Oxbow Fund, LLC (the "Fund") is a newly formed New Jersey limited
liability company which will operate as a non-diversified, closed-end management
investment company. We have also elected to be regulated as a "Business
Development Company" under the Investment Company Act which means that we are
required to make certain types of investments and that we must offer
"significant managerial assistance" to many of the companies in which we invest.
The Fund will continue in existence until March 31, 2010. However, the Directors
of the Fund have the right to continue the Fund's existence for up to 2
additional 2 year periods. The Fund has been organized to provide Investors with
the opportunity to participate in venture capital investments that are generally
not available to the public and that typically require substantially larger
financial commitments.
RISKS (Page 9)
There are substantial risks in this investment. These risks include the
following:
o That you will not be able to participate in investment decisions
made by the Fund.
o That the investment will not be publicly tradable and will be
subject to restrictions on transfer.
o That substantial fees will be paid by the Fund to the Investment
Manager.
o That the Investment Manager and certain Directors may encounter
conflicts of interest in the performance of their duties.
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<PAGE>
o That the Investment Manager and its key personnel have no prior
experience in operating or managing a fund similar to this Fund.
o That this offering does not require a minimum total investment and
will close irrespective of the total amount received from you and
other Investors.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES (Page 29)
Our investment objective is to seek long-term capital appreciation. To
achieve this objective we will invest the Fund's assets primarily in equity
securities of private U.S. companies seeking capital for start-up operations,
business expansion, product development and/or strategic acquisition
opportunities. We may invest in companies of any size, but generally expect to
invest in small to medium-sized companies with annual revenues or projected
annual revenues in the $2 million to $100 million range. We may also acquire the
assets of companies, invest in commercial real estate and invest in the equity,
debt or assets of companies of any size which are facing financial difficulties,
reorganizing or seeking capital for debt or equity restructuring. We will not
limit the amount of any particular investment made by the Fund. Generating
current income for distribution to Investors will not be a factor in the
selection of investments. We cannot assure you that we will be able to achieve
the objective described above. The Fund is not a "tax shelter" and is not
intended to shelter your taxable income from other sources. See "Investment
Objective and Principal Strategies."
THE OFFERING (Page 48)
We are offering 250,000 Units in an aggregate amount of up to
$25,000,000. The minimum investment is 25 Units ($2,500). For each Unit of $100
sold by CJM Planning or another broker, the Fund will pay a sales charge equal
to $7 per Unit. No Units will be sold below the Fund's net asset value. You may
only purchase Units if you have reviewed the
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<PAGE>
suitability considerations contained in this offering and acknowledged that you
meet or exceed such suitability standards. See "Who May Invest." There will be
no minimum offering. If the Fund is unable to sell the full 250,000 Units, the
Fund will have less diversification than the Investment Manager presently
anticipates.
The offering will terminate at the discretion of the Fund's Board of
Directors but in no event later than 15 months from the date hereof.
THE UNITS (Page 48)
Each Unit represents a $100 equity investment in the Fund. Unlike
profits and losses of a corporation which are taxed at the corporate level, the
Fund has been structured, similar to a partnership, so that profits, gains,
losses and deductions of the Fund may be passed through to Investors for income
tax purposes. A person or entity who purchases Units in this offering will
become a "Member" in the Fund and is sometimes referred to in this Prospectus as
an "Investor."
INVESTMENTS BY THE FUND (Page 29)
The Fund has not made and did not own any investments as of the date
this Prospectus was written. We will, however, supplement this Prospectus when
we have made any investments which we believe you would consider important.
INVESTMENT MANAGER; FEES (Page 33; 42)
This investment program will be managed by C.J.M. Asset Management, LLC
("CJM Asset Management" or the "Investment Manager"). The Investment Manager
will be responsible for finding, evaluating, structuring, monitoring and
liquidating the Fund's investments. In addition to the Investment Manager's
interest, as a Member, in certain profits, losses, and distributions of the
Fund, the Fund will pay the Investment Manager an annual
-3-
<PAGE>
management fee equal to 2.5% of the Investors' total "Adjusted capital
contributions." The management fee will be payable quarterly in arrears. The
Investment Manager will also be reimbursed for its actual costs incurred on
behalf of the Fund. See "Compensation of the Investment Manager, its Affiliates,
and the Directors." The individuals responsible for making investment decisions
for the Fund on behalf of the Investment Manager are Daniel D. Dyer, S. Charles
Musemeci, Jr. and Joseph C. Musemeci. The background and experience of each of
these individuals is more fully described in "Management of the Fund."
CO-INVESTMENT (Page 45)
The Investment Manager expects that the Fund may invest in companies in
which other venture capital funds managed by the Investment Manager, Directors
of the Fund or affiliates thereof may also invest. Such investments can be made
without your approval. However, such investments may require the approval of a
majority of the Independent Directors (as defined below) of the Fund or an
exemption from the Securities and Exchange Commission. There can be no assurance
that such exemptive order will be issued by the SEC.
CONFLICTS OF INTEREST (Page 44)
The Investment Manager and certain Directors are subject to various
conflicts of interest arising out of their relationship with the Fund. See
"Conflicts of Interest".
DIRECTORS OF THE FUND; MANAGEMENT COMMITTEE (Page 33)
The Fund will be managed and supervised by a Board of Directors,
initially 7 in number, 4 of whom will not be "interested persons" of the Fund or
its affiliates as that term is defined in the Investment Company Act (herein,
the "Independent Directors") and three of whom will be affiliated with the
Investment Manager (herein, the "Affiliated Directors"). The Directors have
delegated supervision of the day-to-day operations of the Fund to a Management
Committee
-4-
<PAGE>
consisting of the three Affiliated Directors - Daniel D. Dyer, S.
Charles Musumeci, Jr. and Joseph C. Musumeci. The Investment Manager will report
to the Management Committee and the Directors.
CAPITAL ACCOUNTS (Page )
If you invest in this offering, the amount of your investment will be
your "capital contribution" to the Fund. Investors will generally have an
interest in the Fund in proportion to their capital contributions. If you invest
in this offering, you will have an initial capital account in the Fund equal to
the amount of your capital contribution. Thereafter, your capital account will
be increased by your distributive share of profits of the Fund and decreased by
(i) actual distributions by the Fund of cash or property to you, (ii) your
distributive share of losses of the Fund and (iii) any other adjustments
required under the Internal Revenue Code of 1986, as amended (the "Code").
TAX ALLOCATIONS (Page 50)
The profits of the Fund will be allocated for tax and accounting
purposes to the Members in the following manner:
(i) First, to the Members pro rata in order to restore
Members' capital accounts to the extent reduced by prior allocations of losses;
(ii) Second, eighty percent (80%) to the Investors (excluding
the Investment Manager), as a class, until the Investors, as a class, have been
allocated (over the term of the Fund) profits equal to their capital
contributions and twenty percent (20%) to the Investment Manager;
(iii) Third, thirty-five percent (35%) to Investors (excluding
the Investment Manager) as a class and sixty-five percent (65%) to the
Investment Manager.
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<PAGE>
In general, losses and Fund operating expenses will be allocated to the
Members pro rata according to their percentage ownership of Units. For further
discussion, including examples of how profits and losses are allocated among
Investors, see "Tax Allocations."
DISTRIBUTIONS (Page 52)
Prior to liquidation of the Fund, the Management Committee of the Fund
will determine, in its sole discretion, the amount and timing of any
distributions to Investors of cash or other property. The business objective of
the Fund, in general, is to seek long-term capital appreciation. Accordingly, it
is unlikely that any distributions of proceeds from the Fund will be made in the
first three years of the Fund's operation. Distributions of cash and/or property
by the Fund will be made in the following manner:
(i) First, to the Investors (excluding the Investment Manager)
pro rata in accordance with their adjusted capital accounts until the Investors
have received aggregate distributions over the term of the Fund equal to their
adjusted capital accounts (which generally means Investors' capital
contributions, reduced by the sum of (x) distributions representing a return of
capital and (y) prior loss allocations which have not been offset by profit
allocations);
(ii) Second, eighty percent (80%) to the Investors (excluding
the Investment Manager), as a class, pro rata in accordance with their capital
contributions until the Investors, as a class, have received aggregate
distributions pursuant to this distribution tier over the term of the Fund equal
to their capital contributions and twenty percent (20%) to the Investment
Manager;
(iii) Third, thirty-five percent (35%) to Investors (excluding
the Investment Manager) as a class and sixty-five percent (65%) to the
Investment Manager.
As soon as possible after the date of the Fund's dissolution, the
Members will receive a liquidating distribution of the remaining assets of the
Fund which shall be made pro rata in
-6-
<PAGE>
accordance with their positive capital account balances. The Fund may distribute
securities in-kind and will seek an exemptive order under Section 206A of the
Investment Advisers Act of 1940 exempting the Fund from Section 205(a)(1) of the
Act if such exemptive order is required prior to making in-kind distributions.
For further discussion including an example of distributions by the Fund, see
"Distributions."
NO TRADING MARKET (Page 10)
Units will not be listed on any securities exchange and will not be
publicly traded. Additionally, the Fund is not required to redeem or purchase
your Units and the Fund's Operating Agreement contains restrictions on your
ability to transfer Units.
LEGAL AND TAX STATUS (Page 54)
The Fund has been formed as a limited liability company and as such is
governed by its Operating Agreement which defines many of the rights and
responsibilities of the Directors, Investment Manager and Investors. The Fund
should be treated as a partnership for federal income tax purposes and the
Directors do not intend to elect otherwise. However, the Fund will not seek a
ruling from the Internal Revenue Service concerning any tax matters, including
whether the Fund will be treated as a partnership for federal income tax
purposes. For further discussion of tax aspects of an investment in the Fund,
see "Income Tax Aspects."
-7-
<PAGE>
SUMMARY OF FUND EXPENSES
The following table illustrates the expenses and fees that the Fund
expects to incur and that Investors can expect to bear.
Investor Transaction Expenses
Sales charge (as a percentage of offering price)............... 7%
Annual Expenses (as a percentage of aggregate adjusted capital
contributions)
Investment Manager............................................. 2.5%
Fund Administration............................................ 25%
Other Expenses (estimated)..................................... 2.0%
Total Annual Expenses.......................................... 4.75%
The purpose of the table above is to assist you in understanding the
various costs and expenses you would bear directly or indirectly as an investor
in the Fund. For a more complete description of the various costs and expenses,
see "Management of the Fund." For purposes of the above table, "Other Expenses"
are based upon estimated amounts for the current fiscal year.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $118.75 $130.92 $144.34 $184.22
$2,500 investment, assuming a 5% annual
return:1
</TABLE>
/1/ Based on estimated amounts for the respective fiscal years. The
above example does not include the $7 sales charge per Unit payable by the Fund
to CJM Planning or other brokers.
THE EXAMPLE DOES NOT PRESENT ACTUAL EXPENSES AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN. MOREOVER, THE FUND'S ACTUAL RATE OF RETURN MAY BE GREATER OR LESS
THAN THE HYPOTHETICAL 5% RETURN SHOWN IN THE EXAMPLE.
-8-
<PAGE>
RISK FACTORS
THERE ARE SUBSTANTIAL RISKS IN THIS INVESTMENT. YOU SHOULD READ ALL SECTIONS OF
THIS PROSPECTUS AND CONSULT WITH YOUR FINANCIAL, TAX AND LEGAL ADVISORS
REGARDING THE RISKS OF AN INVESTMENT IN THE FUND.
GENERAL RISKS
Newly Organized Fund.
We are a newly-organized investment company with no previous operating
history. We may not succeed in meeting our objectives, and the Fund's
investments may decrease substantially or result in total losses. You should
purchase Units only if you can afford a complete loss of your investment.
Newly Formed Investment Manager.
CJM Asset Management, the Fund's Investment Manager, is a
newly-organized company with no previous operating history upon which an
evaluation of its prospects can be based. Although key personnel of the
Investment Manager have experience in the investment industry, none of them has
ever operated or managed a fund similar to this Fund.
You Will Be Relying On The Investment Manager To Make Investments And
Might Not Like The Investments Selected.
You will not be able to evaluate any investments before they are made
by the Fund. You will not have the right to a return of your investment if you
do not like the investments made. The Fund is retaining the Investment Manager
and will rely on it and its representatives to find investments for the Fund.
The Fund has made no investments as of the date of this Prospectus. Therefore,
prospective investors will not have an opportunity to evaluate specific
investments made, or to be made, by the Fund prior to making an investment in
the Fund.
-9-
<PAGE>
You Will Have Little Control Over Operations.
Except for limited voting rights, you will have no control over the
Fund's management and must rely almost exclusively on the Directors (including
the Management Committee) and the Investment Manager. They may take actions with
which you disagree.
You May Not Receive Adequate Distributions To Pay Your Taxes.
The Management Committee has absolute discretion in the amount and
timing of any distributions to Investors, but personal income tax liability of
the Investors depends on the taxable income of the Fund, regardless of whether
distributions are made. Accordingly, you may not receive distributions from the
Fund sufficient to pay taxes on your allocable share of profits. See "Allocation
of Profits and Losses", "Tax Allocations" and "Distributions."
Whether The Fund Is Profitable Or Not, Substantial Fees Will Be Paid To
The Investment Manager For Its Services.
The Investment Manager will receive management fees from the Fund
whether or not the Fund operates profitably.
There Will Not Be A Market For Your Units And There Will Be
Restrictions Placed On Their Transfer.
Units will not be publicly traded and the Fund will be under no
obligation to redeem or repurchase Units. In addition, to avoid being taxed as a
corporation, the Fund is required to place significant restrictions on the
transfer of Units. This means that you will be required to receive approval from
the Management Committee before reselling or transferring Units. The Management
Committee is required to refuse to consent to a transfer when it would adversely
affect the status of the Fund as a partnership for income tax purposes. Because
of these requirements, you may not be permitted to sell or transfer your Units,
and any sale, if permitted,
-10-
<PAGE>
will likely be at a substantial discount. Investment in the Fund should be made
only as a long-term investment.
You Will Not Have The Right To Receive Distributions Prior To The
Termination Of The Fund.
The Fund is not required to dissolve until March 31, 2010 and may be
extended beyond that date by the Directors. Distributions of cash or property
before that time will only be made if approved by the Management Committee in
its sole discretion.
The Fund May Not Be Able To Diversify Its Investments And Accomplish
Its Investment Objectives.
The Fund will begin investment operations immediately. This offering is
not subject to any minimum amount of aggregate investments made by Investors.
The number of investments, portfolio balance and potential profitability of the
Fund will be affected by the amount of funds at its disposal. At a lower funding
level, the Fund will have less diversification and its investment return might
be adversely affected by a single investment decision.
The Fund Is Not Providing You With Separate Legal Or Accounting
Representation.
The Fund, its Investors and the Investment Managers are not represented
by separate counsel. Although counsel has given an opinion that there is legal
authority to issue the Units, the legal counsel and accountants for the Fund
have not been retained, and will not be available, to provide other legal
counsel or tax advice to you. Additionally, since counsel for the Fund is also
counsel to the Investment Manager, such counsel may be required to withdraw from
representing the Fund, the Investment Manager, or both, should a conflict of
interest arise which cannot be resolved.
-11-
<PAGE>
Distributions In The Early Stages May Be A Return Of Capital.
Some or all of the cash or property you receive in distributions may
represent a return of capital which will reduce the size of your capital
account.
The Fund's Venture Capital Investments Are Risky.
We will be making venture capital investments with money held by the
Fund. Although venture capital investments offer the opportunity for significant
gains, each investment involves a high degree of business and financial risk
that can result in substantial losses. Among these are the risks associated with
investing in companies in an early-stage of development or with little or no
operating results and companies with the need for substantial additional capital
to support expansion or to achieve or maintain a competitive position. Such
companies may face marketing, personnel and management problems which are more
acute than established companies with historic operations. Additionally, such
companies must contend with intense competition, including competition from
companies with greater financial resources, more extensive development,
manufacturing, marketing and service capabilities, and a larger number of
qualified managerial and technical personnel.
Our success, if any, will depend upon the success of the companies in
which we invest. The success of such companies in turn depends upon the
abilities of their management and personnel. We may make significant equity
investments in companies in rapidly changing high-technology fields; such
companies may face special risks of product obsolescence and may encounter
intense competition from other companies. Another major risk of investments in
technology companies is the potential inability of the company to commercialize
its technology or product concept with the resources it has available. The
ultimate success of such companies will depend to a large extent on their
ability to continue to create new products and improve
-12-
<PAGE>
existing ones. There can be no assurance that the development efforts of any
company in which we invest will be successful.
The Fund May Need To Invest Additional Capital.
We expect that many of the companies in which the Fund invests will
require additional financing to satisfy their working capital requirements. The
amount of additional financing needed will depend upon the maturity and
objectives of the particular company. If the funds provided are not sufficient,
a company may have to raise additional capital at a price unfavorable to the
existing investors, including the Fund. The availability of capital is generally
a function of capital market conditions that are beyond the control of the Fund
or any company in which the Fund may invest. There can be no assurance that we
or the companies in which we invest will be able to predict accurately the
future capital requirements necessary for success or that additional funds will
be available from any source.
Investments Made By The Fund May Take A Long Time To Mature.
We intend to invest funds available for equity investments as rapidly
as is consistent with the investment objectives of the Fund. Venture capital
investments typically take from four to eight years from the date of initial
investment to reach a state of maturity at which liquidation can be considered.
Additionally, the other types of investments which may be made by the Fund are
not expected to reach maturity prior to three years following the initial date
of investment. In light of the foregoing, it is unlikely that any significant
distributions of the proceeds from the liquidation of investments made by the
Fund will be made until the later years of the Fund.
Investments Made By The Fund Will Be Illiquid.
We may invest a substantial portion of Fund assets in restricted
securities and other investments which are illiquid. Restricted securities are
securities that may not be resold to the
-13-
<PAGE>
public without an effective registration statement under the Securities Act of
1933 or, if they are unregistered, may be sold only in a privately negotiated
transaction or pursuant to an exemption from registration. Restricted and other
illiquid investments involve the risk that the securities will not be able to be
sold at the time desired by the Investment Manager or at prices approximating
the value at which the Fund is carrying the securities on its books.
Other practical limitations may inhibit the Fund's ability to sell or
distribute securities purchased by the Fund. For example, the Fund may own a
relatively large percentage of the company's outstanding securities, and
customers, other investors, financial institutions, or management may be relying
on the Fund's continued investment. Sales of securities purchased by the Fund
may also be limited by the overall condition of relevant markets.
The above limitations on liquidity of the Fund's equity investments
could prevent a successful sale of such investments, result in a delay of any
sale, or reduce the amount of proceeds that might otherwise be realized.
Need For Follow-On Investment.
Following its initial investment in certain companies, the Fund may be
called upon to provide additional funds to, or have the opportunity to increase
its investment in, such companies in order to make it a successful situation.
See "Business of the Fund." Although we may maintain reserves and may borrow to
make follow-on equity investments, there is no assurance that the Fund will make
follow-on investments or that the Fund will have sufficient funds to make such
investments. If the Fund is unwilling or unable to make a follow-on equity
investment, the negative impact on a company in need of such investment may be
substantial. The Fund's failure to make a follow-on investment may also result
in a significant reduction in
-14-
<PAGE>
the Fund's ownership percentage in a particular company or a missed opportunity
for the Fund to increase its participation in a successful situation.
Substantial Initial Losses.
It is anticipated that most of the capitalization of the Fund will be
expended or committed prior to the receipt, if any, of realized gains by the
Fund. The Investment Manager anticipates that the Fund and a number of companies
in which the Fund may invest will sustain substantial losses in the initial
three or four years of operation. It is possible that these losses may never be
recovered. There can be no assurance that the Fund will ever be profitable.
Dependence On Management.
The Fund will be supervised by the Directors and the Fund's investments
will be managed by the Fund's Investment Manager - CJM Asset Management. The
death or resignation of any of the Directors or any of the key personnel of the
Investment Manager responsible for making investment decisions for the Fund
could have a material adverse affect on the Fund. The Fund will not carry
insurance on the lives of any such individuals.
Competition For Investments.
We expect to encounter competition from other entities having similar
investment objectives (including others that are affiliated with the Investment
Manager). These competitors may include venture capital funds, venture capital
affiliates of large industrial and financial companies, small business
investment companies, and wealthy individuals. Additional competition is
anticipated from foreign investors and from large industrial and financial
companies investing directly rather than through venture capital affiliates.
Many of the Fund's competitors are subject to regulatory requirements
substantially different from those to which the
-15-
<PAGE>
Fund is subject, and, as a consequence, they may have a competitive advantage to
the extent that the regulations under which the Fund operates restrict its
ability to take certain actions.
Borrowings By The Fund May Exaggerate Losses And Limit the Amount Of
Assets Available For Distribution.
The Fund may borrow money (but not in excess of 50% of Investors'
aggregate capital contributions) to accommodate cash flow requirements or to
make additional follow-on investments. In connection with borrowings by the
Fund, the Fund may pledge Fund assets as collateral. Although you generally will
not be liable for Fund borrowings or guarantees beyond the amount of your
capital contribution, any borrowings would have to be repaid out of Fund assets,
which would reduce the cash available for distribution to you and could result
in taxable income to you without receiving cash distributions from the Fund. The
use of borrowed funds to make investments is known as "leverage" since it can
exaggerate increases or decreases in the Fund's net asset value as contrasted to
the value of its total assets. In addition, the terms of any borrowing by the
Fund may contain provisions which limit certain activities of the Fund,
including distributions to Members.
The Fund May Be Liable To Companies In Which The Fund Invests.
The Fund will participate actively in the management of many companies
in which the Fund invests, often having representatives serve as a member of a
company's board of directors. Consequently, the Fund may be subject to liability
from lawsuits against its representatives and the Fund's assets may be exposed
to satisfy claims.
Liabilities of Investors.
You will not be liable for any obligations of the Fund in excess of
your capital contribution; except that an Investor who receives a distribution
from the Fund will be liable to the Fund for the amount of such distribution if,
after such distribution, the outstanding liabilities
-16-
<PAGE>
of the Fund (other than liabilities to Investors on account of their interests
in the Fund and liabilities of the Fund for which the recourse of creditors of
the Fund is limited to specific property of the Fund) exceeds the fair value of
the Fund's assets (excluding the fair value of Fund property to the extent of
the amount of debt it secures) and the Investor had knowledge of that fact at
the time of the distribution.
Conflicts of Interest.
The Investment Manager and certain Directors of the Fund are subject to
various conflicts of interest in managing the investments of the Fund. Key
personnel of the Investment Manager who also serve as Directors of the Fund have
organized and currently operate entities engaged in business similar to that of
the Fund. Such entities may fund companies similar to the companies in which the
Fund may invest. Additionally, the Fund may co-invest in companies with other
investment funds managed by certain Directors of the Fund and may participate in
follow-on investments in such companies, subject to a majority vote of the
Independent Directors and, if necessary, an exemptive order from the SEC. See
"Investment Company Act Regulation." None of the members of the Management
Committee or personnel of the Investment Manager or its affiliates will devote
their entire time to the Fund or its investments.
Regulation.
The Fund has elected to be regulated as a business development company
(or "BDC") under the Investment Company Act, which imposes numerous restrictions
on the activities of the Fund, including restrictions on the nature of its
investments, its use of leverage, and its issuance of securities, options,
warrants, or rights. Among the restrictions is the requirement that a majority
of the Directors be individuals who are not "Interested Persons" of the Fund as
defined in the Investment Company Act and that the Fund generally must invest at
least 70% of its assets
-17-
<PAGE>
in securities of nonpublic companies or shares of public companies which shares
are not eligible for margin loans under the rules of the Federal Reserve Board.
In addition, a BDC must make significant managerial assistance available to the
companies whose securities it purchases. Although the Directors and Investment
Manager believe that the constraints applicable to business development
companies are consistent with the objectives of the Fund, such constraints could
prohibit the Fund from investing in some potentially attractive situations that
might otherwise be available if such an investment would not disqualify the Fund
from its status as a BDC. See "Investment Company Act Regulation."
In the event the Directors determine that the Fund cannot operate
effectively under the Investment Company Act, it may at some future date decide
to withdraw the Fund's election as a BDC and transform the Fund into an
operating company not subject to regulation under the Investment Company Act or
cause the Fund to liquidate. These changes may not be effected without the
approval of Investors holding a majority of outstanding Units.
-18-
<PAGE>
GENERAL INCOME TAX RISKS
The Fund is organized as a limited liability company, and as such
should be treated as a partnership for federal tax purposes. The Directors do
not believe that the Fund will be treated as a publicly-traded partnership
taxable as a corporation. If the Fund were classified as a publicly-traded
partnership taxable as a corporation rather than as a partnership for purposes
of federal income tax law, the Fund would be required to pay income tax at
corporate tax rates on its net income, Investors would be prevented from
deducting their allocable share of losses, and any distributions to Investors
would be taxed to Investors as dividend income to the extent of earnings and
profits of the Fund.
Other potential tax risks to Investors include the following: (i) the
allocation of Fund items of income, gain, loss, and deduction may not be
respected for federal income tax purposes; (ii) all or a portion of the Fund's
expenses could be considered either investment expenses (which would be
deductible by an Investor only to the extent the aggregate of such expenses
exceeded 2% of such Investor's adjusted gross income) or as nondeductible items
that must be capitalized; (iii) all or a substantial portion of the Fund income
could be deemed to constitute unrelated business taxable income, such that
tax-exempt Investors could be subject to tax on their respective portions of
such income; (iv) a portion of the losses, if any, allocated to the Investors
could be "passive losses" and thus deductible by the Investor only to the extent
of passive income; and (v) the Investors could have capital losses in excess of
the amount that is allowable as a deduction in a particular year. The Fund has
not sought and will not seek a ruling from the IRS as to any tax matters,
including whether the Fund will be treated as a publicly-traded partnership.
-19-
<PAGE>
Operation Of The Fund Could Affect The Propriety Of Allocations And
Cause Additional Tax And Penalties.
Subject to any applicable limitations under the Internal Revenue Code
on the deductibility of losses or certain expenses, you should be entitled to
deduct your allocated share of any tax losses and will report your allocated
share of income and gain on your personal income tax return. Whether such
allocations will be honored by the Internal Revenue Service depends on a number
of facts related to the future operation of the Fund. If these allocations were
not honored by the Internal Revenue Service, a change in the tax treatment of
income, gain, loss and deduction from the Fund could occur and on audit, each
Investor could be forced to pay taxes or penalties, or both.
The Resale Of Investments Could Cause Gains To Be Taxed As Ordinary
Income.
If the Fund is characterized as a "dealer" in securities when equity or
other securities purchased by the Fund are sold, gain or loss on such sales will
be considered ordinary income or loss. The character of the Fund as a dealer is
a factual determination dependent on future events and the timing of purchases
and sales, and thus there can be no certainty as to the character of such gain
or loss. Because ordinary income is, in most cases, taxed at higher rates than
capital gain, characterization of the Fund as a dealer could cause an increase
in taxes payable by you.
Incorrect Allocation Of Expenses Among Start-Up, Organization And
Syndication Costs Could Cause More Taxable Income.
The Fund will allocate expenses during the early stages of the Fund's
operations to start-up, organization, syndication and acquisition expenses for
purposes of the deduction or capitalization of such expenses. The allocation of
such expenses will be made as costs are incurred. If the Internal Revenue
Service determines that the allocation of costs among the
-20-
<PAGE>
different categories of expenses are improper, the Fund could lose some
deductions and Investors would recognize more income during the early stages of
the Fund's operation.
THE FOREGOING IS A SUMMARY OF CERTAIN SIGNIFICANT FEDERAL INCOME TAX
RISKS RELATING TO AN INVESTMENT IN THE FUND. THIS SUMMARY SHOULD NOT BE
INTERPRETED AS A REPRESENTATION THAT THE MATTERS REFERRED TO HEREIN ARE THE ONLY
TAX RISKS INVOLVED IN THIS INVESTMENT OR THAT THE MAGNITUDE OF SUCH RISKS IS
NECESSARILY EQUAL. FOR A MORE DETAILED DISCUSSION OF THESE AND OTHER FEDERAL
INCOME TAX RISKS OF AN INVESTMENT IN THE FUND, SEE "INCOME TAX ASPECTS."
AN ERISA INVESTMENT IN THE FUND MAY NOT BE APPROPRIATE FOR INVESTORS
SUBJECT TO ERISA. SUCH INVESTORS SHOULD CONSULT WITH THEIR FINANCIAL, TAX AND
LEGAL ADVISORS REGARDING AN INVESTMENT IN THE FUND.
-21-
<PAGE>
WHO MAY INVEST
Units may be an appropriate investment for you if you want to place a
small portion of your portfolio in an aggressive growth investment that further
diversifies your holdings. Investment in the Fund entails significant risks and
is appropriate only if you have no need for liquidity of your investment for a
number of years and if you can bear the financial risk of losing your entire
investment.
To purchase Units, you must be able to represent in writing that you
have:
(i) a net worth (exclusive of home, furnishings, and automobiles and
any liabilities secured by those assets) of at least $60,000 and
expect to have annual gross income from any source of at least
$25,000; or
(ii) have a net worth (as computed above) of at least $150,000. You
may invest no more than 10% of your net worth in the Fund.
If you are purchasing through a trust, IRA or other fiduciary account,
these standards must be met by the beneficiary, the trust or other fiduciary
account itself, or by the trust donor or grantor if they are a fiduciary and
directly or indirectly supply the funds for the purchase.
You will be required to purchase a minimum of 25 Units ($2,500). An
investment in the Fund will not create an IRA or other tax-qualified plan for
any investor.
Investment firms that participate in the distribution of this offering
and solicit orders for Units are required to make every reasonable effort to
determine that the purchase is appropriate for each investor. In addition to net
worth and income standards, the investment firms are required to determine:
o whether you can reasonably benefit from an investment in the
Units based on your investment objectives,
-22-
<PAGE>
o your ability to bear the risk of the investment, and
o your understanding of the risks of the investment.
They must also determine whether you understand:
o the lack of liquidity of the Units,
o the restrictions on transferability of the Units,
o the background and qualifications of the managers of the Fund,
and
o the tax consequences of your investment.
In addition to any other considerations, trustees and custodians of
tax-qualified plans should consider the following when making an investment
decision:
o If the Fund borrows money to make an investment, some of its
income may be unrelated business taxable income. A tax-qualified
plan, although generally exempt from federal income tax, may be
subject to some taxation if its unrelated business taxable
income, after investment in the Fund, exceeds $1,000 in any
taxable year.
o ERISA establishes diversification requirements that should be
considered. ERISA should also be considered in light of the
nature of an investment in, and the compensation structure of,
the investment and the potential lack of liquidity of the Units.
The prudence of a particular investment must be determined by the
responsible fiduciary taking into account all the facts and
circumstances of the tax-qualified retirement plan and the
investment.
BECAUSE IT IS POSSIBLE THAT THE FUND WILL GENERATE UNRELATED BUSINESS TAXABLE
INCOME, IT MAY NOT BE AN APPROPRIATE INVESTMENT FOR TAX-EXEMPT INVESTORS OR
CHARITABLE REMAINDER TRUSTS.
-23-
<PAGE>
HOW TO INVEST
If you desire to purchase at least 25 Units ($2,500) you must complete,
execute, and submit to The Oxbow Fund, LLC, the Subscription Agreement and the
Operating Agreement Signature Page and Power of Attorney accompanying this
Prospectus and forward it, along with a check made payable to "The Oxbow Fund,
LLC", to C.J.M. Asset Management, LLC, 223 Wanaque Avenue, Pompton Lakes, New
Jersey 07442. At any time during this offering, you may subscribe for additional
whole Units by executing an additional Subscription Agreement. Payment methods
are described more fully in the Subscription Agreement.
Your subscription payment will be returned promptly in full if your
subscription is not accepted by the Fund. All information provided by you will
be kept confidential and disclosed only to the Directors of the Fund and the
Investment Manager and its affiliates, consultants, or service providers except
as required by appropriate governmental, administrative, and regulatory
authorities.
-24-
<PAGE>
CAPITALIZATION
The capitalization of the Fund as of the date of this Prospectus, and
after the issuance and sale of the maximum amount of Units being offered is as
follows:
After Sale of
Title of Class Actual 250,000 Units
-------------- ------ -------------
Investment Manager's Capital $ 100,000 $ 100,000
Investors' Capital $ 0 $ 24,900,000
Less Offering Expenses
and Sales Charges $ 0 $ (2,493,000)
------------ ------------
Total Capital $ 100,000 $ 22,507,000
============ ============
-25-
<PAGE>
ESTIMATED USE OF PROCEEDS
The Fund expects that there will be approximately $22,507,000 available
for investment if the full $25,000,000 is raised, although no assurance can be
given that such maximum amount will be raised. The following table estimates the
use of proceeds from the sale of Units. Some of the items below cannot be
precisely calculated and could vary materially from the amounts shown.
Maximum
(250,000 Units)
---------------
Dollars Percent
------- -------
Gross Offering Proceeds $ 25,000,000 100.00%
Less Offering Expenses
Sales charge $ (1,743,000) 7.00%
Other offering expenses $ (750,000) 3.00%
Amount Available for
Investment
(net proceeds) $ 22,507,000 90.00%
Working Capital Reserve $ (1,500,000) 6.00%
------------ ------
CASH AVAILABLE FOR INVESTMENT $ 21,007,000 84.00%
============ ======
The amount available for investments by the Fund will not, in any
event, be less than 84% of gross offering proceeds. The proceeds of the offering
will be used only for the purposes set forth above.
The Fund will continue to offer and sell Units for 15 months after the
date of this Prospectus. It will not commit itself to invest more money during
that period than it has raised through the sale of Units. Accordingly, the
Investment Manager believes that the Fund will have adequate capital to fund its
operations for the first 15 months of operation.
-26-
<PAGE>
The Fund expects to fully invest the proceeds of the offering within 24
months of the date of this Prospectus.
-27-
<PAGE>
BUSINESS OF THE FUND
We are a non-diversified, closed-end business development company,
organized on September 15, 1999 as a New Jersey limited liability company. We
are primarily in the business of venture capital, although we may make other
types of investments. Generally, the business of venture capital is providing
growth capital to emerging growth companies and actively helping to build those
companies. In the past twenty years, venture capital has become a multibillion
dollar industry that is recognized as a significant source of the country's
recent economic growth. The principal reasons for this dramatic growth have been
(i) the venture capital industry's investment rate of return and (ii) the
industry's ability to demonstrate that the high risks of loss inherent in
investing in unproven companies can be significantly mitigated through investing
in a number of companies in a balanced portfolio, and through active
professional management of the investments in the individual companies.
Historical industry performance is not an indication of future industry
performance or Fund performance. The Investment Manager intends to utilize many
of the risk management and investment strategies common to the industry. See
"Investment Objective and Principal Strategies" below.
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<PAGE>
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Long-Term Capital Appreciation.
Our investment objective is to seek long-term capital appreciation.
Income is not an objective. There can be no assurance that the Fund will achieve
its investment objective.
Types of Investments by the Fund.
To achieve our objective, we will invest the Fund's assets primarily in
equity securities of private U.S. companies seeking capital for start-up
operations, business expansion, product development and/or strategic acquisition
opportunities. We may invest in companies of any size, but generally expect to
invest in small to medium-sized companies with annual revenues or projected
annual revenues in the $2 million to $100 million range. We may also acquire the
assets of companies, invest in commercial real estate and invest in the equity,
debt or assets of companies of any size which are facing financial difficulties,
reorganizing or seeking capital for debt or equity restructuring. We do not
expect to concentrate the Fund's investment in any particular industry or
geographic region and will not limit the amount of any particular investment
made by the Fund.
Temporarily Invested Funds.
Before investment, we will invest all funds in short-term government
securities or in insured deposits with term deposit rates. We have not fixed a
particular date by which we will fully invest the proceeds from this Offering,
however, we anticipate that all such proceeds will be invested within 24 months
of the date of this Prospectus. Investment capital will not be segregated or
held separate from other capital of the Fund pending investment.
-29-
<PAGE>
Investment Concentration.
As a non-diversified investment company, the Fund faces few regulatory
restrictions on the proportion of its total assets it may invest in the
securities of any one company, or on the proportion of its total assets it
allocates to control interests in companies. However, the Fund does not intend
to invest more than 25% of its total assets in the securities of any one
company. Similarly, the Fund does not intend to invest more than 75% of its
total assets in controlling interests of companies.
Use Of Leverage.
We are permitted to use leverage (i.e., borrowed funds or senior
securities) to raise all or a portion of the funds required to make follow-on
investments and to meet operating expenses. Such borrowing would normally occur
in the later years of Fund operations when the Fund's portfolio may have value
but no liquidity. The Fund may also borrow funds during the offering period to
allow it to participate in investment opportunities in anticipation of
additional capital contributions. Generally, the Fund will not otherwise incur
indebtedness except as a temporary measure for extraordinary or emergency
purposes. The Fund will not borrow in an amount in excess of 50% of Investors'
aggregate capital contributions. Leverage involves certain risks for Investors.
These risks are discussed under "Risk Factors - Borrowings by the Fund May
Exaggerate Losses and Limit the Amount of Assets Available for Distribution."
The terms of any such borrowings may contain provisions which limit
certain activities of the Fund, including the making of distributions to
Investors. The terms of such borrowings also may grant lenders certain voting
rights in the event of default in the payment of amounts due. Payments of
interest and fees incurred in connection with arranging such financings by the
Fund will reduce the amount of assets available for distributions to Investors.
-30-
<PAGE>
Average Investment.
Although investment amounts will vary considerably, we expect that the
average investment will be between $1,000,000 and $10,000,000.
Follow-On Investments.
After our initial investment in a company or its assets or
indebtedness, we anticipate that we will typically provide additional or
"follow-on" investments in the same company or opportunity. See "Risk Factors --
Need for Follow-On Investments." Follow-on investments may be made pursuant to
an agreement to acquire additional securities or otherwise to increase our
ownership position in a successful or promising investment. We may also be
called upon to provide follow-on investments for a number of other reasons,
including providing additional capital to a company to implement the company's
business plan, to develop a new line of business, or to recover from unexpected
business problems.
Investment Decisions Based Upon Extensive Firm-Level Research.
We will use a bottom-up investment selection approach. This means that
the Investment Manager and its representatives will research specific companies
to find those companies that the Investment Manager believes offer the greatest
prospects for future growth. In selecting individual investments, we will look
for companies that the Investment Manager believes display or are expected to
display:
o growth prospects
o high profit margins or return on capital
o attractive valuation relative to expected earnings or cash flow
o quality management
o unique competitive advantages
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The Fund May Change Its Investment Strategies.
We may change any of the investment strategies outlined above, and may
change the definition of small and medium-sized companies, if the Fund's Board
of Directors believes doing so is consistent with the Fund's investment
objective of long-term capital appreciation. The Fund's investment objective is
a fundamental policy and may not be changed without the approval of Investors.
The amount of funds committed to an investment and the percentage of
ownership interest received from investments will vary depending on the maturity
of the company, the quality and completeness of the management team, the
perceived business opportunity, the capital required compared to existing
capital, and the potential return. Although investment amounts will vary
considerably, the Investment Manager expects that the average investment
(including follow-on investments) will be between $1,000,000 and $10,000,000.
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MANAGEMENT OF THE FUND
Fund Board Of Directors.
The Board of Directors of the Fund provides broad supervision over the
affairs of the Fund. The Fund initially will have a total of seven Directors,
four of whom will not be "interested persons" of the Fund or its affiliates (as
that term is defined in the Investment Company Act) and are referred to in this
Prospectus as "Independent Directors," and three of whom are "interested
persons" and are referred to in this Prospectus as "Affiliated Directors." The
Investment Company Act requires that a majority of the Directors be individuals
who are not "interested persons" of the Fund. The four initial Independent
Directors of the Fund are William M. Osborne, III, James L. Sonageri, James P.
Burt and Christopher R. Smith. The three initial Affiliated Directors are Daniel
D. Dyer, S. Charles Musumeci, Jr. and Joseph C. Musumeci.
Management Committee.
There are no titled officers of the Fund, however, the Board of
Directors has delegated to a Management Committee the authority to supervise and
oversee the day-to-day operation of the Fund. The Management Committee is
comprised of the Affiliated Directors. The initial members of the Management
Committee are: Daniel D. Dyer, S. Charles Musumeci, Jr., and Joseph C. Musumeci.
Fund Investment Manager.
C.J.M. Asset Management, LLC is the Investment Manager of the Fund. The
Investment Manager was formed as a New Jersey limited liability company on
February 24, 1999 and is registered as an investment advisor under the
Investment Advisors Act of 1940. Because the Investment Manager has only
recently been formed, it has no operating history upon which an
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evaluation of its prospects can be based and is subject to the risks inherent in
the establishment of a new business enterprise.
Subject to the authority and supervision of the Directors, the
Investment Manager will be responsible for finding, evaluating, structuring,
monitoring, and liquidating the Fund's venture capital investments. Daniel D.
Dyer, S. Charles Musumeci, Jr. and Joseph C. Musumeci are each members of the
Investment Manager and will be responsible for directing the investments of the
Fund on behalf of the Investment Manager. The Investment Manager will be
compensated as described in "Compensation of the Investment Manager, its
Affiliates and the Directors."
Fund Directors And Key Personnel Of Investment Manager.
The following are descriptions of the members of the Board of Directors
of the Fund as well as of key personnel of the Investment Manager. The business
address for all of the Fund's Directors is: c/o The Oxbow Fund, LLC, 223 Wanaque
Avenue, Pompton Lakes, New Jersey 07442.
Daniel D. Dyer, age 45, Affiliated Director and Chairman of the
Investment Manager. Mr. Dyer is the President and CEO of Oxbow Capital Partners,
LLC, a venture capital firm and an affiliate of the Fund, and currently serves
as the President and Managing Director of Oxbow Capital 1999 Fund I, LLC, an
equity-oriented private fund of which Oxbow Capital Partners, LLC is the
Managing Member. Mr. Dyer has been, although is not currently, a licensed NASD
Series 7 Broker, first licensed in 1981. Since that time Mr. Dyer, individually
or through one of his affiliates, has been an advisor, principal of, and/or
investor in a number of complex transactions including the following: Plush
Pippin Corporation (sold in 1992), Augusta Real Estate Development (sold in
1995) Destination Harley-Davidson, LLC (sold in 1998) Ronce Inc., C.J.M.
Planning Corporation, Indian Motorcycle Company, Usedbooks.com, LLC, Sterling
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Capital, LLC, Brandsforless.com, Topia Ventures, LLC and Business Internet
Services, Inc. See "Prior Performance." Additionally, Mr. Dyer has served as an
advisor to potential business transactions, some of which have been abandoned
and others which have not yet closed, involving the following companies:
Nalley's Fine Foods, First Interstate Plaza of Tacoma, Bank Boston of West Palm
Beach, Nordstrom Center of Portland, Hyatt Hotels of Salt Lake City and Deer
Valley, Jordan El Dam of Park City, B.C. Insurance, Inc., and Lucas Dealership
Group. Mr. Dyer studied veterinary medicine through the United States Air Force
College at Auburn University and Business, Banking and Finance at Clark College.
S. Charles Musumeci, Jr., age 38, Affiliated Director and President of
the Investment Manager. Mr. Musumeci is the President of C.J.M. Planning Corp.,
a registered Broker/Dealer and an affiliate of the Fund. C.J.M. Planning is
acting as Distributor in connection with the offer and sale of Units in this
offering. Mr. Musumeci obtained his first securities license in 1979 and he has
been a NASD member in good standing for over 19 years. A graduate of Fairleigh
Dickinson University, he currently holds series 6, 7, 24, 53 and 63 licenses.
Mr. Musumeci has been involved with the direct and indirect supervision and
training of hundreds of independent registered representatives throughout his 19
year career. He currently supervises the general securities principals and daily
business operations of C.J.M. Planning Corp. He also supervises the company's
equity, mutual fund, variable annuity and municipal security product operations.
Joseph C. Musumeci, age 41, Affiliated Director and Chief Executive
Officer of the Investment Manager. Mr. Musumeci is the Chief Executive Officer
of C.J.M. Planning Corp. He obtained his first securities license in 1976 and
has remained in good standing with the NASD for over 22 years. A graduate of
Fairleigh Dickinson University, Mr. Musumeci has been involved with the direct
and indirect supervision and training of hundreds of registered
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representatives throughout his career. Mr. Musumeci has an extensive accounting
background and manages the record-keeping, accounting and day-to-day business
operations of C.J.M. Planning Corp. He also supervises C.J.M. Planning's mutual
fund and variable annuity product operations.
William M. Osborne, III, age 45, Independent Director. Mr. Osborne is
the President of McKinley Capital Partners, Ltd. Mr. Osborne founded McKinley
Capital which principally is engaged in fund management and merchant banking,
and advising and investing in early and mid-stage companies. Since its founding
in 1991, McKinley Capital has participated in transactions valued in excess of
$1.5 billion. McKinley Capital currently manages two funds, the IPO Index Fund
and the Competitive Advantage Fund. The IPO Index Fund, formed in 1995, has had
an average annual return of 40% net after fees. The Competitive Advantage Fund,
formed in June of 1998, had a partial year performance of 56% net after fees for
1998. Prior to founding McKinley Capital, Mr. Osborne was an investment banker
with Morgan Stanley in New York and London for 11 years, his last position being
that of Managing Director, head of Equity Capital Markets. Mr. Osborne received
a BA from Yale University, and his MBA from the Darden School of Business at the
University of Virginia.
James L. Sonageri, age 43, Independent Director. Mr. Sonageri is a
certified civil and criminal trial attorney who specializes in business and
product liability litigation and white collar criminal defense. Prior to
founding his current firm, Sonageri & Fallon, L.L.C., Mr. Sonageri practiced
with the law firm of Shanley & Fisher in Morristown, New Jersey. He also served
as a Special Assistant United States Attorney in the United States Attorney's
Office for the District of New Jersey and as the Supervisor of the White Collar
Crime Unit in the Union County Prosecutor's Office. He serves as a court
appointed mediator and has been a faculty member at
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the National Institute for Trial Advocacy. Mr. Sonageri is admitted to practice
in New Jersey, New York, the United States District Courts for the District of
New Jersey, the Southern and Eastern Districts of New York, and the United
States Supreme Court. He earned his J.D. degree from The John Marshall Law
School and received his B.S. degree in accounting from Fairleigh Dickinson
University. Mr. Sonageri serves on the Board of Directors of Fresco Corporation,
a privately held food importing and distribution company.
James P. Burt, age 40, Independent Director. Mr. Burt is a former
Professional Football player, and a two-time Super Bowl Champion while with the
New York Giants and the San Francisco 49er's. Mr. Burt is currently a real
estate and business investor. He owns a seat on the New York Stock Exchange, a
New York transportation company, and several restaurants. Mr. Burt is a graduate
of the University of Miami.
Christopher R. Smith, age 35, Independent Director. Mr. Smith is the
Chief Financial Officer of COMC, Inc., a publicly-traded voice and data
communications services company. He served as Vice President of Wafra Investment
Advisory Group, Inc., a privately held asset management company with over $3
billion under management between April 1992 and August 1999, and as the Managing
Director of Wafra Partners, L.P., its private equity investment fund which has
invested over $170 million in 14 middle market businesses since 1992. Mr. Smith
earned his B.S. degree in finance and accounting from Florida State University.
Mr. Smith serves on the Board of Directors of Altec Lansing Technologies, Inc.,
a privately-held computer peripherals and audio company, Compost America Holding
Company, Inc., a publicly-traded waste hauling and composting site contractor,
Three V Health, L.P., a privately held internet health information services
company, and Vulcan Engineering Co., a privately held foundry engineering and
fabrication company.
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Fund Administrator.
C.J.M. Asset Management, LLC, the Fund's Investment Manager, also
serves as the Fund's administrator pursuant to a Fund Administration Servicing
Agreement dated ______, 1999. In this capacity, the Investment Manager performs
certain accounting, compliance and tax reporting functions for the Fund. For
these services, the Fund pays the Investment Manager a monthly fee. (See
"Compensation of the Investment Manager, its Affiliates and the Directors").
Fund Custodian.
The Fund will act as its own custodian of securities and will be
subject to the requirements of Rule 17f-2 under the Investment Company Act. It
intends to enter into safekeeping arrangements for those securities with
_____________.
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PRIOR PERFORMANCE
Over the last twenty years, Daniel D. Dyer, one of the Affiliated
Directors and the Chairman of the Investment Manager, either individually or
through one of his affiliated entities has participated in a wide variety of
complex business transactions. As of the date of this Prospectus, Mr. Dyer has
participated either as an advisor, principal of and/or investor in the 11
transactions described below. Of the 11 investments listed below, 3 have been
sold and 8 remain active and are on-going. Set forth below are brief
descriptions of those 11 transactions.
Sold Investments.
Plush Pippin Corporation. Mr. Dyer served as President of Plush Pippin
Corporation, a wholesale foods manufacturer/distributor, from 1986 to 1992.
During that period, Mr. Dyer and his co-investors made equity investments in the
company totaling $4,400,000. In 1992 Plush Pippin Corporation was sold to
Nabisco resulting in a cash distribution to all equity investors of $38,000,000.
Augusta Real Estate. From 1992 to 1995, Mr. Dyer served as President of
Augusta Real Estate, a real estate development company in which Mr. Dyer
invested a total of $500,000 in 1992. In 1995, Augusta Real Estate was sold
resulting in a cash distribution to Mr. Dyer of $1,500,000.
Destination Harley-Davidson, LLC. In 1995, Mr. Dyer and a partner
invested $1,800,000, on a seller's contract, in Destination Harley-Davidson,
LLC, a retail motorcycle distributor of which Mr. Dyer served as Chairman. The
revenue of the business at the time of the acquisition was $4,000,000. In 1998,
Mr. Dyer sold his interest in Destination Harley-Davidson, LLC. At the time of
the sale, the company had annual revenues of more than $11,000,000. The sale
resulted in total distributions of more than $3,000,000 to Mr. Dyer.
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Active Investments.
Ronce Inc. In 1998, Mr. Dyer and his co-investors made equity
investments totaling $14,000,000 in Ronce Inc. (d/b/a/ Ron's Optical), a
wholesale manufacturer of eyewear cases. Mr. Dyer and his co-investors'
investment is now valued at $22,000,000.
C.J.M. Planning Corp. Mr. Dyer, through his affiliate Oxbow Capital
Partners, LLC, purchased equity in C.J.M. Planning Corp. for $10,000,000 in
1998. C.J.M. Planning Corp. is a registered Broker/Dealer and financial service
provider of which Mr. Dyer serves as Chairman. C.J.M. Planning Corp. is also
acting as a Distributor of Units in this offering. At the time of Mr. Dyer's
equity purchase in 1998, C.J.M. Planning Corp. was appraised at $17,500,000.
Indian Motorcycle Company. In early 1999, Mr. Dyer and other investors
invested $83,000,000 in Indian Motorcycle, Co., a motorcycle manufacturer and
distributor. Mr. Dyer served on the founding Board of Directors of Indian
Motorcycle, Co., which recently was valued at $250,000,000.
Usedbooks.com, LLC. Mr. Dyer currently serves as Chairman of the Board
of Directors of Usedbooks.com, LLC, an internet book retailer. During 1999, Mr.
Dyer and his co-investors made a total equity investment of $2,500,000 in
Usedbooks.com, which has received equity financing commitments totaling
$5,000,000, including warrants.
Topia Ventures LLC. In 1999, Mr. Dyer and his co-investors made equity
investments of $625,000 in Topia Ventures LLC, a technology services company of
which Mr. Dyer is the Chairman of the Board of Directors. Topia Ventures LLC, to
date, has received commitments for equity capital totaling $6,600,000.
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Business Internet Services, Inc.. Mr. Dyer and his co-investors are
investing $1,000,000 over the next 12 months in Business Internet Services,
Inc., a technology service company of which Mr. Dyer is the Chairman of the
Board of Directors.
Sterling Capital, LLC. In early 1999, Mr. Dyer and affiliated business
investors invested $4,000,000 in Sterling Capital, LLC, an investment company.
Inclusion Of The Above Summaries Does Not Imply That
The Fund Will Have Comparable Results.
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COMPENSATION OF THE INVESTMENT MANAGER,
ITS AFFILIATES AND THE DIRECTORS
Investment Manager.
In addition to its distributive shares of Fund profits, losses and
distributions (see "Allocation of Profits and Losses", "Tax Allocations" and
"Distributions"), we will pay the Investment Manager an annual management fee
equal to 2.5% of total Investor "adjusted capital contributions" payable
quarterly in arrears. We will also pay the Investment Manager a annual fee for
its services as Fund Administrator which we estimate will equal approximately
.25% of total Investor "adjusted capital contributions."
Additionally, we will reimburse the Investment Manager for all
organizational and operational costs incurred by the Investment Manager for the
benefit or on behalf of the Fund. Such operational costs would include
consultants' fees, legal and accounting fees (other than those included in
organizational expenses and offering expenses), and the costs of materials, and
services used for the benefit of the Fund and obtained from entities
unaffiliated with the Investment Manager. The amount of reimbursements to the
Investment Manager will be at the lower of the Investment Manager's cost or the
amount the Fund would be required to pay to independent parties for comparable
materials or services in the same geographic location.
We will not reimburse the Investment Manager for expenses of a general
and administrative nature that are specifically incurred by the Investment
Manager for its own account and are not attributable to services provided to or
for the Fund or for the benefit of the Fund.
The audited financial statements of the Fund will include all costs
reimbursed to the Investment Manager or its affiliates.
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Summary Of Investment Manager Compensation And Allocations.
<TABLE>
<S> <C>
Reimbursement of Organizational Expenses Actual expenses as incurred
Reimbursement of Operational Costs Actual expenses as incurred
Management Fees 2.5% of total Adjusted Capital Contributions*
Administrative Fees .25% of total Adjusted Capital Contributions (estimated)*
Investment Manager's Profit Allocation 20%/65% of profits**
</TABLE>
*"Adjusted Capital Contributions" generally means the total amount of
all Investors' capital contributions as reduced by distributions representing a
return of capital.
**As described under the section titled "Tax Allocations", the
Investment Manager will be allocated 20% of net profits until the Members
(excluding the Investment Manager) have been allocated net profits equal to the
amount of their capital contributions. Thereafter, the Investment Manager will
be allocated 65% of net profits. See "Allocation of Profits and Losses", "Tax
Allocations" and "Distributions."
Independent Directors.
Each Independent Director will receive $2,000 per meeting attended. The
Fund does not have a long-term incentive plan, retirement plan or other
retirement benefit plan for directors; however, such a plan, or other form of
supplemental compensation for the Independent Directors, may be approved at some
later date by the Board of Directors, subject to the approval of Unit holders,
to the extent required by law.
Members Of Management Committee
Each member of the Management Committee will be compensated at the rate
of $150,000 per year by the Fund.
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CONFLICTS OF INTEREST
The Fund will be subject to actual and potential conflicts of interest
arising out of relationships with the Investment Manager and certain Directors
of the Fund. These conflicts include, but are not limited to, the following:
Lack Of Arm's-Length Negotiations With Management.
Compensation of the Investment Manager and members of the Fund's
Management Committee are not the result of arm's-length negotiations, although
the Directors believe that the amount of such compensation are reasonable and
fair to the Fund.
Other Activities Of The Investment Managers And The Management Committee.
The Fund will not have independent management or employees and will
rely upon the Investment Manager and the Fund's Management Committee for
management and administration of the Fund and its assets. Members of the Fund's
Management Committee have interests in other investment funds and engage in and
will continue to engage in other business activities. This may cause conflicts
of interest for the Fund's Management Committee in allocating their time between
the Fund and other investment funds and activities in which they are involved.
Conflicts of interest may arise in allocating management time, services, or
functions between the Fund and other entities for which the Investment Manager
and members of the Management Committee may provide services. Further, members
of the Fund's Management Committee and Board of Directors have legal and
financial obligations with respect to their other investment funds that are
similar to their obligations with respect to the Fund. The Operating Agreement
provides that the Fund's Directors are required to devote only such time as they
deem necessary or appropriate to manage the business of the Fund. Thus, the Fund
has no contractual or other right to such services that are superior to the
rights of any other party. Nonetheless, the Fund's managers
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and their affiliates believe that they have, or can retain, sufficient staff to
be fully capable of discharging their responsibilities to all programs with
which they are affiliated.
Competition With Managers And Other Affiliated Programs.
The members of the Fund's Management Committee and Board of Directors
may engage in other business ventures and have formed and may form in the future
other investment funds and neither the Fund nor you will be entitled to any
interest therein. It is possible that the Fund will periodically have money
available to make additional investments at the same time as other programs
sponsored by the Fund's managers or their affiliates. If this happens, conflicts
of interest will arise as to which program should make a particular investment.
The managers will review the investment portfolio of each program and will make
a decision as to which program will make the investment on the basis of several
factors, including:
o The cash flow requirements of each program;
o The estimated income tax effects of the purchase on each program;
o The amount of funds available to each program; and
o The length of time such funds have been available for investment.
Distribution of Units By An Affiliate.
The distribution of the Units will be managed on a "best-efforts" basis
through C.J.M. Planning Corp. which is an affiliate of the Investment Manager.
Possible Joint Investment With Affiliated Programs.
The Fund may invest in property jointly with another program sponsored
by Directors of the Fund or their affiliates. In such a situation, conflicts of
interest could arise between the joint venture partners.
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Manager's Representation of Fund in Audit Proceedings.
The Investment Manager will act as the "tax matters partner" pursuant
to Section 6231 of the Internal Revenue Code. This grants the Investment Manager
certain discretion and authority regarding extensions of time for assessment of
additional tax against you related to Fund income, deductions or credits and for
settlement or litigation of controversies involving such items. The positions
taken by the Investment Manager on tax matters may have differing effects on the
Fund's managers and you. Any decisions made by the Investment Manager with
respect to such matters will be made in good faith consistent with its fiduciary
duties to the Fund and the Investors. The Investment Manager, to the extent its
actions as tax matters partner do not constitute bad faith, gross negligence, or
breach of fiduciary duty with respect to receipt of compensation for services
may not be subject to any liability to you or the Fund for any error of
judgment, mistake of law or omission. See "Indemnification and Limitations on
Liability".
Lack of Separate Representation.
The Fund, the Investment Manager and you are not represented by
separate counsel. The attorneys and accountants who will perform services for
the Fund also perform services for affiliates of the Fund, including the
Investment Manager and C.J.M. Planning Corp. Without independent legal
representation, you may not receive legal advice regarding certain matters that
might be in your interest but contrary to the interest of the Investment Manager
and its affiliates. Should a dispute arise between the Fund and the Investment
Manager or their affiliates - or should negotiations or agreements between the
Fund and the Investment Manager, other than those existing or contemplated on
the effective date of this Prospectus, be necessary - the Investment Manager
will cause the Fund to retain separate counsel. Any future agreement
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between the Fund and the Investment Manager or its affiliates will provide that
it may be terminated at the option of the Fund upon 60 days' notice without
penalty to the Fund.
Affiliation of Selling Agent.
C.J.M. Planning Corp. is serving as "Distributor" for the offering of
Units. Accordingly, the "due diligence" investigation customarily performed by
an underwriter is being performed by an affiliate of the Investment Manager. We
believe, however, that such due diligence has, in fact, been exercised.
Moreover, under Rule 2810(b)(2) of the NASD Conduct Rules, each investment firm
that sells Units has an obligation to make an appropriate independent inquiry
about the offering.
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THE OFFERING
Plan Of Distribution.
We are offering, through C.J.M. Planning Corp. and any other brokers
selected by C.J.M. Planning Corp. to participate in soliciting prospective
purchasers of the Units, $25,000,000 of limited liability company interests in
the form of 250,000 Units at a price of $100 per Unit. The minimum investment
required of each Investor is 25 Units ($2,500). The Investment Manager has
already agreed to purchase 1,000 Units ($100,000). The offering period will
commence on the date hereof and terminate at the discretion of the Fund's Board
of Directors but in no event later than 15 months from the date hereof.
There will be no minimum offering. If the Fund is unable to sell
250,000 Units, the Fund will have less diversification than the Investment
Manager anticipates. No fractional Units will be sold.
Each Investor will be required to accept and adopt the provisions of
the Operating Agreement attached to this Prospectus as Exhibit A and to complete
and execute a Subscription Agreement and the Operating Agreement Signature Page
and Power of Attorney included herewith. At the time the prospective investor
submits a Subscription Agreement, he or she must tender a check to the Fund in
the amount of $100 for each Unit being purchased (minimum investment of $2,500).
Checks should be made payable to "THE OXBOW FUND, LLC." See "Who May Invest" and
"How to Invest." Units will only be sold to a prospective investor who
represents in writing that, at the time the investor executes the Subscription
Agreement, he or she meets the applicable suitability requirements.
The Investment Manager and Directors of the Fund have complete
discretion to reject any Subscription Agreement executed by any subscriber and
funds from a rejected subscriber
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will be returned promptly. Subscriptions may be rejected for a prospective
investor's failure to meet the suitability requirements, an over-subscription of
the offering, or for other reasons determined to be in the best interest of the
Fund. The Fund Directors and their affiliates may purchase Units, without
limitation, on the same terms as other Investors.
C.J.M. Planning Corp., and any other brokers selected by C.J.M.
Planning Corp. to participate in the Offering have agreed to use their "best
efforts" to sell the Units. None of these brokers are obligated to purchase
Units and resell them or to sell any or all of the Units. Participating brokers
in the offering will offer and sell Units on the same terms and conditions as
C.J.M. Planning Corp. C.J.M. Planning Corp. and any selected brokers who arrange
sales of Units will receive a sales charge equal to $7 per Unit. C.J.M. Planning
and any participating brokers will also be reimbursed for their accountable
expenses associated with their due diligence of the Fund.
Participating brokers and their controlling persons, will be
indemnified by the Fund against certain liabilities, including liabilities under
the Securities Act of 1933. As of the date of this Prospectus, no brokers other
than C.J.M. Planning Corp. have agreed to participate in the offer and sale of
Units.
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TAX ALLOCATIONS
Net profits of the Fund will be allocated for tax and accounting
purposes in the following manner:
(i) First, to the Members pro rata to restore Members' capital
accounts to the extent reduced by prior allocations of losses;
(ii) Second, eighty percent (80%) to the Investors (excluding
the Investment Manager) as a class (pro rata in accordance with their respective
capital contributions), until the Investors, as a class, have been allocated
aggregate profits equal to their capital contributions, and twenty percent (20%)
to the Investment Manager;
(iii) Third, thirty-five percent (35%) to the Investors
(excluding the Investment Manager) as a class (pro rata in accordance with their
respective capital contributions) and sixty-five percent (65%) to the Investment
Manager.
In general, losses and Fund operating expenses will be allocated to the Members
(including the Investment Manager) pro rata in accordance with their percentage
ownership of Units.
The following example illustrates the operation of the above allocation
formula. The dollar amounts used in the example have been chosen completely
arbitrarily and solely for the purposes of illustration, and are not meant to
reflect the actual expected results of Fund investments.
EXAMPLE. Assume that the Investors' aggregate capital contributions are
$900 and that the capital contribution of the Investment Manager is $100 (i.e.,
the Investors own, in the aggregate, 90% of the outstanding Units and the
Investment Manager owns 10% of the Units). The Fund incurs a net loss of $100 in
year 1. There is no net profit or net loss in years 2-5, nor
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are there any distributions to Members. In year 6, the Fund has a net profit of
$2,000. In year 7, the Fund realizes a net loss of $50 and then liquidates.
The net loss of $100 incurred in year 1 is allocated pro rata to the
Members according to their percentage ownership of Units, and thus $90 of net
loss is allocated to Investors and $10 is allocated to the Investment Manager.
In years 2 through 5, there are neither net profits nor net losses to allocate
to the Members. In year 6, the net profit of $2,000 is allocated in the
following manner: (i) $90 is allocated to the Investors and $10 is allocated to
the Investment Manager (i.e., until the net loss previously allocated to them
has been offset); (ii) the remaining $1,900 is allocated, first $900 to the
Investors (the amount of their capital contributions) and $225 to the Investment
Manager in order to satisfy the 80/20 split in tier two of the allocation
scheme; (iii) the balance of net profits ($775) is allocated $271.25 (35%) to
the Investors and $503.75 (65%) to the Investment Manager. In year 7, the net
loss of $50 is allocated $45 (90%) to the Investors and $5 (10%) to the
Investment Manger. The Fund then liquidates, without realizing any additional
net profits or net loss.
Accordingly, in this example, the Fund would have had an overall profit
of $1,850 which was allocated $1,126.25 to the Investors and $723.75 to the
Investment Manager. Assuming no distributions were made until liquidation, at
the end of year 7, the aggregate capital account balance of the Investors would
equal $2,026.25 and the capital account balance of the Investment Manager would
equal $823.75.
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DISTRIBUTIONS
Prior to liquidation of the Fund, the Management Committee of the Fund
will determine, in its sole discretion, the amount and timing of any
distributions to Investors of cash or other property. The business objective of
the Fund, in general, is to seek long-term capital appreciation. Moreover, most
of the investments of the Fund will be illiquid. Accordingly, it is unlikely
that any significant distributions of proceeds from Fund investments will be
made in the first three years of the Fund's operation. Distributions of assets,
if any, by the Fund will be made in the following manner:
(i) First, to the Investors (excluding the Investment Manager)
as a class (pro rata in accordance with their capital contributions) until they
have received aggregate distributions pursuant to this tier in an amount equal
to their adjusted capital accounts;
(ii) Second, eighty percent (80%) to the Investors (excluding
the Investment Manager), as a class (pro rata in accordance with their capital
contributions) and twenty percent (20%) to the Investment Manager, until the
Investors, as a class, have received aggregate distributions pursuant to this
tier in an amount equal to their capital contributions;
(iii) Third, thirty-five percent (35%) to Investors and
sixty-five percent (65%) to the Investment Manager.
As soon after the date of the Fund's dissolution as possible, the
Members will receive a liquidating distribution of the remaining assets of the
Fund which distribution shall be pro rata in accordance with the their
respective positive capital account balances.
EXAMPLE: Using the same facts as set forth in the example in the "Tax
Allocations" section above, distributions to Members could be as follows: In
years 1 through 5, no distributions would be made. In year 6, assume the
Management Committee determines to
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distribute the entire $2,000 of net profits. Such amount would be distributed
(i) first, $900 to the Investors (i.e., the amount of their adjusted capital
accounts); (ii) second, the remaining $1,100 would be distributed, $880 (80%) to
the Investors (excluding the Investment Manager) and $220 (20%) to the
Investment Manager. Since the Investors would not yet have received aggregate
distributions pursuant to the second tier in the distribution scheme equal to
their capital contributions (i.e., $900), no distributions would be made
pursuant to tier three (i.e., the 35%/65% split). In year 7 the Fund liquidates,
after realizing a $50 loss for the year but a total of $1,850 in profits for the
entire term.
Thus, on liquidation, the Fund will have $850 to distribute ($1,000
initial capital contributions plus $1,850 total profits equals $2,850 less
$2,000 (year 6 distribution) equals $850). This will be distributed $246.25 to
the Investors and $603.75 to the Investment Manager, i.e., in accordance with
the positive balances in their capital accounts./1 Aggregate distributions to
Investors over the term of the Fund totaled $2,026.25 and to the Investment
Manager, $823.75.
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1 Capital accounts are calculated as follows:
The Investment Manager's capital account during the term was increased
by $100 (initial capital contribution) plus $738.75 of aggregate profit
allocations, less $15 in net loss allocations and $220 of distributions, leaving
a balance upon liquidation of $603.75.
Investors' capital accounts during the term were increased by $900
(initial capital contribution) plus $1,261.25 of aggregate profit allocations,
less $135 in net loss allocations and $1,780 of distributions, leaving a balance
upon liquidation of $246.25.
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INCOME TAX ASPECTS
The following discussion summarizes the significant federal income tax
considerations in connection with an investment in the Fund by individuals who
are United States citizens or resident aliens. It is not feasible to comment on
all of the federal, state, and local income tax consequences resulting from the
organization of the Fund and the conduct of its contemplated operations. THESE
TAX CONSEQUENCES CAN VARY SIGNIFICANTLY WITH YOUR PARTICULAR SITUATION.
MOREOVER, THE RELEVANT TAX PROVISIONS ARE COMPLEX AND SUBJECT TO CHANGE. YOU
SHOULD CONSULT YOUR OWN TAX ADVISOR AS TO THE INCOME AND OTHER TAX CONSEQUENCES
TO YOU OF AN INVESTMENT IN THE FUND.
This discussion is based on the relevant provisions of the Code and on
the applicable Treasury regulations thereunder (including proposed regulations)
(the "Regulations"), administrative rulings and procedures, and judicial
decisions. There is no assurance that the present federal income tax laws or
Regulations affecting the Fund and its proposed operations will not be changed
by new legislation or Regulations that could affect you adversely or that the
Internal Revenue Service will agree with the interpretation of the current
federal income tax laws and regulations summarized below. For purposes of this
discussion, the Investment Manager is included in the term "Investor" unless the
context indicates otherwise.
Fund Status.
Classification Of The Fund. Subject to the publicly-traded partnership
rules discussed below, the Fund will be treated as a partnership, as opposed to
a corporation, for federal tax purposes unless the Fund affirmatively elects to
be treated as a corporation for federal tax purposes. The Investment Manager has
no intention of making such an election and does not
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anticipate any circumstances under which such an election would be made. If the
Fund were treated as a corporation for federal income tax purposes, all of its
income would be subject to tax at corporate rates, distributions to Investors
generally would be taxable as dividends, and Investors would not be entitled to
report any portion of the income or loss of the Fund on their returns.
Publicly-Traded Status. The Revenue Act of 1987 ("1987 Tax Act")
contains a number of provisions affecting the tax treatment of so-called
"publicly-traded" partnerships ("PTPs"). Most significantly, under the 1987 Tax
Act, a PTP is generally treated as a corporation for federal income tax
purposes. As mentioned above, if the Fund were treated as a corporation for
federal income tax purposes, there would be potentially adverse consequences to
the Investors unless the Fund elected, and under the Code qualified, to be
treated as a regulated investment company ("RIC").
In particular, (i) an Investor's share of the income, gain, losses,
deductions, and tax credits of the Fund would not be includable in that
Investor's federal income tax return, (ii) any income or gain of the Fund would
be subject to federal income tax at the rates applicable to corporations, and
(iii) distributions by the Fund to the Investors, other than liquidating
distributions, would constitute dividend income to the extent of the earnings
and profits of the Fund, distributions reclassified as dividends would be taxed
as ordinary income to the Investors, and the payment would not be deductible by
the Fund in computing its taxable income.
A partnership (such as the Fund) is considered "publicly-traded" only
if (i) interests in such partnership are traded on an established securities
market or (ii) interests in such partnership are readily tradable on a secondary
market (or the substantial equivalent thereof). The legislative history of the
1987 Tax Act states that an established securities market includes any national
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securities exchange registered under the Securities Exchange Act of 1934 or
exempted from registration because of the limited volume of transactions, any
local exchange, and any over-the-counter market. The Units will not be traded on
an established securities market.
The legislative history of the 1987 Tax Act also states that a
secondary market in interests in a partnership is generally indicated by the
existence of a person making a market in such interests. The substantial
equivalent of a secondary market exists where the holder of an interest has a
readily available, regular and ongoing opportunity to sell or exchange his
interest through a public means of obtaining or providing information of offers
to buy, sell or exchange interests. However, unless the offers to buy or sell
such interests are normal in the secondary market, the interests will not be
considered readily tradable on the substantial equivalent of a secondary market.
The Regulations provide certain safe harbors that, if satisfied, will
result in interests in the Fund not being treated as readily tradable on a
secondary market or the substantial equivalent thereof. The Operating Agreement
restricts sales of Units to the extent necessary to avoid the creation of a
secondary market (or the substantial equivalent thereof) for the Units and is
designed to comply with the safe harbors of the Regulations. The Investment
Manager has represented that it intends to exercise its discretion regarding
transfers of Units in a manner designed to prevent the Fund from becoming a PTP.
Based on the Operating Agreement and these representations, the Fund should be
treated as a partnership for federal income tax purposes rather than a PTP
taxable as a corporation.
Federal Income Taxation of Partnerships and Investors Generally.
Under present law, a limited liability company which is treated for
federal income tax purposes as a partnership is not subject to Federal income
tax as an entity. Instead, each Investor
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is required to report on such Investor's federal income tax return such
Investor's allocable share of the Fund's income, gains, losses, deductions, and
credits for the taxable year of the Fund ending with or within such Investor's
taxable year, without regard to any Fund distributions. The Fund will file an
annual information return with the IRS and furnish information to you (on Form
K-1) which will allow you to determine your respective U.S. income tax
liabilities.
It is possible that you could recognize income from Fund operations but
not receive any (or sufficient) cash distributions from the Fund to pay the tax
with respect to that income. The receipt of a cash (and certain marketable
securities treated as cash under Code Section 731) distribution from the Fund by
you will result in the recognition of gain to you only to the extent such cash
(and certain marketable securities treated as cash under Code Section 731)
distribution exceeds your adjusted tax basis in your Units.
Allocations Of Profit And Loss. Your allocable share of Fund income,
gain, deduction, loss, or credit for federal income tax purposes generally is
determined in accordance with the provisions of the Operating Agreement;
however, if an allocation in an Operating Agreement does not have "substantial
economic effect" under Code Section 704, the IRS can reallocate the items "in
accordance with your interest in the Fund (determined by taking into account all
facts and circumstances)."
The Regulations under Code Section 704 provide three ways in which an
allocation contained in an Operating Agreement will be respected for federal
income tax purposes: first, if the allocation has substantial economic effect as
specifically determined thereunder; second, if, taking into account all facts
and circumstances, the allocation is in accordance with the Investor's interest
in the Fund; and third, if the allocation is deemed to be in accordance with the
Investor's interest in the Fund under certain special rules.
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In general, an allocation of income, gain, loss, or deduction (or any
item thereof) to an Investor will have economic effect under the Regulations if,
and only if, (i) the allocation is reflected in that Investor's capital account,
which capital account is maintained in accordance with certain Regulatory
requirements; and (ii) any Investor with a deficit in that Investor's capital
account following the liquidation of that Investor's interest is required to
restore the amount of the deficit to the Fund by the later of the end of the
taxable year of the liquidation or 90 days after the liquidation. Where an
Investor has no obligation to restore a deficit in that Investor's capital
account, an allocation will still be considered to have economic effect if the
Operating Agreement contains a so-called "qualified income offset" and the
allocation does not cause or increase a deficit balance in such Investor's
capital account.
In order for the economic effect of an allocation to be considered
substantial, the Regulations require that the allocation must have a reasonable
possibility of substantially affecting the dollar amounts to be received by the
Investors, independent of tax consequences. In applying the substantiality test,
tax consequences that result from the interaction of the allocation with such
Investor's tax attributes that are unrelated to the Fund must be taken into
account.
Under the Operating Agreement, allocations are reflected by appropriate
adjustments to the Investors' capital accounts, and liquidation proceeds are
distributed in accordance with the Investors' positive capital account balances.
Although the Investors are not obligated to restore any deficit capital account
balance on liquidation, such a deficit balance should not arise since the
Operating Agreement prohibits the allocation of losses to an Investor to the
extent such an allocation would result in a deficit capital account balance. The
Operating Agreement also contains a "qualified income offset" provision as
required by the Regulations. In addition, it
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would appear that the allocations under the Operating Agreement affect the
dollar amounts to be received by the Investors, independent of tax consequences.
If the IRS were successful in contending that any Fund allocations should not be
respected for federal income tax purposes, such a determination could result in
reallocation between the Investment Manager and the Investors of a part of the
Fund's income, gains, losses, deductions, and credits in a manner that could
have an adverse effect on the Investors.
Taxation Of Fund Operations.
One of the Fund's principal sources of income is expected to be from
the sale of equity interests in the companies in which it invests. Assuming that
the Fund is not characterized as a dealer in securities, the sale by the Fund of
any equity interest in a company in which the Fund invests (assuming such
company is an operating company as opposed to a pass-through entity which
invests in other companies) should result in capital gain or loss which will be
passed through to the Investors.
Limitations On Deduction Of Fund Losses.
Adjusted Basis. An Investor is entitled to deduct on that Investor's
federal income tax return his or her distributive share of a Fund loss, but not
in excess of the Investor's adjusted basis in his or her interest in the Fund
(and subject to the other loss limitations discussed below). The adjusted basis
in an Investor's Fund interest is equal to the amount of cash and the adjusted
basis of any property (net of liabilities) which that Investor contributed to
the Fund, increased by the Investor's distributive share of Fund taxable income
and decreased (but not below zero) by distributions to the Investor from the
Fund (including constructive cash distributions resulting from a decrease in the
Investor's share of Fund liabilities and the allocation of Fund losses).
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If an Investor's distributive share of a Fund loss for any Fund taxable
year exceeds the adjusted basis in the Investor's Fund interest at the end of
that taxable year, such excess loss may not be deducted by the Investor at that
time but may be carried over and deducted in any later year if, and to the
extent, the adjusted basis in the Investor's Fund interest at the end of the
later taxable year exceeds zero (and subject to the other loss limitations
discussed below).
Passive Losses. Code Section 469 provides, in part, that losses from
trade or business and related activities in which the taxpayer does not
materially participate - so-called "passive losses" - are deductible only up to
the aggregate income generated by those types of activities - so-called "passive
income." If the Fund is deemed to be engaged in trade or business (see
discussion below), losses allocated to the Investors that are attributable to
trade or business expenses or losses of the Fund may constitute passive losses.
If losses of the Fund are deemed to be "passive" they will not be available to
offset an Investor's non-passive income, i.e., income from wages, portfolio
investments (including interest on the Fund's uninvested funds), or active trade
or business activities in which such Investor materially participates. Unused
passive losses (i.e. "suspended" losses) of an Investor can be carried over to
offset passive income received in future years. In addition, upon a fully
taxable disposition of a taxpayer's entire interest in a passive activity to an
unrelated party, the amount of any suspended losses will be allowed against
income that is not from a passive activity, after first being applied to passive
income in the year of disposition. (See, however, the capital loss rules
discussed below.)
Even if the Fund is deemed to be engaged in a trade or business and the
passive loss rules are applicable, a loss from the sale or disposition of equity
investments held by the Fund likely will not constitute passive income or loss;
thus, gain, if any, may not be offset by an Investor's
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prior or current passive losses. See "Passive Losses" above. Instead, such gain
or loss likely will be considered attributable to property held for investment.
Capital Losses. Capital losses of individuals in excess of $3,000
annually are deductible only against capital gains, although excess capital
losses may be carried forward by individual taxpayers indefinitely.
Non-Trade Or Business Expenses. Expenses incurred in connection with an
investment that is not considered a trade or business are deductible by
individuals, if at all, under Code Section 212. Under Code Section 67, Code
Section 212 expenses are deductible by an individual Investor only to the extent
such deductions (along with other so-called "miscellaneous itemized deductions")
exceed 2% of such Investor's adjusted gross income. The Fund expenses (including
management fees) passed through to the Investors would be subject to this
limitation if the Fund is deemed not to be engaged in a trade or business.
Fund As A Trade Or Business. There is substantial uncertainty whether
the activities of the Fund will constitute a trade or business as that concept
has been interpreted by the IRS and the courts because of the factual nature of
such determination and thus potential investors should be aware that all or a
substantial portion of the Fund's expenses may be subject to the limits of Code
Section 67; if so, such expenses would be deductible only to the extent that the
Investor's aggregate miscellaneous itemized deductions (including such expenses)
exceeded 2% of such Investor's adjusted gross income. The determination of
whether the Fund is engaged in a trade or business will also impact the
characterization of income and losses from the Fund for purposes of applying the
passive loss rules under Code Section 469 (see "Passive Losses", above).
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Investment Interest Expense. Code Section 163(d) generally limits the
amount of investment interest (i.e., interest incurred to purchase or carry
property held for investment) that a noncorporate taxpayer can deduct. The
deduction is limited to the amount of such taxpayer's investment income.
However, the investment interest deduction is not a miscellaneous itemized
deduction under Code Section 67, and thus, is not subject to the limitation that
it exceed 2% of a taxpayer's adjusted gross income in order to be deductible.
Investment interest that cannot be deducted for federal income tax purposes for
any year because of the foregoing limitation may, subject to further
limitations, be carried over and treated as investment interest paid in
succeeding taxable years.
It should be anticipated that interest paid by the Fund on any
borrowings, as well as any interest paid by you on borrowings incurred to
purchase a Unit, may be considered "investment interest." Any investment income
from the Fund passed through to the Investors would qualify as investment income
that would increase the amount of investment interest that each Investor would
be able to deduct.
The foregoing rules will not apply to the extent losses from the Fund
constitute "passive losses" as described above. In such case, interest expense
(either of the Fund or of a Investor) attributable to the passive activity in
question will be treated as a passive activity deduction and not as investment
interest.
Sale Of An Interest In The Fund.
The sale or exchange (including the liquidation) of a Fund interest by
you ordinarily will result in a capital gain or loss, but can result in the
recognition of ordinary income under certain circumstances. Code Section 751
treats gain on the sale of a Fund interest that is attributable to either (i)
unrealized receivables of the Fund or (ii) substantially appreciated Fund
inventory as
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ordinary income. It is not anticipated that the Fund will have significant
amounts, if any, of unrealized receivables or inventory.
Fund Organizational And Syndication Expenditures.
Expenses of organizing the Fund (organization expenses) are not
deductible by the Fund or any Investor. The Fund may elect to amortize
organizational expenses over a period of not less than 60 months. Syndication
expenses may not be deducted or amortized by the Fund.
Management Fee.
The Operating Agreement provides for payment to the Investment Manager
of a Management Fee. If the Management Fee is deductible only under Code Section
212, Investors would be subject to the limitations under Code Section 67
described above under "Limitations on Deduction of Fund Losses - Non-Trade or
Business Expenses." The IRS could contend that a portion of the Management Fee
represents a nondeductible syndication cost or an amortizable organizational
expense. If the IRS were successful in this argument, the deductions allocated
to the Investors would be decreased.
Alternative Minimum Tax.
The Code provides for an alternative minimum tax to be paid by
corporate and individual taxpayers to the extent such tax exceeds the taxpayer's
regular federal income tax liability. Alternative minimum taxable income is
generally the taxpayer's taxable income as recomputed using certain adjustments
plus the amount of the taxpayer's items of tax preference. In determining
alternative minimum taxable income, passive activity losses, as recomputed, are
not deductible. In addition, investment interest in excess of investment income
is not allowable as a deduction against alternative minimum taxable income even
if deductible in computing regular
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tax liability. In general, an investment in the Fund is not expected to generate
material items of tax preference for individuals.
The application of the alternative minimum tax depends on the facts and
circumstances of each taxpayer's situation and the computation of such tax is
complicated. Each prospective investor is urged to consult his or her tax
advisor to determine whether he or she will be subject to the alternative
minimum tax and the potential effects thereof on an investment in the Fund.
Miscellaneous Provisions.
No Section 754 Election. Due to the tax accounting burden such election
imposes, the Fund will most likely not file an election under Code Section 754
(although it has the flexibility to do so) to adjust the basis of Fund property
in the case of a transfer of a Unit or the distribution of property by the Fund.
As a consequence, a transferee might be subject to tax upon the portion of the
proceeds of a sale or disposition of Fund equity securities that represents, as
to that transferee, a return of capital. The decision not to file an election
may adversely affect the price that potential transferees would be willing to
pay for the Units.
Interest And Penalties. If Fund income or loss is subsequently adjusted
by the IRS, you will be subject to interest on any deficiency from the date of
the original return. Additionally, a penalty equal to 20% of the understatement
may be imposed for the "substantial understatement" of tax liability even if the
taxpayer was not negligent or fraudulent in filing the taxpayer's tax return.
"Substantial understatement" is defined as an understatement for the taxable
year that exceeds the greater of 10% of the required tax or $5,000 ($10,000 for
most corporations).
Fund Audit Rules. The tax treatment of Fund items of income and
deduction generally will be determined at the Fund level. You will be required
to file your tax returns in a manner consistent with the information returns
filed by the Fund, unless you file a statement with your
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tax return describing any inconsistency. In addition, the Investment Manager
will be the Fund's "tax matters partner" and as such will have authority to make
certain decisions with respect to any IRS audit and any court litigation
relating to the Fund. In general, the law limits the rights of less than one
percent partners to participate in such proceedings without notifying the IRS
and the tax matters partners.
Possible Changes In Federal Income Tax Laws. The federal income tax
matters discussed herein are based on the laws in effect on the date of this
Prospectus; however, tax laws are subject to frequent changes. When these
changes occur, the adopted statutes, Regulations, rulings, and judicial
decisions may also be made retroactive. Accordingly, there can be no assurance
that future changes in the Code, Regulations, IRS rulings, or judicial decisions
will not adversely affect your investment in the Fund. The content of any future
tax legislation is impossible to predict; therefore, you are urged to consult
your own tax advisors regarding the possible tax consequences of future
legislation on your investment in the Fund.
Tax Treatment Of Foreign Investors.
The federal income tax treatment of nonresident foreign individuals and
foreign corporations is complex and will vary according to each such Investor's
particular circumstances. Prospective foreign investors are urged to consult
their tax advisors with regard to (ii) the tax treatment by their country of
residence and (ii) the impact of United States federal, state, and local income,
estate, and gift tax laws on an investment in the Fund. The Fund reserves the
right to refuse subscriptions from non-U.S. residents.
State Law Considerations.
The Fund may operate in states and localities that impose a tax on the
Fund's assets or income based on the Fund's activities in those jurisdictions.
You may be subject to an obligation
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to file tax returns and pay income taxes (including, in some jurisdictions, a
minimum tax) and estate or inheritance taxes in states and localities in which
the Fund does business as well as in your own state of domicile. In particular,
if you are is a nonresident of New Jersey you may be required to file tax
returns in New Jersey and may be obligated to pay New Jersey's income tax on
your share of Fund income attributable to New Jersey. Depending on applicable
state and local laws, deductions that are available to the Fund and the
Investors for federal income tax purposes may not be available for state and
local income tax purposes. In addition, corporations investing in the Fund may
become subject to a corporate income tax including a corporate minimum tax in
those states in which the Fund conducts business, as a result of their
investment in the Fund. You are urged to consult their tax advisors with respect
to these matters.
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ERISA CONSIDERATIONS
The provisions of the Employee Retirement Income Security Act of 1974,
as amended, ("ERISA") are extremely complex. Consequently, investors that are
subject to ERISA should consult with their own advisors prior to investing in
the Fund.
A fiduciary of a pension, profit-sharing or other employee benefit plan
(an "Employee Plan") subject to (ERISA) should consider all applicable fiduciary
standards under ERISA, in the context of the Employee Plan's particular
circumstances, before authorizing an investment of all or any portion of such
Employee Plan's assets in Units of the Fund. Among other factors, such fiduciary
should consider (i) whether the investment satisfies the prudence requirements
of Section 404(1)(B) of ERISA; (ii) whether the investment satisfies the
diversification requirements of Section 404(a)(1)(C) of ERISA; (iii) whether the
investment is in accordance with the documents and instruments governing the
Employee Plan as required by Section 404(a)(1)(D) of ERISA, (iv) whether a
prohibited transaction in violation of Section 406 of ERISA or Section 4975 of
the Code will occur; and (v) how the definition of the term "plan assets" under
the Department of Labor regulations interpreting ERISA regarding the definition
of the "plan assets" affects the proposed investment. In addition, persons who
control the investments of individual retirement accounts ("IRAs") should
consider items listed above, as well as the prohibited transaction rules of
Section 408(e)(2) of the Code.
ERISA does not define the term "plan assets." However, under
regulations promulgated by the Department of Labor, the assets of certain pooled
investment vehicles, including certain partnerships, may be treated as "plan
assets." If the assets of the Fund are deemed to be "plan assets" of the
Employee Plans or IRAs that own Units in the Fund, (i) the prudence standards
and other fiduciary provisions of ERISA will extend to investments made by the
Fund; (ii) the person
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or persons who have investment discretion over the assets of the Employee Plans
and IRA that invest in the Fund will be liable under ERISA (as fiduciaries) for
investments made by the Fund that do not conform to ERISA's fiduciary standards;
and (iii) certain transactions that the Fund might enter into in the future in
the ordinary course of its business and operation might constitute prohibited
transactions of an Employee Plan or IRA under ERISA or the Code. A prohibited
transaction, in addition to triggering the potential for personal liability on
the part of Employee Plan and IRA fiduciaries under ERISA, may result in the
imposition of an excise tax under the Code upon the disqualified person
participating in the prohibited transaction, or result in disqualification of
the IRA.
The Fund's assets would not be considered to be "plan assets" under
ERISA so long as, among other things, the Units are "publicly-offered
securities" or the Fund qualifies as a "venture capital operating company"
within the meaning of such regulations. Under the regulations, an equity or
partnership interest, such as a Unit, will be considered to be a
"publicly-offered security" if such interest is widely held, freely
transferable, and either (i) part of a class of securities registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934 or (ii) sold to a
plan as part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
provided that the class of securities are thereafter registered under the
Securities Exchange Act of 1934 within a specified time period. Under the
regulation, a "venture capital operating company" is generally an entity that
invests 50% or more of its assets in operating companies over which the entity
exercises certain management rights.
The Investment Managers believe that, under the regulations, Units will
be deemed to be "publicly-offered securities." Moreover, the Investment Managers
also expect the Fund to
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qualify as a "venture capital operating company." In either event, the Fund's
underlying assets should not be deemed to be "plan assets."
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RESTRICTIONS ON TRANSFER
It is anticipated that there will never be a public market for the
Units and, therefore, you should not expect to readily liquidate your investment
or to use the Units as collateral for a loan. If you wish to transfer Units, you
might not be able to find a buyer for the Units due to market conditions or the
general illiquidity of the Units. Moreover, if you are able to sell your Units,
depending upon the price negotiated, you might receive less than the amount of
your original investment. No representation is made that the Units could be
resold for their original purchase price.
The Operating Agreement for the Fund allows transfers only to the
extent that they comply with certain safe harbors created by the Internal
Revenue Service from treatment as a "publicly-traded partnership" for tax
purposes. Counsel for the Fund has advised us that these limitations are
necessary to fall within the safe harbor provisions from treatment as a
publicly-traded partnership for tax purposes.
Under the Fund Operating Agreement, any substituted investor must, as a
condition of receiving any interest in the Fund, agree in the instrument of
assignment to become an Investor and pay reasonable legal fees and filing costs
in connection with his substitution as an Investor. In addition, the Units may
not be sold or transferred unless the Directors approve such sale or transfer
and have received an opinion of counsel that the sale or transfer does not
jeopardize the Fund's existence or its status as a partnership for tax purposes.
A transfer of Units will be recognized by the Fund only as of the last day of
the quarter in which written evidence respecting the assignment is received by
the Fund in form satisfactory to the Directors.
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INVESTMENT COMPANY ACT REGULATION
The Small Business Investment Incentive Act of 1980 became law on
October 21, 1980. This law modified the provisions of the Investment Company Act
that are applicable to an entity, such as the Fund, that elects to be treated as
a "business development company" (or "BDC"). The Fund has elected to be treated
as a BDC and is considered to be a closed-end, non-diversified investment
company as those terms are defined under the Investment Company Act. The Fund
may not withdraw its election without first obtaining the approval of Investors
holding a majority of the outstanding Units. The following is a brief
description of the Investment Company Act, as modified by the Small Business
Investment Incentive Act of 1980. However, it is not intended to be a detailed
analysis of that law.
A BDC must be operated for the purpose of making investments in
securities of the types required by the Investment Company Act. These types
include certain present and former "eligible portfolio companies" and certain
bankrupt or insolvent companies. A BDC need not invest in all of the possible
types of securities. Business Development Companies must also make available
significant managerial assistance to such "portfolio companies." An "eligible
portfolio company" generally is a United States company that is not an
investment company (except for wholly-owned Small Business Investment Companies
licensed by the Small Business Administration) and that (i) does not have a
class of securities registered on a national securities exchange or included in
the Federal Reserve Board's over-the-counter margin list, (ii) is actively
controlled by the BDC either alone or as part of a group acting together and an
affiliate of the BDC is a member of the portfolio company's board of directors,
or (iii) meets such other criteria as may be established by the Securities and
Exchange Commission. Control, under the
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Investment Company Act, is presumed to exist where the BDC owns 25% of the
outstanding voting securities of the a company.
The Investment Company Act prohibits or restricts the Fund from
investing in certain types of companies, such as brokerage firms, insurance
companies, and investment banking firms. Moreover, the Investment Company Act
limits the type of assets that the Fund may acquire to "qualifying assets" and
certain assets necessary for its operations (such as office furniture,
equipment, and facilities) if, at the time of the acquisition, less than 70% of
the value of the Fund's assets consists of qualifying assets. Qualifying assets
include: (i) securities of companies that were "eligible portfolio companies" at
the time that the Fund acquired their securities; (ii) securities of bankrupt or
insolvent companies that are not otherwise "eligible portfolio companies"; (iii)
securities acquired as follow-on investment in companies that were eligible at
the time of the Fund's initial acquisition of their securities but are no longer
eligible, provided that the Fund has maintained a substantial portion of its
initial investment in those companies; (iv) securities received in exchange for
or distributed on or with respect to any of the foregoing; and (v) cash items,
government securities, and high-quality, short-term debt. The Investment Company
Act also places restrictions on the nature of the transactions in which, and the
persons from whom, securities can be purchased in order for the securities to be
considered qualifying assets.
The Fund is permitted by the Investment Company Act, under specified
conditions, to issue multiple classes of senior debt and a single class of Fund
interests senior to the Units if its asset coverage, as defined in the
Investment Company Act, is at least 200% after the issuance of the debt or the
Fund interests. In addition, provision must be made to prohibit any distribution
to
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<PAGE>
Investors or the repurchase of any Units unless the asset coverage ratio is at
least 200% at the time of the distribution or repurchase.
Under the Investment Company Act as amended by the Small Business
Investment Incentive Act of 1980, certain of the transactions involving the Fund
and its affiliates (as well as affiliates of those affiliates) require the prior
approval of a majority of the Independent Directors and a majority of the
Independent Directors having no financial interest in the transactions.
Transactions involving certain closely affiliated persons of the Fund, including
its Investment Manager must be approved by the Securities and Exchange
Commission. In general, (i) any person who owns, controls, or holds with power
to vote, more than 5% of the outstanding Units, (ii) any director, executive
officer, or general partner of that person, and (iii) any person who directly or
indirectly controls, is controlled by, or is under common control with, that
person, must obtain the prior approval of a majority of the Independent
Directors and, in some situations, the prior approval of the Securities and
Exchange Commission, before engaging in certain transactions involving the Fund
or a "portfolio company" controlled by the Fund. The Investment Company Act
generally does not restrict transactions between the Fund and its "eligible
portfolio companies."
In accordance with the Investment Company Act, a majority of the
Directors are not interested persons as defined in the Act. See "Management of
the Fund."
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SUMMARY OF OPERATING AGREEMENT
If you invest in this Offering you will be a "Member" of the Fund and
your rights in the Fund will be established and governed by the Operating
Agreement that is enclosed with this Prospectus as Exhibit A. An Operating
Agreement Signature Page and Power of Attorney is also enclosed with this
Prospectus and gives the Management Committee the power to sign the Operating
Agreement and take certain other actions on your behalf. You and your advisors
should carefully review the Operating Agreement. The following summarizes
certain provisions of it, but is not as complete or as detailed as the Operating
Agreement itself.
Some provisions of the Operating Agreement are described in other
sections of this Prospectus:
o For a discussion of compensation and payments to the managers and
Directors, see "Compensation of the Investment Manager, Its
Affiliates and the Directors";
o For a discussion of the distribution of cash and/or property and
the allocation of profits and losses for tax purposes, see "Tax
Allocations" and "Distributions";
o For a discussion of investment objectives and policies, see
"Investment Objective and Principal Strategies";
o For a discussion of the reports to be received by the Investors,
see "Reports to Investors."
Term And Dissolution.
The Operating Agreement provides that the Fund will be dissolved and
liquidated at any of the following times or events:
o March 31, 2010 (unless extended by the Directors for up to 4
additional years);
o The decision of Investors holding a majority of the Units;
o The sale or disposition of all assets;
o The return of all capital contributions to Investors.
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Return Of Capital.
You will have no right to demand the return of your capital
contribution prior to dissolution and liquidation of the Fund.
Voting Rights.
As a Member of the Fund, you will have the right to vote on and approve
the following matters:
o Amendments to the Operating Agreement;
o Removal of the Investment Manager or a Fund Director;
o Election of a new Investment Manager;
o Election of the Fund's Directors;
o The sale of all or substantially all of the assets of the Fund;
o Dissolution of the Fund by the Members.
o Withdrawal of the Fund's election to be treated as a business
development company.
You may vote at a meeting or by written consent. In either case, the
vote of the holders of the majority of the Units outstanding will decide each
matter, except that Directors may be elected if a nominee receives more votes
than a competing nominee so long as the holders of a majority of the Units
outstanding vote in person or by written consent.
Meetings.
The Directors are required to call a meeting of Members at least once
every two years. Otherwise, no regular or periodic meeting of Members is
required or contemplated. Upon delivery of proper notification, the Fund's
Directors may at any time call a meeting of the Investors. In addition,
Investors holding at least 10% of the Units have the right to request that the
Directors call a meeting. After receipt of a request for a meeting, the
Directors are required
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<PAGE>
to send notice to you of the meeting within 10 days and hold the meeting at the
time requested (which must be more than 15 days and less than 60 days after the
request).
Liabilities Of Investors.
You will not be liable for any obligations of the Fund in excess of
your capital, plus your share of undistributed profits. However, if you receive
a distribution from the Fund and after such distribution the liabilities of the
Fund exceed the fair value of the Fund's assets (and you had knowledge of this
fact at the time of the distribution) you may be required to return such
distribution to the Fund. You will not have the right to a return of your
capital contribution except in accordance with the distribution provisions of
the Operating Agreement.
Rights, Power And Duties Of The Managers.
The Fund's Directors will have the exclusive right to manage the
business of the Fund. The Investment Manager, under the authority of the Fund's
Directors, will be responsible for the selection, acquisition, sale, financing
and refinancing of the Fund's investments. Certain powers and duties of the
Board have been delegated to a Management Committee of the Board comprised of
the three Affiliated Directors. C.J.M. Asset Management, LLC will initially
serve as Investment Manager.
Indemnification and Limitations on Liability.
The Fund's Directors and members of the Management Committee will not
be liable to the Fund or the Investors for any breach of any duty owed to the
Fund or Investors provided such act or omission was made in good faith, did not
breach such person's duty of loyalty to the Fund and did not result in improper
personal benefit. Additionally, the Fund will indemnify the Directors and
members of the Management Committee for any claim or liability arising out of
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their activities on behalf of the Fund, provided such activities were conducted
in good faith and the claim or liability was not the result of a breach of
loyalty to the Fund.
Similarly, the Investment Manager will not be liable to the Fund or the
Investors for any act or omission related to its services rendered to the Fund
absent bad faith, negligence, reckless disregard for its obligations to the Fund
or a breach of its fiduciary duty to the Fund.
Withdrawal Or Removal Of A Manager.
The Investment Manager may not withdraw from the Fund without providing
a substitute investment manager. Any substitute investment manager must be
approved by the Management Committee and shall serve until the next regular
meeting of Members or until a successor Investment Manager has been approved and
elected. The Investment Manager and any of the Fund's Directors shall be
expelled or replaced for cause or upon its or his respective bankruptcy or
insolvency or upon the vote of the holders of a majority of the outstanding
Units.
Substituted Investors; Assignees.
You will not have the right to substitute an investor in your place
unless the substituted investor has agreed in the instrument of assignment to
become a Member and has paid all expenses in connection with admission as a
substituted investor. In addition, you may not sell or transfer your Units
unless the Directors have received an opinion of counsel that the sale or
transfer does not jeopardize the Fund's existence or its status as a partnership
for tax purposes. An assignee who does not become a substitute Member as
provided above will only have the right to receive the distributions from the
Fund to which the assigning Investor would have been entitled if no such
assignment had been made. Such assignee will have no right to require any
information or account of the Fund's transactions or to inspect the Fund's
books. Furthermore, there are significant restrictions on the ability of an
Investor to sell or transfer his or her Units.
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<PAGE>
Appointment Of The Fund's Management Committee As Attorneys-In-Fact.
You will irrevocably constitute and appoint the Fund's Management
Committee, and each member thereof individually, to be your true and lawful
attorney-in-fact, with full power to execute such documents as may be necessary
or appropriate to carry out the provisions of the Operating Agreement.
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<PAGE>
REPORTS TO INVESTORS
The books and records of the Fund will be maintained at its principal
offices and will be open for examination and inspection by the Investors during
reasonable business hours. The Fund will furnish a list of names and addresses
and number of Units held by all Investors to any Investor who requests such a
list in writing for a proper purpose, with costs of photocopying and postage to
be borne by the requesting Investor. The assignee of an Investor does not have a
right to receive any reports unless such assignee is admitted as a substitute
Member in accordance with the Operating Agreement.
By March 31 of each year, the Fund will use its best efforts to
distribute to each Investor all information necessary for the preparation of
Investor's Federal Income Tax Returns. A separate report will be issued, solely
for purposes of asset evaluation by tax-qualified plans, that will contain the
managers' estimate of the fair market value of the Units.
Within 120 days after the end of each fiscal year, the Fund will also
distribute to the Investors an annual report containing a balance sheet and
statements of operations, changes in members' equity and cash flows (which will
be prepared on a GAAP basis of accounting and will be examined and reported upon
by an independent public accountant) and a report of the Fund's activities
during the period reported upon. Such annual report will describe all
reimbursements to the Investment Manager and its affiliates and all
distributions to Investors, including the source of such payments.
Within 60 days after the end of each quarter, the Fund will also
distribute to the Investors, a report containing an unaudited condensed balance
sheet, condensed statements of operation, and a related cash flow statement,
together with a detailed statement describing all real properties, if any,
acquired (including the geographic locale and the plan of operation, the
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appraised value and purchase price and all other material information), setting
forth all fees, if any, received by the managers or their affiliates and
describing the services rendered for such fees.
Finally, when and if required by applicable SEC rules, the Fund will
make available to Investors, upon request, the information set forth in SEC Form
10-Q within 45 days after the close of each quarter and SEC Form 10-K within 90
days after the close of each fiscal year. The managers are permitted to combine
such reports so long as they are distributed in a timely manner.
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SALES MATERIALS
Sales Material May Be Used in Connection with this Offering Only When
Accompanied or Preceded by the Delivery of this Prospectus.
Only selling materials which indicate that they are distributed by the
Fund may be distributed to prospective investors. These materials may include
investor sales promotion brochures, web sites, and a question and answer sales
booklet. Use of any materials will be conditioned, if required, on filing with
and clearance by appropriate regulatory authorities. Such clearance does not
mean that the agency allowing use of the selling materials has passed on the
merits of this offering or the accuracy or adequacy of the selling materials.
The Offering is Made Only by Means of this Prospectus.
Although the information contained in supplemental sales material does
not conflict with the information contained in this Prospectus, such sales
material does not purport to be complete and should not be considered part of
this Prospectus or as forming the basis of the offering of the Units.
LEGAL PROCEEDINGS
Neither the Fund nor the Investment Manager or Directors of the Fund
are parties to any pending legal proceedings that are material to the Fund.
LEGAL OPINION
The legality of the Units will be passed upon for the Fund by its
counsel, McCarter & English, LLP.
INDEPENDENT ACCOUNTANT
The accounting firm of Moss Adams LLP will serve as the Fund's
independent auditors.
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THE OXBOX FUND, LLC
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
1. Financial Statements:
Not Applicable.
All other financial statements, schedules and historical financial
information have been omitted as the subject matter is not required, not
present, or not present in amounts sufficient to require submission.
2. Exhibits.
a. (1) Certificate of Formation dated September 14, 1999 as filed
with the State of New Jersey on September 15, 1999.
(2) Form of Operating Agreement.
b. Not Applicable.
c. Not Applicable.
d. Not Applicable.
e. Not Applicable.
f. Not Applicable.
g. Form of Investment Advisory Agreement with C.J.M. Asset
Management, LLC
h. Form of Distribution Agreement with C.J.M. Planning Corp.
i. Not Applicable.
j. Not Applicable.
k. Not Applicable.
l. Not Applicable.
m. Not Applicable.
n. Not Applicable.
o. Not Applicable.
p. Subscription Agreement of Investment Manager.
q. Not Applicable.
Item 25. Marketing Arrangements.
Not Applicable.
Item 26. Other Expenses of Issuance and Distribution.
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The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Regulation Statement:
Registration fees $
Printing $
Fees and expenses of qualification under state
securities laws (including fees of counsel) $
Accounting fees and expenses $
Legal fees and expenses $
Reimbursement of Distributor's Expenses $
Miscellaneous $
------------------
Total $
==================
Item 27. Persons controlled by or under Common Control with Registrant.
Each of the following entities might be deemed to be under common
control with the Registrant:
<TABLE>
<CAPTION>
Entity Basis of Common Control Place of Organization
------ ----------------------- ---------------------
<S> <C> <C>
Oxbow Capital Partners, LLC Managing Member is Daniel D. Dyer, Washington
an Affiliated Director of the Fund
Oxbow Capital 1999 Fund I, LLC Managing Director is Daniel D. Dyer, New Jersey
an Affiliated Director of the Fund
C.J.M. Planning Corp. Daniel D. Dyer, an Affiliated New Jersey
Director of the Fund is the Managing
Member of Oxbow Capital Partners,
LLC which owns 100% of the
outstanding stock of C.J.M. Planning
Corp.
</TABLE>
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<PAGE>
Item 28. Number of Holders of Securities.
Not Applicable.
Item 29. Indemnification.
Under Section 7.8 of the Registrant's Operating Agreement the members
of the Board and the Management Committee and any person who serves at the
request of the Board or on behalf of the Fund as a partner, officer, director,
employee or agent of any other entity (hereinafter an "Indemnified Person")
shall not be personally liable to the Fund or to the Members for damages for
breach of any duty owed to the Fund or its Members provided that such act or
omission (a) was not in breach of such person's duty of loyalty to the Fund or
the Members, (b) was made in good faith and not involving a knowing violation of
law and (c) did not result in the receipt of an improper personal benefit.
Pursuant to the Operating Agreement, the Fund shall indemnify and hold
an Indemnified Person harmless from any loss, damage, fine, penalty, expense,
judgment or amount paid in settlement, including attorneys' fees reasonably
incurred, which such Indemnified Person incurs by reason of his performance or
nonperformance of any act concerning the activities of the Fund or in
furtherance of the Fund's interests or purposes; provided, however, that an
Indemnified Person shall not be indemnified for any matters as to which he is
adjudged to have (a) breached his duty of loyalty to the Fund or the Members,
(b) not acted in good faith or knowingly violated the law or (c) received an
improper personal benefit. If an Indemnified Person is adjudged to have
committed any of the foregoing, he shall reimburse the Fund for any funds
advanced or expended on his behalf. To the extent possible, the Fund shall
arrange that an Indemnified Person need not expend or advance any of his own
funds.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Fund in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of an
Indemnified Person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Fund as authorized herein.
Under Section 7.9 of the Registrant's Operating Agreement, in the
absence of: (i) willful misfeasance, bad faith or gross negligence on the part
of the Investment Manager in performance of its obligations and duties
hereunder; (ii) reckless disregard by the Investment Manager of its obligations
and duties hereunder; (iii) a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 369b)(3) of the 1940 Act, as amended), the Investment Manager shall not
be subject to any liability whatsoever to the Fund, or to any shareholder of the
Fund, for any error of judgment, mistake of law or any other act or omission in
the course of, or connected with, rendering services hereunder including,
without limitation, for any losses that may be sustained in connection with the
purchase, holding, redemption or sale of any security on behalf of the Fund.
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Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers & controlling person of the
registrant, the registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
Item 30. Business and Other Connections of Investment Manager.
C.J.M. Asset Management, LLC (the "Investment Manager") was organized
in 1999 to act as a registered Investment Advisor. Reference is made to "Key
Personnel" in the Prospectus and to Schedule D of Part II of Forms ADV for
Uniform Applications for Investment Advisor Registration, as amended from time
to time, (File Nos. [_______] and [______]) filed with the Commission for
information concerning the business and other connections of S. Charles
Musumeci, Jr., President of Investment Manager, Joseph C. Musumeci, Chief
Executive Officer of the Investment Manager and Daniel D. Dyer, Chairman of the
Investment Manager.
Item 31. Location of Accounts and Records.
Records are located at:
The Oxbow Fund, LLC
c/o C.J.M Planning Corp.
223 Wanaque Avenue
Pompton Lakes, New Jersey 07442
Item 32. Management Service.
Not Applicable.
Item 33. Undertakings.
1. Registrant hereby undertakes to suspend offering of the units
covered hereby until it amends its prospectus contained herein if (1) subsequent
to the effective date of this Registration Statement, its net asset value per
unit declines more than 10 percent from its net asset value per unit on the
effective date of this Registration Statement, or (2) its net asset value
increases to an amount greater than its net proceeds as stated in such
prospectus.
2. Not Applicable.
3. Not Applicable.
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4. Not Applicable.
5. Not Applicable.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the Investment
Company Act of 1940, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Pompton Lakes, and the State of New Jersey, on the 15th day of November,
1999.
By: /s/ S. Charles Musumeci, Jr.
----------------------------
Name: S. Charles Musumeci, Jr.
Title: Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
By: /s/ S. Charles Musumeci, Jr. Date: November 6, 1999
-------------------------------- -------------------------
Name: S. Charles Musumeci, Jr.
Title: Director
By: /s/ Joseph C. Musumeci Date: November 6, 1999
-------------------------------- -------------------------
Name: Joseph C. Musumeci
Title: Director
By: /s/ Daniel D. Dyer Date: November 6, 1999
-------------------------------- -------------------------
Name: Daniel D. Dyer
Title: Director
By: /s/ William M. Osborne, III Date: November 8, 1999
-------------------------------- -------------------------
Name: William M. Osborne, III
Title: Director
By: /s/ James L. Sonageri Date: November 8, 1999
-------------------------------- -------------------------
Name: James L. Sonageri
Title: Director
By: /s/ James P. Burt Date: November 8, 1999
-------------------------------- -------------------------
Name: James P. Burt
Title: Director
By: /s/ Christopher R. Smith Date: November 6, 1999
-------------------------------- -------------------------
Name: Christopher R. Smith
Title: Director
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
a.(1) Certification of Formation
a.(2) Form of Operating Agreement
g. Form of Investment Advisory Agreement
h. Form of Distribution Agreement
p. Subscription Agreement of Investment
Manager.
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EXHIBIT a(1)
CERTIFICATE OF FORMATION
OF
THE OXBOW FUND, LLC
To: Treasurer
State of New Jersey
THE UNDERSIGNED, of the age of eighteen years or over, for the purpose
of forming a limited liability company pursuant to the provisions of Title 42,
the New Jersey Limited Liability Company Act, of the New Jersey Statutes, does
hereby execute the following Certificate of Formation:
FIRST: The name of the limited liability company is The Oxbow Fund,
LLC.
SECOND: The address of the Company's registered office in the State of
New Jersey is c/o C.J.M. Planning Corp., 223 Wanaque Ave., Pompton Lakes, NJ
07410. The name of its registered agent at such address is S. Charles Musumeci,
Jr.
THIRD: The duration of the limited liability company is ten years.
FOURTH: The effective date of the Certificate of Formation is the date
of filing.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation on the 14th day of September, 1999.
/s/ William L. Turok
---------------------------------------
William L. Turok, Authorized Person
<PAGE>
EXHIBIT a(2)
---------------------------------------------------
OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
---------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS...........................................................................................1
Act......................................................................................................1
Adjusted Capital Contribution............................................................................1
Adjusted Capital Contribution............................................................................1
Affiliate................................................................................................1
Affiliated Director......................................................................................1
Bankruptcy...............................................................................................1
Board....................................................................................................2
Business Day.............................................................................................2
Capital Account..........................................................................................2
Capital Contribution.....................................................................................2
Carrying Value...........................................................................................2
Certificate or Certificate of Formation..................................................................2
Closing Date.............................................................................................2
Code or Internal Revenue Code............................................................................2
Depreciation.............................................................................................3
Director or Directors....................................................................................3
Effective Date...........................................................................................3
Fiscal Year..............................................................................................3
Fund.....................................................................................................3
Fund Interest............................................................................................3
Incapacity...............................................................................................3
Indemnified Person.......................................................................................3
Independent Director.....................................................................................3
Initial Capital Contribution.............................................................................3
Investment Manager.......................................................................................3
Majority-In-Interest of Members..........................................................................3
Management Fee...........................................................................................4
Management Fee...........................................................................................4
Member...................................................................................................4
Member Nonrecourse Debt..................................................................................4
Nonrecourse Deductions...................................................................................4
Offering.................................................................................................4
Percentage Interest......................................................................................4
Person...................................................................................................4
Portfolio Company........................................................................................4
Profits and Losses.......................................................................................4
Prospectus...............................................................................................5
Qualified Income Offset Amount...........................................................................5
Section 705(a)(2)(B) Expenditure.........................................................................5
Short-Term Investment....................................................................................5
Substituted Member.......................................................................................5
Taxable Period...........................................................................................5
Unit.....................................................................................................5
</TABLE>
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<TABLE>
<S> <C>
1940 Act.................................................................................................5
ARTICLE 2 - THE COMPANY...........................................................................................6
2.1. Formation of Limited Liability Company; Members.................................................6
2.2. Name of Fund....................................................................................6
2.3. Purpose of Company..............................................................................6
2.4. Principal and Registered Office.................................................................6
2.5. Duration of Company.............................................................................7
2.6. Further Assurances..............................................................................7
2.7. Accordance With the Act; Ownership..............................................................7
2.8 Formation Costs.................................................................................7
ARTICLE 3 - MEMBERS...............................................................................................9
3.1 Members; Initial Member.........................................................................9
3.2 Admission of Members............................................................................9
3.3 Limitation of Liability of Members..............................................................9
3.4 No Management Responsibility....................................................................9
3.5 No Authority To Act.............................................................................9
3.6 Rights Of Members...............................................................................9
3.7 No Consent Required.............................................................................9
3.8 Meetings of Members............................................................................10
ARTICLE 4 - CAPITAL CONTRIBUTIONS................................................................................11
4.1. Capital Contributions of the Members...........................................................11
4.2 Capital Account................................................................................11
ARTICLE 5 - ALLOCATION OF PROFITS AND LOSSES AND DISTRIBUTIONS TO MEMBERS........................................13
5.1. Allocations....................................................................................13
5.2. Additional Allocations.........................................................................13
5.3. Calculations...................................................................................15
5.4. Distributions..................................................................................15
5.5. Contingency Reserves...........................................................................16
5.6 Additional Allocation Rules....................................................................16
5.7. Limitation of Liability........................................................................16
ARTICLE 6 - DEPOSIT AND USE OF COMPANY FUNDS.....................................................................17
6.1 Deposit of Company Funds.......................................................................17
ARTICLE 7 - MANAGEMENT OF THE COMPANY............................................................................18
7.1 The Board of Directors.........................................................................18
7.2 Management Committee...........................................................................20
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
7.3 Investment Manager.............................................................................22
7.4 Expenses.......................................................................................23
7.5 Appointment Of Auditors........................................................................24
7.7 Prohibited Transactions........................................................................24
7.8 Limitations on Liability; Indemnification......................................................24
7.9 Limitations on Liability of Investment Manager.................................................26
ARTICLE 8 - OTHER BUSINESS......................................................................................26
8.1. Other Business.................................................................................26
ARTICLE 9 - TRANSFERABILITY OF MEMBER'S INTEREST; WITHDRAWALS OF CAPITAL BY MEMBERS.............................26
9.1 Transfer of Units..............................................................................26
9.2 Assignees......................................................................................28
9.3 Substituted Members............................................................................28
9.4 Indemnification................................................................................29
9.5 Incapacity of a Member.........................................................................29
9.6 Withholding of Distributions...................................................................29
9.7 Transferor-Transferee Allocations..............................................................30
9.8 No Withdrawal..................................................................................30
9.9 Notices........................................................................................30
9.10 Optional Adjustment to Basis of Fund Property..................................................30
ARTICLE 10 - DISSOLUTION AND LIQUIDATION.........................................................................30
10.1. Dissolution....................................................................................30
10.2. Liquidation....................................................................................31
10.3. Return of Capital Contribution.................................................................32
ARTICLE 11 RESIGNATION OR REMOVAL OF DIRECTORS OR INVESTMENT MANAGER............................................32
11.1 Resignation of a Director......................................................................32
11.2 Resignation of the Investment Manager..........................................................32
11.3 Removal of a Director or Investment Manager, Designation of a ...................................
Successor Director.............................................................................33
11.4 Incapacity of a Director.......................................................................35
11.5 Admission of a Successor Director..............................................................35
11.6 Liability of a Withdrawn or Removed Director...................................................36
11.7 Consent of Members to Admission of Successor Directors.........................................36
11.8 Continuation...................................................................................36
ARTICLE 12 - ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS......................................................36
12.1. Annual Accounting Period.......................................................................36
12.2. Records........................................................................................36
</TABLE>
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<TABLE>
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12.3. Income Tax Returns.............................................................................37
12.4. Reports........................................................................................37
12.5. Annual Meeting.................................................................................38
ARTICLE 13 - MISCELLANEOUS.......................................................................................38
13.1. Notices........................................................................................38
13.2. Binding Effect.................................................................................38
13.3. Counterparts...................................................................................38
13.4. Section Headings...............................................................................38
13.5 Exhibits.......................................................................................38
13.6 Variation in Pronouns..........................................................................38
13.7 Severability...................................................................................39
13.8 Qualification in Other States..................................................................39
13.9 Entire Agreement...............................................................................39
13.10 Applicable Law.................................................................................39
13.11 Forum..........................................................................................39
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
This Operating Agreement (the "Agreement") of THE OXBOW FUND, LLC (the
"Fund" or "Company"), dated as of , 1999 is made by and among C.J.M. Asset
Management, LLC, as initial Member and any Person admitted as an additional
Member.
ARTICLE 1
DEFINITIONS
1.1 "Act" refers to the State of New Jersey Limited Liability Company
Act.
1.2 "Adjusted Capital Account" means, as of any day, a Member's Initial
Capital Contribution, (x) reduced by the sum of (i) the aggregate amount of cash
and the Carrying Value of any Company property distributed to such Member
pursuant to Section 5.4(a)(i) plus (ii) Losses allocated to such Member pursuant
to Section 5.1(b) and (z) increased by Profits allocated to such Member pursuant
to Section 5.1(a)(i). In the event any Member transfers all or any portion of
his Membership Interest in accordance with the terms of this Agreement, his
transferee shall succeed to the Adjusted Capital Account of the transferor to
the extent it relates to the Member's transferred interest in the Company.
1.3 "Adjusted Capital Contribution" means, as of any day, a Member's
Initial Capital Contribution, reduced by the amount of cash and Carrying Value
of any Company property distributed to such Member pursuant to Section
5.4(a)(i).
1.4 "Affiliate" means a Person or entity included within the definition
of "affiliate" set forth in Securities and Exchange Commission Rule 405, as
amended from time to time.
1.5 "Affiliated Director" means a Director of the fund who is an
"interested person" as such term is defined in Section 2(a)(19) of the 1940 Act.
1.6 "Bankruptcy" when used with reference to any Person, shall be
deemed to occur (1) when a Person (a) makes an assignment for the benefit of
creditors, or (b) files a voluntary petition in bankruptcy, or (c) is adjudged a
bankrupt or insolvent, or has entered against it an order for relief in any
bankruptcy or insolvency proceeding, or (d) files a petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
or (e) files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any proceeding seeking
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief, or (f) seeks, consents to or acquiesces in the appointment of
a trustee, receiver or liquidator of such Person or of all or any substantial
part of its properties, or (2) (a) 120 days after the commencement of any
proceeding against such Person seeking
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reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation, the proceeding has not
been dismissed, or (b) 90 days after the appointment without its consent or
acquiescence of a trustee, receiver or liquidator of such Person or of all or
any substantial part of its properties, the appointment is not vacated or
stayed, or within 90 days after the expiration of any such stay, the appointment
is not vacated.
1.7 "Board" means the Board of Directors of the Company having such
powers as described herein.
1.8 "Business Day" shall mean any day upon which banking institutions
are required or permitted to be open for the transaction of business in New York
City.
1.9 "Capital Account" is defined in Section 4.2 of this Agreement.
1.10 "Capital Contribution" for each Member means the aggregate cash
and the fair market value of any property contributed by such Member pursuant to
Article 4 hereof. 1.11 "Carrying Value" means, with respect to any asset, the
asset's adjusted basis for Federal income tax purposes, except as follows:
(a) the Carrying Value of any asset of the Company on the date
of this Agreement shall be such asset's gross fair market value on such date,
and the Carrying Value of any asset contributed to the Company subsequent to the
date of this Agreement shall be such asset's gross fair market value at the time
of such contribution, in each case determined pursuant to the terms of this
Agreement, or if no such value is determined herein, by the Company's
independent accountants;
(b) upon adjustment (if any) of the Members' Capital Accounts
pursuant to Section 4.2(h), the Carrying Value of all Company assets shall be
adjusted to equal their respective gross fair market values at the time of such
adjustment; and
(c) if the Carrying Value of an asset has been determined
pursuant to Sections 1.11(a) or (b) above, such Carrying Value shall thereafter
be adjusted for Depreciation, rather than depreciation or amortization or other
cost recovery deduction as determined for Federal income tax purposes.
1.12 "Certificate" or "Certificate of Formation" means the Certificate
of Formation of the Company, as the same may be amended or restated as provided
herein or required by law, which was duly filed in accordance with (and which,
in all respects, shall be sufficient in form and substance under) the laws of
the State of New Jersey, and recorded with the Treasurer of the State of New
Jersey.
1.13 "Closing Date" means the third business day after the Fund has
terminated the Offering.
1.14 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, and the regulations and interpretations thereof promulgated
by the Internal Revenue Service.
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1.15 "Depreciation" means for each tax year, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such year or other period, except that if the Carrying
Value of an asset differs from its adjusted basis for Federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
Federal income tax depreciation, amortization, or other cost recovery deduction
for such year or other periods bears to such beginning adjusted tax basis;
provided, however that if the Federal income tax depreciation, amortization or
other cost recovery deduction for such year is zero, Depreciation shall be
determined with reference to such beginning Carrying Value using any method
approved by the Management Committee with the advice of the Company's
independent accountants.
1.16 "Director" or "Directors" means each Affiliated Director or
Independent Director in his or her capacity as a Director of the Fund or,
collectively, the Affiliated Directors and Independent Directors.
1.17 "Effective Date" means the date on which the Company's Certificate
of Formation was duly filed in the office of the Treasurer of the State of New
Jersey.
1.18 "Fiscal Year" means the calendar year ending December 31.
1.19 "Fund" means The Oxbow Fund, LLC, a limited liability company
organized under the laws of the State of New Jersey.
1.20 "Fund Interest" means all of the interests of a Member in the
Fund, including, without limitation, the Member's: (i) right to a distributive
share of profits and losses; (ii) right to a distributive share of the assets of
the Fund; (iii) right, if a Director or the Investment Manager, to participate
in the management of the Fund; and (iv) right to vote on certain matters as more
particularly provided in this Agreement.
1.21 "Incapacity" means, as to any Person, the entry of an order for
relief in a bankruptcy proceeding ("bankruptcy"), entry of an order of
incompetence or insanity, or the death dissolution or termination (other than by
merger or consolidation), as the case may be of such Person.
1.22 "Indemnified Person" is defined in Section 7.8 of this Agreement.
1.23 "Independent Director" means a Director of the Fund who is not an
"interested person" as such term is defined in Section 2(a)(19) of the 1940 Act.
1.24 "Initial Capital Contribution" is defined in Section 4.1(a) of
this Agreement.
1.25 "Investors" means the Members, other than the Investment Manager.
1.26 "Investment Manager" means C.J.M. Asset Management, LLC.
1.27 "Majority-In-Interest of Members" means Members holding Units
which, in the aggregate, exceed fifty (50%) percent of the outstanding Units.
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1.28 "Management Committee" is described in Section 7.2.
1.29 "Management Fee" is defined in Section 7.3(b) of this Agreement.
1.30 "Member" means the Investment Manager and any additional Members
admitted to the Fund in accordance with Sections 3.2 and 7.2(b)(xxi) hereof.
1.31 "Member Nonrecourse Debt" means partner nonrecourse debt, as
defined in Treasury Regulation Section 1.704-2(b)(4).
1.32 "Member Nonrecourse Deductions" means, for a taxable year or other
period, the amount of partner nonrecourse deductions as set forth in Treasury
Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2).
1.33 "Nonrecourse Deductions" means, for a taxable year or other
period, the amount of nonrecourse deductions as determined under Treasury
Regulation Section 1.704-2(c).
1.34 "Offering" means the offering of Units by the Fund pursuant to
that certain Prospectus which forms a part of the Fund's Registration Statement
on Form N-2 as filed with the Securities and Exchange Commission on or about
______, 1999.
1.35 "Percentage Interest" of a Member shall mean a fraction, the
numerator of which is the sum of all Units held by such Member and the
denominator of which is the aggregate sum of the Units held by all Members.
1.36 "Person" mean individuals, partnerships, corporations, trusts,
estates, limited liability companies and other associations.
1.37 "Portfolio Company" shall mean any Person in which the Fund has
made an investment.
1.38 "Profits" and "Losses" mean the Company's taxable income or loss,
respectively, for a period as determined for Federal income tax purposes in
accordance with Code Section 703(a), computed with the following adjustments:
(a) items of gain, loss and deduction relating to assets shall be
computed based upon the Carrying Values of the Fund's assets rather than upon
the assets' adjusted basis for Federal income tax purposes;
(b) tax-exempt income received by the Fund shall be deemed, for
purposes of this definition only, to be gross income;
(c) the amount of any adjustment to the Carrying Value of any assets of
the Fund pursuant to Section 743 of the Code shall not be taken into account in
computing Profits and Losses;
(d) Section 705(a)(2)(B) Expenditures shall be treated as deductible
expenses;
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(e) any items of gross income, gain, loss, deduction or Section
705(a)(2)(B) Expenditures allocated pursuant to any provision of Section 5
(other than Section 5.2(c)), shall be excluded from the computation of Profits
and Losses; and
(f) Nonrecourse Deductions and Member Nonrecourse Deductions shall be
excluded from the computation of Profits and Losses.
1.39 "Prospectus" means that certain Prospectus which forms a part of
the Fund's Registration Statement on Form N-2 as filed with the Securities and
Exchange Commission on or about _____, 1999.
1.40 "Qualified Income Offset Amount" for a Member means the excess, if
any, of (i) the negative balance a Member has in his Capital Account (after
reducing such account by any adjustments, allocations or distributions of items
specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6)
that, as of the end of the taxable year, are reasonably expected to be made to
the Member) over (ii) the sum of (A) the amount, if any, of such Member's
unconditional obligation to make subsequent contributions to the Company within
the time period specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(c),
and (B) such Member's share of Company minimum gain and Member Nonrecourse Debt
minimum gain.
1.41 "Section 705(a)(2)(B) Expenditure" means an expenditure of the
Company (as described in Section 705(a)(2)(B) of the Code) which is neither
deductible in computing taxable income nor properly chargeable to a capital
account, and any other expenditure considered to be such an expenditure pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(i).
1.42 "Short-Term Investment" means commercial paper, government
obligations, money market instruments, certificates of deposit, or other similar
obligations and securities, or the liquid securities of issuers which
exclusively invest in such securities, in each case where the maturity or
average maturity, as the case may be, is one year or less at the time of
purchase by the Fund.
1.43 "Substituted Member" means a Person admitted as a Member to the
Fund, other than a Director, pursuant to Section 9.3 in place of and with all of
the rights of the Member who has transferred or assigned such Member's Fund
Interest to such Person, and who is shown as a Member on the books and records
of the Fund.
1.44 "Taxable Period" means each fiscal year.
1.45 "Unit" means an interest in the Company and represents a Member's
rights and obligations as a Member pursuant to this Agreement and under the Act,
including but not limited to, voting rights and the right to share in Profits
and Losses. Each Unit represents a Capital Contribution of $100.
1.46 "1940 Act" means the Investment Company Act of 1940 and all rules
and regulations promulgated thereunder, as amended by the Small Business
Incentive Act of 1980, and as further amended from time to time.
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ARTICLE 2
THE COMPANY
2.1. Formation of Limited Liability Company; Members. The Oxbow Fund,
LLC has been formed as a limited liability company under the laws of the State
of New Jersey by the filing of the Certificate of Formation pursuant to the Act,
on behalf of the Members. The terms and provisions hereof will be construed and
interpreted in accordance with the terms and provisions of such laws.
2.2 Name of Fund. The name of the Fund is "THE OXBOW FUND, LLC." If
considered necessary in the opinion of counsel to the Fund to preserve the
limited liability of the Members, Directors, and Investment Managers, property
acquired and business conducted by the Fund shall be in such other name as is
necessary to preserve such limited liability. The Board shall have the power to
change the name of the Fund at any time and shall give prompt notice of any such
change to each Member.
2.3 Purpose of Company. The Fund is authorized and empowered to elect
to operate and to operate, as a business development company under Section 55,
et. al. of the Investment Company Act of 1940, as amended. The Fund's principal
investment objective is to seek long term capital appreciation by investing
primarily in equity securities of private U.S. companies seeking capital for
start-up operations, business expansion, product development and/or strategy
acquisition opportunities. The Fund may invest in companies of any size, but
generally expects to invest in small to medium-sized companies with annual
revenues or projected annual revenues in the $2 million to $100 million range.
In addition, the Fund may invest in the equity, debt or assets of companies of
any size which are in reorganization or seeking capital for debt or equity
restructuring. Generating current income for distribution to Members will not be
a factor in the selection of investments by the Fund.
2.4 Principal and Registered Office.
(a) The principal office of the Fund shall be at:
223 Wanaque Avenue
Pompton Lakes, N.J. 07442
(b) The registered office of the Fund shall be at:
c/o C.J.M. Planning Corporation
223 Wanaque Avenue
Pompton Lakes, N.J. 07442
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(c) The name of the registered agent at such address is S. Charles
Musumeci, Jr..
2.5 Duration of Fund. The operation of the Fund will commence on the
Effective Date and shall continue in existence until (i) March 31, 2010, unless
further extended for up to two (2) additional two (2) year periods from such
date if the Board of Directors of the Fund determines that such an extension is
in the best interest of the Fund or (ii) it is terminated pursuant to any
provisions of this Agreement or as otherwise provided by law.
2.6 Further Assurances. The Management Committee will execute and cause
to be filed, recorded and published such certificates and documents, which are
required to form and operate a limited liability company under the laws of New
Jersey. The Management Committee will execute and cause to be filed, recorded
and published, such certificates and documents as Management Committee may deem
necessary or appropriate to comply with other applicable laws governing the
formation and operation of a limited liability company.
2.7 Accordance With the Act; Ownership. Except as expressly set forth
in this Agreement to the contrary, the rights and obligations of the Members,
and the administration, operation and termination of the Fund shall be governed
by the Act, as it may be amended. The interest of each Member in the Fund shall
be personal property for all purposes. All real and other property owned by the
Fund shall be deemed owned by the Fund as an entity, and no Member,
individually, shall have any ownership interest in such property.
2.8 Formation Costs.
(a) Each Member shall bear his own expenses in connection with his
or her consideration of an investment in the Fund and his acquisition of Units,
including without limitation the fees of any attorney, financial advisor, or
other consultant, except as this Agreement may otherwise expressly provide.
(b) The Fund shall pay for or reimburse the initial Member for all
other expenses of formation of every nature and description including, without
limitation, reproduction, printing and stenographic costs, filing, recording and
qualifying fees, taxes and costs of legal publication, expenses of registration,
qualification or obtaining exemptions under any federal or state securities laws
and legal and accounting fees incident to the formation of the Fund and the
offering and sale of Units.
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ARTICLE 3
MEMBERS
3.1 Members; Initial Member.
(a) A record of the names and addresses of Members of the Fund
shall be maintained by the Fund and said list shall be amended from time to time
by the Fund to reflect the withdrawal of Members or the admission of additional
and/or substitute Members pursuant to this Agreement. Such record of Members
shall also set forth the number of Units which each Member holds. The Members
shall constitute a single class or group of Members of the Company for all
purposes of the Act, unless otherwise explicitly provided herein.
(b) On or prior to the date hereof, the Investment Manager, as
initial Member of the Fund, has made a Capital Contribution to the Fund in the
amount of $100,000.
3.2 Admission of Members. Persons who invest in the Fund in accordance
with the terms and conditions of the Prospectus and who satisfy the requirements
set forth in the Prospectus for an investment in Units may be admitted to the
Fund as Members based upon the determination of the Management Committee and,
upon admission, shall participate in the Profits, Losses, distributions and
allocations of the Fund in accordance with the terms and conditions of this
Agreement. Admission of a new Member shall be effective when reflected on the
books and records of the Fund. The manner of the offering of Units, the terms
and conditions under which subscriptions for such Units will be accepted, and
the manner of and conditions to the sale of Units to subscribers therefor and
the admission of such subscribers as Members will be as provided in the
Prospectus in all material respects and subject to any provisions hereof. Before
any Person is admitted to the Fund as a Member, such Person or such Person's
attorney-in-fact shall execute a counterpart of this Agreement and thereby agree
in writing to be bound by all of the provisions hereof as a Member.
3.3 Limitation of Liability of Members. Except as otherwise provided in
the Act, no Member of the Fund shall be obligated personally beyond the amount
of his Capital Contribution for any debt, obligation or liability of the Fund,
whether arising in contract, tort or otherwise, solely by reason of being a
Member of the Fund. No Member shall be liable to the Fund or any other Member
for acting in good faith reliance upon the provisions of this Agreement. No
Member shall have any responsibility to restore any negative balance in his
Capital Account or to contribute to or in respect of the liabilities or
obligations of the Fund or return distributions made by the Fund except as
required by the Act or other applicable law. The failure of the Fund to observe
any formalities or requirements relating to the exercise of its powers or the
management of its business or affairs under this Agreement or the Act shall not
be grounds for making its Members or the Investment Manager responsible for the
liabilities of the Fund. Notwithstanding the foregoing, a Member will be liable
for any distributions made to it, if, after such distribution, the outstanding
liabilities of the Company (other than liabilities to Members on account of
their interests in the Company and liabilities for which the recourse of
creditors is limited to specific Company property) exceed the fair value of the
Company's assets (provided that the fair value of Company property that secures
recourse liability shall be included
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only to the extent its fair value exceeds such liability) and the Member had
knowledge of this fact at the time the distribution was received.
3.4 No Management Responsibility. No Investor, other than a Director,
shall participate in the management or the control of the business of or
transact any business for the Fund but may exercise the rights and powers of an
Investor under this Agreement. All management responsibility is vested in the
Directors. The Investors other than the Directors hereby consent to the taking
of any action by the Directors, Management Committee, and the Investment Manager
contemplated under Article 7.
3.5 No Authority To Act. No Investor other than a Director shall have
the power to represent, act for, sign for, or to bind the Fund. All authority to
act on behalf of the Fund is vested in the Directors and as expressly delegated
to the Management Committee, and the Investment Managers. The Investors consent
to the exercise by the Directors of the powers conferred on them by law and this
Agreement.
3.6. Rights Of Members. The Members shall have the following rights
subject to the terms and conditions of this Agreement:
(a) the right to elect and remove Directors;
(b) the right to approve or reject the appointment of the
independent accountants of the Fund; provided, however, that such appointment is
approved by the Board, including a majority of the Independent Directors;
(c) the right to propose and approve an amendment to this
Agreement; provided, however, that no such amendment shall conflict with the
1940 Act;
(d) the right to approve any other matters related to the business
of the Fund that the 1940 Act requires to be approved by the Members pursuant to
the provisions of the 1940 Act; and
(e) the right to cause the Fund to withdraw its election to be
treated as a Business Development Company under the 1940 Act.
Each of the foregoing matters shall be approved or disapproved, as the
case may be, upon the vote or consent of a Majority-in-Interest of the Members.
3.7 No Consent Required. Notwithstanding the foregoing, no vote,
approvals, or other consent shall be required of the Members to amend this
Agreement in any of the following respects: (i) to admit an additional Member or
a Substituted Member or remove a Member in accordance with the terms of this
Agreement; or (ii) to correct any false or erroneous statement, or to make a
change in any statement in order that such statement shall accurately represent
the agreement among the Members and Directors in this Agreement; provided that
no such correction or change shall in any manner adversely affect the Fund
Interests of any Member.
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3.8 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 Directors or by Members holding at
least 10% of the Units and may be held at such time, date and place as the Board
of Directors shall determine. The Board of Directors 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. Such notifications shall include any
information required by this Agreement or by law. 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. A
Majority-In-Interest of the Members shall constitute a quorum for the
transaction of any business at a meeting of Members. In the absence of a quorum,
a meeting of the Members may be adjourned by action of the Board without
additional notice to the Members. When an adjourned meeting is reconvened, any
business may be transacted that might have been transacted at the original
meeting. Except as otherwise required by any provision of this Agreement or of
the 1940 Act, (i) those candidates receiving a plurality of the votes cast at
any meeting of Members shall be elected as Directors and (ii) all other actions
of the Members taken at a meeting shall require the affirmative vote of a
Majority-In-Interest of the Members in person or by proxy at such meeting.
(b) Each Member shall be entitled to cast at any meeting of Members
a number of votes equivalent to the number of Units held by such Member as of
the record date for such meeting. The Board of Directors 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. Members shall not be entitled to cumulative voting.
(c) A Member may vote at any meeting of Members by a proxy properly
executed in writing by the Member and filed with the Fund 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 Fund 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 not less than the minimum percentage of Units that would be
necessary to authorize or take such action at a meeting of Members.
(d) The Directors shall call a meeting of Members no less often
than every two years with the first such meeting to be held within two years
from the Closing Date.
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ARTICLE 4
CAPITAL CONTRIBUTIONS
4.1 Capital Contributions of the Members.
(a) Capital Contributions. The amount of cash and/or the fair
market value of property contributed by each Member shall be credited to such
Member's Capital Account pursuant to Section 4.2. The amount of cash and fair
market value of property contributed to the Fund upon admission to the Fund by a
Member is referred to herein as the Member's "Initial Capital Contribution." The
required minimum amount of an Initial Capital Contribution is two thousand five
hundred dollars ($2,500).
(b) Maximum Aggregate Investment from Members. The Management
Committee will not accept any additional Capital Contributions if or when the
total Capital Contributions of the Company equals or exceeds $25,000,000.
(c) Capital Contribution of Investment Manager. The Investment
Manager as initial Member, has made an Initial Capital Contribution of $100,000
and in exchange has received one thousand (1,000) Units. In its discretion, from
time to time, the Investment Manager may make additional Capital Contributions
to the Fund.
(d) No Right to Withdraw Capital Contribution. The Members
have no right to withdraw any portion of their respective Capital Contributions.
(e) No Additional Contributions Required. No Member shall be
required to contribute any capital to the Company other than as provided in this
Section 4.1 hereof or to lend any funds to the Fund; however, subject to Section
4.1(b), any Member may make an additional Capital Contribution to the Fund at
any time.
(f) Cut-Off Date for Investment from Members. The Management
Committee will not accept any additional Capital Contributions after
[__________________________].
4.2 Capital Account.
(a) A Capital Account shall be established for each Member.
Each Member's Capital Account shall equal the amount of its Initial Capital
Contribution and shall thereafter be adjusted as provided in Section 4.2(b).
(b) Each Member's Capital Account shall be maintained
and adjusted in accordance with Treasury Regulation Sections 1.704-1(b) and
1.704-2. With respect to events or periods after the date hereof and consistent
with such Regulations, (a) there shall be credited to each Member's Capital
Account: (i) the amount of any cash contributed by such Member to the capital of
the Company, (ii) the fair market value of any property contributed by such
Member to the capital of the Company (net of all liabilities secured by such
property that the
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Company is considered to assume or take subject to under Section 752 of the
Code), (iii) such Member's allocable share of Profits, as determined in
accordance with Section 5.1, and (iv) any items of income or gain allocated to
such Member pursuant to Section 5.2; and (b) there shall be charged against each
Member's Capital Account: (i) the amount of all cash distributions to such
Member pursuant to Article 5, (ii) the fair market value of any property
distributed to such Member by the Company (net of any liability secured by such
property that the Member is considered to assume or take subject to under
Section 752 of the Code), (iii) such Member's allocable share of Losses (as
determined in accordance with Section 5.1), and (iv) any items of loss,
deduction or Section 705(a)(2)(b) Expenditures allocated to such Member pursuant
to Section 5.2.
(c) Except as otherwise provided in this Agreement, whenever it is
necessary to determine the Capital Account of any Member, the Capital Account of
such Member shall be determined after giving effect to allocations pursuant to
Sections 5.1 and 5.2 and all distributions in respect to transactions effected
prior to the time as of which such determination is to be made.
(d) No Member with a negative balance in his Capital Account shall have
any obligation to the Fund, the other Members or any other Person to restore
such negative balance.
(e) If any Units are transferred in accordance with this Agreement, the
transferee shall succeed to the Capital Account of the transferring Member to
the extent that it relates to the interest of the transferring Member.
(f) If the Fund makes an election under Section 754 of the Code (which
decision shall be made in the sole discretion of the Board), the amounts of any
adjustments to the basis of the assets of the Fund made pursuant to Section 743
of the Code shall be reflected in the Capital Account of the Members. In
addition, the amounts of any adjustment to the basis of the assets of the Fund
made pursuant to Section 734 of the Code as a result of the distribution of
property by the Fund to a Member (to the extent that such adjustments have not
previously been reflected in the Members' Capital Accounts) shall (i) be
reflected in the Capital Account of the Member receiving such distribution in
the case of a distribution and liquidation of such Member's Interest and (ii)
otherwise be reflected in the Capital Accounts of the Members in a manner in
which the unrealized income and gain that is displaced by such adjustments would
have been shared had the property been sold at its Carrying Value immediately
prior to such adjustments.
(g) Nothing in this Section 4.2 shall be construed to impose upon any
Member any additional obligation to contribute additional capital to the Company
or to restore a deficit Capital Account upon liquidation or dissolution of the
Company.
(h) Subsequent to the date of this Agreement, immediately before (i) a
contribution of cash or property (other than a de minimis amount) by a new or
existing Member, (ii) the distribution of fund assets (other than a de minimis
amount), or (iii) the liquidation of the Fund (within the meaning of Treasury
Regulation Section 1.704-1(b)(2)(ii)(g)), the Board, in
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consultation with the Fund's independent accountants, shall determine whether
the Capital Accounts of all Members and the Carrying Values of all Fund
properties shall be increased or decreased (consistent with the provisions
hereof) to reflect any unrealized gain or loss attributable to each Fund
property, in accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f).
For purposes of this paragraph (h), the fair market value of Fund property shall
be determined by the Board acting in good faith.
ARTICLE 5
ALLOCATION OF PROFITS AND LOSSES
AND DISTRIBUTIONS TO MEMBERS
5.1 Allocations.
(a) Profits. Except as provided in Section 5.2, for
each taxable year or period, Profits shall be allocated as follows:
(i) First, to the Members pro rata in accordance with their
Percentage Interests to the extent of any Losses allocated to the
Members during prior periods or Fiscal Years, less Profits previously
allocated to the Members in prior Fiscal Years pursuant to this Section
5.1(a)(i);
(ii) Second, eighty percent (80%) to the Investors as a class
and twenty percent (20%) to the Investment Manager, until the
Investors, as a class, have been allocated in the aggregate over the
term of the Fund an amount of Profits equal to their Initial Capital
Contributions;
(iii) Third, thirty-five percent (35%) to the Investors as a
class and sixty-five percent (65%) to the Investment Manager.
(b) Losses. Losses shall be allocated to the Members
pro rata in accordance with their Percentage Interests (subject to the
provisions of Section 5.2 hereof).
(c) Class Allocations. Allocations to Investors as a
class shall be further allocated among the Investors in accordance with each
Investor's Percentage Interest, taking into account the date each Investor
became a Member of the Fund (if applicable in determining the allocation).
5.2 Additional Allocations.
(a) Allocation of Member Nonrecourse Deductions When
Member Bears Economic Risk of Loss. Notwithstanding the provisions of Section
5.1 and subject to the provisions of Section 5.2(c), items of loss and deduction
and Section 705(a)(2)(B) Expenditures attributable, under Treasury Regulation
Section 1.704-2(i), to Member Nonrecourse Debt shall be allocated to the Members
in accordance with the ratios in which they bear the economic risk of loss for
such debt (as determined pursuant to Treasury Regulation Section 1.752-3).
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(b) Chargebacks and Offsets. This Agreement shall be
considered to include a Company minimum gain chargeback provision (within the
meaning of Treasury Regulation Section 1.704-2(f)), a qualified income offset
provision (within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(d)) and a Member nonrecourse debt minimum gain chargeback
(within the meaning of Treasury Regulation Section 1.704-2(i)). Items of Company
income and gain (as determined for purposes of computing Profits and Losses)
shall be allocated to the Members upon the occurrence of the conditions or
events triggering such provisions in accordance with such provisions. Such
provisions shall be applied, prior to any allocations pursuant to Section 5.1 in
the following order of priority; first, the Company minimum gain chargeback,
second, the Member nonrecourse minimum gain chargeback and third, the qualified
income offset.
(c) Limitations on Loss Allocation. Notwithstanding
the provisions of Section 5.1, in no event shall Losses (or items of loss,
deduction or Section 705(a)(2)(B) Expenditure) of the Company be allocated to a
Member if such allocation would result in such Member having a Qualified Income
Offset Amount. Any allocation to a Member which is prevented by the operation of
the preceding sentence shall be reallocated to the other Members in accordance
with Section 5.1 and subject to this Section 5.2(c); provided, however, that if
there is no Member to which such Losses (or items of loss, deduction or Section
705(a)(2)(B) Expenditure) can be allocated without causing such Member to have a
Qualified Income Offset Amount, then such Losses shall be allocated to the
Members pro rata in accordance with their Percentage Interests.
(d) Curative Allocations. If any items of income,
gain, loss, deduction or Section 705(a)(2)(B) Expenditures are allocated to a
Member pursuant to Section 5.2(a), (b) or (c), then, prior to any allocation
pursuant to Section 5.1 and subject to all of the provisions of this Section
5.2, items of income, gain, loss, deduction and Section 705(a)(2)(B)
Expenditures for subsequent years or periods shall be allocated to the Members
in a manner designed to result in each Member having a Capital Account balance
equal to what it would have been had such allocation of items of income, gain,
loss, deduction and Section 705(a)(2)(B) Expenditures not occurred.
(e) Income, Gain, Loss, Deduction or Credit. For tax
purposes, all items of income, gain, loss, deduction or credit, other than tax
items properly corresponding to the items allocated pursuant to Sections 5.2(a),
(b), (c) and (d) shall be allocated to the Members in the same manner as are
Profits and Losses; provided, however, that if the Carrying Value of any
property of the Company differs from its adjusted basis for tax purposes, then
items of income, gain, loss, deduction or credit for tax purposes (and not for
purposes of computing Profits or Losses) shall be allocated among the Members in
a manner that takes account of the variations between the adjusted tax basis and
fair market value of property contributed to the Company in determining the
Members' shares of tax items under Section 704(c) of the Code, and, consistent
therewith, in the case of property deemed contributed to the Company, in
accordance with Treasury Regulations Sections 1.704-1(b)(4)(i) and
1.704-1(b)(2)(iv)(f); and provided, further, that allocations pursuant to
Section 5.2(b) of items of income and gain of the Company shall, except as
otherwise required by Treasury Regulations under Section 704(b) of
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the Code, consist of a pro rata portion of each item of income and gain of the
Company, as appropriate, for such year.
5.3 Calculations.
(a) Calculations and allocations of Profits and Losses shall
be made by accountants regularly employed by the Company, but at least annually
and in conformity with the current requirements of the Internal Revenue Code.
(b) Profits and Losses and items of income, gain, loss,
deduction or credit for any year in which a Member transfers his Units shall be
divided between the transferring Member and his transferee in proportion to the
number of months in the year that each is recognized as a Member according to
the terms of this Agreement. For example, if a transfer becomes effective as of
May 1, the transferee would receive two-thirds (2/3) and the former Member would
receive (1/3) of the Profit or Losses for that year.
5.4 Distributions.
(a) Distributions. To the extent the Management Committee
determines to make distributions of cash and/or property, such distributions
shall be made in the following manner:
(i) First, one hundred percent (100%) to the
Investors as a class until they have received aggregate distributions
in an amount equal to their Adjusted Capital Accounts;
(ii) Second, eighty percent (80%) to the Investors as
a class, and twenty percent (20%) to the Investment Manager, until the
Investors, as a class, have received aggregate distributions during the
term of the Fund pursuant to this Section 5.4(a)(ii) in an amount equal
to their Capital Contributions;
(iii) Third, thirty-five percent (35%) to the
Investors (excluding the Investment Manager) as a class and sixty-five
percent (65%) to the Investment Manager.
(b) Class Distributions. Distributions to Investors as a class
shall be further distributed among the Investors in accordance with each
Investor's Percentage Interest, taking into account the date each Investor
became a Member of the Fund (if applicable in determining the distribution).
(c) Withholding. Notwithstanding anything to the
contrary contained in this Agreement, in order to comply with Section 1446 of
the Code and the regulations, revenue rulings, revenue procedures and
administrative announcements promulgated thereunder ("Section 1446"), the
Company shall withhold an amount in cash equal to 20% of the cash (and of the
fair market value of property) otherwise distributed to a Member hereunder, and
shall apply the amount so withheld as required by Section 1446, unless such
Member shall have
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delivered to the Company a current affidavit setting forth that such person is a
"United States person" as such term is defined in Section 7701(a)(30) of the
Code ("Section 7701") and is not subject to the withholding requirements of
Section 1446. Notwithstanding the preceding sentence, a certification properly
delivered to the Company shall not be effective to prevent withholding if the
Company shall have received the certification more than three years preceding
the date of a distribution or if the Company has actual knowledge that the
Member is not a "United States person" as that term is defined in Section 7701.
In addition, if the Company assumes any individual liability of a Member or any
liability encumbering property that a Member contributes to the Company, the
Company shall be permitted to charge the distributions due such Member or any
other amount due such Member to the extent of 20% of such liability in order to
fulfill the Company's obligations under Section 1446, unless such Member shall
have furnished a certification as aforesaid (i.e., the same certification which
would have been effective to prevent withholding if such assumption or
contribution had constituted an actual distribution hereunder). If a
distribution is to be made with property other than money, the Company shall not
release such property until it has funds sufficient to enable it to satisfy its
obligations under Section 1446, which funds shall be provided by the Member or
Members who have not delivered an effective certification. Any amounts withheld
under the provisions of this Section 5.4(c) from a Member shall be released to
such Member to the extent such amount need not be disbursed to a government
agency to satisfy the Company's obligations under Section 1446. The Company
shall retain each certification received by it until the end of the fifth
taxable year after the last taxable year in which the Company relied upon such
certification.
(d) Limitation on Distributions. Notwithstanding anything to
the contrary set forth in this Section 5.4, the Management Committee shall not
make any distribution to any Member (including themselves) if, immediately
following such distribution, such Member's Capital Account would have a
Qualified Income Offset Amount.
5.5 Contingency Reserves. Subject to the provisions of Section 5.4
above, the Management Committee shall have the right to set aside Company funds
in such reserves as it in its discretion determines to be prudent for the
operation of the Company's business, including sums the Management Committee
deems necessary to reserve for the future payment or reduction of any Company
obligations.
5.6 Additional Allocation Rules. Notwithstanding the foregoing, in the
event any Member's Percentage Interest changes during a Fiscal Year for any
reason, including without limitation, the transfer of any Units, the allocations
of taxable income or loss described above shall be adjusted as necessary to
reflect the varying interests of the Members during such year.
5.7 Limitation of Liability. Nothing contained in this Article 5 shall
be construed to make any Member liable for any losses of the Company.
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ARTICLE 6
DEPOSIT AND USE OF COMPANY FUNDS
6.1 Deposit of Company Funds. Upon formation of the Company, all
Capital Contributions shall be transferred to a separate Company account or
accounts in such banks or other financial institutions as may be selected by the
Management Committee. Such account or accounts shall be maintained in the name
of or for the benefit of the Company. Thereafter, all revenues, bank loans,
proceeds and other receipts will be deposited and maintained in such account or
accounts, which may or may not bear interest, and all expenses, costs and
similar items payable by the Company will be paid from such accounts. The
Company's funds, including, but not limited to, the Member's Capital
Contributions, Company revenue and the proceeds of any borrowing by the Company,
may be invested as the Management Committee deems advisable. Any interest or
other income generated by such deposits or investments will be considered part
of the Company's account. Company funds from any of the various sources
mentioned above may be commingled with other Company funds, but not with the
separate funds of the Board or any other Person and may be withdrawn, expended
and distributed as authorized by the terms and provisions of this Agreement.
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ARTICLE 7
MANAGEMENT OF THE COMPANY
7.1 The Board of Directors
(a) General Authority; Number. The governing body of the Fund
shall be the Board of Directors, which shall consist of such number of
Independent Directors as is fixed pursuant to Section 7.1(b), and three
Affiliated Directors, who shall initially be Daniel D. Dyer, S. Charles
Musumeci, Jr. and Joseph C. Musumeci. By signing the Operating Agreement
Signature Page and Power of Attorney or the Fund's subscription agreement, a
Member admitted to the Fund shall be deemed to have voted for the election of
each of the initial Affiliated and Independent Directors. Subject to the
provisions of this Agreement requiring consent of the Members and Sections 7.2
and 7.3 below, the Board shall have complete responsibility for the management
and supervision of the Fund and may take or cause to be taken any action which
may be necessary or appropriate for or incidental to the management or operation
of the Fund. No Person in his capacity as a Member shall take part in the
management or supervision of the Fund, nor shall he have the power to act for or
on behalf of the Fund.
(b) Independent Directors. The number of Independent Directors
shall initially be four and shall be fixed from time to time thereafter by the
Directors as then constituted; provided, however, that the number of Independent
Directors shall in no event be less than a majority of the members of the Board
of Directors. If at any time the number of Independent Directors is less than a
majority, action shall be taken within 90 days thereafter to restore the number
of Independent Directors to a majority. The initial Independent Directors shall
be William M. Osborne, III, James L. Sonageri, James P. Burt and Christopher R.
Smith.
(c) Action. A majority of the Directors shall constitute a
quorum for the transaction of any business at a meeting of the Board. Actions of
the Board shall be taken upon the affirmative vote of a majority of the
Directors present at any meeting of the Board at which a quorum is present.
(d) Approval and Election of Directors. The Directors shall
hold office for a term of two years from their election and until their
successors are elected, unless they resign or withdraw sooner or are removed
pursuant to Article 11. Directors may succeed themselves in office. The
Management Committee may designate successor Management Committee members to
fill vacancies created by the retirement or withdrawal of a Management Committee
member or by the removal of a member of the Management Committee pursuant to
Article 11. The Management Committee may designate Independent Directors to fill
any vacancies created by any increase in the number of Independent Directors or
by the withdrawal or removal of an Independent Director. In the event that no
Independent Directors remain, the Management Committee shall continue the
business of the Fund and shall perform all duties of the Directors under this
Agreement and shall, within 90 days, call a special meeting of Members for the
purpose of approving and electing Independent Directors. Each Member other than
a Director hereby consents to the admission of any successor Independent
Directors pursuant
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hereto, and no further consent shall be required. Any successor Independent
Director designated by the Management Committee shall hold office until the next
meeting of Members and until his or her successor has been approved and elected,
unless he or she is sooner removed or withdraws pursuant to this Agreement.
(e) Restrictions On The Directors' Authority. The Directors
shall not have authority to do any of the following:
(i) act in contravention of this Agreement or of the
1940 Act;
(ii) possess Fund property or assign the rights of
the Fund in specific property for other than a Fund purpose;
(iii) admit any other Person as a Director of the
Fund without the approval of the Members except as otherwise provided
herein;
(iv) commingle or permit the commingling of the
assets of the Fund with the assets of any other Person except as
otherwise provided herein;
(v) permit any Person who makes a nonrecourse loan to
the Fund to acquire, at the time and as a result of making the loan,
any direct or indirect interest in the profits, capital or property of
the Fund other than as a secured creditor;
(vi) without the consent of a Majority-in-Interest of
the Members, subject to Section 7.2, sell or otherwise dispose of at
any one time all or substantially all of the assets of the Fund; or
(vii) invest in a company in which any Director has
an equity interest other than through another company that it manages
or except as otherwise permitted by the 1940 Act.
(f) Contracts with Affiliates of the Directors. The Management
Committee may, on behalf of the Fund, enter into contracts for goods or services
with any Affiliate of a Director provided that the charges for such goods or
services are the lower of (i) cost, including a reasonable allocation of cost of
capital, or (ii) those charged by unaffiliated Persons in the area for similar
goods and services. Any such contract shall be subject to termination by a
majority of the Independent Directors following 60 days' prior notice thereof.
(g) Obligations of the Directors. The Directors shall devote
such time and effort to the Fund business as, in their judgment, may be
necessary or appropriate to manage the affairs of the Fund The Directors are
under a duty and obligation to conduct the affairs of the Fund in the best
interests of the Fund, including the safekeeping and the use of all Fund assets
(whether or not in the immediate possession or control of the Directors) and the
use thereof for the benefit of the Fund. Neither the Directors nor any of their
Affiliates shall enter into any transaction with the Fund that will
significantly benefit the Directors or such Affiliates in their independent
capacities unless the transaction is expressly permitted hereunder and under the
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1940 Act or any exemptive order issued by the Securities and Exchange Commission
thereunder, or is entered into principally for the benefit of the Fund in the
ordinary course of Fund business.
(h) Compensation of Independent Directors. Each Independent
Director will receive $2,000 per meeting. The Board of Directors, subject to the
approval of Unit holders, to the extent required by law, may approve
supplemental compensation for the Independent Directors.
7.2 Management Committee.
(a) General. The Directors shall delegate to the Management
Committee the powers specified in Section 7.2(b). The Management Committee shall
be comprised of the Affiliated Directors.
(b) Management Committee Powers. Subject to the terms
hereof, including but not limited to Section 7.3, the Management Committee shall
have full, exclusive, and complete discretion in the management and control of
the affairs of the Fund, shall make all decisions affecting Fund affairs and
shall have all of the rights, powers, and obligations of a managing member of a
limited liability company under the Act and otherwise as provided by law. The
members of the Management Committee shall provide overall guidance and
supervision with respect to the operation of the Fund, shall perform all duties
imposed on the directors of business development companies by the 1940 Act, and
shall monitor the activities of Portfolio Companies in which the Fund has
invested. Except as otherwise expressly provided in this Agreement, the
Management Committee is hereby granted the right, power, and authority to do on
behalf of the Fund all things which, in its sole judgment, are necessary or
appropriate to manage the Fund's affairs and fulfill the purposes of the Fund,
including, by way of illustration and not by way of limitation, the power and
authority from time to time to do the following:
(i) subject to Section 7.7, invest the assets of the
Fund in such investments as are consistent with the Fund's purpose,
provided that such investments do not cause the Fund to fail to comply
with Section 55 of the 1940 Act;
(ii) incur all expenses permitted by this Agreement;
(iii) to the extent that funds are available, cause
to be paid all expenses, debts, and obligations of the Fund;
(iv) employ and dismiss from employment such agents,
employees, managers, accountants, attorneys, consultants, and other
Persons necessary or appropriate to carry out the business and affairs
of the Fund, whether or not any such Persons so employed are Affiliates
of any Directors or the Investment Manager, and to pay such
compensation to such Persons as is competitive with the compensation
paid to unaffiliated Persons in the area for similar services, subject
to the restrictions set forth in Section 7.1(f);
(v) subject to the indemnification provisions in this
Agreement, pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend, or settle, upon such terms it deems sufficient, any
obligation, suit, liability, cause of action, or claim, including tax
audits,
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either in favor of or against the Fund;
(vi) enter into any sales, agency, or dealer
agreements, and escrow agreements, with respect to the sale of Units to
Members and provide for the distribution of such Units by the Fund
through one or more broker-dealers (which may be Affiliates of the
Directors), or otherwise;
(vii) borrow money in an amount up to but not in
excess of 50% of the aggregate Capital Contribution of all Members and
issue multiple classes of senior indebtedness or a single class of
interests senior to the Units to the extent permitted by the 1940 Act
and repay, in whole or in part, any such interests senior to the Units;
and in connection with such loans or senior instruments to mortgage,
pledge, assign, or otherwise encumber any or all properties or assets
owned by the Fund, including any income therefrom, to secure such
borrowings or provide repayment thereof;
(viii) establish and maintain accounts with financial
institutions, including federal or state banks, brokerage firms, trust
companies, savings and loan institutions, or money market funds;
(ix) make temporary investments of Fund capital in
Short-Term Investments;
(x) to the extent permitted by the 1940 Act, form or
cause to be formed one or more small business investment companies
under the Small Business Investment Fund Act of 1958, as amended;
(xi) establish valuation principles and periodically
apply such principles to the Fund's venture capital investment
portfolio;
(xii) to the extent permitted by the 1940 Act,
designate and appoint one or more agents for the Fund who shall have
such authority as may be conferred upon them by the Management
Committee and who may perform any of the duties of, and exercise any of
the powers and authority conferred upon, the Management Committee
hereunder including, but not limited to, designation of one or more
agents as authorized signatories on any bank accounts maintained by the
Fund;
(xiii) prosecute, protect, defend, or cause to be
protected and defended, or abandon, any patent, patent right,
copyright, trade name, trademark, and service mark, and any application
with respect thereto, that may be held by the Fund;
(xiv) take all reasonable and necessary actions to
protect the secrecy of and the proprietary rights with respect to any
know-how, trade secret, secret process, or other information and to
prosecute and defend all rights of the Fund in connection therewith;
(xv) subject to the other provisions of this
Agreement, to enter into, make, and perform such contracts, agreements,
and other undertakings, and to do such other acts,
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as it may deem necessary or advisable for, or as may be incidental to,
the conduct of the business contemplated by this Agreement, including,
without in any manner limiting the generality of the foregoing,
contracts, agreements, undertakings, and transactions with any Investor
or with any other person, firm, or corporation having any business,
financial, or other relationship with any Investor, provided, however,
such transactions with such Persons and entities (i) shall only be
entered into to the extent permitted under the 1940 Act and (ii) shall
be on terms no less favorable to the Fund than are generally afforded
to unrelated third parties in comparable transactions;
(xvi) purchase, rent, or lease equipment for Fund
purposes;
(xvii) purchase and maintain, at the Fund's expense,
liability and other insurance to protect the Fund's assets from third
party claims, provided that, in its judgment, such insurance is
available and reasonably priced; and cause the Fund to purchase or bear
the costs of any insurance covering the potential liabilities of the
Members, or employees or partners of the Fund or Investment Manager as
well as the potential liabilities of any Person serving at the request
of the Investment Manager as a director of or advisor to a Portfolio
Company; provided, however, that the Directors or Investment Manager as
the case may be shall be required to bear, out of their separate
assets, the portion of the premiums for any such insurance coverages
beyond those for matters against which the Fund is permitted to
indemnify the Directors under Section 7.8;
(xviii) cause to be paid any and all taxes, charges,
and assessments that may be levied, assessed or imposed upon any of the
assets of the Fund;
(xix) make any election on behalf of the Fund that is
or may be permitted under the Code and supervise the preparation and
filing of all tax and information returns that the Fund may be required
to file;
(xx) take any action that may be necessary or
appropriate for the continuation of the Fund's valid existence as a
limited liability company under the laws of the State of New Jersey and
of each other jurisdiction in which such existence is necessary to
protect the limited liability of the Members or to enable the Fund to
conduct the business in which it is engaged;
(xxi) admit additional Members to the Fund and admit
an assignee of a Member's Fund Interest to be a Substituted Member in
the Fund, pursuant to and subject to the terms of this Agreement,
without the consent of any other Member; and
(xxii) perform all normal business functions, and
otherwise operate and manage the business and affairs of the Fund, in
accordance with and as limited by this Agreement.
7.3 Investment Manager.
(a) Authority. The Investment Manager is hereby granted the
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exclusive power and authority from time to time, subject to the supervision of
the Board, to manage and control the investments of the Fund, including, but not
limited to, the power to make all decisions regarding the Fund's venture capital
investment portfolio and, among other things, to find, evaluate, structure,
monitor, sell, and liquidate, upon dissolution or otherwise, such investments,
to provide, or arrange for the provision of, managerial assistance to companies
in which the Fund invests and in connection therewith to enter into, execute,
amend, supplement, acknowledge, and deliver any and all contracts, agreements,
or other instruments for the performance of such functions, including the
investment and reinvestment of all or part of the Fund's assets, execution of
portfolio transactions, and any or all administrative functions.
(b) Compensation Of Investment Manager. Over and above its
distributive share of Fund profits, losses, and distributions, the Investment
Manager shall also receive the following amounts from the Fund:
(i) Management Fee. The Fund shall pay the Investment
Manager a quarterly fee for supervising the venture capital operations of the
Fund equal to .625 percent of Adjusted Capital Contributions (i.e., 2.5%
annually multiplied by the Adjusted Capital Contributions of the Fund, as
determined on the last day of the immediately preceding quarterly period
("Management Fee")).
To the extent permitted by applicable law, the Management Fee shall be
allocated among each Member whose subscription is accepted by the Fund without
proration for the amount of time a Member was a Member during the Offering
Period. All Management Fees shall be due and payable quarterly in arrears. To
the extent Fund cash reserves are insufficient to pay the entire Management Fee
when due, the unpaid fee shall be carried forward and paid when cash reserves
are sufficient to allow the payment.
(ii) Reimbursement Of Operational Costs. The Fund
shall reimburse the Investment Manager or its Affiliates for actual costs and
expenses incurred by the Investment Manager or its Affiliates in connection with
the business of the Fund, including without limitation expenses related to the
selection of investments or proposed investments, even if the proposed
investments ultimately are not undertaken by the Fund. The Management Fee is in
addition to the reimbursement of actual costs.
7.4 Expenses. Except as otherwise provided herein, or in
any other agreement between the Fund and a third party, the Fund shall pay all
expenses related to its investments and potential investments, whether or not
such potential investments are actually made by the Fund. Such expenses, whether
billed directly to the Fund or reimbursed to the Investment Manager, may
include, but are not limited to: (i) finders' fees, (ii) legal, auditing,
accounting, investment banking, consulting, brokerage and other fees (including
fees incurred in connection with the annual audit of the Fund's financial
statements), (iii) expenses in connection with the acquisition and/or
disposition of securities, including, without limitation, filing and
registration fees, (iv) all travel and other expenses incurred in the
investigation of an investment opportunity, (v) the cost of preparing
information relating to the Fund's potential acquisition or sale of any
security, and (vi) other out-of-pocket costs of the Fund. The Fund shall also be
responsible for costs incurred in connection with any litigation relating to
specific investments or
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investment opportunities, whether or not made, including, without limitation,
examinations, investigations or other proceedings conducted by any regulatory
agency, legal and accounting fees incurred in connection therewith and any
judgments, fines, penalties, damages, and amounts paid in settlement payable as
a result thereof.
7.5 Appointment Of Auditors Subject to the approval of (i) a
Majority-In-Interest of Members to the extent required by law and (ii) a
majority of the Independent Directors, the Management Committee, in the name and
on behalf of the Fund, is authorized to appoint independent certified public
accountants for the Fund.
7.6 [Intentionally omitted]
7.7 Prohibited Transactions. Except to the extent expressly permitted
by this Agreement and except as permitted by the 1940 Act or any exemptive order
issued by the Securities and Exchange Commission thereunder:
(a) the Fund shall not lend money or other property to the Investment
Manager or any Investment Manager Affiliate;
(b) the Fund shall not sell to or purchase any security or any other
property from a Director, Investment Manager, or any Affiliate of either, or
effect any transaction in which a Director, Investment Manager, or any Affiliate
of either is a joint or several participant;
(c) the Fund shall not purchase or sell commodities or commodity contracts,
participate on a joint or a joint and several basis in any trading account in
securities, or purchase any securities on margin, except such short-term credits
as are necessary for clearance of transactions;
(d) no reimbursement for expenses of the Fund shall be made to the
Directors or any Affiliate of a Director;
(e) the Fund shall not issue any of its Units for services or for property
other than cash or securities;
(f) the Fund shall not sell any Units at a price below the current net
asset value of such Units;
(g) the Fund shall not engage in any transaction or make any investment not
permitted by the 1940 Act; and
(h) the Fund shall not withdraw its election to be treated as a business
development company under the 1940 Act without approval of a
Majority-In-Interest of the Members.
7.8 Limitations on Liability of Directors and Investment Manager;
Indemnification.
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(a) The Board shall not be liable for the return of any
Capital Contribution made to the Fund by a Member, and shall not be liable to
the Members because any taxing authorities disallow or adjust any income tax
allocations, deductions or credits.
(b) The members of the Board and the Management Committee and
any person who serves at the request of the Board or on behalf of the Fund as a
partner, officer, director, employee or agent of any other entity (hereinafter
an "Indemnified Person") shall not be personally liable to the Fund or to the
Members for damages for breach of any duty owed to the Fund or its Members
provided that such act or omission (a) was not in breach of such person's duty
of loyalty to the Fund or the Members, (b) was made in good faith and not
involving a knowing violation of law and (c) did not result in the receipt of an
improper personal benefit.
(c) The Fund shall indemnify and hold an Indemnified Person
harmless from any loss, damage, fine, penalty, expense, judgment or amount paid
in settlement, including attorneys' fees reasonably incurred, which such
Indemnified Person incurs by reason of his performance or nonperformance of any
act concerning the activities of the Fund or in furtherance of the Fund's
interests or purposes; provided, however, that an Indemnified Person shall not
be indemnified for any matters as to which he is adjudged to have (a) breached
his duty of loyalty to the Fund or the Members, (b) not acted in good faith or
knowingly violated the law or (c) received an improper personal benefit. If an
Indemnified Person is adjudged to have committed any of the foregoing, he shall
reimburse the Fund for any funds advanced or expended on his behalf. To the
extent possible, the Fund shall arrange that an Indemnified Person need not
expend or advance any of his own funds.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Fund in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of an
Indemnified Person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Fund as authorized herein.
The indemnification provided by this subsection (c) of this Section 7.8
shall not be deemed exclusive of any other rights to which an Indemnified Person
may be entitled under any agreement, vote of Members or otherwise, and shall
continue as to a Person who has ceased to be an Indemnified Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
The Fund shall have power at any time to purchase and maintain
insurance on behalf of any Person who is or was an Indemnified Person against
any liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Fund would have the power
to indemnify him against such liability under the provisions of this subsection.
The Indemnification provided by this subsection (c) of this
Section 7.8 shall apply to any action in the right of the Fund, to the fullest
extent permitted by law.
(d) No Member shall have any liability or responsibility to
contribute
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funds in excess of its Capital Contribution to satisfy any obligation of the
Fund under this Section 7.8. All such obligations shall be satisfied solely from
and to the extent of Fund assets.
7.9 Limitations on Liability of Investment Manager In the absence of:
(i) willful misfeasance, bad faith or gross negligence on the part of the
Investment Manager in performance of its obligations and duties hereunder; (ii)
reckless disregard by the Investment Manager of its obligations and duties
hereunder; (iii) a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services (in which case any award of damages
shall be limited to the period and the amount set forth in Section 36(b)(3) of
the 1940 Act, as amended), the Investment Manager shall not be subject to any
liability whatsoever to the Fund, or to any shareholder of the Fund, for any
error of judgment, mistake of law or any other act or omission in the course of,
or connected with, rendering services hereunder including, without limitation,
for any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
ARTICLE 8
OTHER BUSINESS
8.1 Other Business. Any Member, any Affiliate of a Member, and any
officer, director, employee, shareholder or other person holding a legal or
beneficial interest in any entity which is a Member or Affiliate, may engage in,
or possess an interest in, other business ventures of every nature and
description, independently or with others, whether or not such other enterprises
shall be in competition with or operating the same or similar businesses as the
Fund. This Agreement shall not, however, confer upon the Fund or the other
Members any right or opportunity to participate in any such independent ventures
of a Member or Affiliate or any right to the income or profits derived
therefrom. The members of the Investment Manager may retain personally any fees
paid to them by any Person. Neither the Directors nor any Affiliate of the
Directors shall be obligated to present any particular investment opportunity to
the Fund, except with respect to opportunities that are suitable for the Fund,
which must first be made available to the Fund before any of the Directors may
invest, and the Directors and their Affiliates shall each have the right to take
for their own account (individually or as a trustee, partner, or fiduciary) or
to recommend to others any such particular investment opportunity. The
Investment Manager and Affiliated Directors hereby consent and agree promptly to
furnish the Independent Directors, upon request, with information on a
confidential basis as to any venture capital investments made by them, or any of
their Affiliates, for their own account or for others.
ARTICLE 9
TRANSFERABILITY OF MEMBER'S INTEREST;
WITHDRAWALS OF CAPITAL BY MEMBERS
9.1 Transfer of Units.
(a) Management Committee Approval. No sale, exchange,
transfer, or assignment of Units may be made by a Member unless such sale,
exchange, transfer or
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assignment has been approved by the Management Committee.
(b) Opinion of Counsel. Notwithstanding any other provisions
of this Article 9, no sale, exchange, transfer, or assignment of Units may be
made by a Member unless in the opinion of counsel for the Fund, satisfactory in
form and substance to the Board, (which opinion may be waived, in whole or in
part, at the discretion of the Board), that:
(i) such sale, exchange, transfer, or assignment,
when added to the total of all other sales, exchanges, transfers, or
assignments of Units within the preceding twelve months, would not
result in the Fund's being considered to have terminated within the
meaning of Section 708 of the Code;
(ii) such sale, exchange, transfer or assignment
would not violate any federal securities laws or any state securities
or "Blue Sky" laws (including any investor suitability standards)
applicable to the Fund or the Units to be sold, exchanged, transferred,
or assigned; and
(iii) such sale, exchange, transfer, or assignment
could not cause the Fund to be treated as a publicly traded partnership
taxable as a corporation for federal income tax purposes or to lose its
status as a partnership for state income tax purposes.
Any such opinion of counsel shall be delivered in writing to the Fund
prior to the date of the sale, exchange, transfer, or assignment.
(c) Minors. In no event shall all or any part of a Unit be
assigned or transferred by a Member to a minor or an incompetent except in
trust, pursuant to the Uniform Gifts to Minors Act or the Uniform Transfers to
Minors Act, or by will or intestate succession.
(d) Fractional Interests. No purported sale, exchange,
assignment, or transfer by a Member of, or after which the transferor and each
transferee would hold, Units representing less than ten Units or including a
fractional Unit will be permitted or recognized for any purpose without the
consent of the Management Committee, which consent shall be granted only for
good cause shown.
(e) Documentation. Each Member other than a Director agrees,
upon request of the Directors, to execute such certificates or other documents
and perform such acts as the Board deem appropriate after an assignment of a
Unit by that Member to preserve the limited liability of the Members under the
laws of the jurisdiction in which the Fund is doing business. For purpose of
this Section 9.1(e), any transfer of a Unit, whether voluntary or by operation
of law, shall be considered an assignment.
(f) Void ab initio. Any purported assignment of a Unit that is
not made in compliance with this Agreement is hereby declared to be null and
void and of no force or effect whatsoever.
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(g) Expense. Each Member other than a Director agrees, prior
to the time the Directors consent to an assignment of a Unit by that Member, to
pay all reasonable expenses, including attorneys' fees, incurred by the Fund in
connection with such assignment.
9.2 Assignees.
(a) Notification Required and Effective Date. The Fund shall
not recognize for any purpose any purported sale, assignment, or transfer of all
or any fraction of the Units of a Member other than a Director unless the
provisions of Section 9.1 shall have been complied with and there shall have
been filed with the Fund a dated notification of such sale, assignment, or
transfer, in form satisfactory to the Directors, executed and acknowledged by
both the seller, assignor, or transferor and the purchaser, assignee, or
transferee and such notification (i) contains the acceptance by the purchaser,
assignee, or transferee of all of the terms and provisions of this Agreement and
(ii) represents that such sale, assignment, or transfer was made in accordance
with all applicable laws and regulations. Any sale, assignment, or transfer
shall be recognized by the Fund effective on the first day of the fiscal quarter
following the fiscal quarter in which such notification is filed with the Fund.
If a Unit is sold, assigned, or transferred more than once during a fiscal
quarter, the last purchaser, assignee, or transferee with respect to whom
notification is received shall be recognized by the Fund.
(b) Voting. Unless and until an assignee of a Unit becomes a
Substituted Member, such assignee shall not be entitled to vote or to give
consents with respect to such Unit.
(c) Assignor Rights. Any Member who shall assign all of such
Member's Units shall cease to be a Member and shall not retain any statutory
rights as a Member.
(d) Written Assignments. Anything herein to the contrary
notwithstanding, both the Fund and the Directors shall be entitled to treat the
assignor of a Unit as the absolute owner thereof in all respects, and shall
incur no liability for distributions made in good faith to such assignor until
such time as a written assignment that conforms to the requirements of this
Section 9.2 has been received by the Fund and accepted by the Board.
(e) Assignee Not Substituted Member. A person who is the
assignee of all or any fraction of the Units of a Member, but does not become a
Substituted Member and desires to make a further assignment of such Units, shall
be subject to all the provisions of this Article 9 to the same extent and in the
same manner as any Member desiring to make an assignment of such Member's Units.
9.3 Substituted Members.
(a) Approval. No Member other than a Director shall have the
right to substitute a purchaser, assignee, transferee, donee, heir, legatee,
distributee, or other recipient of all or any fraction of such Member's Interest
as a Member in the transferring Member's place. Any such purchaser, assignee,
transferee, donee, heir, or other recipient of a Unit (whether
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pursuant to a voluntary or involuntary transfer) shall be admitted to the Fund
as a Substituted Member only (i) with the consent of the Directors, which
consent shall be granted or withheld in the absolute discretion of the
Directors; (ii) by satisfying the requirements of Sections 9.1 and/or 9.2; and
(iii) if necessary, upon an amendment to this Agreement executed by all
necessary parties and filed or recorded in the proper records of each
jurisdiction in which such recordation is necessary to qualify the Fund to
conduct business or to preserve the limited liability of the Members and
Directors. Any such consent by the Directors may be evidenced, if necessary, by
the execution by the Directors of an amendment to this Agreement evidencing the
admission of such Person as a Member. The admission of a Substituted Member
shall be recorded on the books and records of the Fund. The Members hereby
consent and agree to such admission of a Substituted Member by the Board. The
Directors agree to process such amendments not less frequently than quarterly.
(b) Admission. Each Substituted Member, as a condition to
admission as a Member, shall execute and acknowledge such instruments, in form
and substance satisfactory to the Directors, as the Directors deem necessary or
desirable to effectuate such admission and to confirm the agreement of the
Substituted Member to be bound by all the terms and provisions of this Agreement
with respect to the Units acquired. All reasonable expenses, including
attorneys' fees, incurred by the Fund in this connection shall be borne by such
Substituted Member.
(c) Rights of Assignee. Until an assignee shall have been
admitted to the Fund as a Substituted Member pursuant to this Section 9.3, such
assignee shall be entitled to all of the rights of an assignee of a limited
liability company interest under the Act.
9.4 Indemnification. Each Member shall indemnify and hold harmless the
Company, the Directors, and every Member who was or is a party to any pending or
completed action, suit, or proceeding whether civil, criminal, administrative,
or investigative, by reason of or arising from any actual misrepresentation or
misstatement of facts or omission to state facts made (or omitted to be made) by
such Member in connection with any assignment, transfer, encumbrance, or other
disposition of all or and part of a Unit, or the admission of a Substituted
Member to the Fund, against expenses for which the Fund or such other Person has
not otherwise been reimbursed (including attorneys fees, judgments, fines, and
amounts paid in settlement) actually and reasonably incurred by the Fund or such
other Person in connection with such action, suit, or proceeding.
9.5 Incapacity of a Member. If a Member other than a Director dies,
such Member's executor, administrator, or trustee, or, if such Member is
adjudicated incompetent, such Member's committee, guardian or conservator, or,
if such Member becomes bankrupt, the trustee or receiver of such Member's
estate, shall have all the rights of an Member for the purpose of settling or
managing the estate of such Member, and such power as the Incapacitated Member
possessed to assign all or any part of the Incapacitated Member's Units and to
join with such assignee in satisfying conditions precedent to such assignee's
becoming a Substituted Member. The Incapacity of an Member shall not dissolve
the Fund.
9.6 Withholding of Distributions. From the date of the receipt of any
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instrument relating to the transfer of a Unit or at any time the Board are in
doubt regarding the person entitled to receive distributions in respect of a
Unit, the Directors may withhold any such distributions until the transfer is
completed or abandoned or the dispute is resolved.
9.7 Transferor-Transferee Allocations. If a Unit is transferred in
compliance with the provisions of this Article 9, the income, gains, losses,
deductions, and credits allocable in respect of that Unit shall be allocated in
accordance with Section 5.6.
9.8 No Withdrawal. No Member shall be permitted to withdraw or resign
from the Fund without the express written consent of the Board. Any withdrawal
or attempted withdrawal of a Member in violation of this Section 9.8 shall be
null and void.
9.9 Notices. Any Member who, in accordance with this Article 9, shall
acquire or succeed to the interest of any other Member, shall promptly notify
the Board of his name, mailing address and the date of acquisition or transfer
of the applicable Fund interest.
9.10 Optional Adjustment to Basis of Fund Property. In the event of the
transfer of the interest of a Member in the Fund during the life of the Member
or upon the death of the Member, the Management Committee may, at its sole
discretion, make an election on behalf of the Fund as provided in Section 754 of
the Code (if such an election is not already in effect for the Fund) and cause
the Fund to make the adjustments to the basis of the property of the Fund (with
regard to the transferee Member only) as provided in Section 754 of the Internal
Revenue Code.
ARTICLE 10
DISSOLUTION AND LIQUIDATION
10.1 Dissolution.
(a) The Company shall be dissolved and its business terminated
upon the happening of the earliest of the following:
(i) the return of all Capital Contributions to the
Members pursuant to Article 4 hereof;
(ii) a sale or disposition of all assets;
(iii) the expiration of its term as herein provided;
(iv) consent of a Majority-In-Interest of Members;
and
(v) the occurrence of any other event which, under
the mandatory provisions of the laws of the
State of New Jersey, would cause a termination
or dissolution of the Company.
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(b) The death, dissolution, expulsion, bankruptcy, incapacity
or withdrawal of any Member will not cause the dissolution of the Company.
10.2 Liquidation.
(a) In the event of the dissolution of the Company, which
dissolution (if applicable) is not followed by actions of the Members to
continue the Company, the assets of the Company shall be sold or distributed as
promptly as possible, but in an orderly and businesslike manner, as the Board in
its discretion shall determine. All assets of the Company which are sold shall
be sold at such price and upon such terms as the Board in its sole discretion
may deem advisable. The Investment Manager (or the Person charged with the
liquidation of the Company) shall be entitled to a fee for its services as the
liquidator of the Company equal to the lesser of (i) the management fee that
would have been payable to the Investment Manager during the period encompassing
the liquidation of the Company or (ii) one percent (1%) of the fair market value
of the Company's assets in liquidation. Any Member thereof may purchase the
assets of the Company at such sale.
(b) The proceeds of any sale described in Section 10.2(a), in
addition to the cash and securities on hand, shall be applied and distributed in
the following order of priority:
(i) to the payment of debts and liabilities of the
Fund, including, without limitation, loans payable to Members and the
liquidator fee described in Section 10.2(a) above; then
(ii) to the setting up of such reserves as the Board
may deem necessary for any contingent liabilities or obligations of the
Company, provided that any such reserves shall be paid over to an
independent escrow agent, to be held by such agent or his successor for
such period as such person shall deem advisable for the purpose of
applying such reserves to the payment of such liabilities or
obligations and, at the expiration of such period, the balance of such
reserves, if any, shall be distributed; then
(iii) to the Members, in proportion to the positive
balances of their respective Capital Accounts after all Profits and
Losses resulting from the liquidation and/or distribution of all assets
of the Company have been allocated pursuant to Section 5.1.
(c) The Board may in its discretion distribute any or all of
the Company's assets in kind and in varying amounts (including a percentage of
one or more such assets which exceeds the percentage of such asset(s) which is
equal to the percentage in which a Member shares in distributions from the
Company) to the Members.
(d) The Board, in making distributions upon liquidation, shall
value the Company's publicly traded assets by reference to the values of same
reported by the securities exchange or quotation system upon which such
securities are listed or quoted on the
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day prior to distribution of the same, and shall value the Company's remaining
assets according to their fair market value as determined by the Board, acting
in good faith. The determination of fair market value of each of the assets by
the Board shall be conclusive and binding on the parties.
10.3 Return of Capital Contribution. The return of all or any part of
the Capital Contributions of the Members in connection with the liquidation of
the Company shall be made solely from Company assets and the Members shall have
no right to demand either cash or property other than cash.
ARTICLE 11
RESIGNATION OR REMOVAL OF DIRECTORS OR INVESTMENT MANAGER
11.1 Resignation of a Director. Subject to Section 11.5, a Director may
voluntarily resign or withdraw from the Fund, but only upon compliance with all
of the following procedures:
(a) the Director shall give notification to the Board of
Directors that he or she proposes to withdraw;
(b) subject to Section 7.1(b), the remaining members of the
Management Committee shall designate a successor Director who shall hold such
office until such Director's successor has been approved and elected;
(c) the Management Committee shall designate only an
Independent Director to replace a withdrawing or retiring Independent Director;
and
(d) the withdrawing Director shall cooperate fully with the
successor Director so that the responsibilities of the withdrawing Director may
be transferred to the successor Director with as little disruption of the Fund's
business and affairs as practicable.
11.2 Resignation of the Investment Manager. The Investment Manager may
voluntarily resign or withdraw from the Fund, but only upon compliance with all
of the following procedures:
(a) the Investment Manager shall, at least 60 days prior to
such withdrawal, give notification to all Investors that it proposes to withdraw
and that there be substituted its place a Person or Persons designated and
described in such notification;
(b) enclosed with the notification shall be a certificate,
duly executed by or on behalf of each proposed successor Investment Manager, to
the effect that: (i) it is experienced in performing (or employs sufficient
personnel who are experienced in performing) functions that an Investment
Manager is required to perform under this Agreement; (ii) it has a net worth
that meets the requirements of any statute or the courts applicable to a manager
of a limited liability
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company in order to ensure that the Fund will not fail to be classified for
state income tax purposes as a limited liability company rather than as an
association taxable as a corporation; and (iii) it is willing to become an
Investment Manager under this Agreement and will assume all duties and
responsibilities thereunder, without receiving any compensation for services
from the Fund in excess of that payable under this Agreement to the withdrawing
Investment Manager and without receiving any participation in the withdrawing
Investment Manager's Fund Interest other than that agreed upon by the
withdrawing Investment Manager and the successor Investment Manager;
(c) if the Investment Manager resigns or withdraws, there
shall be on file at the principal office of the Fund, prior to such withdrawal,
audited financial statements of each proposed successor Investment Manager, as
of a date not earlier than twelve months prior to the date of the notification
required by this Section 11.2, certified by a nationally or regionally
recognized firm of independent certified public accountants, together with a
certificate, duly executed on behalf of each proposed successor Investment
Manager by its principal financial officer, to the effect that no material
adverse change in its financial condition has occurred since the date of such
audited financial statements that has caused its net worth, excluding the
purchase price of its Fund Interest, to be reduced to less than the amount under
Subsection 11.2(b). Such audited financial statements and certificates shall be
available for examination by any Member during normal business hours;
(d) to the extent required by and in accordance with the 1940
Act, a Majority-In-Interest of the Members has consented to the appointment of
any successor Investment Manager; and
(e) the withdrawing Investment Manager shall cooperate fully
with each successor Investment Manager so that the responsibilities of the
withdrawing Investment Manager may be transferred to each successor Investment
Manager with as little disruption of the Fund's business and affairs as
practicable.
11.3 Removal of a Director or Investment Manager, Designation of a
Successor Director
(a) Any of the Independent Directors may be removed either:
(i) for cause by the action of at least two-thirds of the remaining Directors,
including a majority of the remaining Independent Directors; (ii) by failure to
be approved and re-elected by the Members in accordance with this Agreement; or
(iii) with the consent of a Majority-In-Interest of the Members. The Investment
Manager may be removed either: (i) by a majority of the Directors; (ii) by
failure to be approved and re-elected by the Members in accordance with this
Agreement; or (iii) with the consent of a Majority-In-Interest of the Members.
The removal of a Director shall in no way derogate from any rights or powers of
such Director, or the exercise thereof, or the validity of any actions taken
pursuant thereto, prior to the date of such removal.
(b) In the event of the removal of the Investment Manager and
continuation of the Fund, the venture capital investments held by the Fund at
the time of removal shall be appraised by two independent appraisers, one
jointly selected by the Investment Managers and
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one by the Independent Directors. In the event that such two appraisers are
unable to agree on the value of the Fund's venture capital investment portfolio,
they shall jointly appoint a third independent appraiser whose determination
shall be final and binding. The cost of the appraisal conducted by the appraiser
selected by the Investment Manager shall be borne by the Investment Manager, and
the cost of the appraisal conducted by the appraiser selected by the Independent
Directors shall be borne by the Fund. The cost of the appraisal conducted by a
third appraiser shall be borne equally by the Fund and by the Investment
Manager. All unrealized capital gains and losses of the Fund shall be deemed
realized at that time solely for purposes of making a final allocation to the
Investment Manager. With respect to its Fund Interests pursuant to Article 4,
the Investment Manager shall receive a final allocation of Net Profit or Net
Loss equal to the Net Profit or Net Loss that it would have been allocated
pursuant to Article 5, if all unrealized capital gains and losses of the Fund
were deemed realized, an allocation of Net Profit or Net Loss was made at such
time, and such time were deemed to be the end of a Taxable Period. If the
Capital Account of the Investment Manager has a positive balance after such
allocation, the Fund shall deliver a promissory note of the Fund to the
Investment Manager, the principal amount of which shall be equal to the amount,
if any, by which the positive amount of the Investment Manager's Capital Account
exceeds the amount of its Capital Contributions and which bears interest at a
rate per annum equal to 100% of the prime rate in effect at CitiBank, N.A. at
the time of removal, with interest payable annually and principal payable, if at
all, only from 20% of any available cash before any distributions thereof are
made to the Members pursuant to Article 5. If the Capital Account of the
Investment Manager has a negative balance after such allocation, the Investment
Manager shall contribute cash to the capital of the Fund in an amount equal to
the negative balance in its Capital Account. The Fund Interests of the
Investment Manager shall be treated as held by an Investor, and the Investment
Manager shall continue to receive, as an Investor, only those allocations of the
Net Profits and the Net Losses pursuant to Article 5 and related distributions.
In the event that any of the foregoing requires an exemptive order from the SEC
that is not granted, the Investment Manager shall not receive a final allocation
of Net Profits and Net Losses and its interest shall be treated as held by an
Investor, and the Investment Manager shall continue to receive, as an Investor,
only those allocations of Net Profits and Net Losses pursuant to Article 5.
(c) Subject to Section 7.1(b), the remaining members of the
Management Committee may designate one or more Persons to fill any vacancy
existing in the number of Independent Directors fixed pursuant to Section 7.1(b)
resulting from removal of an Independent Director by the Directors pursuant to
Section 11.3(a). Remaining members of the Management Committee may designate one
or more Persons to be successors to the Investment Manager removed by the
Independent Directors pursuant to Section 11.3(a), and each Member other than a
Director hereby consents to the admission of such successor or successors, no
further consent being required until the next bi-annual meeting of Members. Any
such successor Director or Investment Manager shall hold office until the next
bi-annual meeting of Members and until his or her successor has been approved
and elected. With the consent of such number of members other than a Director
(but not in any event less than a Majority-In-Interest of the Members) as are
then required under the Act, and under the laws of the other jurisdictions in
which the Fund is then formed or qualified, to consent to the admission of a
Director, such Members may, subject to the provisions hereof, at any time admit
a Person to be successor to a Director concurrently therewith being removed by
the Investors pursuant to Section 11.3(a).
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(d) Any removal of a Director shall not affect any rights or
liabilities of the removed Director that matured prior to such removal.
11.4 Incapacity of a Director.
(a) In the event of the incapacity of a Director, the business
of the Fund shall be continued with the Fund property by the remaining
Directors. Subject to Section 7.1, the remaining Directors shall give
notification to the Members of such event and shall, within 90 days, call a
meeting of the Management Committee for the purpose of designating a successor
Director. Any such successor Director shall hold such office until the next
bi-annual meeting of Investors or until his or her successor has been approved
and elected. The Directors shall make such amendments to the certificate of
formation and execute and file for recordation such amendments or other
documents or instruments as are necessary and required by the Act or this
Agreement to reflect the termination of the Fund Interest of the Incapacitated
Director, the fact that such Incapacitated Director has ceased to be a Director,
and the appointment of such successor Director.
(b) In the event of the Incapacity of all Directors, the Fund
shall be dissolved. Upon the Incapacity of all Directors, a Director shall
immediately cease to be a Director and its Fund Interest, as such, shall
continue only for the purpose of determining the amount, if any, that it is
entitled to receive upon any dissolution pursuant to Section 10.
(c) Any such termination of a Director shall not affect any
rights or liabilities of the Incapacitated Director that matured prior to such
Incapacity.
11.5 Admission of a Successor Director.
(a) The admission of any successor Director, as the case may
be, shall be effective only if and after the following conditions are satisfied:
(i) the designation of such Person as successor
Director shall occur, and for all purposes, shall be deemed to have
occurred, prior to the withdrawal or removal of the withdrawing or
removed Director, or transfer of the withdrawing or removed Director's
Fund Interest, as the case may be; and
(ii) the Fund Interests of the Members shall not be
affected by the admission of such successor Director or the transfer of
the Director's Fund Interest.
(b) A Director shall not have the right to transfer or assign
his Fund Interest, except that a Director may: (i) transfer his Fund Interest to
a successor Director pursuant to Section 11.1 or 11.3; (ii) substitute instead
as a successor Director any Person that has, by merger, consolidation, or
otherwise, acquired substantially all of its assets and continued its business;
and (iii) pledge or grant an interest in its right to receive payments and
distributions under this Agreement. Each Member other than a Director hereby
consents to the admission of any additional or successor Director pursuant to
this Section 11.5(b), and no further consent or
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approval shall be required; and
(c) Notwithstanding anything to the contrary in this Article
11 a Director's Fund Interest shall at all times be subject to the restrictions
on transfer set forth in Article 9
11.6 Liability of a Withdrawn or Removed Director Any Director who
shall withdraw or be removed from the Fund, or who shall sell, transfer, or
assign his Fund Interest shall remain liable for obligations and liabilities
incurred by him as Director prior to the time such withdrawal, removal, sale,
transfer, or assignment shall have become effective, but he shall be free of any
obligation or liability incurred on account of the activities of the Fund from
and after the time such withdrawal, removal, sale, transfer, or assignment shall
have become effective.
11.7 Consent of Members to Admission of Successor Directors. Each
Member other than a Director hereby consents, pursuant to Section 11.3, to the
admission of any Person as a successor Director meeting the requirements of
Section 11.3 to whose admission as such a Majority-In-Interest of the Investors
have expressly consented, and no further express consent or approval shall be
required.
11.8 Continuation. In the event of the withdrawal, removal, or
retirement of a Director, or the transfer or assignment by a Director of his
Fund Interest, the Fund shall not be dissolved and the business of the Fund
shall be continued by the remaining Directors.
ARTICLE 12
ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS
12.1 Annual Accounting Period. The annual accounting period of the Fund
shall be January 1 through December 31.
12.2 Records.
(a) The Investment Manager shall maintain, or cause to be
maintained, the Certificate of Formation and all amendments thereto, this
Agreement and all amendments hereto, complete and accurate records of all
transactions of the Fund, copies of the Fund's tax returns, and full and true
books of account in accordance with the accounting method followed by the Fund
for Federal income tax purposes.
(b) All of such books and records shall, at all times, be kept
at the principal office of the Fund and during regular business hours shall be
opened upon reasonable notice for inspection, examination and copying by a
Member or his authorized representative(s). Members shall be given reasonable
access during business hours to the information regarding the Fund.
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<PAGE>
12.3 Income Tax Returns.
(a) The Investment Manager shall be the "tax matters partner"
under the Code.
(b) With respect to the preparation of federal, state and
local income tax returns of the Fund, the tax matters partner shall see to the
preparation and filing of all such returns in a timely manner and shall make, in
his sole discretion, unless otherwise provided herein, such elections or
determinations as may be desirable and available under current provisions of the
Code. In the event that the Internal Revenue Service audits the return of any
Member with respect to his or its participation in the Fund, the Fund shall have
the right, but not the obligation, to participate at its own expense in such
audit in matters affecting the Fund's tax return. The Members shall take such
steps and execute such instruments as may be required to accomplish this,
including without limitation the execution of powers of attorney. In the event
of an income tax audit of any Fund tax return, to the extent the Fund is treated
as an entity for purposes of the audit, including administrative settlement and
judicial review, the tax matters partner shall be authorized to act for, and its
decisions shall be final and binding upon, the Fund and the Members. The tax
matters partner shall keep the other Members apprised of the status of any
income tax audit.
12.4 Reports. The Board shall cause to be delivered to the Members the
following:
(a) By March 31st of each year, a statement which shall
include, as of the end of and for the previous Fiscal Year, the following:
(i) A financial statement of the Fund and a status
report of the Fund's investments prepared by an accounting firm
selected by the Board;
(ii) Such other information as is required under the
1940 Act or other relevant law or, in the opinion of the Board, shall
reasonably be necessary for the Members to be currently aware of the
operating and business results of the Fund, including a valuation of
the Company's investment portfolio which has been approved the Advisory
Committee.
(b) Not later than the sixtieth (60th) day of the month
following the end of each of the first three (3) fiscal quarters of each Fiscal
Year, a quarterly review of the Fund's operations, including unaudited financial
statements of the Fund and a valuation of the Fund's investment portfolio which
has been approved by the Management Committee.
(c) Any information reasonably necessary for the preparation
by any Member of his federal, state and local income or other tax returns. The
Board shall use its best efforts to cause the Investment Manager to provide the
appropriate Forms K-1 to each Member by March 31 of each year, however, it
cannot guarantee that such forms shall be provided to each Member by such date.
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<PAGE>
(d) By April 30 of each year the Fund will also distribute to
the Investors an annual report containing a balance sheet and statements of
operations, changes in members' equity and cash flows (which would be prepared
on a GAAP basis of accounting and will be examined and reported upon by an
independent public accountant) and a report on the Fund's activities during the
period reported upon. Such annual report will describe all reimbursements to the
Investment Manager and its affiliates and all distributions to investors,
including the source of such payments.
12.5 Annual Meeting. The Company will hold an annual meeting of Members
at which additional information about the activities and investments of the
Company shall be provided to the Members.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any offer, acceptance, election, approval, consent,
request, waiver, notice or other document required or permitted to be given
pursuant to any provision of this Agreement shall be deemed duly given only when
in writing, signed by or on behalf of the person giving same, and either
personally delivered (with receipt acknowledged by the recipient) or deposited
in a designated United States mail depository, registered or certified mail,
return receipt requested, postage prepaid, addressed to the person or persons to
whom such offer, acceptance, election, approval, consent, request, waiver or
notice is to be given at their respective addresses indicated herein or in the
Company's records, or at such other address as shall have been set forth in a
notice sent pursuant to the provisions of this Section 13.1.
13.2 Binding Effect. Subject in all respects to the limitations
concerning the transferability of Units contained herein and except as otherwise
herein expressly provided, the provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto, their respective personal
representatives, heirs, successors and permitted assigns.
13.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall for all purposes constitute one agreement
which is binding on all of the parties hereto.
13.4 Section Headings. Section titles or captions contained in this
Agreement are inserted as a matter of convenience and for reference only, and
shall not be construed in any way to define, limit or extend or describe the
scope of this Agreement or the intention of the provisions hereof.
13.5 Exhibits. All exhibits and schedules annexed hereto are expressly
made a part of this Agreement, as fully as though completely set forth herein,
and all references to this Agreement herein or in any of such exhibits or
schedules shall be deemed to refer to and include all such exhibits or
schedules.
13.6 Variation in Pronouns. All pronouns and variations thereof shall
be
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<PAGE>
deemed to refer to masculine, feminine, neuter, singular or plural, as the
identity of the person, persons, or entities may require.
13.7 Severability. Each provision hereof is intended to be severable
and the invalidity or illegality of any portion of this Agreement shall not
effect the validity or legality of the remainder.
13.8 Qualification in Other States. In the event the business of the
Company is carried on or conducted in states in addition to New Jersey, then the
Members agree that the Company shall qualify to do business under the laws of
each state in which business is actually conducted by the Company, and they
severally agree to execute such other and further documents as may be required
or requested in order that the Board legally may qualify the Company in such
states to the extent possible. A Company office or principal place of business
in any state may be designated from time to time by the Board.
13.9 Entire Agreement. This Agreement constitutes the entire agreement
of the parties hereto with respect to the matters set forth herein and
supersedes any prior understanding or agreement, oral or written.
13.10 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New Jersey.
13.11 Forum. Any action by one or more Members against the Company or
the Directors, Investment Manager or Members, or by the Company against the
Directors, Investment Manager or Members, which arises under or in any way
relates to this Agreement, the sale of Units or actions taken or failed to be
taken or determinations made or failed to be made by the Investment Manager or
Directors or relating to the Company or services provided for it or joint
activities or other transactions in which it engages, including, without
limitation, transactions permitted hereunder or otherwise related in any way to
the Company, may be brought only in the state courts of the State of New Jersey
or the United States District Court for the District of New Jersey. Without
limitation, any action by the Investment Manager or Members which he or they may
have from time to time against one or more of the Members may be brought by such
Investment Manager or Members, or the Company, as the case may be, in any of the
courts mentioned in the preceding sentence. Each Member hereby consents to the
exclusive jurisdiction of such courts to decide any and all such actions and to
such venue.
-39-
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have duly executed this Agreement as of the date first above written.
THE OXBOW FUND, LLC
By: C.J.M. ASSET MANAGEMENT, LLC,
Investment Manager
By:
-------------------------------
Name: S. Charles Musumeci, Jr.
Title: Director
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<PAGE>
EXHIBIT g
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this ____ day of_________, by and between The
Oxbow Fund, LLC, a New Jersey limited liability company (the "Fund"), and C.J.M.
Asset Management, LLC, a New Jersey limited liability company ("CJM" or the
"Investment Manager").
WHEREAS, the Fund is a closed-end management investment company that
has elected to be regulated as a business development company pursuant to
Section 54 under the Investment Company Act of 1940, as amended (the "1940
Act").
WHEREAS, the Fund desires to retain the Investment Manager to render
investment management services to the Fund and the Investment Manager is willing
to render such services:
NOW THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1. DUTIES OF THE INVESTMENT MANAGER. The Fund hereby appoints the
Investment Manager to act as investment adviser for the period and on such terms
set forth in this Agreement. The Fund employs the Investment Manager to manage
the investment and reinvestment of the Fund's assets, to continuously review,
supervise and administer the investment program of the Fund to determine in its
discretion the securities to be purchased or sold and the portion of the Fund's
assets to be held uninvested, to provide the Fund with records concerning the
Investment Manager's activities which the Fund is required to maintain, and to
render regular reports to the Fund's Directors concerning the Investment
Manager's discharge of the foregoing responsibilities.
<PAGE>
The Investment Manager accepts such employment and shall discharge the
foregoing responsibilities subject to the control of the Directors of the Fund,
and in compliance with the objectives, policies and limitations set forth in the
Fund's prospectus as amended or supplemented from time to time (the
"Prospectus"), and applicable laws and regulations.
2. PORTFOLIO TRANSACTIONS. The Investment Manager is authorized to
select the brokers or dealers that will execute purchases and sales of portfolio
securities for the Fund, to the extent that brokers or dealers will be used to
execute any such transactions, and are directed to use their best efforts to
obtain the best net results as described in the Fund's Prospectus from time to
time. The Investment Manager agrees to promptly communicate to the Directors of
the Fund such information relating to transactions as they may reasonably
request. The Investment Manager shall further be authorized to incur investment
banking fees, finders fees and other expenses relating to the acquisition of
securities of portfolio companies and to be reimbursed for such expenses and
fees from assets of the Fund.
3. COMPENSATION OF THE INVESTMENT MANAGER. For the services to be
rendered by the Investment Manager as provided in Sections 1 and 2 of this
Agreement, the Fund shall pay to the Investment Manager a Management Fee and
Profit Allocation as described in the Fund's current Prospectus.
In the event of termination of this Agreement, the fee provided under
this Section shall be computed on the basis of the period ending on the last
business day on which this Agreement is in effect subject to a pro rata
adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
4. REPORTS. The Fund and the Investment Manager agrees to furnish to
each other current Prospectuses, proxy statements, reports to shareholders,
certified copies of their financial
2
<PAGE>
statements, and such other information with regard to their affairs as each may
reasonably request.
5. STATUS OF INVESTMENT MANAGER. The services of the Investment Manager
to the Fund are not to be deemed exclusive, and the Investment Manager shall be
free to render similar services to others so long as its services to the Fund
are not impaired thereby.
6. LIABILITY OF INVESTMENT MANAGER. In the absence of: (i) willful
misfeasance, bad faith or gross negligence on the part of the Investment Manager
in performance of its obligations and duties hereunder; (ii) reckless disregard
by the Investment Manager of its obligations and duties hereunder; (iii) a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act, as
amended), the Investment Manager shall not be subject to any liability
whatsoever to the Fund, or to any unitholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of the Fund.
7. PERMISSIBLE INTERESTS. Subject to and in accordance with the
Operating Agreement of the Fund and the Operating Agreement of the Investment
Manager, respectively, Directors agents and unitholders of the Fund are or may
be interested in the Investment Manager (or any successor thereof) as officers,
directors or otherwise; officers, agents and directors of the Investment Manager
are or may be interested in the Fund as Directors, officers, unitholders or
otherwise; and the Investment Manager (or any successor) are or may be
interested in the Fund as unitholder or otherwise. The effect of any such
interrelationships shall be governed by said
3
<PAGE>
Operating Agreements, and the relevant provisions of the 1940 Act. All such
interests shall be fully disclosed between the parties on an ongoing basis and
in the Fund's Prospectus as required by law.
8. OPERATING AGREEMENT. The Investment Manager is hereby expressly put
on notice of the limitation of unitholder and Director liability as set forth in
Articles 3 and 7 of the Operating Agreement of the Fund and pursuant to the New
Jersey Limited Liability Company Act (the "Act") and agree that the obligations
assumed by the Fund pursuant to this Agreement shall be limited in all cases to
the Fund and its assets, and the Investment Manager shall not seek satisfaction
of any such obligation from the unitholders or any unitholder of the Fund. Nor
shall the Investment Manager seek satisfaction of any such obligations from the
Directors or any individual Director.
9. DURATION AND TERMINATION. This Agreement shall continue for two
years from the date of its execution and thereafter for additional periods of
one year from such date if the Directors of the Fund determine that such an
extension is in the best interest of the Fund, or until dissolution prior
thereto pursuant to the provisions hereto. This Agreement may be terminated by
the Fund at any time, without the payment of any penalty, by vote of a majority
of the Directors of the Fund or by vote of a majority of the outstanding voting
securities of the Fund on 60 days' written notice to the Investment Manager.
This Agreement may be terminated by the Investment Manager at any time, without
the payment of any penalty, upon 60 days' written notice to the Fund. This
Agreement will automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in writing, addressed
and delivered or mailed postpaid, to the other parties at any office of such
party.
4
<PAGE>
As used in this Section, the term "assignment" shall have the meaning
set forth in the 1940 Act.
10. AMENDMENT OF AGREEMENT. This Agreement may be amended by mutual
consent, but the consent of the Fund must be obtained (a) by a vote of a
majority of those Directors of the Fund who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for the
purpose of voting on such amendment, and (b) to the extent required by the 1940
Act, by vote of a majority of the outstanding voting securities of the Fund.
11. GOVERNING LAW. All questions concerning the validity, meaning and
effect of this Agreement shall be determined in accordance with the laws
(without giving effect to the conflict-of-law principles thereof) of the State
of New Jersey applicable to contracts made and to be performed in that state.
12. SEVERABILITY. 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 be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this _____ day of ___________.
THE OXBOW FUND, LLC
By:
--------------------------------
Name:
Title:
C.J.M. ASSET MANAGEMENT, LLC
BY:
--------------------------------
Name:
Title:
5
<PAGE>
EXHIBIT h
DISTRIBUTION AGREEMENT
THIS AGREEMENT is made as of this ____ day of __________ between The
Oxbow Fund, LLC (the "Fund"), a New Jersey limited liability company, and C.J.M.
Planning Corp., a New Jersey corporation ("CJM" or the "Distributor").
WHEREAS, the Fund has elected to be regulated as a business development
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its units are registered with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act") and the
Securities Exchange Act of 1934, as amended ("1934 Act"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the 1934 Act.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the Fund and Distributor hereby agree as follows:
ARTICLE 1. Sale of Units. The Fund grants to the Distributor the
exclusive right to sell Units (the "Units") of the Fund at the price set forth
in the Prospectus (which shall not be less than the Fund's net asset value per
Unit) as agent and on behalf of the Fund, in accordance with the terms of this
Agreement and subject to the registration requirements of the 1933 Act and the
1934 Act, the rules and regulations of the SEC and the laws governing the sale
of securities in the various states ("Blue Sky Laws").
ARTICLE 2. Solicitation of Sales. In consideration of these rights
granted to the Distributor, the Distributor agrees to use its best efforts in
connection with the distribution of Units of the Fund; provided, however, that
the Distributor shall not be prevented from entering
<PAGE>
into like arrangements with other issuers. The provisions of this paragraph do
not obligate the Distributor to register as a broker or dealer under the Blue
Sky Laws of any jurisdiction if it determines it would be uneconomical for it to
do so or to maintain its registration in any jurisdiction in which it is now
registered nor obligate the Distributor to sell any particular number of Units.
The Distributor may contract with other dealers that are members of the NASD who
will use their best efforts to offer and sell the Units.
ARTICLE 3. Authorized Representatives. The Distributor is not
authorized by the Fund to give any information or to make any representations
other than those contained in the current registration statement and prospectus
of the Fund filed with the SEC or contained in shareholder reports or other
material that may be prepared by or on behalf of the Fund for the Distributor's
use. The Distributor may prepare and distribute sales literature and other
material as it may deem appropriate, provided that such literature and materials
have been approved by the Fund prior to their use.
ARTICLE 4. Registration of Units. The Fund agrees that it will take all
action necessary to register Units under the federal and state securities laws
so that there will be available for sale the number of Units the Distributor may
reasonably be expected to sell and to pay all fees associated with said
registration. The Fund shall make available its currently effective prospectus
for the entire offering period as described therein. The Fund shall make
available to the Distributor copies of all information, financial statements and
other papers which the Distributor may reasonably request for use in connection
with the distribution of Units of the Fund.
ARTICLE 5. Compensation. As compensation for providing the services
under this Agreement the Fund shall pay to the Distributor a sales charge equal
to $7 per Unit sold as
-2-
<PAGE>
described in the Fund's current prospectus, as amended from time to time.
ARTICLE 6. Indemnification of Distributor. The Fund agrees to indemnify
and hold harmless the Distributor and each of its directors and officers and
each person, if any, who controls the Distributor within the meaning of Section
15 of the 1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees and
disbursements incurred in connection therewith), arising by reason of any person
acquiring any Units, based on the ground that the registration statement,
prospectus, shareholder reports or other information filed or mad public by the
Fund (as from time to time amended) included an untrue statement of a material
fact or omitted to state a material fact required to be stated or necessary in
order to make the statements made not misleading. However, the Fund does not
agree to indemnify the Distributor or hold it harmless to the extent that the
statements or omission was made in reliance upon, and in conformity with,
information furnished to the Fund by or on behalf of the Distributor.
In no cases (i) is the indemnity of the Fund to be deemed to protect
the Distributor against any liability to the Fund or its shareholders to which
the Distributor or such person otherwise would be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of its reckless disregard of its obligations and duties under this
Agreement, or (ii) is the Fund to be liable to the Distributor under the
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any person indemnified unless the Distributor or
other person shall have notified the Fund in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon the
Distributor or such other
-3-
<PAGE>
person (or after the Distributor or the person shall have received notice of
service on any designated agent). However, failure to notify the Fund of any
claim shall not relieve the Fund from any liability which is may have to the
Distributor or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph.
The Fund shall be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any claims subject to this indemnity provision. If the Fund elects to
assume the defense of any such claim, the defense shall be conducted by counsel
chosen by the Fund and satisfactory to the indemnified defendants in the suit
whose approval shall not be unreasonably withheld. In the event that the Fund
elects to assume the defense of any suit and retain counsel, the indemnified
defendants shall bear the fees and expenses of any additional counsel retained
by them. If the Fund does not elect to assume the defense of a suit, it will
reimburse the indemnified defendants for the reasonable fees and expenses of any
counsel retained by the indemnified defendants.
The Fund agrees to notify the Distributor promptly of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issuance or sale of any of its Units.
ARTICLE 7. Indemnification of Fund. The Distributor covenants and
agrees that it will indemnify and hold harmless the Fund and each of its
directors and officers and each person, if any, who controls the Fund within the
meaning of Section 15 of the Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel fees incurred
in connection therewith) based upon the 1933 Act, 1934 Act, 1940 Act or any
other statute or common law and arising by reason of any person acquiring any
Shares, and alleging a wrongful
-4-
<PAGE>
act of the Distributor of any of its employees or alleging that the registration
statement, prospectus, Shareholder reports or other information filed or made
public by the Fund (as from time to time amended) included an untrue statement
of a material fact or omitted to state a material fact required to be stated or
necessary in order to make the statements not misleading, insofar as the
statement or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Distributor.
In no case (i) is the indemnity of the Distributor in favor of the Fund
or any other person indemnified to be deemed to protect the Fund or any other
person against any liability to which the Fund or such other person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Agreement, or (ii) is the
Distributor to be liable under the indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or person, as the case may be, shall have notified
the Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the nature of
the claim shall have been served upon the Fund or upon any person (or after the
Fund or such person shall have received notice of service on any designated
agent). However, failure to notify the Distributor of any claim shall not
relieve the Distributor from any liability which it may have to the Fund or any
person against whom the action is brought otherwise than on account of its
indemnify agreement contained in this paragraph.
The Distributor shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit brought to
enforce the claim, but if the Distributor elects to assume the defense, the
defense shall be conducted by counsel chosen by the Distributor
-5-
<PAGE>
and satisfactory to the indemnified defendants whose approval shall not be
unreasonably withheld. In the event that the Distributor elects to assume the
defense of any suit and retain counsel, the defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will reimburse
the indemnified defendants in the suit for the reasonable fees and expenses of
any counsel retained by them.
The Distributor agrees to notify the Fund promptly of the commencement
of any litigation or proceedings against it in connection with the issue and
sale of any of the Fund's Shares.
ARTICLE 8. Effective Date. This Agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force for two
year(s) from the effective date. This Agreement shall automatically terminate in
the event of its assignment. As used in this paragraph the term "assignment"
shall have the meaning specified in the 1940 Act. In addition, this Agreement
may at any time be terminated without penalty by Distributor, by a vote of a
majority of Independent Directors of the Fund or by vote of a majority of the
outstanding voting securities of the Fund upon not less than sixty days prior
written notice to the other party.
ARTICLE 9. Notices. Any notice required or permitted to be given by
either party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice to the
other party at the last address furnished by the other party to the party giving
notice: if to the Fund or the Distributor notices shall be sent to 233 Wanaque
Avenue, Pompton Lakes, New Jersey 07442.
ARTICLE 10. Limitation of Liability. A copy of the Operating Agreement
of the Fund has been provided to the Distributor and notice is hereby given that
this Agreement is executed
-6-
<PAGE>
on behalf of the directors of the Fund as directors and not individually and
that the obligations of this instrument are not binding upon any of the
directors, officers or unitholders of the Fund individually but binding only
upon the assets and property of the Fund.
ARTICLE 11. Governing Law. This Agreement shall be construed in
accordance with the laws of the State of New Jersey and the applicable
provisions of the 1940 Act. To the extent that the applicable laws of the State
of New Jersey, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
ARTICLE 12. Multiple Originals. This Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
instrument.
IN WITNESS, the Fund and Distributor have each duly executed this
Agreement, as of the day and year above written.
THE OXBOW FUND
By: C.J.M. Asset Management, LLC
Investment Manger
By:
-------------------------------
Name:
Title:
C.J.M. PLANNING CORP.
By:
-------------------------------
Name:
Title:
-7-
<PAGE>
EXHIBIT p
SUBSCRIPTION AGREEMENT
To Purchase Units
THE OXBOW FUND, LLC
c/o C.J.M. Planning Corp.
223 Wanaque Avenue
Pompton Lakes, New Jersey 07442
(973) 831-8020
1. Upon the terms and conditions contained in this Subscription Agreement, the
undersigned hereby subscribes for and agrees to purchase the number of limited
liability company units (the "Units") of The Oxbow Fund, LLC, a New Jersey
limited liability company (the "Fund") set forth below. The undersigned has
executed and delivered this Subscription Agreement in connection with the
registration of Units described in the Fund's Registration Statement on Form N-2
dated __________, 1999.
2. The undersigned agrees to purchase the Units subscribed for herein at the
subscription price (the "Subscription Price") of $100,000, and prior to the
effective date of the Registration Statement, will deliver a check, bank draft
or money order payable to "The Oxbow Fund, LLC" in an amount equal to the total
Subscription Price of all Units subscribed for herein.
3. The undersigned is acquiring its interest in the Fund (not as nominee or
agent) for investment and not with view to, or for sale in connection with, any
distribution thereof (in whole or in part). The undersigned has no present
intention of distributing, transferring, reselling or redeeming any portion of
its interest in the Fund.
<PAGE>
THE FOLLOWING IS TO BE COMPLETED BY THE UNDERSIGNED:
( 1,000 ) Number of Units
- ----------
$100,000 Total Subscription Price Due
C.J.M. ASSET MANAGEMENT, LLC
223 Wanaque Avenue
Pompton Lakes, New Jersey 07442
By:
---------------------------
Name: Joseph C. Musumeci
Title: Chief Executive Officer
Dated:
---------------------------
TO BE COMPLETED BY THE FUND:
Accepted as of
-------------------
THE OXBOW FUND, LLC
By:
---------------------------
Name: S. Charles Musumeci, Jr.
Title: Director
