<PAGE>
As filed with the Securities and Exchange Commission on April 21, 2000
Securities Act File No. 333-90973
Investment Company Act File No. 811-09695
- -------------------------------------------------------------------------------
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
/X/ Pre-Effective Amendment No. 2
--------
/ / Post-Effective Amendment No.
--------
and/or
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ Amendment No. 2
------
----------------------------------
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):
/ / 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 Proposed Maximum
Title of Securities Amount Being Offering Price Per Unit Aggregate Offering Amount of
Being Registered Registered 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>
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 Invest; 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>
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement Not Applicable
of Additional Information
PART B STATEMENT OF ADDITIONAL INFORMATION
ITEM NUMBER CAPTION CAPTION
---------------------- --------------- ----------------------
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.
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<PAGE>
THE OXBOW FUND, LLC
[LOGO]
AN OFFERING OF UP TO $25,000,000 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: 20 Units ($2,000).
o Minimum Offering Size: No minimum. Because the offering does
not require a minimum total investment, your capital
contribution to the Fund will be deposited
directly into the Fund's account upon receipt
and will be available for immediate investment
by the Fund. The Fund will not place such funds
received in escrow or in trust or make any
similar arrangement.
o Offering Period: The offering will last until August
31, 2001 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.
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
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.
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. There will be no sales
charge on the Units purchased by the Investment
Manager.
o Allocation of Profits: Net profits of the Fund will be allocated pro-rata to
Members of the Fund in accordance with their percentage
ownership of Units.
</TABLE>
Per Unit Total (Maximum)
-------- ---------------
Public Price ........... $ 100 $25,000,000*
Sales Charge ........... $ 7 $ 1,743,000**
Proceeds to
the Fund ............... $ 93 $23,257,000
* Includes Investment Manager's $100,000 investment.
** No sales charge on Investment Manager's $100,000 investment.
ALL TRANSFERS OR SALES OF THE UNITS WILL BE SEVERELY RESTRICTED UNDER THE TERMS
OF THE FUND'S OPERATING AGREEMENT. THE UNITS WILL NOT BE PUBLICLY TRADED AND
HAVE NO HISTORY OF PUBLIC TRADING. IN GENERAL, CLOSED-END FUND UNITS TRADE, IF
AT ALL, AT A DISCOUNT FROM NET ASSET VALUE. 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 7 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
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<PAGE>
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 is available upon written or oral request and
without charge. Such material 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 or by writing the SEC at the above address. 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 April ____, 2000.
-iii-
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES..........................................................................................1
Investor Transaction Expenses..................................................................................1
Annual Expenses................................................................................................1
PROSPECTUS SUMMARY................................................................................................2
THE FUND.......................................................................................................2
RISKS..........................................................................................................2
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES..................................................................3
THE OFFERING...................................................................................................3
THE UNITS......................................................................................................3
INVESTMENTS BY THE FUND........................................................................................4
INVESTMENT MANAGER; FEES.......................................................................................4
CO-INVESTMENT..................................................................................................4
CONFLICTS OF INTEREST..........................................................................................5
DIRECTORS AND OFFICERS OF THE FUND.............................................................................5
CAPITAL ACCOUNTS...............................................................................................5
TAX ALLOCATIONS................................................................................................5
DISTRIBUTIONS..................................................................................................5
NO TRADING MARKET..............................................................................................6
LEGAL AND TAX STATUS...........................................................................................6
RISK FACTORS......................................................................................................7
GENERAL RISKS..................................................................................................7
Newly Organized Fund........................................................................................7
Newly Formed Investment Manager.............................................................................7
You Will Be Relying On The Investment Manager To Make Investments And Might Not
Like The Investments Selected............................................................................7
You Will Have Little Control Over Operations................................................................7
You May Not Receive Adequate Distributions To Pay Your Taxes................................................7
Whether The Fund Is Profitable Or Not, Substantial Fees Will Be Paid To The
Investment Manager For Its Services......................................................................8
There Will Not Be A Market For Your Units And There Will Be Restrictions Placed On Their Transfer...........8
You Will Not Have The Right To Receive Distributions Prior To The Termination Of The Fund...................8
The Fund May Not Be Able To Diversify Its Investments And Accomplish Its Investment Objectives..............8
The Fund Is Not Providing You With Separate Legal Or Accounting Representation..............................9
Distributions In The Early Stages May Be A Return Of Capital................................................9
The Fund's Venture Capital Investments Are Risky............................................................9
The Fund May Need To Invest Additional Capital..............................................................9
Investments Made By The Fund May Take A Long Time To Mature................................................10
Investments Made By The Fund Will Be Illiquid..............................................................10
Need For Follow-On Investment..............................................................................10
The Fund May Invest In Commercial Real Estate Which is Risky...............................................11
The Fund May Invest In High Risk Corporate Debt Securities.................................................11
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
The Fund May Invest In Companies Facing Financial Difficulties, Reorganizing or Restructuring..............12
Substantial Initial Losses.................................................................................12
Dependence On Management...................................................................................12
Competition For Investments................................................................................12
Borrowings By The Fund May Exaggerate Losses And Limit the Amount Of Assets Available For Distribution.....13
The Fund May Be Liable To Companies In Which The Fund Invests..............................................13
Liabilities of Investors...................................................................................13
Conflicts of Interest......................................................................................13
Regulation.................................................................................................13
GENERAL INCOME TAX RISKS.........................................................................................14
Operation Of The Fund Could Affect The Propriety Of Allocations And Cause Additional Tax And Penalties........15
The Resale Of Investments Could Cause Gains To Be Taxed As Ordinary Income....................................15
Incorrect Allocation Of Expenses Among Start-Up, Organization And Syndication Costs
Could Cause More Taxable Income..........................................................................15
WHO MAY INVEST...................................................................................................16
HOW TO INVEST....................................................................................................18
CAPITALIZATION...................................................................................................19
ESTIMATED USE OF PROCEEDS........................................................................................20
BUSINESS OF THE FUND.............................................................................................22
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES....................................................................23
Long-Term Capital Appreciation................................................................................23
Types of Investments by the Fund..............................................................................23
Temporarily Invested Funds....................................................................................24
Investment Concentration......................................................................................24
Use Of Leverage...............................................................................................24
Average Investment............................................................................................24
Follow-On Investments.........................................................................................24
Investment Decisions Based Upon Extensive Firm-Level Research.................................................25
The Fund May Change Its Investment Strategies.................................................................25
MANAGEMENT OF THE FUND...........................................................................................26
Fund Board Of Directors.......................................................................................26
Fund Officers.................................................................................................26
Fund Investment Manager.......................................................................................26
Business Experience Of Directors, Officers And Key Personnel Of Investment Manager............................27
Fund Administrator............................................................................................29
Fund Custodian................................................................................................30
COMPENSATION OF THE INVESTMENT MANAGER, ITS AFFILIATES AND THE DIRECTORS.........................................31
Investment Manager............................................................................................31
Summary Of Investment Manager Compensation And Allocations....................................................31
Independent Directors.........................................................................................32
Officers......................................................................................................32
CONFLICTS OF INTEREST............................................................................................33
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Lack Of Arm's-Length Negotiations With Management.............................................................33
Other Activities Of The Investment Manager And The Fund's Officers............................................33
Competition With Managers And Other Affiliated Programs.......................................................33
Distribution of Units By An Affiliate.........................................................................34
Possible Joint Investment With Affiliated Programs............................................................34
Investment Manager's Representation of Fund in Audit Proceedings..............................................34
Lack of Separate Representation...............................................................................34
Affiliation of Selling Agent..................................................................................34
THE OFFERING.....................................................................................................35
Plan Of Distribution..........................................................................................35
TAX ALLOCATIONS..................................................................................................37
DISTRIBUTIONS....................................................................................................39
INCOME TAX ASPECTS...............................................................................................40
Fund Status...................................................................................................40
Classification Of The Fund.................................................................................40
Publicly-Traded Status.....................................................................................40
Federal Income Taxation of Partnerships and Investors Generally...............................................41
Allocations Of Profit And Loss.............................................................................42
Taxation Of Fund Operations................................................................................43
Limitations On Deduction Of Fund Losses.......................................................................43
Adjusted Basis.............................................................................................43
Passive Losses.............................................................................................43
Capital Losses.............................................................................................44
Non-Trade Or Business Expenses.............................................................................44
Fund As A Trade Or Business................................................................................44
Investment Interest Expense................................................................................44
Sale Of An Interest In The Fund............................................................................44
Fund Organizational And Syndication Expenditures..............................................................45
Management Fee................................................................................................45
Alternative Minimum Tax.......................................................................................45
Miscellaneous Provisions......................................................................................45
No Section 754 Election....................................................................................45
Interest And Penalties.....................................................................................46
Fund Audit Rules...........................................................................................46
Possible Changes In Federal Income Tax Laws................................................................46
Tax Treatment Of Foreign Investors.........................................................................46
State Law Considerations...................................................................................46
ERISA CONSIDERATIONS.............................................................................................47
RESTRICTIONS ON TRANSFER.........................................................................................48
INVESTMENT COMPANY ACT REGULATION................................................................................49
SUMMARY OF OPERATING AGREEMENT...................................................................................51
Term And Dissolution..........................................................................................51
Capital Accounts; Return Of Capital...........................................................................51
Voting Rights.................................................................................................52
Meetings......................................................................................................52
Liabilities Of Investors......................................................................................52
</TABLE>
-vi-
<PAGE>
<TABLE>
<S> <C>
Rights, Power And Duties Of The Managers......................................................................53
Indemnification and Limitations on Liability..................................................................53
Withdrawal Or Removal Of A Manager............................................................................53
Substituted Members; Assignees................................................................................53
Appointment Of The Fund's Officers As Attorneys-In-Fact.......................................................54
REPORTS TO INVESTORS.............................................................................................55
SALES MATERIALS..................................................................................................56
Sales Material May Be Used in Connection with this Offering Only When Accompanied or
Preceded by the Delivery of this Prospectus................................................................56
The Offering is Made Only by Means of this Prospectus.........................................................56
LEGAL PROCEEDINGS................................................................................................56
LEGAL OPINION....................................................................................................56
INDEPENDENT ACCOUNTANT...........................................................................................56
INDEX TO FINANCIAL STATEMENTS ...................................................................................F1
OPERATING AGREEMENT ......................................................................................Exhibit A
</TABLE>
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<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. The table does not show
how profits of the Fund are allocated among Members of the Fund.
Investor Transaction Expenses
<TABLE>
<S> <C>
Sales charge (as a percentage of offering price) 7%
Annual Expenses (as a percentage of aggregate adjusted capital
contributions which generally means aggregate
Investors' capital contributions reduced by
distributions to Investors)
Management Fees (including .25% in administrative fees, but not
including the incentive fee payable to the
Investment Manager after Members have
received aggregate distributions equal to their
initial capital contributions) 2.75%
Other Expenses (estimated) 2.50%
Total Annual Expenses 5.25%
</TABLE>
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 $245 $455 $655 $1190
$2,000 investment, assuming a 5% annual
return:(1)
</TABLE>
(1) Based on estimated amounts for the respective fiscal years. Annual
expenses are calculated as a percentage of aggregate adjusted capital
contributions which for purposes of the above example are assumed to be constant
at $25,000,000. Therefore, the assumed return of 5% does not impact the
calculation of expenses set forth above. The $7 sales charge per Unit payable by
the Fund to CJM Planning or other brokers is reflected in the above example.
Incentive fee expenses, which are payable only after Members have received
aggregate distributions equal to their initial capital contributions, are not
included in the above example.
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.
-1-
<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 22)
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 7)
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.
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.
o That the investments made by the Fund involve a high degree of
risk that can result in substantial losses.
o That the investments made by the Fund may be in companies in
an early-stage of development with little or no operating
results and in companies in rapidly changing high-technology
fields.
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<PAGE>
o That the investments made by the Fund may be in high risk real
estate holdings, non-investment grade corporate debt or the
securities of companies facing financial difficulties,
reorganization or restructuring.
o That the investments made by the Fund may take a long time to
mature and may be in restricted securities, which are
illiquid.
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES (Page 23)
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 35)
We are offering 250,000 Units in an aggregate amount of up to
$25,000,000. The minimum investment is 20 Units ($2,000). 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 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 35)
Each Unit represents a $100 equity investment in the Fund. The
$7 sales charge per Unit (other than the Investment Manager's Units) and other
offering costs of the Fund will be paid by the Fund from the gross proceeds of
the offering but will not reduce the amount of your equity investment in, or
initial capital contribution to, 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."
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<PAGE>
INVESTMENTS BY THE FUND (Page 23)
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 27; 31)
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. The Investment Manager, as a
Member of the Fund, will participate pro rata with the other Members, in certain
profits, losses, and distributions of the Fund. The Fund will reimburse the
Investment Manager for actual costs incurred on behalf of the Fund and will pay
the Investment Manager an annual management fee equal to 2.5% of the Investors'
total "adjusted capital contributions." The management fee will be payable
quarterly in arrears. Additionally, after the Members (including the Investment
Manager) have received aggregate distributions from the Fund equal to the amount
of their initial investments in the Fund, the Fund will pay the Investment
Manager an "incentive fee." The incentive fee will become payable commencing
with the fiscal year of the Fund during which Members have received such
distributions equal to their initial investments and for each fiscal year
thereafter. The amount of the fee will equal twenty (20%) percent of the taxable
income of the Fund during the relevant fiscal year (calculated without giving
effect to payment of the incentive fee) less unrealized capital depreciation for
the year. 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
Musumeci, Jr. and Joseph C. Musumeci. The background and experience of each of
these individuals is more fully described in "Management of the Fund."
CO-INVESTMENT (Page 33)
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.
-4-
<PAGE>
CONFLICTS OF INTEREST (Page 33)
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 AND OFFICERS OF THE FUND (Page 27)
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 Board has engaged
the Investment Manager to provide investment advice to, and day-to-day
management of, the Fund, in each case under the ultimate supervision of and
subject to any policies established by the Board. The Fund will have three
officers who will each be compensated at the rate of $150,000 per year by the
Fund. Daniel D. Dyer will serve as Chairman and Chief Executive Officer; S.
Charles Musumeci, Jr. will serve as President and Chief Operating Officer; and
Joseph C. Musumeci will serve as Executive Vice President and Chief Financial
Officer. The Investment Manager will report to the Officers and Directors of the
Fund.
CAPITAL ACCOUNTS (Page 51)
If you invest in this offering, the amount of your investment will be
your "capital contribution" to the Fund. The $7 sales charge per Unit (other
than the Investment Manager's Units) and other offering costs payable by the
Fund will not reduce the amount of your initial 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 37)
In general, profits, losses and Fund operating expenses will be
allocated for tax and accounting purposes to the Members pro rata according to
their percentage ownership of Units. For further discussion, including an
example of how profits and losses are allocated among Investors, see "Tax
Allocations."
DISTRIBUTIONS (Page 39)
Prior to liquidation of the Fund, the Board of Directors 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 (not
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including the distribution of cash or property to the Investment Manager
representing the Investment Manager's incentive fee) will be made to the Members
(including the Investment Manager) pro rata in accordance with their percentage
ownership of Units.
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 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 8)
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 40)
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."
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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.
You Will Have Little Control Over Operations.
Except for limited voting rights with respect to certain matters
related to the business of the Fund that the Investment Company Act requires to
be approved by the Fund's Investors, you will have no control over the Fund's
management and must rely exclusively on the Directors the Officers and the
Investment Manager. They may take actions with which you disagree.
You May Not Receive Adequate Distributions To Pay Your Taxes.
The Board 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. If the Fund has taxable income, you will be deemed to receive a
portion of such income for personal income tax purposes, whether or not such
income is distributed to you. Accordingly, you may not receive distributions
from the Fund
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sufficient to pay taxes on your allocable share of profits. See "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 annual management fees and
administrative fees from the Fund equal to 2.50% and .25%, respectively, of
aggregate adjusted capital contributions 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 has placed significant restrictions on the transfer of
Units. This means that you will be required to receive approval from the Board
or at least two of the Fund's Officers before reselling or transferring Units.
The Board and the Officers are 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, will likely be at a substantial
discount from the original purchase price of the Units. 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 without Investor approval.
Distributions of cash or property before that time will only be made if approved
by the Board 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. We expect the
average investment by the Fund to be between $1,000,000 and $5,626,750. That
means that initially we expect to invest in 4 to 22 portfolio companies. If the
Fund invests in a smaller number of companies, it will have less diversification
and will be more likely to be adversely affected by a single investment.
Additionally, 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. Moreover, at lower funding levels, the Fund's expenses may constitute
a considerably higher percentage of total funding.
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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.
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. 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 is also a risk
with which such companies must contend. Additionally, the Fund's investments in
early stage companies may be diluted by later stage investments from other
parties, including persons affiliated with the Investment Manager and the Fund's
Directors.
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 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
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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 at least 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 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. In such a situation, the Fund may not be
able to sell the company's securities at the time desired by the Investment
Manager or at prices equivalent to the Fund's cost in acquiring such securities.
Sales of securities purchased by the Fund may also be limited by the overall
condition of relevant markets.
The Fund may encounter substantial difficulties in liquidating its
investments in securities subject to such restrictions and limitations and may
be required to sell such securities at a substantial discount.
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 the investment potentially
profitable. 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 and
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could result in the failure of such a company and the loss of the Fund's initial
investment. The Fund's failure to make a follow-on investment may also result in
a significant reduction in the Fund's ownership percentage in a particular
company or a missed opportunity for the Fund to increase its participation in a
successful situation.
The Fund May Invest In Commercial Real Estate Which is Risky.
The Fund may invest up to 10% of Fund assets in commercial real estate
or real estate development. As a result, an investment in the Units may be
subject to the risks incident to the ownership and operation of commercial real
estate, including uncertainty of cash flow to meet fixed obligations, adverse
changes in local market conditions and neighborhoods, changes in interest rates,
inability to collect rent due to bankruptcy or insolvency of tenants or
otherwise, the need for unanticipated renovation, changes in real estate taxes
and increases in other operating expenses. Real estate development generally
involves significant risks in addition to the foregoing, including the risks
that financing may not be available on favorable terms, that construction may
not be completed on schedule, resulting in increased debt service expenses and
construction costs, that long-term financing may not be available on completion
of construction and that properties may not be leased on profitable terms. Real
estate investments are often long term and may be illiquid.
Additionally, any real estate investment made by the Fund involves
risks that, under various federal, state and local laws, ordinances and
regulations, the Fund may be required to investigate and clean up certain
hazardous or toxic substances released on or in properties it owns or operates,
and it also may be required to pay other costs relating to hazardous or toxic
substances. This liability may be imposed without regard to whether the Fund
knew about the release of these types of substances or was responsible for their
release. These costs or liabilities could exceed the value of the affected real
estate.
The Fund May Invest In High Risk Corporate Debt Securities.
The Fund may invest up to 10% of Fund assets in corporate debt
securities offering the potential for long-term capital appreciation. These
investments may be in non-investment grade debt securities, including
convertible debt securities, which are considered by rating agencies such as
Standard & Poor's or Moody's Investors Service, Inc. to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Such non-investment grade securities may involve a substantial risk
of default or may be in default. Adverse changes in economic conditions or
developments regarding the individual issuer are more likely to cause price
volatility and weaken the capacity of the issuers of non-investment grade
securities to make principal and interest payments than is the case for higher
grade securities. In addition, the market for non-investment grade securities
may be thinner and less liquid than for higher grade securities.
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The Fund May Invest In Companies Facing
Financial Difficulties, Reorganizing or Restructuring.
The Fund may invest up to 10% of Fund assets in companies with
financial difficulties, including companies in default on current obligations,
companies that do not have sufficient capital to fund current operations,
companies that have filed for protection under the federal bankruptcy laws or
companies that have had involuntary bankruptcy petitions filed against them by
creditors. The capital structure of such companies may include both junior and
senior debt and equity securities. Senior debt securities typically have the
most senior claim on a company's assets and junior subordinated debt and common
stock the most junior claim. Although senior debt usually has the most senior
position in a company's capital structure and may be secured by specific
collateral, the Fund's investments in these companies will typically be in debt
securities, which are below investment grade and have speculative
characteristics. In addition to the speculative nature of the debt securities
involved, investments in companies that undertake financial recapitalization or
restructuring transactions involve the risk, among others, that the transaction
may not resolve the financial or operational conditions that led to the
recapitalization or restructuring.
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 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.
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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 will not be
personally 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, at times 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 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) exceed 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 Officers or personnel of the
Investment Manager or its affiliates will devote their entire time to the Fund
or its investments.
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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 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, though it
is not required to do so in all cases. 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 as a BDC 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 in accordance with
the Investment Company Act.
If the Directors, with the Investors' approval, decide to withdraw the
Fund's election as a BDC, the Fund may nonetheless fall within the definition of
an "investment company" and, therefore, be required to register as an investment
company subject to regulation under the Investment Company Act.
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
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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 Internal Revenue Service as to
any tax matters, including whether the Fund will be treated as a publicly-traded
partnership.
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 or
treatment of your distributive share 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 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.
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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 potential 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 20 Units ($2,000). 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,
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.
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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.
AN INVESTMENT IN THE FUND IS NOT A SUITABLE INVESTMENT FOR ALL INVESTORS AND MAY
NOT BE A SUITABLE INVESTMENT FOR YOU EVEN IF YOU QUALIFY TO PURCHASE UNITS.
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.
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HOW TO INVEST
If you desire to purchase at least 20 Units ($2,000) 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 one or
more additional whole Units. Investors seeking to acquire additional Units after
their initial subscription need not complete a second Subscription Agreement,
but such Subscription Agreement must have an authorized signature of the
Investor's broker-dealer. Payment methods are described more fully in the
Subscription Agreement.
If you satisfy the requirements set forth in this Prospectus under the
heading "Who May Invest", your subscription may be accepted and you may be
admitted to the Fund as a Member based upon the determination of the Board or
any two of the Fund's Officers. 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.
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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 0 (750,000)
Sales Charges* 0 (1,743,000)
-------- ------------
Total Capital $100,000 $ 22,507,000
======== ============
* No sales charge on Investment Manager's $100,000 investment.
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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%
Organizational and
other offering expenses
not to finance sales $ (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%
=========== ========
* No sales charge on Investment Manager's $100,000 investment.
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. 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.
The Fund will continue to offer and sell Units until August 31, 2001
unless this Offering is fully subscribed earlier or terminated earlier at the
discretion of the Fund's Board of Directors. It will not commit itself to invest
more money during that period than it has raised through the sale of Units.
Accordingly, if the Offering is fully subscribed, the Investment Manager
believes
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that the Fund will have adequate capital to fund its operations for
approximately the first 15 months of operation.
Because the Fund's investments will be in private companies, it may
take the Fund longer to fully invest the proceeds of the offering than would be
the case if the Fund invested in the publicly traded securities of established
companies. The Fund expects to fully invest the proceeds of the offering within
24 months of the date of this Prospectus. This lengthy investment period
reflects the fact that the Fund plans to spend considerable time researching
prospective investments and identifying investment opportunities.
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<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 diversified 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 of the Fund's performance. See "Investment Objective and
Principal Strategies" below.
Although the Investment Manager intends to utilize many of the risk
management and investment strategies common to the industry, there can be no
assurance that the Investment Manager will be successful in implementing such
strategies. If the Investment Manager is unable to diversify the Fund's
investments, the Fund will be more likely to be adversely affected by a single
investment.
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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. However, we may invest
in companies with zero or negative revenues, or in companies that have positive
revenues but negative profits. We may also use up to 10% , in each case, of Fund
assets to acquire the assets of companies, invest in commercial real estate or
invest in the equity, debt or assets of companies of any size which are
reorganizing, seeking capital for debt or equity restructuring or facing
financial difficulties, including companies in default on current obligations or
with insufficient capital to fund current operations. We will invest at least
70% of the Fund's assets in eligible portfolio companies. The remaining 30% of
Fund assets, if not otherwise invested, will be temporarily invested in
short-term government securities or insured deposits and reserved for follow-up
investments in portfolio companies.
We do not expect to concentrate the Fund's investments in any
particular industry or geographic region. However, we may concentrate the Fund's
investments in a particular industry or geographic region in order to take
advantage of favorable economic conditions or trends in such an industry or
area. If we elect to concentrate the Fund's investments in a certain industry or
geographic region, a downturn in such industry or region would likely have an
adverse affect on the Fund's investments. Additionally, if we elect to
concentrate the Fund's investments, the Fund will have less diversification and
it will be more likely that the Fund's overall investment return will be
adversely affected by poor economic conditions in a single industry or
geographic region.
We will not limit the amount of any particular investment made by the
Fund. However, we do not intend to invest more than 25% of the Fund's total
assets in the securities of any one company.
We will not issue senior securities, participate in short sales,
purchase securities on margin or write put or call options. Additionally, we
will not underwrite securities of other issuers or purchase or sell commodities
or commodity contracts.
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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.
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) 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.
Average Investment.
Although investment amounts will vary considerably, we expect that the
average investment will be between $1,000,000 and $5,626,750.
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 Investment." 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
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<PAGE>
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
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 $5,626,750.
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<PAGE>
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. The Affiliated
Directors control the Fund and the Investment Manager.
Fund Officers.
The Fund will have three Officers: Daniel D. Dyer will serve as
Chairman and Chief Executive Officer; S. Charles Musumeci, Jr. will serve as
President and Chief Operating Officer; and Joseph C. Musumeci will serve as
Executive Vice President and Chief Financial Officer.
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. The Investment Manager's principal business
address is 223 Wanaque Avenue, Pompton Lakes, New Jersey 07442. The Affiliated
Directors, Daniel D. Dyer, S. Charles Musumeci, Jr. and Joseph C. Musumeci,
together own 100% of the Investment Manager and control both the Fund and the
Investment Manager.
Because the Investment Manager has only recently been formed, it has no
operating history upon which an 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 is the Chairman of the Investment Manager, S. Charles Musumeci, Jr is the
President of the Investment Manager and Joseph C. Musumeci is the Chief
Executive Officer of the Investment Manager. These three members of the
Investment Manager will be primarily responsible for the day-to-day management
of the Fund's portfolio. They will also provide certain businesses in which the
Fund invests with managerial assistance, including assistance in raising
additional capital and structuring financing and other business transactions.
Although the Investment Manager itself does not have an operating history, Mr.
Dyer has over 15 years of investment and venture capital experience and has been
involved in numerous complex business transactions, including those listed
below. Additionally, Charles and Joseph Musumeci have numerous years of
investment experience.
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The Fund shall pay the Investment Manager an annual Management Fee
equal to 2.5% of total Investor "adjusted capital contributions" as compensation
for its investment advisory services. Additionally, after the Members (including
the Investment Manager) have received aggregate distributions from the Fund
equal to the amount of their initial investments in the Fund, the Fund will pay
the Investment Manager an "incentive fee." The incentive fee will become payable
commencing with the fiscal year of the Fund during which Members have received
such distributions equal to their initial investments and for each fiscal year
thereafter. The amount of the fee will equal twenty (20%) percent of the taxable
income of the Fund during the relevant fiscal year (calculated without giving
effect to payment of the incentive fee) less unrealized capital depreciation for
the year.
Business Experience Of Directors, Officers And Key Personnel Of Investment
Manager.
The following are descriptions of the members of the Board of Directors
of the Fund and Officers 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.
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
<S> <C>
Daniel D. Dyer, 46 Affiliated Director; Chairman and Chief Executive Officer of the Fund; 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. Since 1981 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 Capital, LLC,
Brandsforless.com, Topia Ventures, LLC and Business Internet Services, Inc.
Additionally, Mr. Dyer has served as an advisor to potential business
transactions, some of which have been abandoned and others of 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 is presently, or has served
as, a member of the board of directors of Indian Motorcycle Company,
Usedbooks.com, LLC, Topia Ventures, LLC and Business Internet Services, Inc. Mr.
Dyer studied veterinary medicine through the United States Air Force College at
Auburn University and Business, Banking and Finance at Clark College, although he
did not receive degrees from those schools.
</TABLE>
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<TABLE>
<S> <C>
S. Charles Musumeci, Jr., 38 Affiliated Director; President and Chief Operating Officer of the Fund; 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. A graduate
of Fairleigh Dickinson University, he currently holds several securities
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, 41 Affiliated Director; Executive Vice President and Chief Financial Officer of the
Fund; 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. A graduate of Fairleigh Dickinson University, Mr. Musumeci has
been involved with the direct and indirect supervision and training of hundreds of
registered 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. S. Charles Musumeci, Jr. and
Joseph C. Musumeci are brothers.
William M. Osborne, III, 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. 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, 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
</TABLE>
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<TABLE>
<S> <C>
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 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 KBF Pollution Management, Inc., a publicly-traded
company and Fresco Corporation, a privately held food importing and distribution
company.
James P. Burt, 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
49ers. 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, 36 Independent Director. Mr. Smith is the Chief Financial Officer of COMC, Inc., a
publicly-traded voice and data communications services company. He served as
Executive 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.
</TABLE>
Fund Administrator.
C.J.M. Asset Management, LLC, the Fund's Investment Manager, also
serves as the Fund's administrator pursuant to an Administration, Accounting and
Investor Services Agreement. In this capacity, the Investment Manager will
perform certain accounting, compliance and tax reporting functions for the Fund.
For these services, the Fund will pay the
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Investment Manager an annual fee, which we estimate will equal approximately
.25% of total Investor adjusted capital contributions.
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. The
purpose of Rule 17f-2 is to insure that securities owned by investment companies
are maintained in a manner subject to independent scrutiny. The rule specifies
certain procedures and record keeping requirements with respect to such
securities and, among other things, requires that the Fund's assets be deposited
in the safekeeping of a bank or other company whose activities are supervised by
federal or state authorities We intend to enter into safekeeping arrangements
for the Fund's securities with a bank in accordance with the requirements of the
Investment Company Act.
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<PAGE>
COMPENSATION OF THE INVESTMENT MANAGER,
ITS AFFILIATES AND THE DIRECTORS
Investment Manager.
In addition to its distributive shares of Fund profits, losses and
distributions as a Member of the Fund (see "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 and an annual fee for its services as Fund Administrator, which we
estimate will equal approximately .25% of total Investor adjusted capital
contributions. Additionally, after the Members (including the Investment
Manager) have received aggregate distributions from the Fund equal to the amount
of their initial investments in the Fund, the Fund will pay the Investment
Manager an "incentive fee." The incentive fee will become payable commencing
with the fiscal year of the Fund during which Members have received such
distributions equal to their initial investments and for each fiscal year
thereafter. The amount of the fee will equal twenty (20%) percent of the taxable
income of the Fund during the relevant fiscal year (calculated without giving
effect to payment of the incentive fee) less unrealized capital depreciation for
the year.
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.
Summary Of Investment Manager Compensation And Allocations.
<TABLE>
<CAPTION>
<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)*
Incentive Fee 20% of annual taxable income of the Fund
</TABLE>
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<TABLE>
<S> <C>
(calculated without giving effect
to payment of the incentive fee)
less unrealized capital depreciation.**
</TABLE>
*"Adjusted Capital Contributions" generally means the total amount of
all Investors' capital contributions as reduced by distributions.
**As described above, the incentive fee will become payable after the
Members (including the Investment Manager) have received aggregate distributions
from the Fund equal to the amount of their initial investments in the Fund.
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.
Officers.
Each of the Fund's three Officers 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 the Fund's Officers is not
the result of arm's-length negotiations, although the Directors believe that the
amount of such compensation is reasonable and fair to the Fund.
Other Activities Of The Investment Manager And The Fund's Officers.
The Fund will not have independent management or employees and will
rely upon the Investment Manager and the Fund's Officers for management and
administration of the Fund and its assets. The Fund's Officers 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
Officers 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 the Officers may provide services.
Further, the Fund's Officers 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 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 Fund's Officers 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.
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Distribution of Units By An Affiliate.
The distribution of the Units will be managed on a "best-efforts" basis
through CJM Planning, 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.
Investment Manager's Representation of Fund in Audit Proceedings.
The Investment Manager will act as the "tax matters partner" pursuant
to Section 6231 of the 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 "Summary of Operating Agreement -
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 CJM Planning. 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 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.
CJM Planning 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.
CJM Planning will serve as "Distributor" for the offering of Units. CJM
Planning is a registered Broker-Dealer and an affiliate of the Investment
Manager. Daniel D. Dyer, an Affiliated Director and Officer of the Fund, is the
Chairman of CJM Planning's board of directors. S. Charles Musumeci, Jr. and
Joseph C. Musumeci, both Affiliated Directors and Officers of the Fund, are
officers and directors of CJM Planning. CJM Planning's principal business
address is 223 Wanaque Avenue, Pompton Lakes, New Jersey 07442.
We are offering, through CJM Planning and any other brokers selected by
CJM Planning 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
20 Units ($2,000). The Investment Manager has already purchased 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
August 31, 2001.
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 $2,000).
Checks should be made payable to "THE OXBOW FUND, LLC." See "Who May Invest" and
"How to Invest." All funds received from Investors whose subscriptions are
accepted will be deposited directly into the Fund's account upon receipt and
will be available for immediate investment and use by the Fund. The Fund will
not place such funds received in escrow or in trust or make any similar
arrangement. Any funds received from a prospective investor whose subscription
is not accepted will be promptly returned. 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 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.
CJM Planning, and any other brokers selected by CJM Planning 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, and none of them will act as a market maker
with respect to the Units. Participating brokers in the offering will offer and
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sell Units on the same terms and conditions as CJM Planning. CJM Planning and
any selected brokers who arrange sales of Units will receive a sales charge
equal to $7 per Unit pursuant to a Distribution Agreement between the Fund and
CJM Planning. There is no sales charge on the Units purchased by the Investment
Manager. CJM 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 CJM Planning have agreed to participate in the offer and sale of Units.
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TAX ALLOCATIONS
In general, net profits, losses and Fund operating expenses will be
allocated for tax and accounting purposes 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
$2,000 and that the capital contribution of the Investment Manager is $500
(i.e., the Investors own, in the aggregate, 20 Units or 80% of the outstanding
25 Units and the Investment Manager owns 5 Units or 20% of the outstanding 25
Units). The Fund incurs a net loss of $1,000 in year 1. There is no net profit
or net loss in years 2-5, nor are there any distributions to Members. In year 6,
the Fund has net profits and taxable income (calculated without giving effect to
the payment of the Investment Manager's incentive fee) of $6,250. In that same
year, the Fund makes an aggregate $2,500 distribution to Members. In year 7, the
Fund realizes a net loss of $100 and then liquidates.
The net loss of $1,000 incurred in year 1 is allocated pro rata to the
Members according to their percentage ownership of Units, and thus $800 (80%) of
net loss is allocated to Investors and $200 (20%) 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 Investment Manager becomes entitled to
receive its incentive fee since Members received distributions during that year
equal to their initial capital contributions of $2,500. The Fund's net profits
after deducting the incentive fee of $1,250 (20% of $6,250) are $5,000 which are
allocated $4,000 (80%) to the Investors and $1,000 (20%) to the Investment
Manager.(1) In year 7, the net loss of $100 is allocated $80 (80%) to the
Investors and $20 (20%) to the Investment Manger. The Fund then liquidates,
without realizing any additional net profits or net loss.
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(1) The above example assumes there is no net unrealized capital depreciation,
that the incentive fee is deductible in its entirety in computing net profits,
and, therefore, that net profits after payment of the incentive fee are $5,000.
Additionally, for the sake of simplicity, the example assumes the incentive fee
is not a separately stated item under Code section 702. The foregoing
assumptions have been arbitrarily made and are not intended to represent a
conclusion as to whether or not all or any portion of the incentive fee is
deductible by the Fund and/or the Members.
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Accordingly, in this example, the Fund would have had an overall profit
of $3,900, which was allocated $3,120.00 to the Investors and $780.00 to the
Investment Manager. At the end of year 7, the aggregate capital account balance
of the Investors would equal $3,120.00 and the capital account balance of the
Investment Manager would equal $780.00.(2)
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(2) Capital Accounts would be computed as follows:
Investors Investment Manager
--------- ------------------
Initial Capital Contribution $2,000 $ 500
Year 1 Loss (800) (200)
Year 6 Profit 4,000 1,000
Year 6 Distribution (2,000) (500)
Year 7 Loss (80) (20)
------ -----
$3,120 $ 780
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DISTRIBUTIONS
Prior to liquidation of the Fund, the Board of Directors of the Fund
will determine, in their 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 to the Members (including the Investment
Manager) pro rata in accordance with their percentage ownership of Units.
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 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, the distribution
to the Members of $2,500 would be distributed $2,000 (80%) to the Investors and
$500 (20%) to the Investment Manager.(3) In year 7 the Fund liquidates, after
realizing a $100 loss for the year but a total of $3,900 in profits for the
entire term.
Thus, on liquidation, the Fund will have $3,900 to distribute ($2,500
initial capital contributions plus $3,900 total profits equals $6,400 less
$2,500 (year 6 distribution) equals $3,900). This will be distributed $3,120 to
the Investors and $780 to the Investment Manager, i.e., in accordance with the
positive balances in their capital accounts.(4) Aggregate distributions to
Investors over the term of the Fund totaled $5,120 and to the Investment
Manager, $1,280.
- --------
(3) As stated in the example in the "Tax Allocations" section net profits and
taxable income in year 6 prior to the payment of the incentive management fee
are assumed to be $6,250, and after payment of the fee (assuming the fee is
deductible in its entirety in computing net profits) net profits and taxable
income are assumed to be $5,000.
(4) Capital accounts are calculated in the manner described in the example in
the "Tax Allocations" section.
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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 LAWS 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 Internal
Revenue 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 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 distributions would not be
deductible by the Fund in computing its taxable income.
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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
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 Board 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 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
Internal Revenue Service and furnish information to you (on Form K-1) which will
allow you to determine your respective U.S. income tax liability.
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
liability associated with that income. The receipt of a cash (and the value of
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.
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<PAGE>
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 Internal Revenue Service 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.
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 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 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 Internal Revenue Service 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 Members 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.
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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).
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 prior or current passive
losses. See "Passive Losses" above. Instead, such gain or loss likely will be
considered attributable to property held for investment.
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<PAGE>
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 Internal Revenue Service 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).
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.
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. 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.
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 an 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
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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 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.
An Investment Advisory Agreement provides for payment to the Investment
Manager of management and incentive fees. If the Management Fee were 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 Internal Revenue Service could contend that
a portion of the Management Fee represents a nondeductible syndication cost or
an amortizable organizational expense. If the Internal Revenue Service 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 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.
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Interest And Penalties. If Fund income or loss is subsequently adjusted
by the Internal Revenue Service, you will be subject to interest on any
deficiency from the date of the original return filed on behalf of the Fund to
which the adjustment relates. 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 return in a manner consistent with the information returns
filed by the Fund, unless you file a statement with your 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 Internal Revenue Service 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 Internal
Revenue Service 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, Internal Revenue Service 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 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 not
a resident 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 your tax advisors with respect to these matters.
-46-
<PAGE>
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 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
-47-
<PAGE>
that invests 50% or more of its assets in operating companies over which the
entity exercises certain management rights.
The Investment Manager expects the Fund to qualify as a "venture
capital operating company" under the regulations and, therefore, the Fund's
underlying assets should not be deemed to be "plan assets."
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 can 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 IRS 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 a Member and pay reasonable legal fees and filing costs in
connection with his substitution as a Member. In addition, the Units may not be
sold, assigned or transferred unless the Directors approve such sale, assignment
or transfer and have received an opinion of counsel that the sale, assignment or
transfer does not jeopardize the Fund's existence or its status as a partnership
for tax purposes. A permissible 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.
-48-
<PAGE>
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 in accordance with the Investment
Company Act. 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 Investment Company Act, is presumed to
exist where the BDC owns 25% of the outstanding voting securities of 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 the ratio of the Fund's total assets, less all
liabilities and debt other than such senior debt or Fund
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<PAGE>
interest, to the aggregate amount of senior debt 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 Investors or the repurchase of any Units unless
such 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."
-50-
<PAGE>
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 Officers 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.
Capital Accounts; Return Of Capital.
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 in 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").
You will have no right to demand the return of your capital
contribution.
-51-
<PAGE>
Voting Rights.
As a Member of the Fund, you will not have the right to participate in
the management or control of the Fund. However, the Operating Agreement provides
that Investors may vote on the following matters at meetings called for such
purposes:
o Amendments to the Operating Agreement;
o Approval and election or disapproval and removal of Fund
Directors;
o Approval, disapproval or termination of the Fund's
Investment Advisory Agreement;
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;
o Any other matter for which a vote is required by the
1940 Act.
You may vote at a meeting in person or by written consent. In either
case, approval of any matter to be voted upon at a meeting requires the
affirmative vote of the lesser of (a) sixty-seven percent (67%) or more of the
Units present at the meeting if more than fifty percent (50%) of the Units are
present at the meeting or represented by proxy or (b) more than fifty percent
(50%) of the outstanding Units of the Fund.
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 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.
-52-
<PAGE>
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 the Fund's Officers. C.J.M. Asset Management, LLC
will initially serve as Investment Manager.
Indemnification and Limitations on Liability.
The Fund's Directors and Officers 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 Officers for any claim
or liability arising out of 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 Members; Assignees.
You will not have the right to substitute an investor in your place as
a Member of the Fund 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 Member. In addition, you may not
sell, assign or transfer your Units, in whole or in part, unless the Directors
have approved such transfer and 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 or violate securities laws. A permitted 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, transfer or assign his or her Units.
-53-
<PAGE>
Appointment Of The Fund's Officers As Attorneys-In-Fact.
You will irrevocably constitute and appoint the Fund's Officers 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.
-54-
<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, which 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
appraised value and purchase price and all other material information), setting
forth all fees, if any, received by the Investment Manager or its affiliates and
describing the services rendered for such fees.
Finally, in accordance with applicable SEC rules, the Fund will file
periodic reports on Form 10-Q and Form 10-K. Additionally, will make available
to Investors, upon request, the information set forth in the Fund's Form 10-Q
within 45 days after the close of each quarter and the Fund's 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.
-55-
<PAGE>
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, 100 Mulberry Street, Newark, NJ 07102.
INDEPENDENT ACCOUNTANT
The accounting firm of Moss Adams LLP, with offices located at Moss
Adams Professional Center, 1702 Broadway, Tacoma, WA 98402, will serve as the
Fund's independent auditors.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditor's Report.............................................F-2
Statement of assets and liabilities as of March 1, 2000..................F-3
Statement of operations and members' deficit, period from
date of inception (September 15, 1999) to March 1, 2000..................F-4
Statement of cash flows, period from date of inception
(September 15, 1999) to March 1, 2000....................................F-5
Notes to financial statements............................................F-6
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Members
The Oxbow Fund, L.L.C.
We have audited the accompanying statement of assets and liabilities of The
Oxbow Fund, L.L.C. (a limited liability company) as of March 1, 2000, and the
related statements of operations and members' deficit and cash flows for the
period from inception (September 15, 1999) to March 1, 2000. These financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Oxbow Fund, L.L.C. at March
1, 2000, and the results of its operations and its cash flows for the initial
period then ended in conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
Tacoma, Washington
April 5, 2000
F-2
<PAGE>
THE OXBOW FUND, L.L.C.
STATEMENT OF ASSETS AND LIABILITIES
MARCH 1, 2000
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 99,994
----------
Total current assets $ 99,994
==========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 235,262
----------
Total current liabilities 235,262
MEMBERS' DEFICIT (135,268)
----------
$ 99,994
==========
F-3
See accompanying notes.
- --------------------------------------------------------------------------------
<PAGE>
THE OXBOW FUND, L.L.C.
STATEMENT OF OPERATIONS AND MEMBERS' DEFICIT
PERIOD FROM DATE OF INCEPTION (SEPTEMBER 15, 1999)
TO MARCH 1, 2000
- --------------------------------------------------------------------------------
REVENUE $ --
----------
EXPENSES
Legal fees 229,392
Accounting fees 5,870
Bank charges 6
----------
235,268
----------
NET LOSS (235,268)
MEMBERS' DEFICIT, beginning of period --
MEMBERS' CAPITAL CONTRIBUTION 100,000
----------
MEMBERS' DEFICIT, end of period $ (135,268)
==========
F-4
See accompanying notes.
- --------------------------------------------------------------------------------
<PAGE>
THE OXBOW FUND, L.L.C.
STATEMENT OF CASH FLOWS
PERIOD FROM DATE OF INCEPTION (SEPTEMBER 15, 1999)
TO MARCH 1, 2000
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (235,268)
Changes in assets and liabilities
Accounts payable 235,262
----------
Net cash from operating activities (6)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Members' capital contribution 100,000
----------
Net cash from financing activities 100,000
----------
INCREASE IN CASH 99,994
CASH, beginning of period --
CASH, end of period $ 99,994
==========
F-5
See accompanying notes.
- --------------------------------------------------------------------------------
<PAGE>
Note 1 - Description of Operations and Summary of Significant Accounting
Policies
Description of Operations - The Oxbow Fund, L.L.C. (the Fund) is a New
Jersey limited liability company formed September 15, 1999, which will
operate as a non-diversified, closed-end management investment company
registered under the Investment Company Act of 1940. The Fund has
elected to be regulated as a "Business Development Company" under the
Investment Company Act, which means that it is required to make certain
types of investments and must offer "significant managerial assistance"
to many of the companies in which it intends to invest.
The Fund has filed a Registration Statement with the Securities and
Exchange Commission for registration of the Fund. Securities to be
issued consist of 250,000 units at $100 per unit for a maximum offering
price of $25,000,000. The minimum investment in the fund is 20 units.
The investment objectives of the Fund is to seek long-term capital
appreciation by investing primarily in equity securities of private
United States companies seeking capital for start-up operations,
business expansion, product development and/or strategic acquisition
opportunities. The Fund expects to invest in small- to medium-sized
companies with annual or projected revenues in the $2,000,000 to
$100,000,000 range.
To date the Fund has not had any transactions other than those related
to organizational matters and the sale of 1,000 units to C.J.M. Asset
Management, LLC (the Investment Manager).
Use of Estimates -The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Federal and State Income Taxes
The Fund is organized as a limited liability company and, subject to
the publicly traded partnership rules, should be treated as a
partnership for federal and state income tax purposes. Accordingly, no
provision has been made in the accompanying financial statements for
federal or state income taxes as taxable income or loss of the Fund
will be allocated and included in the taxable income of its members.
F-6
<PAGE>
Note 3 - Investment Advisory and Operating Agreements
The Fund has substantially agreed to the terms of an advisory and
operating agreement with C.J.M. Asset Management, LLC (the Investment
Manager).
The Investment Manager is responsible for oversight of asset management
and administration of the Fund. The Fund pays the Investment Manager an
annual management fee equal to 2.5% of total investor "adjusted capital
contributions" payable quarterly in arrears. The Fund will also pay the
Investment Manager an annual fee for its services as fund administrator
which will equal approximately .25% of total investor "adjusted capital
contributions." Additionally, after the members (including the
Investment Manager) have received aggregate distributions from the Fund
equal to the amount of their initial investments in the Fund, the Fund
will pay the Investment Manager an "incentive fee." The incentive fee
will become payable commencing with the fiscal year of the Fund during
which members have received such distributions equal to their initial
investments and for each fiscal year thereafter. The amount of the fee
will equal 20% of the taxable income of the Fund during the relevant
fiscal year (calculated without giving effect to payment of the
incentive fee) less unrealized capital depreciation for the year. A 7%
sales charge per unit sold will also be paid to an affiliate of the
Investment Manager.
The Fund has agreed to reimburse the Investment Manager for actual
expenses incurred for the organizational and operating costs of the
Fund.
F-7
<PAGE>
THE OXBOW FUND, LLC
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
1. Financial Statements:
The following financial statements of The Oxbow Fund, LLC are
included in this Registration Statement as a separate section following "Part A:
Information Required in a Prospectus":
a. Independent Auditor's Report
b. Statement of Assets and Liabilities
c. Statement of Operations and Members' Deficit
d. Statement of Cash Flows
e. Notes to Financial Statements
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. Form of Administration, Accounting and Investor
Services Agreement with C.J.M. Asset Management,
LLC.
l. Not Applicable.
m. Not Applicable.
n. Not Applicable.
o. Not Applicable.
p. Subscription Agreement of Investment Manager.
q. Not Applicable.
C-1
<PAGE>
Item 25. Marketing Arrangements.
Not Applicable.
Item 26. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Regulation Statement:
Registration fees $ 10,000
NASD fees 3,000
Printing $ 100,000
Fees and expenses of qualification under state
securities laws (including fees of counsel) $ 30,000
Accounting fees and expenses $ 40,000
Legal fees and expenses $ 250,000
Reimbursement of Distributor's expenses $ 0
Miscellaneous, administrative
and marketing expenses $ 300,000
----------
Total $ 733,000
==========
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>
C-2
<PAGE>
Item 28. Number of Holders of Securities.
The following table sets forth the approximate number of record holders
of the Fund's Units at March 1, 2000.
Title Of Class Number Of Record Holders
-------------- ------------------------
Units 1
Item 29. Indemnification.
Under Section 7.8 of the Registrant's Operating Agreement the members
of the Board and the Officers 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, and under
Section 6 of Investment Advisory 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 369(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
C-3
<PAGE>
may be sustained in connection with the purchase, holding, redemption or sale of
any security on behalf of the Fund.
Under Section 12 of the Administration, Accounting and Investor
Services Agreement the Fund agrees to indemnify and hold harmless CJM Asset
Management and its affiliates from all taxes, charges, expenses, assessments,
claims, liabilities and expenses arising directly or indirectly from any action
which CJM Asset Management takes or does not take at the request or on the
direction of or in reliance on the advice or instructions of the Fund, absent
willful misfeasance, bad faith, gross negligence or reckless disregard of its
duties on the part of CJM Asset Management.
Under Article 6 of the Distribution Agreement, the Fund agrees to
indemnify and hold harmless the Distributor and each of its directors, officers
and control persons against any loss, liability, claim, damages or expense
arising by reason of any person acquiring any Units claiming 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 made not misleading,
excluding claims where any such statements or omissions were made in reliance
upon, and in conformity with, information furnished to the Fund by or on behalf
of the Distributor, and absent willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties on the part of the
Distributor.
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. Set forth below are the names
and principal businesses of the directors and certain senior executive officers
of the Investment Manager, including those who are engaged in any other
business, profession, vocation or employment of a substantial nature. Reference
is made to "Management Of The Fund" in the Prospectus for additional 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.
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Position Business Name Nature of
With Investment Manager and Address Connection Dates
- ----------------------- ----------- ---------- -----
<S> <C> <C> <C>
Daniel D. Dyer. C.J.M. Planning Corp. Chairman 7/98 to Present
Chairman Pompton Lakes, NJ
Oxbow Capital Partners President 6/98 to Present
Tacoma, WA.
Dest. Harley Davidson Chairman 6/95 to 3/98
Tacoma, WA.
Dyer Ventures President 1/81 to Present
Tacoma, WA.
S. Charles Musumeci, Jr. C.J.M. Planning Corp. CEO/Director 7/76 to Present
President Pompton Lakes, NJ
Joseph C. Musumeci C.J.M. Planning Corp. President/Director 3/80 to Present
Chief Executive Officer Pompton Lakes, NJ
</TABLE>
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.
4. Not Applicable.
5. Not Applicable.
C-5
<PAGE>
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 21st day of April,
2000.
By: /s/ S. Charles Musumeci, Jr.
----------------------------
Name: S. Charles Musumeci, Jr.
Title: President
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: April 21, 2000
---------------------------- ----------------
Name: S. Charles Musumeci, Jr.
Title: Director
C-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
a.(1) Certificate of Formation
a.(2) Form of Operating Agreement
g. Form of Investment Advisory Agreement
h. Form of Distribution Agreement
k. Form of Administration, Accounting and Investor
Services Agreement with C.J.M. Asset Management, LLC.
p. Subscription Agreement of Investment Manager.
C-7
<PAGE>
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
Page
ARTICLE 1 DEFINITIONS........................................................1
Act..................................................................1
Affiliate............................................................1
Affiliated Director..................................................1
Bankruptcy...........................................................1
Board................................................................1
Business Day.........................................................1
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.........................................................2
Director or Directors................................................3
Effective Date.......................................................3
Fiscal Year..........................................................3
Fund.................................................................3
Incapacity...........................................................3
Indemnified Person...................................................3
Independent Director.................................................3
Initial Capital Contribution.........................................3
Investment Advisory Agreement........................................3
Investment Manager...................................................3
Investors............................................................3
Majority-In-Interest of Members......................................3
Management Fee.......................................................3
Member...............................................................3
Member Nonrecourse Debt..............................................3
Member Nonrecourse Deductions........................................3
Nonrecourse Deductions...............................................4
Offering.............................................................4
Percentage Interest..................................................4
Person...............................................................4
Portfolio Company....................................................4
Profits and Losses...................................................4
Prospectus...........................................................4
Qualified Income Offset Amount.......................................5
Section 705(a)(2)(B) Expenditure.....................................5
Substituted Member...................................................5
i
<PAGE>
Taxable Period.......................................................5
Unit.................................................................5
1940 Act.............................................................5
ARTICLE 2 THE COMPANY...................................................5
2.1 Formation of Limited Liability Company; Members...............5
2.2 Name of Fund..................................................5
2.3 Purpose of Company............................................6
2.4 Principal and Registered Office...............................6
2.5 Duration of Company...........................................6
2.6 Further Assurances............................................6
2.7 Accordance With the Act; Ownership............................7
2.8 Formation Costs...............................................7
ARTICLE 3 MEMBERS.......................................................7
3.1 Members.......................................................7
3.2 Admission of Members..........................................7
3.3 Limitation of Liability of Members............................8
3.4 No Management Responsibility..................................8
3.5 No Authority To Act...........................................8
3.6 Rights Of Members.............................................8
3.7 No Consent Required...........................................9
3.8 Meetings of Members...........................................9
ARTICLE 4 CAPITAL CONTRIBUTIONS........................................10
4.1 Capital Contributions of the Members.........................10
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.................................................14
5.4 Distributions................................................14
5.5 Contingency Reserves.........................................15
5.6 Additional Allocation Rules..................................15
5.7 Limitation of Liability......................................15
ARTICLE 6 DEPOSIT AND USE OF COMPANY FUNDS.............................15
6.1 Deposit of Company Funds.....................................15
-ii-
<PAGE>
ARTICLE 7 MANAGEMENT OF THE COMPANY....................................16
7.1 The Board of Directors.......................................16
7.2 Officers.....................................................19
7.3 Investment Manager...........................................19
7.4 Expenses.....................................................21
7.5 Appointment Of Auditors......................................21
7.6 [Intentionally omitted]......................................21
7.7 Prohibited Transactions......................................21
7.8 Limitations on Liability of Directors and Investment
Manager; Indemnification...................................22
7.9 Limitations on Liability of Investment Manager...............23
ARTICLE 8 OTHER BUSINESS...............................................24
8.1. Other Business...............................................24
ARTICLE 9 TRANSFERABILITY OF MEMBER'S INTEREST; WITHDRAWALS OF
CAPITAL BY MEMBERS.........................................24
9.1 Transfer of Units............................................24
9.2 Assignees....................................................25
9.3 Substituted Members..........................................26
9.4 Indemnification..............................................27
9.5 Incapacity of a Member.......................................27
9.6 Withholding of Distributions.................................27
9.7 Transferor-Transferee Allocations............................27
9.8 No Withdrawal................................................28
9.9 Notices......................................................28
9.10 Optional Adjustment to Basis of Fund Property................28
ARTICLE 10 DISSOLUTION AND LIQUIDATION..................................28
10.1 Dissolution..................................................28
10.2 Liquidation..................................................28
10.3 Return of Capital Contribution...............................29
ARTICLE 11 RESIGNATION OR REMOVAL OF DIRECTORS OR INVESTMENT MANAGER....30
11.1 Resignation of a Director....................................30
11.2 Resignation of the Investment Manager........................30
11.3 Removal of a Director or Investment Manager, Designation
of a Successor Director or Investment Manager..............31
11.4 [Intentionally Omitted]......................................32
11.5 Admission of a Successor Director............................32
11.6 Liability of a Withdrawn or Removed Director.................32
11.7 Consent of Members to Admission of Successor Directors.......32
11.8 Continuation.................................................33
-iii-
<PAGE>
ARTICLE 12 ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS...............33
12.1 Annual Accounting Period.....................................33
12.2 Records......................................................33
12.3 Income Tax Returns...........................................33
12.4 Reports......................................................34
12.5 Annual Meeting...............................................34
ARTICLE 13 MISCELLANEOUS................................................34
13.1 Notices......................................................34
13.2 Binding Effect...............................................35
13.3 Counterparts.................................................35
13.4 Section Headings.............................................35
13.5 Exhibits.....................................................35
13.6 Variation in Pronouns........................................35
13.7 Severability.................................................35
13.8 Qualification in Other States................................35
13.9 Entire Agreement.............................................35
13.10 Applicable Law...............................................36
13.11 Forum........................................................36
-iv-
<PAGE>
OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
This Operating Agreement (the "Agreement") of THE OXBOW FUND, LLC (the
"Fund" or "Company"), dated as of [__________________], 2000 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 "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.
1.3 "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.
1.4 "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 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.
1.5 "Biannual Meeting" is defined in Section 3.8(d) of this Agreement.
1.6 "Board" means the Board of Directors of the Company having such
powers as described herein.
1.7 "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, New York.
<PAGE>
1.8 "Capital Account" is defined in Section 4.2 of this Agreement.
1.9 "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.
1.10 "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 1.10(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.
1.11 "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.
1.12 "Closing Date" means the third business day after the Fund has
terminated the Offering.
1.13 "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.
1.14 "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 Board with the advice of the Company's independent accountants.
-2-
<PAGE>
1.15 "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.
1.16 "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.
1.17 "Fiscal Year" means the calendar year ending December 31.
1.18 "Fund" means The Oxbow Fund, LLC, a limited liability company
organized under the laws of the State of New Jersey.
1.19 "Incapacity" means, as to any Person, the entry of an order for
relief in a bankruptcy proceeding or entry of an order of incompetence or
insanity, as the case may be, of such Person.
1.20 "Indemnified Person" is defined in Section 7.8 of this Agreement.
1.21 "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.
1.22 "Initial Capital Contribution" is defined in Section 4.1(a) of
this Agreement.
1.23 "Investment Advisory Agreement" is defined in Section 7.3(a) of
this Agreement.
1.24 "Investment Manager" means C.J.M. Asset Management, LLC or any
Person appointed as a successor Investment Manager as provided in this
Agreement.
1.25 "Investors" means the Members, other than the Investment Manager.
1.26 "Majority-In-Interest of Members" means (a) the vote of
sixty-seven percent (67%) or more of the Units present at a meeting of Members
duly called, if more than fifty percent (50%) of the outstanding Units are
present or represented by proxy at such meeting; or (b) the vote of more than
fifty percent (50%) of the outstanding Units of the Fund, whichever is less.
1.27 "Management Fee" is defined in Section 7.3(b) of this Agreement.
1.28 "Member" means the Investment Manager and any other Members
admitted to the Fund in accordance with Section 3.2 hereof.
1.29 "Member Nonrecourse Debt" means partner nonrecourse debt, as
defined in Treasury Regulation Section 1.704-2(b)(4).
1.30 "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).
-3-
<PAGE>
1.31 "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).
1.32 "Offering" means the offering of Units by the Fund pursuant to
that certain Prospectus, dated _____________, 2000, which forms a part of the
Fund's Registration Statement on Form N-2 as initially filed with the Securities
and Exchange Commission on or about November 15, 1999.
1.33 "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.
1.34 "Person" mean individuals, partnerships, corporations, trusts,
estates, limited liability companies and other associations.
1.35 "Portfolio Company" shall mean any Person in which the Fund has
made an investment.
1.36 "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 bases 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;
(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.
1.37 "Prospectus" means that certain Prospectus, dated ___________,
2000, which forms a part of the Fund's Registration Statement on Form N-2 as
initially filed with the Securities and Exchange Commission on or about November
15, 1999.
-4-
<PAGE>
1.38 "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.
1.39 "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).
1.40 "Substituted Member" means a Person admitted as a Member to the
Fund 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.
1.41 "Taxable Period" means each Fiscal Year.
1.42 "Unit" means all of the interests that a Member has 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, the
right to share in Profits and Losses and the right to a share of any
distribution of the assets of the Fund. Each Unit represents an Initial Capital
Contribution of $100.
1.43 "1940 Act" means the Investment Company Act of 1940 and all rules
and regulations promulgated thereunder, as amended by the Small Business
Incentive Act of 1980, and as further amended from time to time.
ARTICLE 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
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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 strategic
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 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. 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
(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 Board 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
Board will execute and cause to be filed, recorded and published, such
certificates and documents as Board may deem necessary or appropriate to comply
with other applicable laws governing the formation and operation of a limited
liability company.
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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
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.
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 Substituted 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 Board or any two of the
Fund's Officers described in Section 7.2 hereof 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
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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
to the Company 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 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 a
Member 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, the Officers, 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, the Officers and the
Investment Manager. 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 approve and elect or disapprove and remove
Directors;
(b) the right to ratify or reject the appointment of the
independent accountants of the Fund selected by the Board, including a majority
of the Independent Directors;
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(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 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 Units of
any Member.
3.8 Meetings of Members; Biannual Meeting.
(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 therefore, 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. Members holding
Units which, in the aggregate, exceed fifty percent (50%) of the outstanding
Units of the Fund 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
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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 (the "Biannual Meeting") with the first such Biannual
Meeting to be held within two years from the Closing Date. At the Biannual
Meeting, the following items shall be submitted to a vote of the Members:
(i) the election of Directors;
(ii) the ratification of the Fund's independent accountants;
(iii) the approval of the Investment Advisory Agreement with
the Investment Manager, or any successor Investment
Manager; and
(iv) any other matter required under the 1940 Act to be voted
upon by the Members.
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 by a Member upon admission to
the Fund is referred to herein as the Member's "Initial Capital Contribution."
The required minimum amount of an Initial Capital Contribution is two thousand
dollars ($2,000).
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(b) Maximum Aggregate Investment from Members. The Fund 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, but subject to Section 4.1(b), 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 Fund will not
accept any additional Capital Contributions after August 31, 2001.
4.2 Capital Account.
(a) A Capital Account shall be established for each Member. Each
Member's Capital Account shall equal the amount of his 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
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.
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(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
Units 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 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.
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ARTICLE 5
ALLOCATION OF PROFITS AND LOSSES
AND DISTRIBUTIONS TO MEMBERS
5.1 Allocations. Except as provided in Section 5.2, for each taxable
year or period, Profits and Losses shall be allocated to the Members pro rata in
accordance with their Percentage Interests.
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).
(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 to the extent
such allocation would result in such Member having a Qualified Income Offset
Amount. Any allocation (in whole or in part) to a Member which is prevented by
the operation of the preceding sentence shall be reallocated to Members having
positive Capital Account balances pro rata in accordance with such Members'
Percentage Interests; 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 all 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
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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 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 the independent 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 Board determines to make
distributions of cash and/or property, such distributions shall be made to the
Members pro rata in accordance with their Percentage Interests.
(b) 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 delivered to the Company a current affidavit setting forth that such person
is a "United States
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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(b) 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.
(c) Limitation on Distributions. Notwithstanding anything to the
contrary set forth in this Section 5.4, the Board 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. The Board 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 Board 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.
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
Officers. Such account or accounts shall be
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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 Officers deem 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.
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 constitute "managers" within the meaning
of the Act and 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, 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 (i) upon the affirmative vote of a majority of the
Directors (which majority shall include any requisite number of Independent
Directors required by the 1940 Act) present at any meeting of the Board at which
a quorum is present; or (ii) by unanimous written consent of all the Directors
without a meeting, if permissible under the 1940 Act.
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(d) Nomination, Approval and Election of Independent Directors. The
Independent Directors shall hold office for a term of two years from their
election and until their successors are elected, or, if sooner, until their
death, Incapacity, resignation or removal pursuant to Article 11. The
Independent Directors shall nominate their successors who shall be elected at
the Biannual Meeting pursuant to the provisions of Section 3.8 hereof.
Independent Directors may succeed themselves in office. A majority of
Independent Directors may designate Independent Directors to fill any vacancies
created by any increase in the number of Independent Directors or by the
Incapacity, death, withdrawal or removal of an Independent Director. In the
event that the Independent Directors fail to designate a successor Independent
Director, or no Independent Directors remain, the Affiliated Directors shall
continue the business of the Fund and shall perform all duties of the Directors
under this Agreement and shall, within 90 days, call a special meeting of
Members for the purpose of approving and electing Independent Directors. Subject
to Section 11.5(a), each Member other than a Director hereby consents to the
appointment of any successor Independent Directors pursuant hereto, and no
further consent shall be required. Any successor Independent Director shall hold
office until the next Biannual Meeting of Members and until his or her successor
has been approved and elected or, if sooner, until his or her death, Incapacity,
resignation or removal.
(e) Nomination, Approval and Election of Affiliated Directors. The
Affiliated Directors shall hold office for a term of two years from their
election and until their successors are elected, or, if sooner, until their
death, Incapacity, resignation or removal pursuant to Article 11. The Affiliated
Directors shall nominate their successors who shall be elected at the Biannual
Meeting pursuant to the provisions of Section 3.8 hereof. Affiliated Directors
may succeed themselves in office. A majority of Affiliated Directors may
designate Affiliated Directors to fill any vacancies created by any increase in
the number of Affiliated Directors or by the death, Incapacity, withdrawal or
removal of an Affiliated Director. Subject to Section 11.5(a), each Member other
than a Director hereby consents to the appointment of any successor Affiliated
Directors pursuant hereto, and no further consent shall be required. Any
successor Affiliated Director shall hold office until the next Biannual Meeting
of Members and until his or her successor has been approved and elected or, if
sooner, until his or her death, Incapacity, resignation or removal pursuant to
this Agreement. In the event that the Affiliated Directors fail to designate a
successor Affiliated Director, or no Affiliated Directors remain, the
Independent Directors shall continue the business of the Fund and shall perform
all duties of the Directors under this Agreement, and shall, within 90 days,
designate Independent Directors to fill each such vacancy. Any such Independent
Director who succeeds an Affiliated Director shall hold office until the next
Biannual Meeting of Members and until his or her successor has been approved and
elected or, if sooner, until his or her death, Incapacity, resignation or
removal pursuant to this Agreement.
(f) 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;
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(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 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.
(g) Contracts with Affiliates of the Directors. The Fund may 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.
(h) 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 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.
(i) 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.
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(j) Meetings. Meetings of the Board of Directors may be called by
the Chief Executive Officer or by any two Directors, and may be held on such
date and at such time and place as the Board of Directors shall determine. Each
Director shall be entitled to receive written notice of the date, time or place
of such meeting within a reasonable time in advance of the meeting. Notice may
not be give to any Directors who shall attend a meeting without objecting to the
lack of notice or who shall execute a written waiver of notice with respect to
the meeting. Directors may attend and participate in any meeting by telephone
except when in person attendance at a meeting is required by the 1940 Act. A
majority of Directors shall constitute a quorum at any meeting.
7.2 Officers. The Fund shall have the following officers: a Chief
Executive Officer, a President, and a Chief Financial Officer. The officers of
the Fund shall be chosen by the Board and may also consist of such other
officers as the Board shall deem necessary. The officers of the Fund shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. The salaries of all
officers of the Fund shall be fixed by the Board of Directors, provided,
however, that each of the Chief Executive Officer, the President and the Chief
Financial Officer shall be compensated $150,000 annually unless otherwise
agreed.
7.3 Investment Manager.
(a) Authority. The Investment Manager is hereby granted the
exclusive power and authority from time to time, subject to the supervision of
the Board, to manage the day-to-day business and affairs of the Fund and 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. The Fund shall enter into
an agreement (the "Investment Advisory Agreement") with the Investment Manager
or any successor Investment Manager.
In furtherance of and subject to the foregoing, the Investment Manager,
except as otherwise provided in this Agreement, to the extent permitted under
the 1940 Act, and with the approval of a majority of the Independent Directors
where required under the 1940 Act, shall have full power and authority on behalf
of the Fund:
(1) to purchase, sell, exchange, trade and otherwise deal in
and with securities and other property of the Fund;
(2) to open, maintain and close accounts with brokers and
dealers, to make all decisions relating to investment transactions;
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(3) to borrow from banks or other financial institutions and to
pledge Fund assets as collateral therefore, to trade on margin,
exercise or refrain from exercising all rights regarding the Fund's
investments, and to instruct custodians regarding the settlement of
transactions, the disbursement of payments to Members with respect to
repurchases of Units and the payment of Fund expenses, including those
relating to the organization and registration of the Fund;
(4) to issue to any Member an instrument certifying that such
Member is the owner of an Interest;
(5) to assist the Board in calling and conducting meetings of
the Board;
(6) to engage and terminate such attorneys, accountants and
other professional advisers and consultants as the Investment Manager
may deem necessary or advisable in connection with the affairs of the
Fund or as may be directed by the Board;
(7) to engage and terminate the services of others to assist
the Investment Manager in providing, or to provide under the Investment
Manager's control and supervision, advice and management to the Fund at
the expense of the Investment Manager;
(8) to assist in the preparation and filing of any required tax
or information returns to be made by the Fund;
(9) as directed by the Board, to commence, defend and conclude
any action, suit, investigation or other proceeding that pertains to
the Fund or any assets of the Fund;
(10) if directed by the Board, to arrange for the purchase of
(A) insurance, or (B) any insurance covering the potential liabilities
of the Fund or relating to the performance of the Board or the
Investment Manager, or any of their principals, directors, officers,
members, employees and agents; and
(11) to execute, deliver and perform such contracts, agreements
and other undertakings, and to engage in such activities and
transactions as are, in the opinion of the Investment Manager,
necessary and appropriate for the conduct of the business of the Fund,
without the act, vote or approval of any other Member or person, except
where such vote or approval is required under the 1940 Act or other
applicable law.
(b) Compensation Of Investment Manager. The Investment Manager
shall receive the following amounts from the Fund:
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(i) Management Fee. The Fund shall pay the Investment
Manager a fee for supervising the venture capital operations of the
Fund in accordance with the Investment Advisory Agreement (the
"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. 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 Costs and Expenses. The Fund
shall reimburse the Investment Manager or its Affiliates for actual
organizational and operational costs and expenses incurred by the
Investment Manager or its Affiliates for the benefit or on behalf 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 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 ratification by a
Majority-In-Interest of Members as provided in Section 3.8(d), the Directors, in
the name and on behalf of the Fund, are 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:
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(a) the Fund shall not lend money or other property to the
Investment Manager or any Affiliate of the Investment Manager;
(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.
(a) The Board shall not be liable for the return of any Capital
Contribution to 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 Officers 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,
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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 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.
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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) Approval. No sale, exchange, transfer, or assignment of Units
(in whole or in part) may be made by a Member unless such sale, exchange,
transfer or assignment has been approved by the Board or at least two of the
Officers described in Section 7.2 hereof.
(b) Opinion of Counsel. Notwithstanding any other provisions of
this Article 9, no sale, exchange, transfer, or assignment of Units (in whole or
in part) 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 a
termination of the Fund within the meaning of Section 708 of the Code;
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(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 proposed 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
Board, 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 deems 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.
(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.
(g) Expense. Each Member other than a Director agrees to pay all
reasonable expenses, including attorneys' fees, incurred by the Fund in
connection with any assignment.
(h) Assignment. For purposes of this Article 9, any transfer of a
Unit, whether voluntary or by operation of law, shall be considered an
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 unless the provisions of Section 9.1 shall
have been complied with and there
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<PAGE>
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 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 Units as a Member in the
transferring Member's place. Any such purchaser, assignee, transferee, donee,
heir, or other recipient of a Unit (whether 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
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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. Unless and 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 only to 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 such Member's Unit(s), 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 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 a 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 or death of a Member shall not dissolve the Fund.
9.6 Withholding of Distributions. From the date of the receipt of any
instrument relating to the transfer of a Unit or at any time the Directors 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
between the transferor and transferee in accordance with Section 5.6.
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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 Units.
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 Board 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 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 or substantially all of its
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.
(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
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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 Board may retain the
Investment Manager (or another Person) to assist in the liquidation of the
Company. 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, the amount of such fee to be determined by mutual agreement of the
liquidator and the Board. Any Member 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 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.
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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 Board
shall designate a successor Director pursuant to Section 7.1(d) who shall hold
such office until such Director's successor has been approved and elected by the
Members as required under the 1940 Act;
(c) the Board 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 in 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 the Investment
Manager is required to perform under this Agreement; (ii) it has a net worth
that meets the requirements of any statute or the courts applicable to a manager
of a limited liability company in order to ensure that the Fund will not fail to
be classified for state income tax purposes as a limited liability company
rather than as an association taxable as a corporation; and (iii) it is willing
to become the Investment Manager under this Agreement and will assume all duties
and responsibilities thereunder, without receiving any compensation for services
from the Fund in excess of that payable under this Agreement and/or the
Investment Advisory Agreement to the withdrawing 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
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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 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 Members has consented to the appointment of, or the
approval of an Investment Advisory Agreement with, 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 or Investment Manager
(a) Any of the 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 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. The Investment Manager may be removed (and/or the
Investment Advisory Agreement may be terminated): (i) by a majority of the
Directors; (ii) by failure to be approved by the Members in accordance with this
Agreement; (iii) by the vote of a Majority-In-Interest of the Members; or (iv)
automatically upon assignment of the Investment Manager's Units.
(b) Subject to Section 7.1(b) and in accordance with Section
7.1(d), the remaining members of the Board may designate one or more Persons to
fill any vacancy existing in the number of Directors fixed pursuant to Sections
7.1(a) or 7.1(b) resulting from removal of a Director pursuant to Section
11.3(a). Remaining members of the Board may (x) designate one or more Persons to
be successors to the Investment Manager removed; and/or (y) approve an
Investment Advisory Agreement terminated, as the case may be, by the Directors
pursuant to Section 11.3(a), and each Member other than a Director hereby
consents to the admission of such successor or successors and/or the approval of
such Investment Advisory Agreement, no further consent being required until the
next Biannual Meeting. Any such successor Director or Investment Manager
designated hereunder (or under Section 7.1(d)) shall hold office until the next
Biannual Meeting 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 1940 Act,
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the Act and 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 Members pursuant to
Section 11.3(a).
(c) Any removal of a Director shall not affect any rights or
liabilities of the removed Director that matured prior to such removal.
11.4 [Intentionally Omitted].
11.5 Admission of a Successor Director.
(a) The appointment of any successor Director (whether pursuant to
section 11.3 and/or 7.1(d)) 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;
(ii) the Units of the Members shall not be affected by the
admission of such successor Director or the transfer of the Director's
Units; and
(iii) to the extent required by and in accordance with the 1940
Act, a Majority-In-Interest of Members has consented to the appointment
of such successor Director.
(b) Notwithstanding anything to the contrary in this Article 11, a
Director's Units shall at all times be subject to the restrictions on transfer
set forth in Article 9 regardless of whether such Person continues to be a
Director of the Fund.
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 Units 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.
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11.8 Continuation. In the event of the withdrawal, removal, Incapacity
or death of a Director, 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.
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.
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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 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 a majority of Directors.
(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.
(d) By April 30 of each year the Fund will also distribute to the
Members 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 Biannual Meeting. Pursuant to Section 3.8(d) hereof, the
Company will hold a Biannual Meeting 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
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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 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.
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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.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, have duly executed this Agreement as of the date first above written.
C.J.M. ASSET MANAGEMENT, LLC,
Member
By:
-------------------------------
Name: S. Charles Musumeci, Jr.
Title: Director
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EXHIBIT g
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made this ____ day of_________, 2000, 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.
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 investments on behalf
of the Fund and to be reimbursed for such expenses and fees from assets of the
Fund.
3. COMPENSATION OF THE INVESTMENT MANAGER; EXPENSE REIMBURSEMENT. For
the services to be rendered by the Investment Manager as provided in
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<PAGE>
Sections 1 and 2 of this Agreement, the Fund shall pay to the Investment Manager
an annual Management Fee equal to 2.5% of total "adjusted capital contributions"
payable quarterly in arrears. Additionally, commencing upon receipt by the
Members of aggregate distributions under the Operating Agreement equal to the
amount of their aggregate "initial capital contributions," the Fund shall pay to
the Investment Manager an annual "incentive fee". The incentive fee will become
payable commencing with the fiscal year of the fund during which the Members
shall have received such aggregate distributions, and at the end of each fiscal
year of the Fund thereafter. The incentive fee may be paid by the Fund in cash
or property or, if agreed to by the Investment Manager, may be accrued by the
Fund. For purposes of this Agreement, (i) "initial capital contribution" shall
mean the amount of cash and fair market value of property contributed to the
Fund by a Member upon admission to the Fund, (ii) "incentive fee" shall mean as
to a fiscal year an amount equal to twenty percent (20%) of the taxable income
of the Fund for such year (calculated without giving effect to the payment of
the incentive fee) computed net of all unrealized capital depreciation for such
year, and (iii) total "adjusted capital contributions" shall mean, as of any
day, the aggregate amount of cash and fair market value of property contributed
to the Fund by the Members upon admission to the Fund reduced by the amount of
cash and the Carrying Value (as such term is defined in the Operating Agreement)
of any property of the Fund distributed to the Members pursuant to Section
5.4(a) of the Operating Agreement.
In the event of termination of this Agreement, the Management 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 and the incentive fee shall
be computed through the last business day on which this Agreement is in effect.
The Fund will reimburse the Investment Manager for actual
organizational and operational costs and expenses incurred by the Investment
Manager for the benefit or on behalf of the Fund.
4. REPORTS. The Fund and the Investment Manager agree to furnish to
each other current Prospectuses, proxy statements, reports to shareholders,
certified copies of their financial 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 the 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
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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) is or may be interested
in the Fund as unitholder or otherwise. The effect of any such
interrelationships shall be governed by said 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. Unless sooner terminated or extended as
provided herein, this Agreement shall terminate on that date which is two years
from the date of its execution. Notwithstanding the foregoing, this Agreement
may be extended for additional periods of one year from such date by vote of a
majority of the Directors of the Fund or a majority of the outstanding voting
securities of the Fund, as defined in the 1940 Act. 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.
As used in this Section, the terms "assignment" and "majority" shall
have the meanings set forth respectively in Sections 2(a)(4) and 2(a)(42) of 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
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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 not 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:
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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 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 distributors that are members of the NASD who will use their best
efforts to offer and sell the Units pursuant to a "Selected Distributor
Agreement" substantially in the form of Exhibit A hereto.
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.
<PAGE>
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 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 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
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<PAGE>
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 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 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
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<PAGE>
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 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.
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<PAGE>
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:
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<PAGE>
Exhibit A
---------
C.J.M. Planning Corp
223 Wanaque Avenue
Pompton Lakes, New Jersey 07442
The Oxbow Fund, LLC
250,000 Units
SELECTED DISTRIBUTOR AGREEMENT
_________________, 2000
Dear Sirs:
We as the Distributor named in the Prospectus dated __________, 2000 have
agreed, subject to the terms and conditions of the Distribution Agreement dated
this date (the "Distribution Agreement") to sell on behalf of The Oxbow Fund,
LLC. (the "Company"), at the price set forth in the Prospectus, the above
referred to 250,000 Units (collectively being called the "Securities"). The
Securities and certain of the terms on which they are being purchased and
offered are more fully described in the enclosed Prospectus. Additional copies
of the Prospectus will be supplied to you in reasonable quantities upon request.
We, as the Distributor, are offering to certain distributors ("Selected
Distributors"), among whom we are pleased to include you, the right to sell on a
"best efforts" basis, the Securities at the public offering price. The offering
to Selected Distributors is made subject to the approval of legal matters by our
counsel, and to the terms and conditions hereof, and may be withdrawn by us at
any time in our discretion.
As compensation for providing the services under this Agreement the
Selected Distributor shall be paid a sales charge equal to $7 per Unit sold as
described in the Prospectus.
All sales will be strictly subject to confirmation and we reserve the
right in our uncontrolled discretion to reject any subscription to purchase any
of the Securities in whole or in part, to accept or reject subscriptions in the
order of their receipt or otherwise, and to allot. You are not authorized to
give any information or make any representation other than as set forth in the
Prospectus in connection with the offer or sale of any of the Securities. No
distributor is authorized to act as agent for the Distributor, or for the
Company, when offering any of the Securities. Nothing contained herein shall
constitute the Selected Distributors partners with us or with one another.
Payment for Securities sold by you is to be made at our office (or at such
other place as instructed) at the public offering price, on such date as we may
advise, on one day's notice to you, by certified or official bank check in New
York Clearing House funds payable to the
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<PAGE>
Company. Delivery to you of certificates for the Securities will be made as soon
as is practicable thereafter. Unless specifically authorized by us, payment by
you may not be deferred until delivery of certificates to you. The sales charge
payable to you will be paid as soon as practicable.
This Agreement shall terminate at the close of business on the day after
the effective date of the Registration Statement. We may terminate this
Agreement at any time prior thereto by notice to you. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
share of any transfer tax or any liability which may be asserted or assessed
against us or Selected Distributors based upon the claim that the Distributor
and the Selected Distributors, or any of them, constitute a partnership,
association, unincorporated business or other entity, including in each case
your proportionate share of expenses incurred in defending against any such
claim or liability.
At any time prior to the termination of this Agreement, you will, upon our
request, report to us the number of Securities sold by you under this Agreement.
We shall have full authority to take such action as we may deem advisable
in respect of all matters pertaining to the offering and the distribution of
Units. We shall be under no liability to you except for our lack of good faith
and for obligations assumed by us in this Agreement, except that you do not
waive any rights that you may have under the Securities Act of 1933 (the "1933
Act") or the rules and regulations thereunder.
Upon application to us, we will inform you of the states and other
jurisdictions of the United States in which it is believed that the Securities
are qualified for sale under, or are exempt from the requirements of, their
respective securities laws, but we assume no responsibility with respect to your
right to sell Securities in any jurisdiction. We have filed a Further State
Notice with respect to the Securities with the Department of State of the State
of New York.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act"), relating to the distribution of
preliminary and final prospectuses, and confirm that you have complied and will
comply therewith (whether or not the Company is subject to the reporting
requirements of Section 13 or 15(d) of the 1934 Act). We will make available to
you, to the extent made available to us by the Company such number of copies of
the Prospectus as you may reasonably request for purposes contemplated by the
1933 Act, the 1934 Act, and the rules and regulations thereunder.
Your attention is directed to Regulation M under the 1934 Act, which
contains certain prohibitions against trading by a person interested in a
distribution until such person has completed its participation in the
distribution. You confirm that you will at all times comply with the provisions
of such Regulation M in connection with this offering.
Any notice from us shall be deemed to have been duly given if telephoned,
and subsequently mailed or transmitted by any standard form of written
tele-communication to you at the address to which this Agreement is mailed, or
if so mailed or transmitted in the first instance.
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<PAGE>
Please advise us promptly by telephone or any standard form of written
telecommunication of your intent to participate as a Selected Distributor with
respect to the Securities and confirm your agreement hereto by signing the
Acceptance on the enclosed duplicate hereof and returning promptly such signed
duplicate copy to C.J.M. Planning Corp., 223 Wanaque Avenue, Pompton Lakes, NJ
07442.
Upon receipt thereof, this instrument and such signed duplicate copy will
evidence the agreement between us.
Very truly yours,
C.J.M. Planning Corp.
BY:
------------------------------
Name:
Title:
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<PAGE>
C.J.M. Planning Corp.
223 Wanaque Avenue
Pompton Lakes, NJ 07442
Dear Sirs:
We hereby agree to participate as a Selected Distributor of the Units
under the terms and conditions of the foregoing Agreement.
We agree to all the terms and conditions stated in the foregoing
Agreement. We acknowledge receipt of the Prospectus relating to the above
Securities and we further state that in entering the foregoing Agreement we have
relied upon said Prospectus and no other statements whatsoever, written or oral.
We affirm that we are either (i) a member in good standing of the National
Association of Securities Dealers, Inc. ( the "NASD") or (ii) a distributor with
its principal place of business located outside the United States, its
territories, or possessions and not registered under the Securities Exchange Act
of 1934 and not eligible for membership in the NASD, who hereby agrees to make
no sales within the United States, its territories or its possessions or to
persons who are nationals thereof or residents therein, and in making any sales,
to comply with the NASD" interpretation with respect to free-riding and
withholding, as well as all other pertinent interpretations of the NASD that my
be applicable to us. We also affirm and agree that we will offer Securities sold
by us in conformity with the terms of the offering and in conformity with Rules
2730, 2740, 2420 and 2750 of the NASD Conduct Rules and all applicable Rules and
Regulations promulgated under the Securities Exchange Act of 1934.
Date: , 2000
------------------ ----------------------------------
(Name of Selected Distributor)
By:
-------------------------------
(Authorized Signature)
Address:
--------------------------
----------------------------------
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<PAGE>
EXHIBIT (k)
ADMINISTRATION, ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of April ___, 2000 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 Asset
Management").
W I T N E S S E T H :
WHEREAS, the Fund is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Fund wishes to retain CJM Asset Management to provide
certain administration, accounting and investor services provided for herein,
and CJM Asset Management wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
(c) "1940 ACT" means the Investment Company Act of 1940, as amended,
and all rules and regulations promulgated thereunder.
(d) "AUTHORIZED PERSON" means any person duly authorized by the
Fund's Board to give Oral Instructions and Written Instructions on behalf of the
Fund and listed on the Authorized Persons Appendix attached hereto or any
amendment thereto as may be received by CJM Asset Management from time to time.
An Authorized Person's scope of authority may be limited to the extent set forth
in the Authorized Persons Appendix.
(e) "BOARD" and "MEMBERS" shall have the same meanings as set forth
in the Fund's operating agreement (the "Operating Agreement").
(f) "INVESTMENT MANAGER" means C.J.M. Asset Management, LLC.
(g) "ORAL INSTRUCTIONS" mean oral instructions received by CJM Asset
Management from an Authorized Person or from a person reasonably believed by CJM
Asset Management to be an Authorized Person.
<PAGE>
(h) "SEC" means the Securities and Exchange Commission.
(i) "SECURITIES LAWS" means the 1933 Act, the 1934 Act and the 1940
Act.
(j) "WRITTEN INSTRUCTIONS" mean written instructions received by CJM
Asset Management and signed by an Authorized Person or a person reasonably
believed by CJM Asset Management to be an Authorized Person. The instructions
may be delivered by hand, mail, tested telegram, cable, telex or facsimile
sending device.
2. APPOINTMENT. The Fund hereby appoints CJM Asset Management to
provide administration, accounting and investor services to the Fund, in
accordance with the terms set forth in this Agreement. CJM Asset Management
accepts such appointment and agrees to furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable,
will provide CJM Asset Management with the following:
(a) certified or authenticated copies of the resolutions of the
Board, approving the appointment of CJM Asset Management or its affiliates to
provide the services described herein and approving this Agreement;
(b) a copy of the Fund's most recent effective registration
statement on Form N-2 under the 1940 Act, as filed with the SEC;
(c) a copy of the Operating Agreement;
(d) a copy of any distribution agreement with respect to the Fund;
and
(e) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. CJM Asset Management
undertakes to comply with all applicable requirements of the Securities Laws,
and any laws, rules and regulations of governmental authorities having
jurisdiction with respect to the duties to be performed by CJM Asset Management
hereunder. Except as specifically set forth herein, CJM Asset Management assumes
no responsibility for such compliance by the Fund or any other party.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, CJM Asset
Management shall act only upon Oral Instructions and Written Instructions.
(b) CJM Asset Management shall be entitled to rely upon any Oral
Instructions or Written Instructions it receives from an Authorized Person (or
from a person reasonably believed by CJM Asset Management to be an Authorized
Person) pursuant to this Agreement. CJM Asset Management may assume that any
Oral Instruction or Written
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<PAGE>
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or this Agreement or of any vote,
resolution or proceeding of the Board or the Members, unless and until CJM Asset
Management receives Written Instructions to the contrary.
(c) The Fund agrees to use its best efforts to forward to CJM Asset
Management Written Instructions confirming Oral Instructions and shall endeavor
to ensure that CJM Asset Management receives the Written Instructions by the
close of business on the same day that such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by CJM Asset
Management shall in no way invalidate the transactions or enforceability of the
transactions authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an Authorized
Person, CJM Asset Management shall incur no liability to the Fund in acting upon
such Oral Instructions or Written Instructions provided that CJM Asset
Management's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If CJM Asset Management is in doubt as to
any action it should or should not take, CJM Asset Management may request
directions or advice, including Oral Instructions or Written Instructions, from
the Fund.
(b) Advice of Counsel. If CJM Asset Management shall be in doubt as
to any question of law pertaining to any action it should or should not take,
CJM Asset Management may request advice at its own cost from such counsel of its
own choosing (who may, without limitation, be counsel for the Fund, or CJM Asset
Management, at the option of CJM Asset Management), provided that such counsel
is selected with reasonable care.
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions CJM Asset
Management receives from the Fund, and the advice CJM Asset Management receives
from counsel selected with reasonable care, CJM Asset Management may rely upon
and follow the advice of such counsel. CJM Asset Management shall promptly
inform the Fund of such conflict. If CJM Asset Management relies on the advice
of counsel, CJM Asset Management will remain liable for any action or omission
on the part of CJM Asset Management which constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by CJM Asset Management of any
duties, obligations or responsibilities set forth in this Agreement.
(d) Protection of CJM Asset Management. CJM Asset Management shall
be protected in any action it takes or does not take in reliance upon
directions, advice or Oral Instructions or Written Instructions it receives from
the Fund or from counsel selected with reasonable care and which CJM Asset
Management believes, in good faith, to be consistent with those directions,
advice and Oral Instructions or Written Instructions. Nothing in this section
shall be construed so as to impose an obligation upon CJM Asset Management (i)
to seek such directions, advice or Oral Instructions or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of
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<PAGE>
other provisions of this Agreement, the same is a condition of CJM Asset
Management's properly taking or not taking such action. Nothing in this
subsection shall excuse CJM Asset Management when an action or omission on the
part of CJM Asset Management constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard by CJM Asset Management of any duties,
obligations or responsibilities set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund, which are in the
possession or under the control of CJM Asset Management, shall be the property
of the Fund. Such books and records shall be prepared and maintained as required
by the 1940 Act and other applicable securities laws, rules and regulations. The
Fund and Authorized Persons shall have access to such books and records at all
times during CJM Asset Management's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
CJM Asset Management to the Fund or to an Authorized Person, at the Fund's
expense.
(b) CJM Asset Management shall keep the following records: (i) all
books and records with respect to the Fund's books of account; (ii) records of
the Fund's securities transactions; and (iii) all other books and records as the
Fund is required to maintain pursuant to Rule 31a-1 of the 1940 Act in
connection with the services of CJM Asset Management provided hereunder.
(c) Upon termination of this Agreement, CJM Asset Management in
accordance with the Fund's reasonable request, shall, in accordance with Written
Instructions, deliver a copy of the books and records pertaining to the Fund,
which are in the possession or under control of CJM Asset Management, to the
Fund or any other person designated by the Fund.
8. CONFIDENTIALITY. CJM Asset Management agrees to keep confidential
all records of the Fund and information relating to the Fund and its Members,
unless the release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld. The Fund further agrees that, should CJM Asset Management
be required to provide such information or records to duly constituted
authorities (who may institute civil or criminal contempt proceedings for
failure to comply), CJM Asset Management shall not be required to seek the
Fund's consent prior to disclosing such information.
9. LIAISON WITH ACCOUNTANTS. CJM Asset Management shall act as liaison
with the Fund's independent public accountants and shall provide account
analyses, fiscal year summaries, and other audit-related schedules as the Fund
or such accountants may reasonably request. CJM Asset Management shall take all
reasonable action in the performance of its duties under this Agreement to
ensure that the necessary information is made available to such accountants for
the expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. CJM Asset Management shall enter into and shall
maintain in effect with appropriate parties one or more agreements making
reasonable provisions
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<PAGE>
for emergency use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of equipment failures, CJM
Asset Management shall, at no additional expense to the Fund, take reasonable
steps to minimize service interruptions. CJM Asset Management shall have no
liability with respect to the loss of data or service interruptions caused by
equipment failure, provided such loss or interruption is not caused by CJM Asset
Management's own willful misfeasance, bad faith, gross negligence or reckless
disregard of its duties or obligations under this Agreement.
11. COMPENSATION. As compensation for services rendered by CJM Asset
Management during the term of this Agreement, the Fund will pay to CJM Asset
Management an annual fee equal to .25% of total Member "adjusted capital
contributions". For purposes of this Agreement, "adjusted capital contributions"
shall mean, as of any day, the Members' aggregate initial capital contributions
rendered by the amount of cash and the Carrying Value (as such term is defined
in the Operating Agreement) of any property of the Fund distributed to the
Members pursuant to Section 5.4(a) of the Operating Agreement.
12. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless CJM Asset
Management and its affiliates from all taxes, charges, expenses, assessments,
claims and liabilities (including, without limitation, liabilities arising under
the Securities Laws and any state or foreign securities and Blue Sky laws, and
amendments thereto), and expenses, including, without limitation, reasonable
attorneys' fees and disbursements (collectively, "Losses") arising directly or
indirectly from any action which CJM Asset Management takes or does not take (i)
at the request or on the direction of or in reliance on the advice of the Fund
or (ii) upon Oral Instructions or Written Instructions. Neither CJM Asset
Management, nor any of its affiliates, shall be indemnified against any
liability (or any expenses incident to such liability) arising out of CJM Asset
Management's or its affiliates own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties and obligations under this
Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, the
Fund shall not be liable to CJM Asset Management or its affiliates for any
consequential, special or indirect losses or damages which CJM Asset Management
or its affiliates may incur or suffer, whether or not the likelihood of such
losses or damages was known by the Fund.
13. RESPONSIBILITY OF CJM ASSET MANAGEMENT.
(a) CJM Asset Management shall be under no duty to take any action
on behalf of the Fund except as specifically set forth herein or as may be
specifically agreed to by CJM Asset Management in writing. CJM Asset Management
shall be obligated to exercise care and diligence in the performance of its
duties hereunder, to act in good faith and to use its best efforts in performing
services provided for under this Agreement. CJM Asset Management agrees to
indemnify and hold harmless the Fund from Losses arising out of CJM Asset
Management's failure to perform its duties under this Agreement to the extent
such damages arise out of CJM Asset Management's willful misfeasance, bad faith,
gross negligence or reckless disregard of such duties.
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<PAGE>
(b) Without limiting the generality of the foregoing or of any
other provision of this Agreement, (i) CJM Asset Management shall not be liable
for losses beyond its control, provided that CJM Asset Management has acted in
accordance with the standard of care set forth above; and (ii) CJM Asset
Management shall not be liable for (A) the validity or invalidity or authority
or lack thereof of any Oral Instruction or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this Agreement, and
which CJM Asset Management reasonably believes to be genuine; or (B) subject to
Section 10 of this Agreement, delays or errors or loss of data occurring by
reason of circumstances beyond CJM Asset Management's control, including acts of
civil or military authority, national emergencies, labor difficulties, fire,
flood, catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither CJM Asset Management nor its affiliates shall be liable to the Fund for
any consequential, special or indirect losses or damages which the Fund may
incur or suffer by or as a consequence of CJM Asset Management's or any
affiliates' performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by CJM Asset Management or its
affiliates.
14. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. CJM Asset
Management will perform accounting services for the Fund, including, but not
limited to, the following:
(i) Journalize investment, capital and income and expense
activities;
(ii) Maintain individual ledgers for investment securities;
(iii) Maintain historical tax lots for each security;
(iv) Record and reconcile corporate action activity and all
other capital changes with the Investment Manager;
(v) Reconcile cash and investment balances of the Fund,
and provide the Investment Manager with the beginning
cash balance available for investment purposes;
(vi) Calculate contractual expenses (e.g. advisory fees) in
accordance with the Fund's Prospectus;
(vii) Maintain expense budget for the Fund and notify an
officer of the Fund of any proposed adjustments;
(viii) Control all disbursements and authorize such
disbursements from the Fund's account upon Written
Instructions;
(ix) Calculate capital gains and losses;
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(x) Determine net income;
(xi) Compute net asset values monthly;
(xii) Research and recommend portfolio accounting tax
treatment for unique security types; and
(xiii) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required,
portfolio average dollar-weighted maturity in
accordance with applicable regulations.
15. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. CJM
Asset Management will perform administration services for the Fund, including,
but not limited to, the following:
(i) Prepare monthly security transaction listings;
(ii) Supply various Fund statistical data as requested on
an ongoing basis;
(iii) Provide to the extent contained in accounting records
materials required for board reporting as may be
requested from time to time;
(iv) Prepare for execution and file the Fund's Federal Form
1065 and state tax returns;
(v) Prepare and file the Fund's Annual and Semi-Annual
Reports with the SEC on Form N-SAR via EDGAR;
(vi) Prepare and coordinate the services of the Fund's
printer for the printing of and filing with the SEC
via EDGAR the Fund's annual and semi-annual
shareholder reports;
(vii) Assist in the preparation of registration statements;
(viii) Transmit or otherwise send, to the extent practicable
and feasible, requested detailed information related
to the Members, including admission details, income,
capital gains and losses, and performance detail;
(ix) Mail Fund offering materials to prospective investors;
and
(x) Mail quarterly reports of the Investment Manager and
Semi-Annual Financial Statements to investors as well
as any other necessary correspondence.
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16. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. CJM Asset
Management will perform certain investor services, including, but not limited
to, the following functions:
(i) Maintain the register of Members and enter on such
register all issues, transfers and repurchases of
interests in the Fund;
(ii) Allocate income, expenses, gains and losses to
individual Members' capital accounts in accordance
with applicable tax laws and with the Fund's
Prospectus and Operating Agreement;
(iii) Calculate the Incentive Fee in accordance with the
Fund's Prospectus and the Investment Advisory
Agreement; and
(iv) Prepare and mail annually to Members a Form K-1 in
accordance with applicable tax regulations.
17. DURATION AND TERMINATION. This Agreement shall be effective on the
date first above written and shall continue in effect for an initial period of
two years. Thereafter, this Agreement, unless terminated, shall continue
automatically for successive terms of one (1) year. Notwithstanding the
foregoing, this Agreement may be terminated by either party upon 60 days' prior
written notice to the other party.
NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to have been given immediately.
If notice is sent by first-class mail, it shall be deemed to have been given
three days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered. Notices shall be addressed
(a) if to CJM Asset Management, at 223 Wanaque Avenue, Pompton Lakes, N.J.
07442; (b) if to the Fund, at c/o C.J.M. Planning Corp., 223 Wanaque Avenue,
Pompton Lakes, N.J. 07442; or (c) if to neither of the foregoing, at such other
address as shall have been provided by like notice to the sender of any such
notice or other communication by the other party.
18. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. CJM Asset Management may assign its rights
and delegate its duties hereunder to any affiliate (as defined in the 1940 Act)
of or any majority-owned direct or indirect subsidiary of C.J.M. Planning Corp.,
provided that (i) CJM Asset Management gives the Fund (60) days' prior written
notice; (ii) the delegate (or assignee) agrees with CJM Asset Management and the
Fund to comply with all relevant provisions of the Securities Laws, and any
laws, rules and regulations of governmental authorities having jurisdiction with
respect to the duties to be performed by the delegate (or assignee) hereunder;
and (iii) CJM Asset Management and such delegate (or assignee) promptly provide
such
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<PAGE>
information as the Fund may request, and respond to such questions as the Fund
may ask, relative to the delegation (or assignment), including, without
limitation, the capabilities of the delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
22. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties with respect to the subject matter hereof
and supersedes all prior agreements and understandings relating to the subject
matter hereof.
(b) CAPTIONS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract
made in New Jersey and governed by New Jersey law, without regard to principles
of conflicts of law, except to the extent Federal law mandatorily applies.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
C.J.M. ASSET MANAGEMENT, LLC
By:
--------------------------------
Name:
Title:
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THE OXBOW FUND, LLC
By:
--------------------------------
Name:
Title:
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<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
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<PAGE>
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 November 15, 1999, as amended.
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: /s/ Joseph C. Musumeci
----------------------------
Name: Joseph C. Musumeci
Title: Chief Executive Officer
Dated: February 29, 2000
-------------------------
TO BE COMPLETED BY THE FUND:
Accepted as of March 1, 2000
----------------
THE OXBOW FUND, LLC
By: /s/ S. Charles Musumeci, Jr.
------------------------------
Name: S. Charles Musumeci, Jr.
Title: President
