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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").
Per Unit Total (Maximum)
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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. AS OF THE DATE OF THIS PROSPECTUS THE FUND HAS ACCRUED
ORGANIZATIONAL AND OFFERING EXPENSES IN EXCESS OF ASSETS AND THE FUND MAY NOT
REALIZE SUFFICIENT PROCEEDS FROM THIS OFFERING TO PAY SUCH EXPENSES. YOU SHOULD
PURCHASE UNITS ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE
THE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
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.
The date of this Prospectus is May 25, 2000.
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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.
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.
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.
This Prospectus concisely provides the information that a prospective
investor should know about the Fund before investing. You are advised to read
this Prospectus carefully and to retain it for future reference. Additional
information about the Fund, including the Fund's agreement with the Fund's
Investment Manager, CJM Asset Management, and the Distributor of Units, CJM
Planning, has been filed with the Securities and Exchange Commission and 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.
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.
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TABLE OF CONTENTS
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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.................................................3
INVESTMENT MANAGER; FEES................................................4
CO-INVESTMENT...........................................................4
CONFLICTS OF INTEREST...................................................4
DIRECTORS AND OFFICERS OF THE FUND......................................4
CAPITAL ACCOUNTS........................................................4
TAX ALLOCATIONS.........................................................5
DISTRIBUTIONS...........................................................5
NO TRADING MARKET.......................................................5
LEGAL AND TAX STATUS....................................................5
RISK FACTORS...............................................................6
GENERAL RISKS...........................................................6
Newly Organized Fund..................................................6
Newly Formed Investment Manager.......................................6
The Fund May Not Raise Sufficient Capital.............................
To Operate And You May Lose Your Entire Investment..................6
You Will Be Relying On The Investment Manager
To Make Investments And Might Not Like The Investments Selected.....6
You Will Have Little Control Over Operations..........................6
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 Investments Manager For Its Services............7
There Will Not Be A Market For Your Units
And There Will Be Restrictions Placed On Their Transfer.............7
You Will Not Have The Right To Receive
Distributions Prior To The Termination Of The Fund..................7
The Fund May Not Be Able To Diversity
Its Investments And Accomplish Its Investment Objectives............7
The Fund Is Not Providing You With Separate Legal Or Accounting
Representation......................................................8
Distributions In The Early Stages May Be A Return Of Capital..........8
The Fund's Venture Capital Investments Are Risky......................8
The Fund May Need To Invest Additional Capital........................8
Investments Made By The Fund May Take A Long Time To Mature...........9
Investments Made By The Fund Will Be Illiquid.........................9
Need For Follow-On Investment.........................................9
The Fund May Invest In Commercial Real Estate Which is Risky..........9
The Fund May Invest In High Risk Corporate Debt Securities............10
The Fund May Invest In Companies Facing Financial Difficulties........10
Substantial Initial Losses............................................10
Dependence On Management..............................................11
Competition For Investments...........................................11
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Borrowings By The Fund May Exaggerate Losses
And Limit the Amount Of Assets Available For Distribution.............11
The Fund May Be Liable to Companies In Which The Fund Invests.........11
Liabilities of Investors..............................................11
Conflicts of Interest.................................................12
Regulations...........................................................12
GENERAL INCOME TAX RISKS...................................................13
Operation Of The Fund Could Affect The Propriety
Of Allocations And Cause Additional Tax And Penalties.................13
The Resale Of Investments Could Cause Gains To Be Taxed As Ordinary
Income................................................................13
Incorrect Allocation Of Expenses Among Start-Up,
Organization And Syndication Costs Could Cause More Taxable Income....13
WHO MAY INVEST.............................................................15
HOW TO INVEST..............................................................16
CAPITALIZATION.............................................................17
ESTIMATED USE OF PROCEEDS..................................................17
BUSINESS OF THE FUND.......................................................18
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES..............................19
Long-Term Capital Appreciation..........................................19
Types of Investments by the Fund........................................19
Temporarily Invested Funds..............................................19
Investment Concentration................................................19
Use of Leverage.........................................................20
Average Investment......................................................20
Follow-On Investments...................................................20
Investment Decisions Based Upon Extensive Firm-Level Research...........20
The Fund May Changes Its Investment Strategies..........................21
MANAGEMENT OF THE FUND.....................................................21
Fund Board of Directors.................................................21
Officers................................................................21
Fund Investment Manager.................................................21
Business Experience Of Directors, Officers and Key Personnel of
Investment Manager....................................................22
Fund Administrator......................................................25
Fund Custodian..........................................................25
COMPENSATION OF THE INVESTMENT MANAGER,
ITS AFFILIATES AND THE DIRECTORS........................................25
Investment Manager......................................................25
Summary Of Investment Manager Compensation And Allocations..............26
Independent Directors...................................................26
Officers................................................................26
CONFLICTS OF INTEREST......................................................26
Lack Of Arm's-Length Negotiations With Management.......................26
Other Activities Of The Investment Manager And The Fund's Officers......26
Competition With Managers And Other Affiliated Programs.................27
Distribution of Units By An Affiliate...................................27
Possible Joint Investment With Affiliated Programs......................27
Investment Manager's Representation of Fund in Audit Proceedings........27
Lack of Separate Representation.........................................28
Affiliation of Selling Agent............................................28
THE OFFERING...............................................................28
Plan of Distribution....................................................28
ALLOCATION OF ORGANIZATIONAL
AND OFFERING EXPENSES OF THE FUND........................................29
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TAX ALLOCATIONS............................................................30
DISTRIBUTIONS..............................................................31
INCOME TAX ASPECTS.........................................................32
Fund Status.............................................................32
Classification Of The Fund............................................32
Publicly-Traded Status................................................32
Federal Income Taxation of Partnerships and Investors Generally.........33
Allocations Of Profit And Loss..........................................33
Taxation Of Fund Operations.............................................34
Limitations On Deduction of Fund Losses.................................34
Adjusted Basis........................................................34
Passive Losses........................................................35
Capital Losses........................................................35
Non-Trade Or Business Expenses........................................35
Fund A Trade Or Business..............................................35
Investment Interest Expenses..........................................35
Sale Of An Interest In The Fund.........................................36
Fund Organizational And Syndication Expenditures........................36
Management Fee..........................................................36
Alternative Minimum Tax.................................................36
Miscellaneous Provisions................................................37
Interest And Penalties................................................37
Fund Audit Rules......................................................37
Possible Changes In Federal Income Tax Laws................................37
Tax Treatment Of Foreign Investors....................................37
State Law Considerations..............................................37
ERISA CONSIDERATIONS.......................................................38
RESTRICTIONS ON TRANSFER...................................................39
INVESTMENT COMPANY ACT REGULATION..........................................39
SUMMARY OF OPERATING AGREEMENT.............................................41
Term And Dissolution....................................................42
Capital Accounts; Return Of Capital.....................................41
Voting Rights...........................................................42
Meetings................................................................42
Liabilities of Investors................................................42
Rights, Power And Duties Of The Managers................................42
Indemnification and Limitations on Liability............................43
Withdrawal or Removal Of A Manager......................................43
Substituted Investors; Assignees........................................43
Appointment Of The Fund's Officers As Attorneys-In-Fact.................43
REPORTS TO INVESTORS.......................................................44
SALES MATERIALS............................................................44
Sales Material May Be Used in Connection with this
Offering Only When Accompanied or Preceded by the Delivery of this
Prospectus..........................................................44
The Offering is Made Only by Means of this Prospectus...................44
LEGAL PROCEEDINGS..........................................................45
LEGAL OPINION..............................................................45
INDEPENDENT ACCOUNTANT.....................................................45
INDEX TO FINANCIAL STATEMENTS..............................................F-1
EXHIBIT A - OPERATING AGREEMENT............................................A-1
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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
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%
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.
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
You would pay the following $245 $455 $655 $1190
expenses on a $2,000
investment, assuming a 5%
annual return:(1)
(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.
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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 18)
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 two
additional two 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 6)
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, as of the date of this Prospectus, accrued organizational and
offering expenses of the Fund exceed Fund assets and the Fund may not
realize sufficient proceeds from this offering to pay such expenses.
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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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 19)
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 28)
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 August 31, 2001.
THE UNITS (Page 28)
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."
INVESTMENTS BY THE FUND (Page 18)
The Fund has not made and did not own any investments as of the date this
Prospectus was written.
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INVESTMENT MANAGER; FEES (Page 21; 25)
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 26)
The Investment Manager expects that the Fund may invest in companies in
which other venture capital funds managed by the Investment Manager, Directors
of the Fund or affiliates thereof may also invest. Such investments can be made
without your approval. However, such investments may require the approval of a
majority of the Independent Directors (as defined below) of the Fund or an
exemption from the Securities and Exchange Commission. There can be no assurance
that such exemptive order will be issued by the SEC.
CONFLICTS OF INTEREST (Page 26)
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 21)
The Fund will be managed and supervised by a Board of Directors, initially
seven in number, four 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 41)
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
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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 30)
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 31)
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 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 7)
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 32)
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.
The Fund May Not Raise Sufficient Capital To Operate
And You May Lose Your Entire Investment.
The Fund anticipates substantial organizational and initial offering
expenses. As of the date of this Prospectus, the Fund has accrued organizational
and offering expenses which exceed the amount of its assets and accordingly has
an initial negative net worth. Because this offering is not subject to any
minimum amount of aggregate investments, it is possible that the Fund may not
attract sufficient capital to offset these initial expenses. If the Fund does
not raise enough capital to cover its initial expenses, it may not be able to
commence investment operations or continue in operation and you could lose your
entire investment. Even if the Fund attracts aggregate investments in excess of
the amount of accrued expenses, at lower funding levels, the Fund's expenses may
constitute a considerably higher percentage of total funding which may adversely
affect the return, if any, on your investment in the Units. There can be no
assurance that the Fund will ever achieve a positive net worth or become
profitable.
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.
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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 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 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.
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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 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 (calculated after conclusion
of the offering) 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
-9-
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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 (calculated after conclusion
of the offering) 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.
The Fund May Invest In Companies Facing
Financial Difficulties, Reorganizing or Restructuring.
The Fund may invest up to 10% of Fund assets (calculated after conclusion
of the offering) 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.
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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.
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.
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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.
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.
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GENERAL INCOME TAX RISKS
The Fund is organized as a limited liability company, and as such should
be treated as a partnership for federal tax purposes. The Directors do not
believe that the Fund will be treated as a publicly-traded partnership taxable
as a corporation. If the Fund were classified as a publicly-traded partnership
taxable as a corporation rather than as a partnership for purposes of federal
income tax law, the Fund would be required to pay income tax at corporate tax
rates on its net income, Investors would be prevented from deducting their
allocable share of losses, and any distributions to Investors would be taxed to
Investors as dividend income to the extent of earnings and profits of the Fund.
Other potential tax risks to Investors include the following: (i) the
allocation of Fund items of income, gain, loss, and deduction may not be
respected for federal income tax purposes; (ii) all or a portion of the Fund's
expenses could be considered either investment expenses (which would be
deductible by an Investor only to the extent the aggregate of such expenses
exceeded 2% of such Investor's adjusted gross income) or as nondeductible items
that must be capitalized; (iii) all or a substantial portion of the Fund income
could be deemed to constitute unrelated business taxable income, such that
tax-exempt Investors could be subject to tax on their respective portions of
such income; (iv) a portion of the losses, if any, allocated to the Investors
could be "passive losses" and thus deductible by the Investor only to the extent
of passive income; and (v) the Investors could have capital losses in excess of
the amount that is allowable as a deduction in a particular year. The Fund has
not sought and will not seek a ruling from the 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
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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 and financial position,
o your ability to bear the risk of the investment, and
o your understanding of the risks of the investment.
They must also determine whether you understand:
o the lack of liquidity of the Units,
o the restrictions on transferability of the Units,
o the background and qualifications of the managers of the Fund, and
o the tax consequences of your investment.
In addition to any other considerations, trustees and custodians of
tax-qualified plans should consider the following when making an investment
decision:
o If the Fund borrows money to make an investment, some of its income
may be unrelated business taxable income. A tax-qualified plan,
although generally exempt from federal income tax, may be subject to
some taxation if its unrelated business taxable income, after
investment in the Fund, exceeds $1,000 in any taxable year.
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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.
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, along with your check made payable to "The Oxbow Fund, LLC". 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 and subscription procedures 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 March 1, 2000, and after the issuance
and sale of the maximum amount of Units being offered is as follows:
Title of Class March 1, 2000 250,000 Units
-------------- ------------- -------------
Investment Manager's Capital $100,000 $ 100,000
Investors' Capital 0 24,900,000
Less: Organizational and
Offering Expenses Paid 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.
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 assuming the full $25,000,000 is
raised. 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
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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 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.
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 (calculated at the conclusion of the offering) to invest in commercial
real estate, corporate debt securities or 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.
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
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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 provide follow-on investments for a number of other reasons,
including providing additional capital to a company to implement the company's
business plan, to develop a new line of business, or to recover from unexpected
business problems.
Investment Decisions Based Upon Extensive Firm-Level Research.
We will use a bottom-up investment selection approach. This means that the
Investment Manager and its representatives will research specific companies to
find those companies that the Investment Manager believes offer the greatest
prospects for future growth. In selecting individual investments, we will look
for companies that the Investment Manager believes display or are expected to
display:
o growth prospects
o high profit margins or return on capital
o attractive valuation relative to expected earnings or cash flow
o quality management
o unique competitive advantages
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The Fund May Change Its Investment Strategies.
We may change any of the investment strategies outlined above, and may
change the definition of small and medium-sized companies, if the Fund's Board
of Directors believes doing so is consistent with the Fund's investment
objective of long-term capital appreciation. The Fund's investment objective is
a fundamental policy and may not be changed without the approval of Investors.
The amount of funds committed to an investment and the percentage of
ownership interest received from investments will vary depending on the maturity
of the company, the quality and completeness of the management team, the
perceived business opportunity, the capital required compared to existing
capital, and the potential return. Although investment amounts will vary
considerably, the Investment Manager expects that the average investment
(including follow-on investments) will be between $1,000,000 and $5,626,750.
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
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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.
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, NJ 07442.
NAME AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
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.
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NAME AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
S. Charles Musumeci, Jr., 39 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.
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<PAGE>
NAME AND AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
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 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.
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<PAGE>
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 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.
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.
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<PAGE>
Summary Of Investment Manager Compensation And Allocations.
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 (calculated without
giving effect to payment of
the incentive fee) less
unrealized capital
depreciation.**
* "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.
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
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<PAGE>
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.
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".
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<PAGE>
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.
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
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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. CJM Planning and any other brokers participating in
the offering will not sell Units to a discretionary account without prior
specific written approval from the potential investor. Participating brokers in
the offering will offer and 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.
The Fund expects to incur and pay marketing expenses associated with the
offer and sale of Units. The payment of some or all of these expenses may be
deemed to constitute compensation to CJM Planning and any other distributors
participating in the offer and sale of Units. In any event, the total of all
selling compensation to CJM Planning and other distributors, including the 7%
sales charge and any other forms of compensation, will not exceed 10% of the
gross proceeds of the sale of Units, and the aggregate amount of accountable
expenses reimbursable by the Fund to CJM Planning and any other distributors for
their due diligence of the Fund will not exceed .5% of such gross proceeds.
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.
ALLOCATION OF ORGANIZATIONAL AND
OFFERING EXPENSES OF THE FUND
As discussed elsewhere in this Prospectus, the Fund has incurred certain
organizational expenses, and will also bear certain expenses associated with the
initial offering of Units. Before a recent change in generally accepted
accounting principles, the Fund would have capitalized and amortized the
organizational expenses over a 60 month period. Because of that change, however,
the organizational expenses for financial accounting purposes now must be
expensed as incurred. In order to achieve a more equitable distribution of the
impact of those expenses among the Fund's Members, organizational and offering
expenses incurred by the Fund will be allocated among and credited to or debited
against the capital accounts of all Members based on the percentage that a
Member's contributed capital to the Fund bears to the total capital contributed
to the Fund by all Members as of the relevant allocation date. An initial
allocation of organizational and offering costs will be made as of the first
date on which capital contributions of Members are made. These allocations will
thereafter be adjusted no less often than the end of each calendar year, through
and including the year ending December 31, 2001. The tax treatment of the Fund's
organizational and offering expenses is described in the "Income Tax Aspects"
section of this Prospectus.
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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.
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)
------------------------------
(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.
(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.(1) 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.(2) Aggregate distributions to
Investors over the term of the Fund totaled $5,120 and to the Investment
Manager, $1,280.
-------------------------
(1) 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.
(2) 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.
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
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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.
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.
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In general, an allocation of income, gain, loss, or deduction (or any item
thereof) to an Investor will have economic effect under the Regulations if, and
only if, (i) the allocation is reflected in that Investor's capital account,
which capital account is maintained in accordance with certain Regulatory
requirements; and (ii) any Investor with a deficit in that Investor's capital
account following the liquidation of that Investor's interest is required to
restore the amount of the deficit to the Fund by the later of the end of the
taxable year of 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.
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
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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.
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
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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 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.
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Miscellaneous Provisions
No Section 754 Election. Due to the tax accounting burden such election
imposes, the Fund will most likely not file an election under Code Section 754
(although it has the flexibility to do so) to adjust the basis of Fund property
in the case of a transfer of a Unit or the distribution of property by the Fund.
As a consequence, a transferee might be subject to tax upon the portion of the
proceeds of a sale or disposition of Fund equity securities that represents, as
to that transferee, a return of capital. The decision not to file an election
may adversely affect the price that potential transferees would be willing to
pay for the Units.
Interest And Penalties. If Fund income or loss is subsequently adjusted by
the 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 (i) 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
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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.
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 that invests 50% or more of its assets in
operating companies over which the entity exercises certain management rights.
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<PAGE>
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.
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,
-39-
<PAGE>
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 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."
-40-
<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 attached to 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.
-41-
<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, other than the election of
directors, 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. The
election of Fund Directors requires the affirmative vote of a plurality of votes
cast at any such meeting.
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.
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.
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.
-42-
<PAGE>
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 not made with willful misfeasance, bad faith, gross
negligence, or reckless disregard for his obligations to the Fund, did not
involve a knowing violation of law, 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 absent willful
misfeasance, bad faith, gross negligence, reckless disregard for obligations
owed to the Fund, knowing violations of law or a breach of such person's duty 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 willful misfeasance, bad faith, gross 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 and 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 the vote of the lesser of (a) sixty-seven
percent (67%) of the Units present if more than fifty (50%) of the outstanding
Units are present in person or represented by proxy or (b) more than fifty
percent (50%) 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.
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.
-43-
<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 90 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 (other than the fourth
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
investments owned by the Fund on the date of the balance sheet, and a statement
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, the Fund 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.
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.
-44-
<PAGE>
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.
-45-
<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' DEFECIT
CURRENT LIABILITIES
Accounts Payable $ 235,262
---------
Total current liabilities 235,262
MEMBERS' DEFECIT (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' DEFECIT, beginning of period --
MEMBERS' CAPITAL CONTRIBUTION 100,000
MEMBERS' DEFECIT, 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 94,994
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>
EXHIBIT A
---------------------------------------------------
OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
---------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
ARTICLE 1 DEFINITIONS..................................................A-1
Act .............................................................A-1
Affiliate............................................................A-1
Affiliated Director..................................................A-1
Bankruptcy...........................................................A-1
Board .............................................................A-1
Business Day.........................................................A-1
Capital Account......................................................A-1
Capital Contribution.................................................A-1
Carrying Value.......................................................A-2
Certificate or Certificate of Formation..............................A-2
Closing Date.........................................................A-2
Code or Internal Revenue Code........................................A-2
Depreciation.........................................................A-2
Director or Directors................................................A-2
Effective Date.......................................................A-2
Expense Allocation Date..............................................A-2
Fiscal Year..........................................................A-2
Fund .............................................................A-3
Incapacity...........................................................A-3
Indemnified Person...................................................A-3
Independent Director.................................................A-3
Initial Capital Contribution.........................................A-3
Investment Advisory Agreement........................................A-3
Investment Manager...................................................A-3
Investors............................................................A-3
Majority-In-Interest of Members......................................A-3
Management Fee.......................................................A-3
Member .............................................................A-3
Member Nonrecourse Debt..............................................A-3
Member Nonrecourse Deductions........................................A-3
Nonrecourse Deductions...............................................A-3
Offering.............................................................A-3
Organizational Expenses..............................................A-3
Percentage Interest..................................................A-3
Person .............................................................A-4
Portfolio Company....................................................A-4
Profits and Losses...................................................A-4
Prospectus...........................................................A-4
Qualified Income Offset Amount.......................................A-4
Section 705(a)(2)(B) Expenditure.....................................A-4
Substituted Member...................................................A-4
Taxable Period.......................................................A-5
Unit .............................................................A-5
1940 Act.............................................................A-5
ARTICLE 2 THE COMPANY..................................................A-5
2.1 Formation of Limited Liability Company; Members..............A-5
A-i
<PAGE>
2.2 Name of Fund.................................................A-5
2.3 Purpose of Company...........................................A-5
2.4 Principal and Registered Office..............................A-5
2.5 Duration of Company..........................................A-6
2.6 Further Assurances...........................................A-6
2.7 Accordance With the Act; Ownership...........................A-6
2.8 Formation Costs..............................................A-6
ARTICLE 3 MEMBERS......................................................A-6
3.1 Members......................................................A-6
3.2 Admission of Members.........................................A-7
3.3 Limitation of Liability of Members...........................A-7
3.4 No Management Responsibility.................................A-7
3.5 No Authority To Act..........................................A-7
3.6 Rights Of Members............................................A-7
3.7 No Consent Required..........................................A-8
3.8 Meetings of Members..........................................A-8
ARTICLE 4 CAPITAL CONTRIBUTIONS........................................A-9
4.1 Capital Contributions of the Members.........................A-9
4.2 Capital Account.............................................A-10
ARTICLE 5 ALLOCATION OF PROFITS
AND LOSSES AND DISTRIBUTIONS TO MEMBERS ....................A-11
5.1 Allocations of Profits and Losses...........................A-11
5.2 Additional Allocations......................................A-11
5.3 Allocation of Organizational Expenses.......................A-12
5.4 Calculations................................................A-12
5.5 Distributions...............................................A-13
5.6 Contingency Reserves........................................A-13
5.7 Additional Allocation Rules.................................A-13
5.8 Limitation of Liability.....................................A-13
ARTICLE 6 DEPOSIT AND USE OF COMPANY FUNDS............................A-14
6.1 Deposit of Company Funds...................................A-14
ARTICLE 7 MANAGEMENT OF THE COMPANY...................................A-14
7.1 The Board of Directors......................................A-14
7.2 Officers....................................................A-16
7.3 Investment Manager..........................................A-17
7.4 Expenses....................................................A-18
7.5 Appointment Of Auditors.....................................A-18
7.6 [Intentionally omitted].....................................A-19
7.7 Prohibited Transactions.....................................A-19
7.8 Limitations on Liability of Directors and Officers;
Indemnification.............................................A-19
7.9 Limitations on Liability of Investment Manager..............A-20
ARTICLE 8 OTHER BUSINESS..............................................A-20
8.1. Other Business..............................................A-20
ARTICLE 9 TRANSFERABILITY OF MEMBER'S INTEREST;
WITHDRAWALS OF CAPITAL BY MEMBERS...........................A-21
9.1 Transfer of Units...........................................A-21
9.2 Assignees...................................................A-22
A-ii
<PAGE>
9.3 Substituted Members.........................................A-23
9.4 Indemnification.............................................A-23
9.5 Incapacity of a Member......................................A-23
9.6 Withholding of Distributions................................A-23
9.7 Transferor-Transferee Allocations...........................A-24
9.8 No Withdrawal...............................................A-24
9.9 Notices.....................................................A-24
9.10 Optional Adjustment to Basis of Fund Property...............A-24
ARTICLE 10 DISSOLUTION AND LIQUIDATION.................................A-24
10.1 Dissolution.................................................A-24
10.2 Liquidation.................................................A-25
10.3 Return of Capital Contribution..............................A-25
ARTICLE 11 RESIGNATION OR REMOVAL OF
DIRECTORS OR INVESTMENT MANAGER.............................A-26
11.1 Resignation of a Director...................................A-26
11.2 Resignation of the Investment Manager......................A-26
11.3 Removal of a Director or Investment Manager, Designation
of a Successor Director or Investment Manager...............A-27
11.4 [Intentionally Omitted].....................................A-27
11.5 Admission of a Successor Director...........................A-27
11.6 Liability of a Withdrawn or Removed Director................A-28
11.7 Consent of Members to Admission of Successor Directors......A-28
11.8 Continuation................................................A-28
ARTICLE 12 ANNUAL ACCOUNTING PERIOD; RECORDS; TAX RETURNS..............A-28
12.1 Annual Accounting Period....................................A-28
12.2 Records.....................................................A-28
12.3 Income Tax Returns..........................................A-29
12.4 Reports.....................................................A-29
12.5 Annual Meeting..............................................A-29
ARTICLE 13 MISCELLANEOUS...............................................A-30
13.1 Notices.....................................................A-30
13.2 Binding Effect..............................................A-30
13.3 Counterparts................................................A-30
13.4 Section Headings............................................A-30
13.5 Exhibits....................................................A-30
13.6 Variation in Pronouns.......................................A-30
13.7 Severability................................................A-30
13.8 Qualification in Other States...............................A-30
13.9 Entire Agreement............................................A-30
13.10 Applicable Law..............................................A-31
13.11 Forum.......................................................A-31
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OPERATING AGREEMENT
OF
THE OXBOW FUND, LLC
This Operating Agreement (the "Agreement") of THE OXBOW FUND, LLC (the
"Fund" or "Company"), dated as of May 23, 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.
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.
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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.
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 "Expense Allocation Date" means the date of the first Capital
Contribution by a Member to the Company, and thereafter shall mean the last day
of each Fiscal Year through and including the year ending December 31, 2001
(unless, the Board determines in consultation with the Company's accountants
that such Expense Allocation Date should occur more often than annually), in
which a Capital Contribution is made to the Company pursuant to Section 4.1.
1.18 "Fiscal Year" means the calendar year ending December 31.
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1.19 "Fund" means The Oxbow Fund, LLC, a limited liability company
organized under the laws of the State of New Jersey.
1.20 "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.
1.21 "Indemnified Person" is defined in Section 7.8 of this Agreement.
1.22 "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.
1.23 "Initial Capital Contribution" is defined in Section 4.1(a) of this
Agreement.
1.24 "Investment Advisory Agreement" is defined in Section 7.3(a) of this
Agreement.
1.25 "Investment Manager" means C.J.M. Asset Management, LLC or any Person
appointed as a successor Investment Manager as provided in this Agreement.
1.26 "Investors" means the Members, other than the Investment Manager.
1.27 "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.
1.28 "Management Fee" is defined in Section 7.3(b) of this Agreement.
1.29 "Member" means the Investment Manager and any other Members admitted
to the Fund in accordance with Section 3.2 hereof.
1.30 "Member Nonrecourse Debt" means partner nonrecourse debt, as defined
in Treasury Regulation Section 1.704-2(b)(4).
1.31 "Member Nonrecourse Deductions" means, for a taxable year or other
period, the amount of partner nonrecourse deductions as set forth in Treasury
Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2).
1.32 "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).
1.33 "Offering" means the offering of Units by the Fund pursuant to that
certain Prospectus, dated May 25, 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.
1.34 "Organizational Expenses" means the aggregate expenses incurred by
the Company in connection with its formation, initial registration as an
Investment Company under the 1940 Act and the offering of Units.
1.35 "Percentage Interest" of a Member shall mean a fraction, the
numerator of which is the sum of all Units held by such Member and the
denominator of which is the aggregate sum of the Units held by all Members.
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1.36 "Person" mean individuals, partnerships, corporations, trusts,
estates, limited liability companies and other associations.
1.37 "Portfolio Company" shall mean any Person in which the Fund has made
an investment.
1.38 "Profits" and "Losses" mean the Company's taxable income or loss,
respectively, for a period as determined for Federal income tax purposes in
accordance with Code Section 703(a), computed with the following adjustments:
(a) items of gain, loss and deduction relating to assets shall
be computed based upon the Carrying Values of the Fund's assets rather than upon
the assets' adjusted 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 (including, without limitation, Organizational
Expenses) allocated pursuant to any provision of Article 5 (other than Section
5.2(c)), shall be excluded from the computation of Profits and Losses; and
(f) Nonrecourse Deductions and Member Nonrecourse Deductions
shall be excluded from the computation of Profits and Losses.
1.39 "Prospectus" means that certain Prospectus, dated May 25, 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.
1.40 "Qualified Income Offset Amount" for a Member means the excess, if
any, of (i) the negative balance a Member has in his Capital Account (after
reducing such account by any adjustments, allocations or distributions of items
specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4),(5) or (6)
that, as of the end of the taxable year, are reasonably expected to be made to
the Member) over (ii) the sum of (A) the amount, if any, of such Member's
unconditional obligation to make subsequent contributions to the Company within
the time period specified in Treasury Regulation Section 1.704-1(b)(2)(ii)(c),
and (B) such Member's share of Company minimum gain and Member Nonrecourse Debt
minimum gain.
1.41 "Section 705(a)(2)(B) Expenditure" means an expenditure of the
Company (as described in Section 705(a)(2)(B) of the Code) which is neither
deductible in computing taxable income nor properly chargeable to a capital
account, and any other expenditure considered to be such an expenditure pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv)(i).
1.42 "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.
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1.43 "Taxable Period" means each Fiscal Year.
1.44 "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.
1.45 "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 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
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(c) The name of the registered agent at such address is S.
Charles Musumeci, Jr.
2.5 Duration of Fund. The operation of the Fund will commence on the
Effective Date and shall continue in existence until (i) March 31, 2010, unless
further extended for up to two (2) additional two (2) year periods from such
date if the Board of Directors of the Fund determines that such an extension is
in the best interest of the Fund; or (ii) it is terminated pursuant to any
provisions of this Agreement or as otherwise provided by law.
2.6 Further Assurances. The 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.
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.
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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 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;
(c) the right to propose and approve an amendment to this
Agreement; provided, however, that no such amendment shall conflict with the
1940 Act;
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(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 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
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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).
(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.
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(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.
(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.
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(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.
ARTICLE 5
ALLOCATION OF PROFITS AND LOSSES
AND DISTRIBUTIONS TO MEMBERS
5.1 Allocations of Profits and Losses. 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 Sections 5.1 or 5.3, 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.
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(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 Sections 5.1 and 5.3 and subject to all of the provisions of this Section
5.2, items of income, gain, loss, deduction and Section 705(a)(2)(B)
Expenditures for subsequent years or periods shall be allocated to the Members
in a manner designed to result in each Member having a Capital Account balance
equal to what it would have been had such allocation of items of income, gain,
loss, deduction and Section 705(a)(2)(B) Expenditures not occurred.
(e) Income, Gain, Loss, Deduction or Credit. For tax purposes,
all items of income, gain, loss, deduction or credit, other than tax items
properly corresponding to the items allocated pursuant to Sections 5.2(a), (b),
(c) and (d) shall be allocated to the Members consistent with Sections 5.1 and
5.3; 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 Allocation of Organizational Expenses.
(a) As of the first Expense Allocation Date, Organizational
Expenses shall be allocated among and debited against the Capital Accounts of
the Members in accordance with their respective Percentage Interests on such
Expense Allocation Date.
(b) As of each Expense Allocation Date following the first
Expense Allocation Date, all amounts previously debited against the Capital
Account of a Member pursuant to this Section 5.3 on the preceding Expense
Allocation Date will be credited to the Capital Account of such Member, and
Organizational Expenses as of such Expense Allocation Date shall then be
re-allocated among and debited against the Capital Accounts of all Members in
accordance with their respective Percentage Interests on such Expense Allocation
Date.
5.4 Calculations.
(a) Calculations and allocations of Profits and Losses and
Organizational Expenses 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.
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5.5 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 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 5.5(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 5.5, 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.
5.6 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.
5.7 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.
5.8 Limitation of Liability. Nothing contained in this Article 5
shall be construed to make any Member liable for any losses of the Company.
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ARTICLE 6
DEPOSIT AND USE OF COMPANY FUNDS
6.1 Deposit of Company Funds. Upon formation of the Company, all
Capital Contributions shall be transferred to a separate Company account or
accounts in such banks or other financial institutions as may be selected by the
Officers. Such account or accounts shall be maintained in the name of or for the
benefit of the Company. Thereafter, all revenues, bank loans, proceeds and other
receipts will be deposited and maintained in such account or accounts, which may
or may not bear interest, and all expenses, costs and similar items payable by
the Company will be paid from such accounts. The Company's funds, including, but
not limited to, the Member's Capital Contributions, Company revenue and the
proceeds of any borrowing by the Company, may be invested as the 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;
(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;
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(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.
(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.
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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;
(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;
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(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:
(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.
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7.6 [Intentionally omitted]
7.7 Prohibited Transactions. Except to the extent expressly
permitted by this Agreement and except as permitted by the 1940 Act or any
exemptive order issued by the Securities and Exchange Commission thereunder:
(a) the Fund shall not lend money or other property to the
Investment Manager or any 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 Officers;
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) To the extent not otherwise prohibited by the 1940 Act,
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 (i) was not in breach of such person's duty of loyalty to the Fund or
the Members, (ii) was not with willful misfeasance, bad faith, gross negligence,
or reckless disregard for his obligations to the Fund, (iii) did not involve a
knowing violation of law and (iv) did not result in the receipt of an improper
personal benefit.
(c) The Fund shall indemnify and hold an Indemnified Person
harmless from any loss, damage, fine, penalty, expense, judgment or amount paid
in settlement, including attorneys' fees reasonably incurred, which such
Indemnified Person incurs by reason of his performance or
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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 (i) breached his duty of loyalty to the Fund or the Members,
(ii) acted with willful misfeasance, bad faith, gross negligence, or reckless
disregard for his obligations to the Fund (iii) knowingly violated the law or
(iv) 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.
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
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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;
(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.
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(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 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.
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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 9.2; and (iii) if necessary, upon an amendment
to this Agreement executed by all necessary parties and filed or recorded in the
proper records of each jurisdiction in which such recordation is necessary to
qualify the Fund to conduct business or to preserve the limited liability of the
Members and Directors. Any such consent by the Directors may be evidenced, if
necessary, by the execution by the Directors of an amendment to this Agreement
evidencing the admission of such Person as a Member. The admission of a
Substituted Member shall be recorded on the books and records of the Fund. The
Members hereby consent and agree to such admission of a Substituted Member by
the Board. The Directors agree to process such amendments not less frequently
than quarterly.
(b) Admission. Each Substituted Member, as a condition to
admission as a Member, shall execute and acknowledge such instruments, in form
and substance satisfactory to the Directors, as the Directors deem necessary or
desirable to effectuate such admission and to confirm the agreement of the
Substituted Member to be bound by all the terms and provisions of this Agreement
with respect to the Units acquired. All reasonable expenses, including
attorneys' fees, incurred by the Fund in this connection shall be borne by such
Substituted Member.
(c) Rights of Assignee. 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
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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 5.7.
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.
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10.2 Liquidation.
(a) In the event of the dissolution of the Company, which
dissolution (if applicable) is not followed by actions of the Members to
continue the Company, the assets of the Company shall be sold or distributed as
promptly as possible, but in an orderly and businesslike manner, as the Board in
its discretion shall determine. All assets of the Company which are sold shall
be sold at such price and upon such terms as the Board in its sole discretion
may deem advisable. The 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) the remaining members of the Board shall designate a
successor Director pursuant to Section 7.1 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 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;
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(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, 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) 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, 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 with the
removal thereof 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 (following
withdrawal or removal) 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;
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(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 and this Agreement, 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.
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.
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12.3 Income Tax Returns.
(a) The Investment Manager shall be the "tax matters partner"
under the Code.
(b) With respect to the preparation of federal, state and
local income tax returns of the Fund, the tax matters partner shall see to the
preparation and filing of all such returns in a timely manner and shall make, in
his sole discretion, unless otherwise provided herein, such elections or
determinations as may be desirable and available under current provisions of the
Code. In the event that the Internal Revenue Service audits the return of any
Member with respect to his or its participation in the Fund, the Fund shall have
the right, but not the obligation, to participate at its own expense in such
audit in matters affecting the Fund's tax return. The Members shall take such
steps and execute such instruments as may be required to accomplish this,
including without limitation the execution of powers of attorney. In the event
of an income tax audit of any Fund tax return, to the extent the Fund is treated
as an entity for purposes of the audit, including administrative settlement and
judicial review, the tax matters partner shall be authorized to act for, and its
decisions shall be final and binding upon, the Fund and the Members. The tax
matters partner shall keep the other Members apprised of the status of any
income tax audit.
12.4 Reports. The Board shall cause to be delivered to the Members
the following:
(a) By March 31st of each year, a statement which shall
include, as of the end of and for the previous Fiscal Year, the following:
(i) A financial statement of the Fund and a status
report of the Fund's investments prepared by an accounting firm
selected by the Board;
(ii) Such other information as is required under the
1940 Act or other relevant law or, in the opinion of the Board, shall
reasonably be necessary for the Members to be currently aware of the
operating and business results of the Fund, including a valuation of the
Company's investment portfolio which has been approved the Advisory
Committee.
(b) Not later than the sixtieth (60th) day 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 statement 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 March 31 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.
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ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any offer, acceptance, election, approval, consent,
request, waiver, notice or other document required or permitted to be given
pursuant to any provision of this Agreement shall be deemed duly given only when
in writing, signed by or on behalf of the person giving same, and either
personally delivered (with receipt acknowledged by the recipient) or deposited
in a designated United States mail depository, registered or certified mail,
return receipt requested, postage prepaid, addressed to the person or persons to
whom such offer, acceptance, election, approval, consent, request, waiver or
notice is to be given at their respective addresses indicated herein or in the
Company's records, or at such other address as shall have been set forth in a
notice sent pursuant to the provisions of this Section 13.1.
13.2 Binding Effect. Subject in all respects to the limitations
concerning the transferability of Units contained herein and except as otherwise
herein expressly provided, the provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto, their respective personal
representatives, heirs, successors and permitted assigns.
13.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall for all purposes constitute one agreement
which is binding on all of the parties hereto.
13.4 Section Headings. Section titles or captions contained in this
Agreement are inserted as a matter of convenience and for reference only, and
shall not be construed in any way to define, limit or extend or describe the
scope of this Agreement or the intention of the provisions hereof.
13.5 Exhibits. All exhibits and schedules annexed hereto are
expressly made a part of this Agreement, as fully as though completely set forth
herein, and all references to this Agreement herein or in any of such exhibits
or schedules shall be deemed to refer to and include all such exhibits or
schedules.
13.6 Variation in Pronouns. All pronouns and variations thereof
shall be 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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<PAGE>
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: /s/ Joseph C. Musumeci
--------------------------------
Name: Joseph C. Musumeci
Title: Chief Executive Officer
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<PAGE>
AN OFFERING OF UP TO
$25,000,000
OF
LIMITED LIABILITY COMPANY UNITS
OF
THE OXBOW FUND, LLC
[LOGO]
----------------
PROSPECTUS
----------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You
must not rely on any unauthorized information. This prospectus does
not offer to sell or buy any units in any jurisdiction where
it is unlawful. The information in this prospectus is
current only as of the date of this prospectus.
May 25, 2000
