<PAGE> 1
As filed with the Securities and Exchange Commission on December 10, 1999
Investment Company Act File No. 811-____
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ ] Amendment No. _____
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SAWGRASS FUND, L.L.C.
(Exact name of Registrant as specified in Charter)
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (212) 667-4225
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c/o HOWARD M. SINGER
Managing Director
CIBC World Markets Corp.
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
(Name and address of agent for service)
Copy to:
KENNETH S. GERSTEIN, ESQ.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
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This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. Interests in the
Registrant are not being registered under the Securities Act of 1933, as amended
(the "1933 Act"), and will be issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the 1933 Act. Investments in Registrant may only be made by individuals or
entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any interests in Registrant.
2
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Copy Number: ________________
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SAWGRASS FUND, L.L.C.
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CONFIDENTIAL MEMORANDUM
[FEBRUARY 2000]
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CIBC OPPENHEIMER ADVISERS, L.L.C.
INVESTMENT ADVISER
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One World Financial Center, 31st Floor
200 Liberty Street
New York, New York 10281
(212) 667-4225
In making an investment decision, investors must rely upon their own examination
of Sawgrass Fund, L.L.C. and the terms of the offering, including the merits and
risks involved. The interests in Sawgrass Fund, L.L.C. ("Interests") have not
been registered with or approved or disapproved by the Securities and Exchange
Commission or any other Federal or state governmental agency or regulatory
authority or any national securities exchange. No agency, authority or exchange
has passed upon the accuracy or adequacy of this Confidential Memorandum or the
merits of an investment in the Interests offered hereby. Any representation to
the contrary is a criminal offense.
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TO ALL INVESTORS
The Interests are not insured by the United States Federal
Deposit Insurance Corporation or any other governmental agency. The Interests
are not deposits or other obligations of, and are not guaranteed by, Canadian
Imperial Bank of Commerce or any other bank. The Interests are subject to
investment risks, including the possible loss of the full amount invested.
The Interests have not been and will not be registered under
the Securities Act of 1933, as amended (the "1933 Act"), or the securities laws
of any of the states of the United States. The offering contemplated by this
Confidential Memorandum will be made in reliance upon an exemption from the
registration requirements of the 1933 Act for offers and sales of securities
that do not involve any public offering, and analogous exemptions under state
securities laws.
This Confidential Memorandum shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of
Interests in any jurisdiction in which such offer, solicitation or sale is not
authorized or to any person to whom it is unlawful to make such offer,
solicitation or sale. No person has been authorized to make any representations
concerning Sawgrass Fund, L.L.C. that are inconsistent with those contained in
this Confidential Memorandum. Prospective investors should not rely on any
information not contained in this Confidential Memorandum or the exhibits
hereto.
This Confidential Memorandum is intended solely for the use of
the person to whom it has been delivered for the purpose of evaluating a
possible investment by the recipient in the Interests described herein, and is
not to be reproduced or distributed to any other persons (other than
professional advisers of the prospective investor receiving this document).
Prospective investors should not construe the contents of this
Confidential Memorandum as legal, tax or financial advice. Each prospective
investor should consult his or her own professional advisers as to the legal,
tax, financial or other matters relevant to the suitability of an investment in
Sawgrass Fund, L.L.C. for such investor.
These securities are subject to substantial restrictions on
transferability and resale and may not be transferred or resold except as
permitted under the limited liability company agreement of Sawgrass Fund,
L.L.C., the 1933 Act, and applicable state securities laws, pursuant to
registration or exemption therefrom. Investors should be aware that they may be
required to bear the financial risks of this investment for up to two (2) years
from the date that a repurchase request has been made by an investor.
FOR GEORGIA RESIDENTS ONLY
These securities have been issued or sold in reliance on
paragraph (13) of code section 10-5-9 of the Georgia Securities Act of 1973, and
may not be sold or transferred except in a transaction which is exempt under
such act or pursuant to an effective registration under such Act.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY OF TERMS.............................................................1
THE COMPANY.................................................................13
STRUCTURE...................................................................13
INVESTMENT PROGRAM..........................................................13
TYPES OF INVESTMENTS AND RELATED RISK FACTORS...............................16
ADDITIONAL RISK FACTORS.....................................................29
PERFORMANCE INFORMATION.....................................................31
BOARD OF MANAGERS...........................................................31
THE ADVISER, CIBC WM AND CWH ASSOCIATES, INC................................34
VOTING......................................................................37
CONFLICTS OF INTEREST.......................................................37
BROKERAGE...................................................................41
FEES AND EXPENSES...........................................................42
CAPITAL ACCOUNTS AND ALLOCATIONS............................................44
SUBSCRIPTION FOR INTERESTS..................................................49
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS.........................50
TAX ASPECTS.................................................................54
ERISA CONSIDERATIONS........................................................68
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY
COMPANY AGREEMENT.........................................................70
APPENDIX A LIMITED LIABILITY COMPANY AGREEMENT...........................A-1
APPENDIX B PERFORMANCE INFORMATION.......................................B-1
</TABLE>
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SUMMARY OF TERMS
The following summary is qualified entirely by the detailed
information appearing elsewhere in this Confidential Memorandum and by the terms
and conditions of the limited liability company agreement of Sawgrass Fund,
L.L.C. (the "Company Agreement"), each of which should be read carefully and
retained by any prospective investor.
THE COMPANY: Sawgrass Fund, L.L.C. (the "Company") is a
recently formed Delaware limited liability
company, registered under the Investment
Company Act of 1940 (the "1940 Act") as a
closed-end, non-diversified, management
investment company.
The Company is a specialized investment
vehicle that may be referred to as a
registered private investment company. The
Company is similar to an unregistered private
investment partnership in that (i) the
Company's portfolio may be more actively
managed than most other investment companies,
(ii) interests in the Company ("Interests")
are sold in comparatively large minimum
denominations in private placements solely to
high net worth individual and institutional
investors, and thus are restricted as to
transfer, and (iii) the capital accounts of
persons who purchase Interests offered hereby
("Members") are subject to both asset-based
charges and performance-based allocations in
connection with the Company's activities.
Unlike a private investment partnership but
like other registered investment companies,
however, the Company has registered under the
1940 Act to be able to offer its Interests
without limiting the number of investors that
can participate in its investment program.
INVESTMENT PROGRAM: The Company's investment objective is to seek
superior long-term capital appreciation. It
pursues this objective by investing its
assets primarily in the equity securities of
small to medium sized emerging growth
companies. Generally, the Company's
investment time horizon, i.e., the time
period the Company will hold its investments,
will be greater than one year. The Company
may effect short sales of securities and may
invest in debt securities. It may also
utilize various derivatives, including
options on securities and stock index
options. In pursuing its investment
objective, the Company may from time to time
borrow money for the purchase of investments
(a practice known as "leverage").
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CIBC Oppenheimer Advisers, L.L.C., the
investment adviser of the Company (the
"Adviser"), will rely primarily on investment
research and fundamental analysis of company
financial data in seeking to identify
attractive investment opportunities for the
Company. The research process involves
company visits, continuous updating of
valuation models, review and analysis of
published research and discussions with
industry sources.
The Adviser will invest the Company's assets
based upon intensive fundamental research and
theme analysis (as further described herein).
Theme analysis will be central to the
Adviser's investment decision making process.
(See "Investment Program.")
In pursuing its investment objective, or for
hedging purposes, the Company may use various
investment techniques and strategies. These
may include the use of leverage, short sales
of securities and the purchase and sale of
options on securities and stock indices,
subject to certain limitations described
elsewhere in this Confidential Memorandum.
The use of these investment techniques and
instruments involves certain risks. (See
"Types of Investments and Related Risk
Factors.")
RISK FACTORS: The Company's investment program is
speculative and entails substantial risks.
There can be no assurance that the Company's
investment objective will be achieved. In
particular, the Company's use of leverage,
short sales and derivative transactions, and
potentially limited diversification can, in
certain circumstances, result in significant
losses to the Company. Additionally, the
Company's focus on small- to medium-size
issuers could subject the Company's portfolio
to greater volatility or risk of loss than if
the Company's portfolio were invested in the
securities of larger capitalization,
established issuers.
As a non-diversified investment company,
there are no percentage limitations on the
portion of the Company's assets that may be
invested in the securities of any one issuer.
However, the 1940 Act imposes limitations on
the percentage of the total assets of the
Company that may be invested in certain
issuers. The Company intends to invest no
more than 15% of the value of its total
assets in the securities of any one issuer.
However, while seeking
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desirable investments the Company may
temporarily exceed this limitation. The
Company's investment portfolio may be subject
to greater risk and volatility than if
investments were made in the securities of a
broader range of issuers.
The Company will invest primarily in the
securities of U.S. issuers but may invest a
portion of its assets in the securities of
foreign issuers. Investments in foreign
securities are affected by risk factors
generally not thought to be present in the
U.S., including, among other things,
increased political, regulatory, contractual
and economic risk and exposure to currency
fluctuations. Certain other types of
investments, such as derivatives and illiquid
investments, also involve particular risks as
described herein.
The Incentive Allocation defined below may
create an incentive for the Adviser to cause
the Company to make investments that are
riskier or more speculative than would be the
case in the absence of the Incentive
Allocation. In addition, because the
Incentive Allocation is calculated on a basis
that includes unrealized appreciation of the
Company's assets, the allocation may be
greater than if it were based solely on
realized gains.
The Company is a recently formed entity and
has no operating history upon which investors
can evaluate its performance. The personnel
of the members of the Adviser responsible for
managing the Company's investment portfolio,
however, have substantial experience in
managing investments and private investment
partnerships.
Interests are not traded on any securities
exchange or other market and are subject to
substantial restrictions on transfer.
Although the Company may offer to repurchase
Interests from time to time, a Member may not
be able to liquidate its Interest for up to
two years. (See "Types of Investments and
Related Risk Factors," "Tax Aspects," and
"Redemptions, Repurchases of Interests and
Transfers.")
MANAGEMENT: The board of managers of the Company (the
"Board of Managers") has overall
responsibility for the management
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and supervision of the operations of the
Company. Any vacancy in the position of
Manager may be filled by the remaining
Managers, or, if required by the 1940 Act, by
a vote of a plurality of the votes cast at
any meeting of the Members (excluding any
votes eligible to be cast by the Members
affiliated with CIBC WM). (See "Board of
Managers" and "Voting.")
The Managers of the Company may also serve on
the boards of several other CIBC WM
investment funds. As a result, the Company
may be deemed to be controlled by CIBC WM for
purposes of applicable banking laws. This
could subject the Company to certain
limitations on its ability to own equity
securities of certain issuers. (See
"Investment Policies and Restrictions.").
The Adviser may also be deemed to control
the Company for purposes of the 1940 Act.
ADVISER: The Adviser, CIBC Oppenheimer Advisers,
L.L.C., a Delaware limited liability company,
serves as the investment adviser of the
Company and is responsible for managing the
Company's investment portfolio pursuant to
the terms of an investment advisory agreement
with the Company. CIBC WM is the managing
member and controlling person of the Adviser,
and CWH Associates, Inc. ("CWH"), is a
non-managing member of the Adviser.
Investment professionals employed by CWH will
manage the Company's investment portfolio on
behalf of the Adviser under the supervision
of CIBC WM. The Adviser holds a non-voting
Special Advisory Member interest (the
"Special Advisory Account") in the Company
solely for the purpose of receiving the
Incentive Allocation.
CIBC WM (directly or through affiliates,
including the Adviser) provides investment
advisory services to registered investment
companies, private investment partnerships
and individual client accounts. CWH is a
registered investment adviser that is
majority-owned by Clifford W. Henry.
Mr. Henry has over twenty years experience
in the investment management and securities
industries. As of December 31, 1999, CWH had
approximately $50 million of assets under
management.
The Company has entered into an investment
advisory agreement (the "Investment Advisory
Agreement") with the
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Adviser, which is effective for an initial
term expiring January __, 2002, and may be
continued in effect from year to year
thereafter if the continuance is approved
annually by the Board of Managers. The Board
of Managers may terminate the Investment
Advisory Agreement on 60 days' prior written
notice to the Adviser.
PLACEMENT AGENT: CIBC WM acts as the placement agent for the
Company, without special compensation from
the Company, and bears the costs associated
with its activities as placement agent. The
Board of Managers may terminate CIBC WM as
placement agent on 30 days' prior written
notice. CIBC WM intends to compensate its
account executives for their ongoing
servicing of clients with whom they have
placed Interests. This compensation will be
based on a formula that takes into account
the amount of client assets being serviced as
well as the investment results attributable
to clients' assets invested in the Company.
(See "Conflicts Of Interest - CIBC WM.")
CIBC WM (subject to the approval of the Board
of Managers) may delegate any of its duties,
functions or powers as placement agent to
unaffiliated third-parties to act as
sub-placement agents for the Company and may
compensate them therefor. The Company will
not bear any costs associated with any such
arrangements.
CONFLICTS OF INTEREST: Certain conflicts of interest may arise from
the following: (i) CIBC WM, CWH and their
respective affiliates, including the Adviser,
may each engage in investment management
activities for their own accounts and the
accounts of others in which the Company has
no interest and may have actual or potential
conflicts of interest with respect to
investments made by the Adviser on behalf of
the Company; (ii) CWH and its affiliates will
manage accounts (in which the Company has no
interest) of certain other persons in
accordance with an investment program that is
substantially similar to the Company's
investment program, but (a) these accounts
may commit a larger percentage of their
respective assets to an investment
opportunity than the Adviser may commit of
the Company's assets and (b) there may be
circumstances under which CWH and its
affiliates will consider participation by
such accounts in investment opportunities in
which the Adviser does not intend to invest
on behalf of the Company; (iii) situations
may occur where
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the Company could be disadvantaged because of
the investment activities conducted by CWH and
its affiliates for the other accounts they
manage; (iv) the Company may enter into
certain transactions with one or more accounts
that are managed by CWH or its affiliates, but
only in accordance with the 1940 Act; (v) the
Adviser, CWH and any of their respective
affiliates may in the future provide
investment advisory services from time to time
to private investment partnerships or other
entities or accounts that are advised by CIBC
WM, CWH or their respective affiliates; (vi)
CWH and its affiliates may receive research
products and services in connection with the
brokerage services that CIBC WM and its
affiliates may provide from time to time (a)
to one or more entities managed by CWH or its
affiliates or (b) to the Company; (vii) from
time to time, in the ordinary course of their
brokerage, investment or dealer activities,
CIBC WM and its affiliates may trade, position
or invest in, for their own accounts, the same
securities as those in which the Company
invests; (viii) the investment banking and
corporate finance activities of CIBC WM,
Canadian Imperial Bank of Commerce, the parent
company of CIBC WM, and their respective
affiliates may restrict the ability of the
Company to purchase or sell certain
securities; and (ix) the Adviser, CIBC WM and
affiliates of CIBC WM are subject to
regulation under the Bank Holding Company Act
and to restrictions imposed by the Board of
Governors of the Federal Reserve System on
their transactions and relationships with the
Company and these restrictions may affect the
investments made by the Company. Future
activities of CIBC WM, CWH and their
respective affiliates, including the
respective directors, principals, officers and
employees of the foregoing, may give rise to
additional conflicts of interest. (See
"Conflicts Of Interest.")
FEES AND EXPENSES: CIBC WM provides certain administration and
investor services to the Company, including,
among other things, providing office space
and other support services to the Company,
maintaining and preserving certain records of
the Company, preparing and filing various
materials with state and Federal regulators,
providing legal and regulatory advice in
connection with administrative functions and
reviewing and arranging for payment of the
Company's expenses. In consideration for
these services, the Company
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pays CIBC WM a monthly administration fee of
0.08333% (1% on an annualized basis) of the
Company's net assets (the "CIBC WM Fee"). The
CIBC WM Fee is paid to CIBC WM out of the
Company's assets, and debited against
Members' capital accounts (but not the
Special Advisory Account). A portion of the
CIBC WM Fee is paid by CIBC WM to CWH.
The Company bears all expenses incurred in
connection with its business and operations,
including, but not limited to, the following:
all costs and expenses related to portfolio
transactions and positions for the Company's
account, including, fees payable to
consultants and professionals; legal fees;
accounting fees; custody expenses; costs of
insurance; organizational and registration
expenses; certain offering expenses; expenses
of meetings of the Board of Managers and
Members; the CIBC WM Fee; and fees payable to
PFPC Inc. for providing certain
administration, accounting and investor
services to the Company. (See "Fees and
Expenses.") These expenses are not charged to
the Special Advisory Account.
SALES CHARGE: Investors purchasing Interests may be charged
sales commissions of up to 3% of the amount
transmitted in connection with their
subscriptions for Interests. (See
"Subscription for Interests.")
ALLOCATION OF PROFIT AND LOSS: The net profits or net losses of the Company
(including, without limitation, net realized
gain or loss and the net change in unrealized
appreciation or depreciation of securities
positions) are credited to or debited against
the capital accounts of the Members at the
end of each fiscal period in accordance with
their respective investment percentages for
the period. Each Member's investment
percentage is determined by dividing as of
the start of a fiscal period the balance of
the Member's capital account by the sum of
the balances of the capital accounts of all
Members. (See "Capital Accounts and
Allocations - Allocation of Net Profits and
Net Losses.")
INCENTIVE ALLOCATION: Generally at the end of each fiscal year, an
incentive allocation of 20% of the net
profits, if any, that have been credited to
the capital account of a Member during the
period (an "Incentive Allocation") will be
debited from the Member's capital account and
credited to the Special
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Advisory Account. The Incentive Allocation is
charged to a Member only to the extent that
cumulative net profits with respect to the
Member through the close of any period
exceeds the highest level of cumulative net
profits with respect to the Member through
the close of any prior period. For this
purpose, cumulative net profits will be
adjusted to reflect any repurchases of a
Member's Interest. The Adviser may withdraw
any Incentive Allocation credited to its
Special Advisory Account by the last business
day of the month following the date on which
the Incentive Allocation was made. (See
"Capital Accounts and Allocations - Incentive
Allocation.")
SUBSCRIPTION FOR INTERESTS: The minimum initial investment in the Company
is $150,000 and the minimum additional
investment in the Company is $25,000, subject
to the sole discretion of the Board of
Managers to accept initial and additional
investments in lesser amounts. In connection
with initial and additional investments, an
investor's account executive may impose a
sales charge of up to 3% of the amount
transmitted for such investments. Amounts
paid as sales charges, if any, are included
for purposes of determining whether
applicable minimum investment requirements
have been satisfied.
For the first twelve months from the date the
Company commences operations, the Board of
Managers may accept initial and additional
subscriptions for Interests as of the first
day of each month. Thereafter, during any
period in which the Adviser is deemed to
control the Company for purposes of the Bank
Holding Company Act of 1956 (the "BHC Act"),
the Board of Managers may accept initial and
additional subscriptions for Interests by
eligible investors as of the first day of
each calendar quarter. At all other times,
the Board of Managers may accept initial and
additional subscriptions for Interests by
eligible investors as of the first day of
each month. All subscriptions are subject to
the receipt of cleared funds on or before the
acceptance date and require the investor to
submit a completed subscription document
before the acceptance date. The Board of
Managers reserves the right to reject any
subscription for Interests. The Board of
Managers may, in its sole discretion, suspend
subscriptions for Interests at any time. The
Board of Managers has authorized the Company
to accept initial subscriptions for
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Interests from eligible investors who are
directors, officers or employees (or members
of their families) of CIBC WM, CWH or their
respective affiliates in amounts of $50,000
or more. Interests may not be purchased by
nonresident aliens, foreign corporations,
foreign partnerships, foreign trusts or
foreign estates, all as defined in the
Internal Revenue Code of 1986, as amended
(the "Code"). In addition, because the
Company may generate "unrelated business
taxable income" ("UBTI"), charitable
remainder trusts may not want to purchase
Interests because a charitable remainder
trust will not be exempt from Federal income
tax under Section 664(c) of the Code for any
year in which it has UBTI.
INITIAL CLOSING DATE: The anticipated initial closing date for
subscriptions for Interests is March 15,
2000.
TRANSFER RESTRICTIONS: Interests held by Members may be transferred
only (i) by operation of law pursuant to the
death, divorce, bankruptcy, insolvency or
dissolution of a Member or (ii) under certain
limited circumstances, with the written
consent of the Board of Managers (which may
be withheld in its sole discretion and is
expected to be granted, if at all, only under
extenuating circumstances). The Board of
Managers generally will not consent to a
transfer unless the following conditions are
met: (i) the transferring Member has been a
Member for at least six months; (ii) the
proposed transfer is to be made on the
effective date of an offer by the Company to
repurchase Interests; and (iii) the transfer
does not constitute a change in beneficial
ownership. The foregoing permitted
transferees will not be allowed to become
substituted Members without the consent of
the Board of Managers, which may be withheld
in its sole discretion. A Member who
transfers an Interest may be charged
reasonable expenses, including attorneys' and
accountants' fees, incurred by the Company in
connection with the transfer. (See
"Redemptions, Repurchases of Interests and
Transfers - Transfers of Interests.")
WITHDRAWALS AND REPURCHASES
OF INTERESTS BY THE COMPANY: No Member has the right to require the
Company to redeem its Interest. The Company
may from time to time offer to repurchase
Interests pursuant to written tenders by
Members. Repurchases will be made at such
times and on such terms as may be determined
by the Board of
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Managers, in its sole discretion. In
determining whether the Company should
repurchase Interests or portions thereof from
Members pursuant to written tenders, the
Board of Managers will consider the
recommendation of the Adviser. The Adviser
expects that it will recommend to the Board
of Managers that the Company offer to
repurchase Interests from Members at the end
of 2000. Thereafter, the Adviser expects
that it generally will recommend to the Board
of Managers that the Company offer to
repurchase Interests from Members twice each
year, effective at the end of the second
fiscal quarter and again at the end of the
year. The Board of Managers will also
consider the following factors, among others,
in making this determination: (i) whether
any Members have requested to tender
Interests or portions thereof to the Company;
(ii) the liquidity of the Company's assets;
(iii) the investment plans and working
capital requirements of the Company; (iv) the
relative economies of scale with respect to
the size of the Company; (v) the history of
the Company in repurchasing Interests or
portions thereof; (vi) the economic condition
of the securities markets; and (vii) the
anticipated tax consequences of any proposed
repurchases of Interests or portions thereof.
(See "Redemptions, Repurchases of Interests
and Transfers - No Right of Redemption" and
"- Repurchases of Interests.")
The Company Agreement provides that the
Company shall be dissolved if the Interest of
any Member that has submitted a written
request, in accordance with the terms of the
Company Agreement, to tender its entire
Interest for repurchase by the Company has
not been repurchased within a period of two
years of the request.
SUMMARY OF TAXATION: Counsel to the Company will render an opinion
that the Company will be treated as a
partnership and not as an association taxable
as a corporation for Federal income tax
purposes. Counsel to the Company also will
render its opinion that, under a "facts and
circumstances" test set forth in regulations
adopted by the U.S. Treasury Department, the
Company will not be treated as a "publicly
traded partnership" taxable as a corporation.
Accordingly, the Company should not be
subject to Federal income tax, and each
Member will be required to report on its own
annual
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tax return such Member's distributive share
of the Company's taxable income or loss.
If it were determined that the Company should
be treated as an association or a publicly
traded partnership taxable as a corporation
(as a result of a successful challenge to the
opinions rendered by counsel to the Company
or otherwise), the taxable income of the
Company would be subject to corporate income
tax and any distributions of profits from the
Company would be treated as dividends. (See
"Tax Aspects.")
ERISA PLANS AND OTHER
TAX-EXEMPT ENTITIES: Investors subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and other tax-exempt entities
(each a "tax-exempt" entity) may purchase
Interests with the approval of the Board of
Managers. The Company may utilize leverage
in connection with its trading activities.
Therefore, a tax-exempt Member may incur
income tax liability with respect to its
share of the net profits from these leveraged
transactions to the extent they are treated
as giving rise to "unrelated business taxable
income." The Company provides to tax-exempt
Members such accounting information as they
require to report their "unrelated business
taxable income" for income tax purposes.
Investment in the Company by tax-exempt
entities requires special consideration.
Trustees or administrators of these entities
are urged to carefully review the matters
discussed in this Confidential Memorandum.
TERM: The Company's term is perpetual unless the
Company is otherwise terminated under the
terms of the Company Agreement.
REPORTS TO MEMBERS: The Company furnishes to Members as soon as
practicable after the end of each taxable
year such information as is necessary for
them to complete Federal and state income tax
or information returns, along with any other
tax information required by law. The Company
will also send Members an unaudited
semi-annual and an audited annual report
within 60 days after the close of the period
for which the report is being made. Members
also will be sent
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quarterly reports regarding the Company's
operations during each quarter.
FISCAL YEAR: The 12-month period ending December 31.
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THE COMPANY
Sawgrass Fund, L.L.C. (the "Company") is registered under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified, closed-end
management investment company. The Company's principal office is located at One
World Financial Center, 31st Floor, 200 Liberty Street, New York, New York
10281, and its telephone number is (212) 667-4225. CIBC Oppenheimer Advisers,
L.L.C. (the "Adviser"), a Delaware limited liability company, serves as the
investment adviser to the Company and is responsible for the Company's
investment activities pursuant to an investment advisory agreement.
Responsibility for the overall management and supervision of the operations of
the Company is vested in the individuals who serve as the Board of Managers of
the Company (the "Board of Managers"). (See "Board of Managers.")
STRUCTURE
The Company is a specialized investment vehicle that combines
many of the features of a private investment partnership with those of a
closed-end investment company. Private investment partnerships are unregistered,
commingled asset pools that are often aggressively managed and offered in large
minimum denominations (often over $1 million) through private placements to a
limited number of high net worth individual and institutional investors. The
general partners of these partnerships are typically compensated through
asset-based fees and performance-based allocations. Closed-end investment
companies are 1940 Act registered pools typically organized as corporations or
business trusts that usually are managed more conservatively than most private
investment partnerships, subject to relatively modest minimum investment
requirements (often less than $2,000) and publicly offered to a broad range of
investors. The advisers to these companies are typically compensated through
asset-based (but not performance-based) fees.
The Company is similar to private investment partnerships in
that its investment portfolio may be more actively managed than most other
investment companies and interests in the Company ("Interests") are sold in
comparatively large minimum denominations ($150,000) in private placements
solely to high net worth individual and institutional investors, whose capital
accounts will be subject to both asset-based fees and performance-based
allocations. However, the Company, like other closed-end investment companies,
has registered under the 1940 Act to be able to offer its Interests without
limiting the number of investors that can participate in its investment program.
This permits a larger number of investors that have a higher tolerance for
investment risk to participate in an aggressive investment program without
making the more substantial minimum capital commitment that is required by many
private investment partnerships.
INVESTMENT PROGRAM
The Company's investment objective is to seek superior
long-term capital appreciation. It pursues this objective by investing its
assets primarily in the equity securities of
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small- to medium-sized emerging growth companies. Equity securities include
common and preferred stock and other securities having equity characteristics,
including convertible debt securities, stock options, warrants and rights.
Generally, the Company's investment time horizon, i.e., the time period the
Company will hold its investments, will be greater than one year. The Company's
portfolio of securities is expected to include long and short positions in
equity securities. As part of its investment program, the Company may effect
short sales of securities and may invest in debt securities. The Company may
also utilize swaps, swaptions and other derivative instruments such as forward
contracts and options on stock indices and structured equity related products.
Although the Company will invest primarily in the securities of U.S. issuers, it
may invest up to one-third (1/3) of the value of its total assets in the
securities of foreign issuers, including depositary receipts relating to foreign
securities. (See "Types of Investments and Related Risk Factors.")
Depending upon market conditions and the availability of
suitable investment opportunities, the Company may utilize leverage in pursuing
its investment objective. Leverage is the practice of borrowing money to
purchase investments, which the Company may do by purchasing securities on
margin, borrowing from a bank or entering into reverse repurchase agreements.
Although the philosophy underlying the management of the
Company is that the development and expansion of the emerging growth companies
in which the Company invests will provide for growth of the Company's assets
over a 3 to 5 year period, the Company's portfolio may also generate current
income, and short-term gains will be taken where appropriate.
The Company will endeavor to attain its investment goals
primarily by making investments that are stock specific, i.e., related directly
to the prospects of certain small- to medium-sized emerging growth companies.
In seeking investment opportunities, the Adviser will
generally focus on the securities of companies that have managements with proven
track records and the ability to develop and introduce new products or services,
and which have exhibited demonstrable pricing flexibility. High barriers to
market entry by competitors will also be a consideration. In the Adviser's view,
financial characteristics of such companies generally include low balance sheet
leverage and high debt coverage, growth in unit and dollar sales, margin
expansion, and high current or potential return on invested capital.
Theme analysis will be central to the Adviser's
decision-making process. Theme analysis involves the identification of high
growth niches of the economy that the Adviser believes will become the focus of
investor attention in the coming twelve to eighteen months. Once a high growth
niche is chosen, the Adviser will select those companies within that niche that,
in its view, exhibit financial strength and the most favorable growth
characteristics. Examples of themes include laser vision correction procedures,
"middleware" software applications, and "voice over IP" telephony technologies.
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Although the Adviser's selection of a security will focus on
its long-term merits, the size of a position may vary considerably depending
upon current levels of valuation, rate of earnings growth, and stage of the
product cycle. To the extent possible, the Adviser will try to take advantage of
the markets' volatility by selling into what it believes to be valuation
excesses and buying into what it believes to be depressed periods.
Fundamental analysis will focus primarily on direct contact
with the management of the companies in which the Company invests, augmented
where necessary by contacts with competitors, suppliers or end users of relevant
products. The Adviser intends to use information provided by specialized
research firms or regional brokerage companies in order to become more
knowledgeable about a particular industry or geographic area. In addition,
brokerage firm analysts will be used as either research backup or company
specialists, trade publications and industry sources will be studied on an
ongoing basis, and consultants will be utilized in specialized cases. Finally,
the network of other investment managers and analysts with which the principal
of the Company's portfolio manager, Clifford W. Henry, has become acquainted
during the years in which he has worked as an investment adviser will be
utilized as informal sources of information.
In managing the investments of the Company, the Adviser will
rely primarily on investment research and fundamental analysis of company
financial data in seeking to identify attractive investment opportunities. The
research process involves company visits, continuous updating of valuation
models, review and analysis of published research and discussions with industry
sources. Investment professionals employed by CWH Associates, Inc. ("CWH") will
manage the Company's investment portfolio on behalf of the Adviser.
The assets of the Company will be invested primarily in equity
securities that the Adviser believes are undervalued or that, in the judgment of
the Adviser, offer other opportunities for capital appreciation based on
consideration of relevant company-, industry- and market-specific factors and
trends. For example, the Adviser will seek to identify securities in particular
market sectors that are undervalued relative to other issuers in the same sector
or which have characteristics making the issuer a potential acquisition target.
In addition, the Adviser may cause the Company to sell short the securities of
an issuer that it believes to be overvalued relative to similar issuers.
The Company may also invest in non-convertible bonds and other
non-convertible debt securities when the Adviser believes that these securities
offer opportunities for capital appreciation.
During periods of adverse market conditions, the Company may
deviate from its investment objective and invest all or any portion of its
assets in high quality debt securities, including money market instruments, or
hold cash. The Company may also invest in money market instruments or hold cash
for liquidity purposes. (See "Types of Investments and Related Risk Factors -
Temporary Investments.")
In pursuing its investment objective, or for hedging purposes,
the Company may use various investment techniques and strategies. These may
include the use of leverage, short
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sales of securities and the purchase and sale of options on securities and stock
indices, subject, however, to certain limitations described elsewhere in this
Confidential Memorandum, including any policies that may be established by the
Board of Managers. The use of these investment techniques and instruments
involves certain risks. (See "Types of Investments and Related Risk Factors.")
The Company will comply with applicable regulatory requirements, including the
asset coverage requirements under the 1940 Act, in connection with its use of
these strategies.
Additional information about the types of investments that
will be made by the Company, its investment practices and related risk factors
is provided below. Except as otherwise indicated, the Company's investment
policies and restrictions are not fundamental and may be changed without a vote
of Members. (See "Types of Investments and Related Risk Factors - Investment
Policies and Restrictions.")
THE COMPANY'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS
SUBSTANTIAL RISKS. THERE CAN BE NO ASSURANCE THAT THE COMPANY'S INVESTMENT
OBJECTIVE WILL BE ACHIEVED. IN PARTICULAR, THE COMPANY'S USE OF LEVERAGE, SHORT
SELLING AND DERIVATIVES TRANSACTIONS, AND ITS LIMITED DIVERSIFICATION CAN, IN
CERTAIN CIRCUMSTANCES, RESULT IN SIGNIFICANT LOSSES TO THE COMPANY.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
EQUITY SECURITIES
A significant portion of the Company's investment portfolio
normally will consist of long and short positions in common stocks and other
equity securities. The values of equity securities change in response to many
factors, including, but not limited to, the activities and financial condition
of individual companies, the business market in which individual companies
compete and general market and economic conditions.
The Company's investments in equity securities of U.S.
companies will include securities that are listed on U.S. securities exchanges
as well as unlisted securities that are traded over-the-counter. Equity
securities of companies traded over-the-counter may not be traded in the volumes
typically found on a national securities exchange. Consequently, the Company may
be required to dispose of these securities over a longer (and potentially less
favorable) period of time than is required to dispose of the securities of
exchange listed companies. There is no minimum required market capitalization of
the companies in which the Company may invest, and the Company may invest a
significant portion of its assets in securities of companies having smaller
market capitalization. These companies may not be well known to the investing
public, may not have significant institutional ownership and may have cyclical,
static or only moderate growth prospects. Additionally, the securities of these
companies may be more volatile in price and have less liquidity than the
securities of companies having larger market capitalization.
COMMON STOCKS. Common stocks are shares of a corporation or
other entity that entitle the holder to a pro rata share of the profits, if any,
of the entity without preference over any other shareholder or claim of
shareholders, after making required payments to holders of the
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entity's preferred stock and other senior equity. Common stock usually carries
with it the right to vote and frequently an exclusive right to do so.
PREFERRED STOCKS. Preferred stock generally has a preference
over an issuer's common stock as to dividends and upon the event of liquidation,
but it ranks junior to debt securities in an issuer's capital structure.
Preferred stock generally pays dividends in cash (or additional shares of
preferred stock) at a defined rate, but unlike interest payments on debt
securities, preferred stock dividends are payable only if declared by the
issuer's board of directors. Dividends on preferred stock may be cumulative,
meaning that, in the event the issuer fails to make one or more dividend
payments on the preferred stock, no dividends may be paid on the issuer's common
stock until all unpaid preferred stock dividends have been paid. Preferred stock
may also be subject to optional or mandatory redemption provisions.
CONVERTIBLE SECURITIES. Convertible securities are bonds,
debentures, notes, preferred stocks or other securities that may be converted
into or exchanged for a specified amount of common stock of the same or
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest that is
generally paid or accrued on debt or a dividend that is paid or accrued on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have unique investment characteristics, in
that they generally (1) have higher yields than common stocks, but lower yields
than comparable non-convertible securities, (2) are less subject to fluctuation
in value than the underlying common stock due to their debt characteristics and
(3) provide the potential for capital appreciation if the market price of the
underlying common stock increases.
The value of a convertible security is a function of its
"investment value" (determined by its yield in comparison with the yields of
other securities of comparable maturity and quality that do not have a
conversion privilege) and its "conversion value" (the security's worth, at
market value, if converted into the underlying common stock). The investment
value of a convertible security is influenced by changes in interest rates, with
investment value declining as interest rates increase and increasing as interest
rates decline. The credit standing of the issuer and other factors may also have
an effect on the convertible security's investment value. The conversion value
of a convertible security is determined by the market price of the underlying
common stock. If the conversion value is low relative to the investment value,
the price of the convertible security is governed principally by its investment
value. Generally, the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. A convertible
security generally will sell at a premium over its conversion value by the
extent to which investors place value on the right to acquire the underlying
common stock while holding a debt security.
A convertible security may be subject to redemption at the
option of the issuer at a price established in the convertible security's
governing instrument. If a convertible security held by the Company is called
for redemption, the Company will be required to permit the issuer to
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redeem the security, convert it into the underlying common stock or sell it to a
third party. Any of these actions could have an adverse effect on the Company's
ability to achieve its investment objective.
BONDS AND OTHER DEBT SECURITIES
GENERALLY. The Company may invest in bonds and other debt
securities. The Adviser (subject to any policies established by the Board of
Managers) will invest in these securities when they offer opportunities for
capital appreciation and may also invest in these securities for temporary
defensive purposes and to maintain liquidity. Debt securities include, among
other securities: bonds, notes and debentures issued by corporations; debt
securities issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities ("U.S. Government Securities") or by a foreign government;
municipal securities; and mortgage-backed and asset-backed securities. These
securities may pay fixed, variable or floating rates of interest, and may
include zero coupon obligations. Debt securities are subject to the risk of the
issuer's inability to meet principal and interest payments on its obligations
(i.e., credit risk) and are subject to price volatility due to such factors as
interest rate sensitivity, market perception of the creditworthiness of the
issuer and general market liquidity (i.e., market risk).
The Company may invest in both investment grade and
non-investment grade debt securities. Investment grade debt securities are
securities that have received a rating from at least one nationally recognized
statistical rating organization ("NRSRO") in one of the four highest rating
categories or, if not rated by any NRSRO, have been determined by the Adviser to
be of comparable quality. Non-investment grade debt securities (typically called
"junk bonds") are securities that have received a rating from a NRSRO of below
investment grade or have been given no rating, and are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Non-investment grade debt securities in the lowest rating
categories may involve a substantial risk of default or may be in default.
Adverse changes in economic conditions or developments regarding the individual
issuer are more likely to cause price volatility and weaken the capacity of the
issuers of non-investment grade debt securities to make principal and interest
payments than is the case for higher grade debt securities. An economic downturn
affecting an issuer of non-investment grade debt securities may result in an
increased incidence of default. In addition, the market for lower grade debt
securities may be thinner and less active than for higher grade debt securities.
The Company will not invest more than 20% of its total assets in non-convertible
debt securities which have not received an investment grade rating from at least
one NRSRO.
LIMITED DIVERSIFICATION
The Company is a "non-diversified" investment company. Thus,
there are no percentage limitations on the percentage of the Company's assets
that may be invested in the securities of any one issuer. To the extent that a
relatively high percentage of the Company's assets were invested in the
securities of a limited number of issuers, some of which may be within the same
industry, the Company's investment portfolio will be more susceptible to any
single
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economic, political or regulatory occurrence than the portfolio of a diversified
investment company.
The Company intends to invest no more than 15% of the value of
its total assets in the securities of any one issuer. However, while seeking
desirable investments, the Company may temporarily exceed this limitation
subject to other applicable policies and procedures.
FOREIGN SECURITIES
Although the Company invests primarily in the securities of
publicly traded U.S. issuers, it may invest up to one-third (1/3) of the value
of its total assets in securities of foreign issuers and in depositary receipts,
such as American Depositary Receipts ("ADRs"), that represent indirect interests
in securities of foreign issuers. Foreign securities in which the Company may
invest may be listed on foreign securities exchanges or traded in foreign
over-the-counter markets. Investments in foreign securities are affected by risk
factors generally not thought to be present in the U.S. These factors include,
but are not limited to, the following: varying custody, brokerage and settlement
practices; difficulty in pricing; less public information about issuers of
foreign securities; less governmental regulation and supervision over the
issuance and trading of securities than in the U.S.; the unavailability of
financial information regarding the foreign issuer or the difficulty of
interpreting financial information prepared under foreign accounting standards;
less liquidity and more volatility in foreign securities markets; the
possibility of expropriation or nationalization; the imposition of withholding
and other taxes; adverse political, social or diplomatic developments;
limitations on the movement of funds or other assets of the Company between
different countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in
foreign countries. Moreover, governmental issuers of foreign securities may be
unwilling to repay principal and interest due, and may require that the
conditions for payment be renegotiated. Investment in foreign countries also
involves higher brokerage and custodian expenses than does investment in
domestic securities.
Other risks of investing in foreign securities include changes
in currency exchange rates (in the case of securities that are not denominated
in U.S. dollars) and currency exchange control regulations or other foreign or
U.S. laws or restrictions, or devaluations of foreign currencies. A decline in
the exchange rate would reduce the value of certain of the Company's foreign
currency denominated portfolio securities irrespective of the performance of the
underlying investment. In addition, the Company may incur costs in connection
with conversion between various currencies. The foregoing risks may be greater
in emerging industrialized and less developed countries.
The Company may enter into forward currency exchange contracts
("forward contracts") for hedging purposes and non-hedging purposes to pursue
its investment objective. Forward contracts are transactions involving the
Company's obligation to purchase or sell a specific currency at a future date at
a specified price. Forward contracts may be used by the Company for hedging
purposes to protect against uncertainty in the level of future foreign currency
exchange rates, such as when the Company anticipates purchasing or selling a
foreign
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security. This technique would allow the Company to "lock in" the U.S. dollar
price of the security. Forward contracts may also be used to attempt to protect
the value of the Company's existing holdings of foreign securities. There may
be, however, imperfect correlation between the Company's foreign securities
holdings and the forward contracts entered into with respect to those holdings.
Forward contracts may also be used for non-hedging purposes to pursue the
Company's investment objective (subject to any policies established by the Board
of Managers), such as when the Adviser anticipates that particular foreign
currencies will appreciate or depreciate in value, even though securities
denominated in those currencies are not then held in the Company's investment
portfolio.
LEVERAGE
The Company may borrow money to purchase securities, a
practice known as "leverage," which involves certain risks. In this regard, the
Company may make margin purchases of securities, borrow money from banks and
enter into reverse repurchase agreements. The Company may also borrow money for
temporary or emergency purposes or in connection with the repurchase of
Interests.
Trading equity securities on margin involves an initial cash
requirement representing at least 50% of the underlying security's value with
respect to transactions in U.S. markets and varying (typically lower)
percentages with respect to transactions in foreign markets. Borrowings to
purchase equity securities typically will be secured by the pledge of those
securities. The financing of securities purchases may also be effected through
reverse repurchase agreements with banks, brokers and other financial
institutions. This involves the transfer by the Company of the underlying
security to a counterparty in exchange for cash proceeds based on a percentage
(which can be as high as 95% to 100%) of the value of the debt instrument.
Although leverage will increase investment return if the
Company earns a greater return on the investments purchased with borrowed funds
than it pays for the use of those funds, the use of leverage will decrease
investment return if the Company fails to earn as much on investments purchased
with borrowed funds as it pays for the use of those funds. The use of leverage
will therefore magnify the volatility of the value of the Company's investment
portfolio. In the event that the Company's equity or debt instruments decline in
value, the Company could be subject to a "margin call" or "collateral call,"
pursuant to which the Company must either deposit additional collateral with the
lender or suffer mandatory liquidation of the pledged securities to compensate
for the decline in value. In the event of a sudden, precipitous drop in value of
the Company's assets, the Company might not be able to liquidate assets quickly
enough to pay off its borrowing. Money borrowed for leveraging will be subject
to interest costs that may or may not be recovered by return on the securities
purchased. The Company also may be required to maintain minimum average balances
in connection with its borrowings or to pay a commitment or other fee to
maintain a line of credit; either of these requirements would increase the cost
of borrowing over the stated interest rate.
The 1940 Act requires the Company to satisfy an asset coverage
requirement of 300% of its indebtedness, including amounts borrowed, measured at
the time the Company
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incurs the indebtedness (the "Asset Coverage Requirement"). This means that the
value of the Company's total indebtedness may not exceed one-third the value of
its total assets (including such indebtedness), measured at the time the Company
incurs the indebtedness. The staff of the Securities and Exchange Commission's
Division of Investment Management (the "SEC Staff") takes the position that
short sales of securities, reverse repurchase agreements, use of margin, sales
of put and call options on specific securities or indices, investments in
certain other types of instruments (including certain derivatives such as swap
agreements), and the purchase and sale of securities on a when-issued or forward
commitment basis, may be deemed to constitute indebtedness subject to the Asset
Coverage Requirement.
The SEC Staff has stated, however, that it will not deem a
portfolio position involving such instruments to be subject to the Asset
Coverage Requirement if an investment company "covers" its position by
segregating liquid securities on its books or in an account with its custodian
in amounts sufficient to offset the liability associated with the position.
Generally, in conjunction with portfolio positions that are deemed to constitute
senior securities, the Company must: (1) observe the Asset Coverage Requirement;
(2) maintain daily a segregated account in cash or liquid securities at such a
level that the amount segregated plus any amounts pledged to a broker as
collateral will equal the current value of the position; or (3) otherwise cover
the portfolio position with offsetting portfolio securities. Segregation of
assets or covering portfolio positions with offsetting portfolio securities may
limit the Company's ability to otherwise invest those assets or dispose of those
securities.
In order to obtain "leveraged" market exposure in certain
investments and to increase the overall return to the Company of various
investments, the Company may purchase options and other synthetic instruments
that do not constitute "indebtedness" for purposes of the Asset Coverage
Requirement. These instruments may nevertheless involve significant economic
leverage and therefore may, in some cases, involve significant risks of loss.
SHORT SALES
The Company may attempt to limit exposure to a possible market
decline in the value of its portfolio securities through short sales of
securities that the Adviser (subject to any policies established by the Board of
Managers) believes possess volatility characteristics similar to those being
hedged. In addition, the Company may use short sales for non-hedging purposes to
pursue its investment objective. To effect a short sale, the Company will borrow
a security from a brokerage firm to make delivery to the buyer. The Company is
then obligated to replace the borrowed security by purchasing it at the market
price at the time of replacement. Until the security is replaced, the Company is
required to pay to the brokerage firm any accrued interest or dividend and may
be required to pay a premium.
The Company will realize a gain if the borrowed security
declines in price between the date of the short sale and the date on which the
Company replaces the security. The Company will incur a loss if the price of the
borrowed security increases between those dates. This loss can increase rapidly
and without effective limit. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of any premium or interest the
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Company may be required to pay in connection with a short sale. There is a risk
that the borrowed securities would need to be returned to the brokerage firm on
short notice. If a request for return of securities occurs at a time when other
short sellers of the subject security are receiving similar requests, a "short
squeeze" can occur, wherein the Company might be compelled, at the most
disadvantageous time, to replace borrowed securities previously sold short with
purchases on the open market, possibly at prices significantly in excess of the
price at which the securities were sold short. The successful use of short
selling may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged. Short
selling may exaggerate the volatility of the Company's investment portfolio.
Short selling may also produce higher than normal portfolio turnover and may
result in increased transaction costs to the Company.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the Company's sale of a
security to a bank or securities dealer and the Company's simultaneous agreement
to repurchase that security for a fixed price (reflecting a market rate of
interest) on a specific date. These transactions involve a risk that the other
party to a reverse repurchase agreement will be unable or unwilling to complete
the transaction as scheduled, which may result in losses to the Company. Reverse
repurchase transactions are a form of leverage which may also increase the
volatility of the Company's investment portfolio. The Company has adopted
procedures designed to minimize certain of the risks of loss associated with
reverse repurchase transactions.
SPECIAL INVESTMENT INSTRUMENTS AND TECHNIQUES
The Company may utilize a variety of special investment
instruments and techniques (described below) to hedge its investment portfolio
against various risks (such as changes in interest rates or other factors that
affect security values) or for non-hedging purposes to pursue the Company's
investment objective. These strategies may be executed through derivative
transactions. The instruments the Company may use and the particular manner in
which they may be used may change over time as new instruments and techniques
are developed or regulatory changes occur. Certain of the special investment
instruments and techniques that the Company may use are speculative and involve
a high degree of risk, particularly in the context of non-hedging transactions
to pursue the Company's investment objective.
CALL AND PUT OPTIONS ON INDIVIDUAL SECURITIES. The Company may
purchase call and put options in respect of specific securities, and may write
and sell covered or uncovered call and put options for hedging purposes and
non-hedging purposes to pursue its investment objective. A put option gives the
purchaser of the option the right to sell, and obligates the writer to buy, the
underlying security at a stated exercise price at any time prior to the
expiration of the option. Similarly, a call option gives the purchaser of the
option the right to buy, and obligates the writer to sell, the underlying
security at a stated exercise price at any time prior to the expiration of the
option.
A covered call option written by the Company is a call option
with respect to which the Company owns the underlying security. The sale of such
an option exposes the
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Company during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or to possible
continued holding of a security that might otherwise have been sold to protect
against depreciation in the market price of the security. A covered put option
written by the Company is a put option with respect to which cash or liquid
securities have been placed in a segregated account on the Company's books or
with the Company's custodian to fulfill the obligation undertaken. The sale of
such an option exposes the Company during the term of the option to a decline in
price of the underlying security while depriving the Company of the opportunity
to invest the segregated assets.
The Company may close out a position when writing options by
purchasing an option on the same security with the same exercise price and
expiration date as the option that it has previously written on the security.
The Company will realize a profit or loss if the amount paid to purchase an
option is less or more, as the case may be, than the amount received from the
sale thereof. To close out a position as a purchaser of an option, the Company
would ordinarily make a similar "closing sale transaction," which involves
liquidating the Company's position by selling the option previously purchased,
although the Company would be entitled to exercise the option should it deem it
advantageous to do so. The Company may also invest in so-called "synthetic"
options or other derivative instruments written by broker-dealers.
Options transactions may be effected on securities exchanges
or in the over-the-counter market. When options are purchased over-the-counter,
the Company bears the risk that the counterparty that wrote the option will be
unable or unwilling to perform its obligations under the option contract. These
options may also be illiquid and, in such cases, the Company may have difficulty
closing out its position. Over-the-counter options purchased and sold by the
Company may also include options on baskets of specific securities.
WARRANTS AND RIGHTS. Warrants are derivative instruments that
permit, but do not obligate, the holder to subscribe for other securities or
commodities. Rights are similar to warrants, but normally have a shorter
duration and are offered or distributed to shareholders of a company. Warrants
and rights do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle the holder to purchase, and they do
not represent any rights in the assets of the issuer. As a result, warrants and
rights may be considered more speculative than certain other types of
equity-like securities. In addition, the values of warrants and rights do not
necessarily change with the value of the underlying securities or commodities
and these instruments cease to have value if they are not exercised prior to
their expiration dates.
CALL AND PUT OPTIONS ON SECURITIES INDICES. The Company may
purchase and sell call and put options on stock indices (such as the Standard &
Poor's Composite Index of 500 Stocks (the "S&P 500") or the Standard & Poor's
100 Index) listed on national securities exchanges or traded in the
over-the-counter market for hedging purposes and non-hedging purposes to pursue
its investment objective. A stock index fluctuates with changes in the market
values of the stocks included in the index. The effectiveness of purchasing or
writing stock index options for hedging purposes will depend upon the extent to
which price movements in the Company's portfolio correlate with price movements
of the stock index selected. Because the value of an index option depends upon
movements in the level of the index rather than the price
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<PAGE> 28
of a particular stock, whether the Company will realize a gain or loss from the
purchase or writing of options on an index depends upon movements in the level
of stock prices in the stock market generally or, in the case of certain
indexes, in an industry or market segment, rather than movements in the price of
a particular stock. Accordingly, successful use by the Company of options on
stock indexes will be subject to the Adviser's ability to predict correctly
movements in the direction of the stock market generally or of a particular
industry or market segment. This requires different skills and techniques than
predicting changes in the price of individual stocks.
ADDITIONAL DERIVATIVE TRANSACTIONS. The Company may take
advantage of opportunities in the area of swaps, options on various underlying
instruments, swaptions and certain other customized derivative instruments. In
addition, the Company may take advantage of opportunities with respect to
certain other derivative instruments that are not presently contemplated for use
by the Company or which are currently not available, but which may be developed,
to the extent such opportunities are both consistent with the Company's
investment objective and legally permissible for the Company. Special risks may
apply to instruments that are invested in by the Company in the future, which
risks cannot be determined at this time or until such instruments are developed
or invested in by the Company.
A swap is a contract under which two parties agree to make
periodic payments to each other based on specified interest rates, an index or
the value of some other instrument, applied to a stated, or "notional", amount.
Swaps generally can be classified as interest rate swaps, currency swaps,
commodity swaps or equity swaps, depending on the type of index or instrument
used to calculate the payments. Such swaps would increase or decrease the
Company's investment exposure to the particular interest rate, currency,
commodity or equity involved. A swaption is an option entitling one party to
enter into a swap agreement with the counterparty. In addition to swaps and
swaptions, the Company may become a party to various other customized derivative
instruments entitling the counterparty to certain payments on the gain or loss
on the value of an underlying or referenced instrument. Certain swaps, options
and other derivative instruments may be subject to various types of risks,
including market risk, liquidity risk, counterparty credit risk, legal risk and
operations risk. In addition, swaps and other derivatives can involve
significant economic leverage and may, in some cases, involve significant risks
of loss.
LENDING PORTFOLIO SECURITIES
The Company may lend its portfolio securities to domestic and
foreign brokers, dealers and financial institutions. These loans will be secured
by collateral (consisting of cash, U.S. Government Securities or irrevocable
letters of credit) maintained in an amount equal to at least 100% of the market
value, determined daily, of the loaned securities. The Company may at any time
call the loan and obtain the return of the securities loaned. The Company will
be entitled to payments equal to the interest and dividends on the loaned
security and may receive a premium for lending the securities. Lending portfolio
securities may result in income to the Company, but there may be delays in the
recovery of the loaned securities or a loss of rights in the collateral supplied
should the borrower fail financially. Securities lending involves a form of
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<PAGE> 29
leverage, and the Company may incur a loss if securities purchased with the
collateral from securities loans decline in value.
WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES
The Company may purchase securities on a "when-issued" basis
and may purchase or sell securities on a "forward commitment" basis in order to
hedge against anticipated changes in interest rates and prices. These
transactions involve a commitment by the Company to purchase or sell securities
at a future date (ordinarily one or two months later). The price of the
underlying securities, which is generally expressed in terms of yield, is fixed
at the time the commitment is made, but delivery and payment for the securities
takes place at a later date. No income accrues on securities that have been
purchased pursuant to a forward commitment or on a when-issued basis prior to
delivery to the Company. When-issued securities and forward commitments may be
sold prior to the settlement date. If the Company disposes of the right to
acquire a when-issued security prior to its acquisition or disposes of its right
to deliver or receive against a forward commitment, it may incur a gain or loss.
These transactions will be subject to the Company's limitation on indebtedness
unless, at the time the Company enters into such a transaction, a segregated
account consisting of cash, U.S. Government Securities or liquid securities
equal to the value of the when-issued or forward commitment securities is
established and maintained. There is a risk that securities purchased on a
when-issued basis may not be delivered and that the purchaser of securities sold
by the Company on a forward basis will not honor its purchase obligation. In
such cases, the Company may incur a loss.
RESTRICTED AND ILLIQUID INVESTMENTS
Although the Company will invest primarily in publicly traded
securities, it may invest up to 15% of the value of its total assets (measured
at the time of purchase) in restricted securities and other investments which
are illiquid. Restricted securities are securities that may not be sold to the
public without an effective registration statement under the Securities Act of
1933 ("1933 Act") or, if they are unregistered, may be sold only in a privately
negotiated transaction or pursuant to an exemption from registration. In
recognition of the increased size and liquidity of the institutional markets for
unregistered securities and the importance of institutional investors in the
formation of capital, the Securities and Exchange Commission ("SEC") has adopted
Rule 144A under the 1933 Act, which is designed to further facilitate efficient
trading among qualified institution-al invest-ors by permitting the sale of
certain unregistered securities to qualified institutional buyers. The Company
will be eligible to purchase securities in Rule 144A transactions if and when it
and all other investment companies for which the Adviser serves as the
investment adviser own, in the aggregate, at least $100 million of securities of
unaffiliated issuers. To the extent privately placed securities held by the
Company qualify under Rule 144A, and an institutional market develops for those
securities, the Company likely will be able to dispose of the securities without
registering them under the 1933 Act. To the extent that qualified institutional
buyers become, for a time, uninterested in purchasing these securities,
investing in Rule 144A securities could have the effect of increasing the level
of the Company's illiquidity. The Company may adopt procedures under which
certain Rule 144A securities will not be deemed to be illiquid, if certain
criteria are satisfied with respect
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<PAGE> 30
to those securities and the market therefor. Foreign securities that can be
freely sold in the markets in which they are principally traded are not
considered by the Company to be restricted. Regulation S under the 1933 Act
permits the sale abroad of securities that are not registered for sale in the
United States. Repurchase agreements with maturities of more than seven days
will be treated as illiquid.
Where registration is required to sell a security, the Company
may be obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the decision to sell and the time the
Company may be permitted to sell a security under an effective registration
statement. If, during such period, adverse market conditions were to develop,
the Company might obtain a less favorable price than prevailed when it decided
to sell. Restricted securities for which no market exists and other illiquid
investments are valued at fair value as determined in accordance with procedures
approved and periodically reviewed by the Board of Managers.
Restricted securities and other illiquid investments involve
the risk that the securities will not be able to be sold at the time desired by
the Adviser or at prices approximating the value at which the Company is
carrying the securities.
TEMPORARY INVESTMENTS
For defensive purposes, the Company may temporarily invest all
or a substantial portion of its assets in high quality debt securities and money
market instruments, or may temporarily hold cash or cash equivalents in such
amounts as the Adviser deems appropriate under the circumstances. Securities
will be deemed to be of high quality if they are rated in the top three
categories by an NRSRO or, if unrated, are determined to be of comparable
quality by the Adviser. Money market instruments are high quality, short-term
debt obligations (which generally have remaining maturities of one year or
less), and may include: U.S. Government Securities; commercial paper;
certificates of deposit and banker's acceptances issued by domestic branches of
United States banks that are members of the Federal Deposit Insurance
Corporation; and repurchase agreements for U.S. Government Securities. In lieu
of purchasing money market instruments, the Company may purchase shares of money
market mutual funds that invest primarily in U.S. Government Securities and
repurchase agreements involving those securities, subject to certain limitations
imposed by the 1940 Act.
The Company may also invest in money market instruments or
purchase shares of money market mutual funds pending investment of its assets in
equity securities or non-money market fixed-income securities, or to maintain
such liquidity as may be necessary to effect repurchases of Interests from
Members or for other purposes.
Repurchase agreements are agreements under which the Company
purchases securities from a bank that is a member of the Federal Reserve System,
a foreign bank or a securities dealer that agrees to repurchase the securities
from the Company at a higher price on a designated future date. If the seller
under a repurchase agreement becomes insolvent, the Company's right to dispose
of the securities may be restricted, or the value of the securities may decline
before the Company is able to dispose of them. In the event of the commencement
of
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<PAGE> 31
bankruptcy or insolvency proceedings with respect to the seller of the
securities before the repurchase of the securities under a repurchase agreement
is accomplished, the Company may encounter a delay and incur costs, including a
decline in the value of the securities, before being able to sell the
securities. If the seller defaults, the value of the securities may decline
before the Company is able to dispose of them. If the Company enters into a
repurchase agreement that is subject to foreign law and the other party
defaults, the Company may not enjoy protections comparable to those provided to
certain repurchase agreements under U.S. bankruptcy law, and may suffer delays
and losses in disposing of the collateral as a result. The Company has adopted
procedures designed to minimize certain of the risks of loss from the Company's
repurchase agreement transactions.
INVESTMENT POLICIES AND RESTRICTIONS
The Company has adopted the following six fundamental
investment policies, which cannot be changed without the vote of a majority of
the Company's outstanding voting securities (as defined by the 1940 Act):
(1) The Company will not invest more than 25% of the
value of its total assets in the securities (other
than U.S. Government Securities) of issuers engaged
in any single industry.
(2) The Company will not issue senior securities
representing stock, but may borrow money from banks,
brokers and other lenders, and may engage in
transactions involving the issuance by the Company of
"senior securities" representing indebtedness, to the
extent permitted by the 1940 Act.
(3) The Company will not underwrite securities of other
issuers, except insofar as the Company may be deemed
an underwriter under the 1933 Act in connection with
the disposition of its portfolio securities.
(4) The Company will not make loans of money or
securities to other persons, except through
purchasing fixed-income securities, lending portfolio
securities or entering into repurchase agreements in
a manner consistent with the Company's investment
policies.
(5) The Company will not purchase or sell commodities or
commodity contracts, but the Company may purchase and
sell foreign currency and enter into foreign currency
forward contracts, and may engage in other
transactions in financial instruments, in each case
to the extent permitted under the Company's
investment policies as in effect from time to time.
(6) The Company will not purchase, hold or deal in real
estate, but may invest in securities that are secured
by real estate or that are issued by companies that
invest or deal in real estate.
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<PAGE> 32
The investment objective of the Company is also fundamental
and may not be changed without a vote of a majority of the Company's outstanding
voting securities.
Under the 1940 Act, the vote of a majority of the outstanding
voting securities of an investment company, such as the Company, means the vote,
at an annual or a special meeting of the security holders of the company duly
called, (A) of 67 percent or more of the voting securities present at the
meeting, if the holders of more than 50 percent of the outstanding voting
securities of the company are present or represented by proxy; or (B) of more
than 50 percent of the outstanding voting securities of the company, whichever
is less.
With respect to these investment restrictions, and other
policies described in this Confidential Memorandum, if a percentage restriction
is adhered to at the time of entering into the investment or transaction, a
later change in percentage resulting from a change in the values of investments
or the value of the Company's total assets, unless otherwise stated, will not
constitute a violation of the restriction or policy. In addition to the
restrictions contained in the fundamental investment policies stated above, the
Company is subject to certain restrictions imposed by the 1940 Act on registered
investment companies, including restrictions with respect to its investment in
the securities of other investment companies, insurance companies and companies
engaged in certain securities related businesses.
Generally, the Company may not purchase or otherwise acquire
the securities of any company that derives more than 15% of its gross revenues
from securities related activities, which means activities as a broker, dealer,
underwriter or registered investment adviser (a "Securities Related Issuer"),
unless it complies with the following conditions: (i) immediately after a
purchase of equity securities of a Securities Related Issuer, the Company may
not own more than 5% of the outstanding securities of any class of equity
securities of the issuer; (ii) immediately after the purchase of a debt security
of a Securities Related Issuer, the Company may not own more than 10% of the
outstanding principal amount of the issuer's debt securities; and (iii)
immediately after any such purchase, the Company may not have invested more than
5% of its total assets in securities of the Securities Related Issuer. Under
applicable rules, the Company may not purchase any securities of a Securities
Related Issuer that is the investment adviser or principal underwriter of the
Company or is an affiliated person of the adviser or principal underwriter.
The Company is also generally prohibited from purchasing or
otherwise acquiring: (i) more than 3% of the outstanding voting securities of
any other investment company; (ii) securities issued by another investment
company having an aggregate value in excess of 5% of the total assets of the
Company; and (iii) securities of all investment companies having an aggregate
value in excess of 10% of the total assets of the Company.
In addition, the Company generally is prohibited from
purchasing or otherwise acquiring any security (not limited to equity or debt
individually) issued by any insurance company if the Company and any company
controlled by the Company own in the aggregate or, as a result of the purchase,
will own in the aggregate more than 10% of the total outstanding voting stock of
the insurance company. Certain state insurance laws impose similar limitations.
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<PAGE> 33
The BHC Act, together with the rules and regulations of the
Board of Governors of the Federal Reserve (the "Federal Reserve"), impose
certain restrictions on the ability of bank holding companies and their
subsidiaries to own equity securities of certain issuers. Canadian Imperial Bank
of Commerce ("CIBC"), the parent company of CIBC WM, the managing member of the
Adviser, is subject to the BHC Act and those rules and regulations. CIBC may
also be deemed to "control" the Company for purposes of the BHC Act as a result
of the Managers of the Company also serving on the boards of other CIBC WM
investment funds that may be deemed to be controlled by CIBC WM under the BHC
Act.
In particular, CIBC generally may not own or control, directly
or indirectly, more than 5% of the outstanding shares of any class of voting
securities or more than 25% of the outstanding equity (including subordinated
debt) of a non-banking company with business activities in the United States,
or, without the approval of the Federal Reserve and other appropriate regulatory
agencies, more than 5% of the outstanding shares of any class of voting
securities or more than 25% of the outstanding equity (including subordinated
debt) of any issuer that is a bank, bank holding company, thrift or thrift
holding company (the "Equity Limit"). Because CIBC may be deemed to control the
Company within the meaning of the BHC Act, the Company's holdings of all such
securities will be aggregated with those of CIBC and its subsidiaries (including
CIBC WM) for purposes of calculating the Equity Limit. Consequently, the Company
generally will be unable to purchase equity securities that, when taken together
with the equity securities of an issuer owned or controlled by CIBC and its
subsidiaries, would cause the Equity Limit to be exceeded. In addition, CIBC and
its subsidiaries generally will be precluded under the BHC Act from exerting a
"controlling influence over the management or policies" of a company with
business activities in the United States. Consequently, activities in relation
to companies in which the Company may invest will need to be conducted so as not
to result in a determination of "control" within the meaning of the BHC Act.
After March 11, 2000, the Equity Limit may no longer apply to
the Company, as a result of amendments to the BHC Act that take effect on that
date.
The Adviser does not expect that the restrictions imposed by
the BHC Act will adversely impact the investment operations of the Company.
The Adviser will not cause the Company to make loans to or
receive loans from the Adviser or its affiliates, except to the extent permitted
by the 1940 Act or as otherwise permitted by applicable law. The Company may
effect brokerage transactions through the affiliates of the Adviser, subject to
compliance with the 1940 Act. (See "Conflicts Of Interest - CIBC WM" and
"Brokerage.")
ADDITIONAL RISK FACTORS
SMALL AND MID CAPITALIZATION COMPANIES
A significant portion of the Company's assets will normally be invested in
securities of small and mid capitalization companies. Historically, such
securities have been more volatile in price than those of larger capitalized,
more established companies included in the Standard & Poor's
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<PAGE> 34
Composite Index of 500 Stocks (the "S&P 500"). The securities of small and mid
capitalization companies pose greater investment risks because such companies
may have limited product lines, distribution channels and financial and
managerial resources. Further, there is often less publicly available
information concerning such companies than for larger, more established
businesses. The equity securities of small and mid capitalization companies are
often traded over-the-counter or on regional exchanges and may not be traded in
the volumes typical on a national securities exchange. Consequently, the Company
may be required to dispose of such securities over a longer (and potentially
less favorable) period of time than is required to dispose of the securities of
larger, more established companies. Investments in companies with limited
operating histories are more speculative and entail greater risk than do
investments in companies with an established operating record.
INCENTIVE ALLOCATION
The special allocation of 20% of net profits to the Special
Advisory Account (defined below) of the Adviser may create an incentive for the
Adviser to cause the Company to make investments that are riskier or more
speculative than would be the case in the absence of the Incentive Allocation.
In addition, because the allocation is calculated on a basis that includes
unrealized appreciation of the Company's assets, the Incentive Allocation may be
greater than if it were based solely on realized gains. (See "Capital Accounts
and Allocations - Incentive Allocation.")
TAX RISKS
Counsel to the Company will render an opinion that the Company
will be treated as a partnership and not as an association taxable as a
corporation for Federal income tax purposes. Counsel to the Company has also
rendered its opinion that, under a "facts and circumstances" test set forth in
regulations adopted by the U.S. Treasury Department, the Company will not be
treated as a "publicly traded partnership" taxable as corporation. If it were
determined that the Company should be treated as an association or publicly
traded partnership taxable as a corporation (as a result of a successful
challenge to the opinions rendered by counsel to the Company or otherwise), the
taxable income of the Company would be subject to corporate income tax and
distributions of profits from the Company would be treated as dividends. (See
"Tax Aspects - Tax Treatment of Company Operations - Classification of the
Company.")
LACK OF OPERATING HISTORY
The Company is a recently formed entity and has no operating
history upon which investors can evaluate the performance of the Company.
However, the principal members of the Adviser responsible for managing the
Company's investment portfolio (including such members' employees and
affiliates) have substantial experience in managing investment portfolios and
private investment funds. Moreover, CWH, the member of the Adviser that is
primarily responsible for managing the Company's investment portfolio, has
substantial experience in managing private investment funds that have investment
programs that are substantially similar to the Company's investment program.
(See "Performance Information," "The Adviser, CIBC
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<PAGE> 35
WM and CWH Associates, Inc." and "Conflicts of Interest - Participation in
Investment Opportunities.")
LIQUIDITY RISKS
Interests are not traded on any securities exchange or other
market and are subject to substantial restrictions on transfer. Although the
Company may offer to repurchase Interests from time to time, a Member may not be
able to liquidate its Interest in the Company for up to two years. The Adviser
expects that it will recommend to the Board of Managers that the Company offer
to repurchase Interests from Members at the end of 2000, and, for each year
thereafter, twice each year, effective at the end of the second fiscal quarter
and again at the end of the year. (See "Redemptions, Repurchases of Interests
and Transfers.")
DISTRIBUTIONS TO MEMBERS AND PAYMENT OF TAX LIABILITY
The Company does not intend to make periodic distributions of
its net income or gains, if any, to Members. Whether or not distributions are
made, Members will be required each year to pay applicable Federal and state
income taxes on their respective shares of the Company's taxable income, and
will have to pay applicable taxes from other sources. The amount and times of
any distributions will be determined in the sole discretion of the Board of
Managers.
PERFORMANCE INFORMATION
Appendix B contains performance information for Worthington
Growth L.P., a private investment partnership managed by an entity controlled by
CWH, with an investment program substantially similar to that of the Company,
from January 1, 1990 through December 31, 1999. The future performance of the
Company may differ from that of Worthington Growth L.P. (See "Conflicts of
Interest -- Participation in Investment Opportunities.") PAST PERFORMANCE DOES
NOT GUARANTEE FUTURE RESULTS.
BOARD OF MANAGERS
The Board of Managers has overall responsibility for the
management and supervision of the operations of the Company and has approved
the Company's investment program. It exercises the same powers, authority and
responsibilities on behalf of the Company as are customarily exercised by the
directors of a registered investment company organized as a corporation, and it
has complete and exclusive authority to oversee and to establish policies
regarding the management, conduct and operation of the Company's business.
Managers will not contribute to the capital of the Company in their capacity as
Managers, but may subscribe for Interests, subject to the eligibility
requirements described in this Confidential Memorandum.
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<PAGE> 36
The identity of the Board of Managers, and brief biographical
information regarding each Manager, is set forth below.
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH THE COMPANY DURING PAST 5 YEARS
- ----------------------------- -------------------- --------------------------------------------------------------
<S> <C> <C>
Sol Gittleman Manager Mr. Gittleman has been Senior Vice President and
Provost of Tufts University since 1981. He is a
Ballou Hall Director of the Mexico Equity and Income Fund, Inc. and
Tufts University CIBC Oppenheimer Technology Partners, L.L.C., as well
Medford, MA 02155 as an Individual General Partner of Augusta Partners,
Age 64 L.P. and Troon Partners, L.P.
Luis Rubio Manager Dr. Rubio is President of Centro de Investigation Para El
Desarrollo, A.C. (Center of Research Development), Adjunct
Centro de Investigacion Fellow, Center for Strategic and International Studies and a
Para El Desarrollo, A.C. Member of the Advisory Board of the National Council of Science
Jaime Balmes No. 11, D-2 and Technology of Mexico. He is also a Director of The Central
Los Morales Polanco European Value Fund, Inc., The Mexico Equity and Income Fund,
Mexico D.F. 11510 Inc. and CIBC Oppenheimer Technology Partners, L.L.C., as well
Age 43 as certain other offshore private investment funds associated
with CIBC WM. He is also an Individual General Partner of
Augusta Partners, L.P. and Troon Partners, L.P. From 1991 to
1993, Dr. Rubio was a Director of Banco National de Mexico S.A.
Janet L. Schinderman Manager Ms. Schinderman is Associate Dean for Special Projects and
Secretary to the Board of Overseers at Columbia Business
Columbia Business School School of Columbia University. From 1987 to 1990, she served
Office of the Dean as Executive Assistant to the President at the Illinois
101 Uris Hall Institute of Technology. Ms. Schinderman is also an
Columbia University Individual General Partner of Augusta Partners, L.P. and
New York, NY 10027 Troon Partners, L.P.
Age 47
</TABLE>
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<PAGE> 37
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH THE COMPANY DURING PAST 5 YEARS
- ----------------------------- -------------------- --------------------------------------------------------------
<S> <C> <C>
Alan Rappaport* Manager Mr. Rappaport is a Managing Director, Asset
CIBC World Markets Corp. Management, CIBC WM. Since 1993, he has served as
1 World Financial Center Director and President of Advantage Advisers, Inc.
New York, NY 10281 Mr. Rappaport also serves as an Individual General
Age 45 Partner of Troon Partners, L.P. and Augusta
Partners, L.P.
Howard M. Singer* Manager Mr. Singer is a Managing Director, Asset
Management, CIBC WM.
CIBC World Markets Corp.
1 World Financial Center
New York, NY 10281
Age 36
</TABLE>
* Manager who is an "interested person" (as defined in the 1940 Act) of the
Company.
The Managers serve for terms of indefinite duration. A
Manager's position in that capacity will terminate if the Manager is removed,
resigns or is subject to various disabling events such as death, incapacity or
bankruptcy. A Manager may resign, subject to giving 90 days' prior written
notice to the other Managers if such resignation is likely to affect adversely
the tax status of the Company, and may be removed either by vote of two-thirds
(2/3) of the Managers not subject to the removal vote or by a vote of the
Members holding not less than two-thirds (2/3) of the total number of votes
eligible to be cast by all Members. In the event of any vacancy in the position
of an Manager, the remaining Managers may appoint an individual to serve as an
Manager, so long as immediately after the appointment at least two-thirds (2/3)
of the Managers then serving would have been elected by the Members. The Board
of Managers may call a meeting of Members to fill any vacancy in the position of
an Manager, and must do so within 60 days after any date on which Managers who
were elected by the Members cease to constitute a majority of Managers then
serving.
The following table sets forth certain information regarding
the compensation expected to be received by the Managers from the Company and
from all registered investment companies for which the Adviser or its affiliates
serve as investment adviser for the calendar year ending December 31, 2000.
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<PAGE> 38
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Benefits Accrued Annual Compensation
Compensation as Part of Company Benefits Upon from CIBC
Name of Person from Company Expenses Retirement WM Registered Funds
- --------------------- ----------------- ------------------- ---------------- ---------------------
<S> <C> <C> <C> <C>
Sol Gittleman $7,800 0 0 $31,200
Luis Rubio $7,800 0 0 $46,800
Janet Schinderman $7,800 0 0 $23,400
</TABLE>
Currently, the Managers are each paid an annual retainer of
$5,000 and per meeting fees of $700 (or $100 in the case of telephonic meetings)
by the Company. All Managers are reimbursed by the Company for their reasonable
out-of-pocket expenses. The Managers do not receive any pension or retirement
benefits from the Company.
THE ADVISER, CIBC WM AND
CWH ASSOCIATES, INC.
The Adviser serves as the Company's investment adviser and has
been given the responsibility to manage the investment portfolio of the Company,
subject to the ultimate supervision of and subject to any policies collectively
established by the Board of Managers, including the Company's fundamental
investment policies, pursuant to the terms of an investment advisory agreement
entered into between the Company and the Adviser dated as of January __, 2000
(the "Investment Advisory Agreement").
The Adviser was formed as a Delaware limited liability company
in October 1997 and is registered as an investment adviser under the Investment
Advisers Act of 1940 (the "Advisers Act"). The Adviser serves or will serve as
an investment adviser or general partner of other registered and private
investment companies. The offices of the Adviser are located at One World
Financial Center, 31st Floor, 200 Liberty Street, New York, New York 10281, and
its telephone number is (212) 667-4225.
CIBC WM is the managing member of (and therefore controls) the
Adviser and oversees the Adviser's provision of investment advice to the
Company. CWH is a non-managing member of the Adviser and provides the Adviser
with use of and access to such of its personnel, research and facilities as the
Adviser requires to manage the Company's investment portfolio. Such personnel
have the responsibility, subject only to the supervision of the personnel of
CIBC WM and the Board of Managers, for the investment advisory services provided
to the Company. The interest of CIBC WM and CWH in the Adviser, as it relates to
the Adviser's business of providing services to the Company, is represented by a
separate series of interests in the Adviser relating specifically to such
business. Pursuant to applicable law, the debts, liabilities and obligations of
the Adviser related to that series of interests are enforceable against the
assets of
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<PAGE> 39
that series only, and not against the assets of any other series or of the
Adviser generally. Similarly, the debts, liabilities and obligations of the
Adviser relating to any other series of interests are not enforceable against
the assets of the series relating to the Company. Other series of interests in
the Adviser represent interests in other business activities of the Adviser.
Because of certain provisions of the U.S. banking laws, the
Adviser and companies controlling the Adviser (including CIBC WM, its managing
member, and CIBC, CIBC WM's parent) may be deemed to "control" the Company, as
such term is defined by the 1940 Act. As a result, certain activities of the
Company may be restricted by the BHC Act and the rules and regulations
thereunder as described elsewhere in this Confidential Memorandum.
CIBC WM is a member of the New York Stock Exchange and other
principal securities exchanges. As a registered broker-dealer, CIBC WM is
subject to the informational requirements of the U.S. Securities Exchange Act of
1934, as amended, and in accordance therewith files reports with the SEC. Such
reports filed by CIBC WM with the SEC will be made available to any prospective
investor upon request. CIBC, the parent company of CIBC WM, and its affiliates,
including CIBC WM, are subject to the BHC Act and the rules and regulations of
the Federal Reserve. CIBC WM is registered as an investment adviser with the SEC
pursuant to the Advisers Act.
CIBC WM is the U.S. corporate, investment, institutional and
private client banking arm of CIBC, which currently is the second-largest bank
in Canada, with assets of approximately U.S. $[174] billion as of [December 31,
1999]. Although CIBC has conducted business in the United States for over a
century, the name "CIBC Oppenheimer Corp." was adopted in November 1997 when
CIBC Wood Gundy Securities Corp. acquired Oppenheimer & Co., Inc., one of the
largest privately owned, full-service securities firms in the U.S. At the time
of the acquisition, the combined company was renamed "CIBC Oppenheimer Corp."
Effective May 3, 1999, CIBC Oppenheimer Corp. changed its name to CIBC World
Markets Corp. Known globally under the marketing name CIBC World Markets, this
worldwide business offers a complete range of investment and corporate banking,
capital markets, asset management and brokerage activities. CIBC WM also
provides wealth management and retail brokerage services under the marketing
name CIBC Oppenheimer. CIBC WM has approximately 4,500 employees in the United
States and 9,000 worldwide.
CWH, a non-managing member of the Adviser, was formed in 1989
by its majority shareholder, Clifford W. Henry. CWH is registered as an
investment adviser with the SEC pursuant to the Advisers Act and manages
investment portfolios for individual and institutional accounts. CWH had assets
under management of approximately $50 million as of December 31, 1999. Through
its affiliate, Scottsdale Associates, L.P., CWH acts as the general partner of
Worthington Growth L.P., a private investment partnership formed in 1989, which
has an investment program substantially similar to that of the Company.
The personnel of CWH who have the primary responsibility for
the investment advisory services provided on behalf of the Adviser to the
Company are:
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CLIFFORD W. HENRY, age 60, is the Chairman and President of
CWH Associates, Inc. Mr. Henry's business experience is as follows: In 1981, Mr.
Henry founded, and until 1988, Mr. Henry was a partner and member of the
Investment Policy Committee of Dawson-Henry Capital Management ("Dawson-Henry"),
an investment management firm, which specialized in equity investments for
individuals and pension funds. During such time, Mr. Henry also served as a
general partner of Southport Management Limited Partnership, a private
investment fund for individuals managed by Dawson-Henry. Mr. Henry's
responsibilities at Southport Management included direction of overall
investment policies, with a special emphasis on emerging growth, financial, and
consumer groups. In addition, Mr. Henry was responsible for the research and
implementation of a real time valuation model for the general market and
individual stocks.
ANDREW M. ABRAMS, age 49, is the Chief Operating Officer of
CWH Associates, Inc. Mr. Abrams business experience is as follows: prior to
joining CWH Associates, Mr. Abrams was general partner of Abrams Investment
Partners, a partnership he founded in 1990 which merged with CWH Associates.
Previously, he was senior vice president of institutional sales for Rauscher,
Pierce, Refsnes, a Dallas-based brokerage firm. Earlier, he was senior vice
president of institutional sales and a member of the stock selection committee
at L.F. Rothchild, Unterberg Towbin, Inc., and, before that, senior vice
president of institutional sales with Mabon Nugent. Between 198l and 1985, he
was senior vice president of institutional sales at Prudential-Bache Securities
and DQ Securities, a spin-off of Dataquest.
Pursuant to the Investment Advisory Agreement, the Adviser is
responsible, subject to the supervision of the Board of Managers, for the
management of the Company's investment portfolio in accordance with the
investment objective and policies of the Company. The Adviser formulates a
continuing investment program for the Company. It makes all decisions regarding
investments to be purchased or sold for the Company (subject to the supervision
of the Board of Managers) and places all orders for the purchase and sale of
investments.
The Investment Advisory Agreement was approved by the Board of
Managers (by those Managers that are not an "interested persons" of the Company,
as defined by the 1940 Act)), at a meeting held in person on [January --, 2000],
and was also approved on that date by Howard M. Singer, the then sole member of
the Company. The Investment Advisory Agreement is terminable without penalty, on
60 days' prior written notice: by the Board of Managers; by vote of a majority
(as defined by the 1940 Act) of the outstanding voting securities of the
Company; or by the Adviser. The initial term of the Investment Advisory
Agreement expires on January ___, 2002 . However, the agreement may be continued
in effect from year to year thereafter if such continuance is approved annually
by either the Board of Managers or the vote of a majority (as defined by the
1940 Act) of the outstanding voting securities of the Company; provided that in
either event the continuance is also approved by a majority of the Managers who
are not "interested persons" of the Company or the Adviser by vote cast in
person at a meeting called for the purpose of voting on such approval. The
Investment Advisory Agreement also provides that it will terminate automatically
in the event of its "assignment," as defined by the 1940 Act and the rules
thereunder.
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The Investment Advisory Agreement provides that, in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations to the Company, the Adviser and any member,
director, officer or employee thereof, or any of their affiliates, executors,
heirs, assigns, successors or other legal representative, will not be liable to
the Company for any error of judgment, for any mistake of law or for any act or
omission by such person in connection with the performance of services to the
Company. The Investment Advisory Agreement also provides for indemnification, to
the fullest extent permitted by law, by the Company of the Adviser, or any
member, director, officer or employee thereof, and any of their affiliates,
executors, heirs, assigns, successors or other legal representatives, against
any liability or expense to which such person may be liable which arise in
connection with the performance of services to the Company, provided that the
liability or expense is not incurred by reason of the person's willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations to the Company.
The Investment Advisory Agreement provides that in
consideration of the services provided by the Adviser, the Adviser shall be
entitled to be the Special Advisory Member of the Company. In such capacity, the
Adviser is entitled to receive the Incentive Allocation. (See "Capital Accounts
and Allocations -- Incentive Allocation.") The incentive allocation arrangement
between the Company and the Adviser was also approved by the Board of Managers
(by those Managers that are not an "interested persons" of the Company, as
defined by the 1940 Act)), and by vote of Howard M. Singer, as the then sole
member of the Company, on January __, 2000.
VOTING
Each Member has the right to cast a number of votes based on
the value of the Member's respective capital account at any meeting of Members
called by the Board of Managers or by Members holding 25% or more of the total
number of votes eligible to be cast. Members will be entitled to vote on any
matter on which shareholders of a registered investment company organized as a
corporation would normally be entitled to vote, including election of Managers,
approval of the agreement with the investment adviser of the Company, and
approval of the Company's auditors, and on certain other matters. Except for the
exercise of their voting privileges, Members in their capacity as such are not
entitled to participate in the management or control of the Company's business,
and may not act for or bind the Company. The interest of the Special Advisory
Member is non-voting.
CONFLICTS OF INTEREST
CIBC WM
In addition to serving as the managing member of the Adviser,
CIBC WM (directly or through its affiliates, including the Adviser) carries on
substantial investment activities for its own account and for other registered
investment companies, private investment partnerships, institutions and
individual clients (collectively, "CIBC WM Clients"). The
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Company has no interest in these activities. As a result of the foregoing, CIBC
WM and its officers or employees who assist CIBC WM in its management of the
Adviser will be engaged in substantial activities other than on behalf of the
Adviser and may have conflicts of interest in allocating their time and activity
between the Adviser and CIBC WM Clients. Nevertheless, CIBC WM and its officers
and employees will devote so much time to the affairs of the Adviser as in their
judgment is necessary and appropriate.
CIBC WM acts as the placement agent for the Company and will
bear costs associated with its activities as placement agent. CIBC WM, as
managing member of the Adviser and in its capacity as placement agent for the
Company, intends to compensate its account executives for their ongoing
servicing of CIBC WM clients with whom they have placed Interests. CIBC WM
intends to compensate its account executives based upon a formula that takes
into account the amount of client assets being serviced as well as the
investment results attributable to clients' assets invested in the Company.
Additionally, in connection with initial and additional purchases of Interests,
an investor's account executive may charge the investor a sales commission of up
to 3% of the amount transmitted for such purchase (up to 3.1% of the amount
invested), as the sole discretion of the account executive. (See "Fees and
Expenses", "Capital Accounts and Allocations - Incentive Allocation" and
"Subscriptions for Interests - Sales Charge.")
Situations may arise in which accounts affiliated with CIBC WM
or its affiliates have purchased securities that would have been suitable for
investment by the Company but which the Company, for various reasons, did not
choose to purchase. This could affect the availability (or price) of investments
to the Company at a later time. From time to time, in the course of its
brokerage, investment or dealer activities, CIBC WM or its affiliates may trade,
position or invest in, for its own account, the same securities, as those in
which the Company invests. This could have an adverse impact on the Company's
investment performance.
CIBC WM and its affiliates may provide brokerage and other
services from time to time to one or more accounts or entities managed by CWH or
one of its affiliates.
CWH
CWH, its affiliates and certain of the investment
professionals who are principals of or employed by CWH or its affiliates
(collectively with CWH, the "CWH Affiliates") carry on substantial investment
activities for other advised accounts and for their own accounts. In addition,
the CWH Affiliates advise (or serve as general partner of) private investment
funds, and may in the future serve in a similar capacity for other pooled
investment vehicles, including registered investment companies and additional
private investment funds, established by CWH or others, with investment programs
similar to that of the Company. (All accounts managed by the CWH Affiliates,
excluding the Company, are referred to collectively as the "CWH Accounts.") The
Company has no interest in these activities. As a result of the foregoing, CWH
and the investment professionals of CWH who, on behalf of the Adviser, will
manage the Company's investment portfolio will be engaged in substantial
activities other than on behalf of the Adviser and may have conflicts of
interest in allocating their time and activity between the
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Company and the CWH Accounts. These persons will devote only so much time to the
affairs of the Adviser as in the judgment of CWH is necessary and appropriate.
In addition, the CWH Affiliates may receive research products
and services in connection with the brokerage services that CIBC WM and its
affiliates may provide from time to time (i) to one or more CWH Accounts or (ii)
to the Company.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Adviser and the CWH Affiliates serve or may serve as the
investment adviser for certain private investment companies and may be appointed
in the future to serve as the investment adviser to other registered investment
companies, private investment partnerships or managed accounts that may pursue
an investment strategy similar to that of the Company (the "Other Accounts"). As
a general matter, the Adviser (subject to any policies established by the Board
of Managers) will consider participation by the Company in all appropriate
investment opportunities that are under consideration by the Adviser or the CWH
Affiliates for investment for the Other Accounts. There may be circumstances,
however, under which the Adviser or the CWH Affiliates will cause one or more of
the Other Accounts to commit a larger percentage of their respective assets to
an investment opportunity than to which the Adviser will commit the Company's
assets. There may also be circumstances under which the Adviser or the CWH
Affiliates will consider participation by the Other Accounts in investment
opportunities in which the Adviser does not intend to invest on behalf of the
Company.
The Adviser will evaluate for the Company, and it is
anticipated that the CWH Affiliates will evaluate for each CWH Account, a
variety of factors that may be relevant in determining whether, and to what
extent, a particular investment opportunity or strategy is appropriate and
feasible for the Company or a CWH Account at a particular time, including, but
not limited to, the following: (1) the nature of the investment opportunity
taken in the context of the other investments at the time; (2) the liquidity of
the investment relative to the needs of the particular entity or account; (3)
the availability of the opportunity (i.e., size of obtainable position); (4) the
transaction costs involved; and (5) the investment or regulatory limitations
applicable to the particular entity or account. Because these considerations may
differ for the Company and the CWH Accounts in the context of any particular
investment opportunity, the investment activities of the Company and the CWH
Accounts may differ from time to time. In addition, the fees and expenses of the
Company may differ from those of the CWH Accounts. Accordingly, prospective
Members should note that the future performance of the Company and the CWH
Accounts or Other Accounts may vary.
When the Adviser and the CWH Affiliates determine that it
would be appropriate for the Company and one or more CWH Accounts, respectively,
to participate in an investment opportunity at the same time, they will
aggregate, place and allocate orders on a basis that the Adviser believes to be
fair and equitable, consistent with its responsibilities under the Advisers Act
and the 1940 Act. Decisions in this regard are necessarily subjective and there
is no requirement that the Company participate, or participate to the same
extent as the CWH Accounts, in all trades. However, no participating entity or
account will receive preferential
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treatment over any other and the Adviser and the CWH Affiliates will take steps
to ensure that no participating entity or account (including the Company) will
be systematically disadvantaged by the aggregation, placement and allocation of
orders.
Situations may occur, however, where the Company could be
disadvantaged because of the investment activities conducted by the CWH
Affiliates for the CWH Accounts. These situations may be based on, among other
things, the following: (1) legal restrictions on the combined size of positions
that may be taken for the Company and the CWH Accounts, thereby limiting the
size of the Company's position; (2) the difficulty of liquidating an investment
for the Company and the CWH Accounts where CWH cannot absorb the sale of the
combined positions; and (3) the determination that a particular investment is
warranted only if hedged with an option or other instrument and there is a
limited availability of these options or other instruments. In particular, the
Company may be legally restricted from entering into a "joint transaction" (as
defined in the 1940 Act) with the CWH Accounts with respect to the securities of
an issuer without first obtaining exemptive relief from the SEC. (See "Conflicts
Of Interest - Other Matters.")
The members of the Adviser, and their directors, officers and
employees, may buy and sell securities or other investments for their own
accounts and may have actual or potential conflicts of interest with respect to
investments made on behalf of the Company. As a result of differing trading and
investment strategies or constraints, positions may be taken by directors,
officers and employees of CIBC WM or CWH, or by the CWH Affiliates for the CWH
Accounts, that are the same, different or made at a different time than
positions taken for the Company. In order to mitigate the possibility that the
Company will be adversely affected by this personal trading, the Company and the
Adviser have adopted a Joint Code of Ethics in compliance with Section 17(j) of
the 1940 Act that restricts securities trading in the personal accounts of
investment professionals and others who normally come into possession of
information regarding the Company's portfolio transactions.
OTHER MATTERS
The Adviser and its members (and affiliated persons of its
members) will not purchase securities or other property from, or sell securities
or other property to, the Company. However, CIBC WM and its affiliated
broker-dealers may act as broker for the Company in effecting securities
transactions. (See "Brokerage.") In addition, the Company may effect certain
principal transactions in securities with one or more CWH Accounts, except for
accounts in which CWH or any affiliate thereof serves as a general partner or
certain accounts in which it has a financial interest (other than an interest
that results solely from CWH's or any affiliate's appointment as an investment
adviser to the account). These transactions would be effected in circumstances
where the Adviser has determined that it would be appropriate for the Company to
purchase and a CWH Account to sell, or the Company to sell and a CWH Account to
purchase, the same security or instrument on the same day. The purchases and
sales would be made pursuant to procedures adopted by the Company pursuant to
Rule 17a-7 under the 1940 Act. Among other things, those procedures are intended
to ensure that: (1) each transaction will be effected for cash consideration at
the current market price of the particular securities; (2) no
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transaction will involve restricted securities or securities for which market
quotations are not readily available; and (3) no brokerage commissions, fees
(except for customary transfer fees) or other remuneration will be paid in
connection with the transaction.
The Company is not permitted to purchase or sell securities of
any issuer as to which the Adviser has obtained material, non-public
information, until such time as the information is no longer material or has
become publicly known. This policy could adversely affect the Company's
investment performance because the Company may (i) hold securities of an issuer
with respect to which the Adviser has adverse information, or (ii) not purchase
securities of any issuer with respect to which the Adviser has favorable
information.
As a result of the investment banking and corporate finance
activities of CIBC WM, the Company may be subject to future restrictions on its
ability to purchase or sell certain securities. Additionally, the Company may
purchase securities during the existence of an underwriting or selling syndicate
in which CIBC WM or any of its affiliates is participating only subject to
certain conditions. This could have an adverse impact on the Company's
investment performance.
Under the BHC Act, or other U.S. banking laws, and the rules,
regulations, guidelines and policies of the regulatory agencies and the staff
thereof, CIBC WM and its affiliates are subject to restrictions on the
transactions which it may make with the Company, and their restrictions may
affect the investments made by the Company.
Future investment activities of CIBC WM (or its affiliates) or
CWH (or its affiliates) and their principals, partners, directors, officers or
employees may give rise to additional conflicts of interest.
BROKERAGE
The Adviser is responsible for the execution of the Company's
portfolio transactions and the allocation of brokerage. Transactions on U.S.
stock exchanges and on some foreign stock exchanges involve the payment of
negotiated brokerage commissions. On the great majority of foreign stock
exchanges, commissions are fixed. No stated commission is generally applicable
to securities traded in over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups.
In executing transactions on behalf of the Company, the
Adviser seeks to obtain the best price and execution for the Company, taking
into account factors such as price, size of order, difficulty of execution and
operational facilities of a brokerage firm, and in the case of transactions
effected by the Company with unaffiliated brokers, the firm's risk in
positioning a block of securities. Although the Adviser generally seeks
reasonably competitive commission rates, the Company will not necessarily pay
the lowest commission available on each transaction. The Company has no
obligation to deal with any broker or group or brokers in executing transactions
in portfolio securities.
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Consistent with the principle of seeking best price and
execution, the Adviser may place brokerage business on behalf of the Company
with brokers (including affiliates of CIBC WM) that provide the Adviser and CWH
with supplemental research, market and statistical information, including advice
as to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. The expenses of the Adviser are not necessarily reduced
as a result of the receipt of this supplemental information, which may be useful
to the Adviser, CWH and their respective affiliates in providing services to
clients other than the Company. In addition, not all of the supplemental
information is used by the Adviser in connection with the Company. Conversely,
the information provided to the Adviser by brokers and dealers through which
other clients of the Adviser, CWH and their respective affiliates effect
securities transactions may be useful to the Adviser in providing services to
the Company.
Although the Company cannot accurately predict its portfolio
turnover, the Company generally expects that its annual portfolio turnover rate
will not exceed 100%. Higher portfolio turnover rates usually generate
additional brokerage commissions and expenses and the short-term gains realized
from these transactions are taxable to the Members as ordinary income.
The Company may execute portfolio brokerage transactions
through CIBC WM or its affiliates. These transactions would be effected pursuant
to procedures adopted by the Company pursuant to Section 17(e) of the 1940 Act
and Rule 17e-1 thereunder. Among other things, Section 17(e) and those
procedures provide that when acting as broker for the Company in connection with
the sale of securities to or by the Company, neither CIBC WM nor any of its
affiliates may receive any compensation exceeding the following limits: (1) if
the sale is effected on a securities exchange, the compensation may not exceed
the "usual and customary broker's commission" (as defined in Rule 17e-1 under
the 1940 Act); (2) if the sale is effected in connection with a secondary
distribution of securities, the compensation cannot exceed 2% of the sale price;
and (3) the compensation for sales otherwise effected cannot exceed 1% of the
sales price. Rule 17e-1 defines a "usual and customary broker's commission" as
one that is fair compared to the commission received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on an exchange during a comparable period of time. Morgan
Stanley Dean Witter will serve as the Company's prime broker.
FEES AND EXPENSES
CIBC WM provides certain administration and investor services
to the Company, including, among other things, providing office space and other
support services to the Company, screening potential investors, preparing
marketing and investor communications, maintaining and preserving certain
records of the Company, preparing and filing various materials with state and
Federal regulators, providing legal and regulatory advice in connection with
administrative functions and reviewing and arranging for payment of the
Company's expenses. In consideration for these services, the Company pays CIBC
WM a monthly fee of
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0.08333% (1% on an annualized basis) of the Company's net assets (the "CIBC WM
Fee"). Net assets means the total value of all assets of the Company, less an
amount equal to all accrued debts, liabilities and obligations of the Company.
The CIBC WM Fee is computed based on the net assets of the Company as of the
start of business on the first business day of each month, after adjustment for
any subscriptions effective on that date, and is due and payable in arrears
within five business days after the end of that month. The CIBC WM Fee is
charged in each fiscal period to the capital accounts of all Members (except the
Special Advisory Account (defined below)) in proportion to their capital
accounts at the beginning of that fiscal period. A portion of the CIBC WM Fee is
paid by CIBC WM to CWH.
PFPC Inc. ("PFPC") provides administration, accounting and
investor services to the Company, which are in addition to the services provided
by CIBC WM to the Company, as described above. In consideration for these
services, the Company pays PFPC a fee (the "PFPC Fee") that is not anticipated
to exceed 0.35% (annualized) of the Company's net assets, plus reimbursement of
certain out-of-pocket expenses.
In addition, the capital accounts of Members (except the
Special Advisory Account (defined below)) may be subject to an Incentive
Allocation depending upon the investment performance of the Company. (See
"Capital Accounts And Allocations - Incentive Allocation.")
The Company bears all expenses incurred in its business and
operations, other than those specifically required to be borne by CIBC WM.
Expenses borne by the Company include, but are not limited to, the following:
- all costs and expenses directly related to
portfolio transactions and positions for the
Company's account, including, but not limited to,
brokerage commissions, research fees, interest and
commitment fees on loans and debit balances,
borrowing charges on securities sold short, dividends
on securities sold but not yet purchased, custodial
fees, margin fees, transfer taxes and premiums, taxes
withheld on foreign dividends and indirect expenses
from investments in investment funds;
- all costs and expenses associated with the
organization and registration of the Company, certain
offering costs and the costs of compliance with any
applicable Federal or state laws;
- attorneys' fees and disbursements
associated with updating the Company's Confidential
Memorandum and subscription documents (the "Offering
Materials"); the costs of printing the Offering
Materials; the costs of distributing the Offering
Materials to prospective investors; and attorneys'
fees and disbursements associated with the review of
subscription documents executed and delivered to the
Company in connection with offerings of Interests;
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- the costs and expenses of holding meetings
of the Board of Managers and any meetings of Members;
- fees and disbursements of any attorneys,
accountants, auditors and other consultants and
professionals engaged on behalf of the Company. In
the event that consultants and professionals are
retained for the benefit of the Company and one or
more other accounts managed by the Adviser or CWH,
such fees will be allocated among all such accounts
based on relative net assets;
- the CIBC WM Fee and the fees of custodians
and persons (such as PFPC) providing administrative
services to the Company;
- the costs of a fidelity bond and any
liability insurance obtained on behalf of the Company
or the Board of Managers;
- all expenses of computing the Company's net
asset value, including any equipment or services
obtained for these purposes;
- all charges for equipment or services used
in communicating information regarding the Company's
transactions among the Adviser and any custodian or
other agent engaged by the Company; and
- such other types of expenses as may be
approved from time to time by the Board of Managers.
The Adviser will be reimbursed by the Company for any of the
above expenses that it pays on behalf of the Company.
The Company's organizational expenses are estimated at
$175,000, and the Company will also bear certain expenses, not to exceed
$100,000, associated with the initial offering of Interests. Before a recent
change to the guidelines followed by the American Institute of Certified Public
Accountants applicable to the Company, the Company would have been able to
amortize the organizational expenses over a 60 month period. Because of that
change, however, the organizational expenses now must be expensed as incurred.
In order to achieve a more equitable distribution of the impact of those
expenses among the Company's Members, an amount equal to the organizational
expenses incurred by the Company will be allocated among and credited to or
debited against the capital accounts (described below) of all Members based on
the percentage that a Member's contributed capital to the Company bears to the
total capital contributed to the Company by all Members as of the relevant
allocation date. An initial allocation of organizational costs will be made as
of the first date on which capital contributions of Members are made. These
allocations will thereafter be adjusted as of each date, through and including
December 1, 2000, on which additional capital is contributed to the Company by
Members. Offering costs cannot be deducted by the Company or the Members.
CAPITAL ACCOUNTS AND ALLOCATIONS
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CAPITAL ACCOUNTS
The Company maintains a separate capital account for each
Member (including the Adviser in respect of the Adviser's capital contribution
to the Company, as a Member), which has an opening balance equal to the Member's
initial contribution to the capital of the Company. Each Member's capital
account is increased by the sum of the amount of cash and the value of any
securities constituting additional contributions by the Member to the capital of
the Company, plus any amounts credited to the Member's capital account as
described above with respect to organization expenses or as described below.
Similarly, each Member's capital account is reduced by the sum of the amount of
any repurchase by the Company of the interest, or portion thereof, of the
Member, plus the amount of any distributions to the Member which are not
reinvested, plus any amounts debited against the Member's capital account as
described above with respect to organization expenses or as described below.
Capital accounts of Members are adjusted as of the close of
business on the last day of each fiscal period. Fiscal periods begin on the day
after the last day of the preceding fiscal period and end at the close of
business on (1) the last day of each year, (2) the day preceding the date on
which a contribution to the capital of the Company is made, (3) the day on which
the Company repurchases any Interest or portion of an Interest of any Member, or
(4) the day on which any amount is credited to or debited from the capital
account of any Member other than an amount to be credited to or debited from the
capital accounts of all Members in accordance with their respective investment
percentages. An investment percentage is determined for each Member as of the
start of each fiscal period by dividing the balance of the Member's capital
account as of the commencement of the period by the sum of the balances of all
capital accounts of all Members as of that date.
The Company maintains a "Special Advisory Account" for the
Adviser solely for the purpose of receiving the Incentive Allocation, as
described below.
ALLOCATION OF NET PROFITS AND NET LOSSES
Net profits or net losses of the Company for each fiscal
period are allocated among and credited to or debited against the capital
accounts of all Members (but not the Special Advisory Account) as of the last
day of the fiscal period in accordance with Members' respective investment
percentages for the fiscal period. Net profits or net losses are measured as the
net change in the value of the net assets of the Company (including any net
change in unrealized appreciation or depreciation of investments and realized
income and gains or losses and expenses (including organizational expenses)
during a fiscal period), before giving effect to any repurchases by the Company
of Interests or portions thereof, and excluding the amount of any items to be
allocated among the capital accounts of the Members other than in accordance
with the Members' respective investment percentages.
Allocations for Federal income tax purposes generally will be
made among the Members so as to reflect equitably amounts credited to or debited
from to each Member's capital account for the current and prior fiscal years.
(See "Tax Aspects - Allocation of Profits and Losses.")
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INCENTIVE ALLOCATION
So long as the Adviser serves as the investment adviser of the
Company, the Adviser is entitled to be the Special Advisory Member of the
Company. In such capacity, the Adviser is entitled to receive an incentive
allocation (the "Incentive Allocation"), charged to the capital account of each
Member as of the last day of each "allocation period," of 20% of the amount by
which any "allocated gain" during an "allocation period" exceeds the positive
balance in the Member's "loss recovery account." The Incentive Allocation will
be credited to the Special Advisory Account of the Adviser.
For purposes of calculating the Incentive Allocation,
"allocated gain" means the excess of the balance of a Member's capital account
at the end of an "allocation period" (after giving effect to allocations other
than the Incentive Allocation, but before giving effect to repurchases of
Interests by the Company or debits to the Member's capital account to reflect
any item not chargeable ratably to all Members), over the balance of the
Member's capital account at the start of the "allocation period." Consequently,
any Incentive Allocation to be credited to the Adviser will be increased by a
portion of the amount of any net unrealized appreciation, as well as net
realized gains, allocable to a Member.
An Incentive Allocation is charged only with respect to any
"allocated gain" in excess of the positive balance of a "loss recovery account"
maintained for each Member. A "loss recovery account" is a memorandum account
maintained by the Company for each Member, which has an initial balance of zero
and is (1) increased after the close of each "allocation period" by the amount
of any negative performance for the Member during the "allocation period," and
(2) decreased (but not below zero) after the close of each "allocation period"
by the amount of any allocated gain for the Member during the "allocation
period." Any positive balance in a Member's "loss recovery account" would be
reduced as the result of a repurchase or certain transfers with respect to the
Member's Interest in proportion to the reduction of the Member's capital account
attributable to the repurchase or transfer.
An "allocation period" as to each Member is a period
commencing on the admission of the Member to the Company, and thereafter each
period commencing as of the day following the last day of the preceding
allocation period with respect to such Member, and ending as of the close of
business on the first to occur of (1) the last day of a fiscal year of the
Company, (2) the day as of which the Company repurchases the entire Interest of
the Member, (3) the day as of which the Company admits as a substitute Member a
person to whom the entire Interest of the Member has been transferred or (4) the
day as of which the Investment Advisory Agreement terminates. The measurement of
any Incentive Allocation for an "allocation period" must take into account any
negative performance from a prior allocation period to the extent reflected in
the "loss recovery account." Therefore, the Incentive Allocation for any
allocation period after the initial allocation period in effect is a reflection
of the extent to which cumulative performance achieved with respect to a
Member's account since the Member's admission to the Company exceeds the highest
previous level of performance achieved through the close of any prior allocation
period.
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By the last business day of the month following the date on
which an Incentive Allocation is made, the Adviser may withdraw up to 100% of
the Incentive Allocation (computed on the basis of unaudited data) that was
credited to the Special Advisory Account and debited from the Member's capital
account with respect to the allocation period. Within 30 days after the
completion of the audit of the Company's books, the Company will pay to the
Adviser any additional amount determined to be owed to the Adviser based upon
the audit, and the Adviser will pay to the Company any excess amount determined
to be owed to the Company.
ALLOCATION OF SPECIAL ITEMS - CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES
Withholding taxes or other tax obligations incurred by the
Company which are attributable to any Member will be debited against the capital
account of that Member as of the close of the fiscal period during which the
Company paid those obligations, and any amounts then or thereafter distributable
to the Member will be reduced by the amount of those taxes. If the amount of
those taxes is greater than the distributable amounts, then the Member and any
successor to the Member's Interest is required to pay upon demand to the
Company, as a contribution to the capital of the Company, the amount of the
excess. The Company is not obligated to apply for or obtain a reduction of or
exemption from withholding tax on behalf of any Member, although in the event
that the Company determines that a Member is eligible for a refund of any
withholding tax, it may, at the request and expense of that Member, assist the
Member in applying for a refund.
Generally, any expenditures payable by the Company, to the
extent paid or withheld on behalf of, or by reason of particular circumstances
applicable to, one or more, but fewer than all of the Members, will be charged
to only those Members on whose behalf the payments are made or whose particular
circumstances gave rise to the payments. These charges shall be debited to the
capital accounts of the applicable Members as of the close of the fiscal period
during which the items were paid or accrued by the Company.
RESERVES
Appropriate reserves may be created, accrued and charged
against net assets and proportionately against the capital accounts of the
Members for contingent liabilities as of the date the contingent liabilities
become known to the Company. Reserves will be in such amounts (subject to
increase or reduction) which the Company may deem necessary or appropriate. The
amount of any reserve (or any increase or decrease therein) will be
proportionately charged or credited, as appropriate, to the capital accounts of
those investors who are Members at the time when the reserve is created,
increased or decreased, as the case may be; provided, however, that if the
reserve (or any increase or decrease therein) exceeds the lesser of $500,000 or
1% of the aggregate value of the capital accounts of all those Members, the
amount of the reserve, increase, or decrease shall instead be charged or
credited to those investors who were Members at the time, as determined by the
Company, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
capital accounts at that time.
NET ASSET VALUATION
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The value of the net assets of the Company is determined as of
the close of business at the end of any fiscal period in accordance with the
procedures set forth below or in accordance with such other procedures as may be
established by the Board of Managers in the future.
Domestic exchange traded and Nasdaq listed equity securities
(other than options) will be valued at their last composite sale prices as
reported on the exchanges where those securities are traded. If no sales of
those securities are reported on a particular day, the securities will be valued
based upon their composite bid prices for securities held long, or their
composite asked prices for securities held short, as reported by those
exchanges. Securities traded on a foreign securities exchange will be valued at
their last sale prices on the exchange where the securities are primarily
traded, or in the absence of a reported sale on a particular day, at their bid
prices (in the case of securities held long) or asked prices (in the case of
securities held short) as reported by that exchange. Listed options will be
valued at their bid prices (or asked prices in the case of listed options held
short) as reported by the exchange with the highest volume on the last day a
trade was reported. Other securities for which market quotations are readily
available will be valued at their bid prices (or asked prices in the case of
securities held short) as obtained from one or more dealers making markets for
those securities. If market quotations are not readily available, securities and
other assets will be valued at fair value in accordance with procedures adopted
in good faith by the Board of Managers.
Debt securities will be valued in accordance with the
procedures described above, which with respect to these securities may include
the use of valuations furnished by a pricing service which employs a matrix to
determine valuations for normal institutional size trading units. The Board of
Managers will periodically monitor the reasonableness of valuations provided by
the pricing service. Debt securities with remaining maturities of 60 days or
less will, absent unusual circumstances, be valued at amortized cost, so long as
this method of valuation is determined by the Board of Managers to represent
fair value.
If, in the view of the Adviser, the bid price of a listed
option (or asked price in the case of any such security held short) does not
fairly reflect the market value of the security, the Adviser may request a
valuation committee comprised of two Managers to instead adopt procedures to
value the security at fair value. In any such situation, the valuation committee
will consider the recommendation of the Adviser, and, if it determines in good
faith that an override of the value assigned to the security under the
procedures described above is warranted, will adopt procedures in good faith for
purposes of determining the fair value of the security.
All assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars using foreign exchange rates
provided by a pricing service compiled as of 4:00 p.m. London time. Trading in
foreign securities generally is completed, and the values of foreign securities
are determined, prior to the close of securities markets in the U.S. Foreign
exchange rates are also determined prior to such close. On occasion, the values
of foreign securities and exchange rates may be affected by events occurring
between the time as of which determination of values or exchange rates are made
and the time as of which the net asset value of the Company is determined. When
an event materially affects the values of securities held by the Company or
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its liabilities, such securities and liabilities may be valued at fair value in
accordance with procedures adopted in good faith by the Board of Managers.
Prospective investors should be aware that situations
involving uncertainties as to the valuation of portfolio positions could have an
adverse effect on the Company's net assets if the Managers' judgments regarding
appropriate valuations should prove incorrect.
SUBSCRIPTION FOR INTERESTS
SUBSCRIPTION TERMS
For the first twelve months from the date the Company
commences operations, the Board of Managers may accept initial and additional
subscriptions for Interests as of the first day of each month. Thereafter,
during any period in which the Adviser is deemed to control the Company for
purposes of the BHC Act, the Board of Managers may accept initial and additional
subscriptions for Interests by eligible investors as of the first day of each
calendar quarter. At all other times, the Board of Managers may accept initial
and additional subscriptions for Interests by eligible investors as of the first
day of each month. All subscriptions are subject to the receipt of cleared funds
on or before the acceptance date in the full amount of the subscription, plus
the applicable sales charge, if any. (See "Subscription for Interests - Sales
Charge.") The investor must also submit a completed subscription document before
the acceptance date. The Board of Managers reserves the right to reject any
subscription for Interests. The Board of Managers may, in its sole discretion,
suspend subscriptions for Interests at any time. The minimum initial investment
in the Company is $150,000 and the minimum additional investment in the Company
is $25,000, subject to the sole discretion of the Board of Managers to accept
initial and additional investments in lesser amounts. In connection with initial
and additional investments, an investor's account executive may impose a sales
charge of up to 3% of the amount transmitted for such investments. Amounts paid
as sales charges, if any, are included for purposes of determining whether
applicable minimum investment requirements have been satisfied. The Board of
Managers has authorized the Company to accept initial subscriptions for
Interests from eligible investors who are directors, officers or employees (or
members of their families) of CIBC WM, CWH or their affiliates in amounts of
$50,000 or more. Interests may not be purchased by nonresident aliens, foreign
corporations, foreign partnerships, foreign trusts or foreign estates, all as
defined in the Internal Revenue Code of 1986, as amended (the "Code"). In
addition, because the Company may generate "unrelated business taxable income"
("UBTI"), charitable remainder trusts may not want to purchase Interests because
a charitable remainder trust will not be exempt from Federal income tax under
Section 664(c) of the Code for any year in which it has UBTI.
Except as otherwise permitted by the Board of Managers,
initial and any additional contributions to the capital of the Company by any
Member are payable in cash, and all contributions must be transmitted by the
time and in the manner that is specified in the subscription documents of the
Company. Initial and any additional contributions to the capital of the Company
are payable in one installment and are due at least three business days prior to
the
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proposed acceptance date of the contribution, although the Board of Managers may
accept, in its sole discretion, a subscription prior to receipt of cleared
funds.
Each new Member will be obligated to agree to be bound by all
of the terms of the Limited Liability Company Agreement of the Company (the
"Company Agreement"). Each potential investor will also be obligated to
represent and warrant in a subscription agreement, among other things, that the
investor is purchasing an Interest for its own account, and not with a view to
the distribution, assignment, transfer or other disposition of the Interest.
If and when the Board of Managers determines to accept
securities as a contribution to the capital of the Company, the Company will
charge each Member making a contribution of securities an amount determined by
the Board of Managers and not exceeding 2% of the value of the contribution in
order to reimburse the Company for any costs it incurs in liquidating and
accepting the securities. This charge will be due and payable by the
contributing Member in full at the time of the contribution to the capital of
the Company to which the charge relates.
ELIGIBLE INVESTORS
Each prospective investor will be required to certify that the
Interest subscribed for is being acquired directly or indirectly for the account
of an "accredited investor" as defined in Regulation D under the 1933 Act, and
that the investor (as well as each of the investor's beneficial owners under
certain circumstances) has a net worth immediately prior to the time of
subscription of at least $1.5 million or such greater amounts as may be required
by applicable law or by the Board of Managers, in its sole discretion. Existing
Members who subscribe for additional Interests will be required to meet the
foregoing eligibility criteria at the time of the additional subscription. The
relevant investor qualifications will be set forth in a subscription agreement
that must be completed by each prospective investor.
SALES CHARGE
In connection with initial and additional purchases of
Interests, an investor's account executive may charge the investor a sales
commission of up to 3% of the amount transmitted for such purchase (up to 3.1%
of the amount invested), as the sole discretion of the account executive.
REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Member or other person holding an Interest or a portion of
an Interest acquired from a Member has the right to require the Company to
redeem that Interest or portion thereof. There is no public market for
Interests, and none is expected to develop. Consequently, investors may not be
able to liquidate their investment other than as a result of repurchases of
Interests by
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the Company, as described below. (The Adviser will have certain rights to
withdraw amounts from its Special Advisory Account.)
REPURCHASES OF INTERESTS
The Board of Managers, from time to time and in sole
discretion, may determine to cause the Company to repurchase Interests or
portions thereof from Members other than the Adviser in its capacity as the
Special Advisory Member pursuant to written tenders by Members on such terms and
conditions as it may determine. In determining whether the Company should
repurchase Interests or portions thereof from Members pursuant to written
tenders, the Board of Managers will consider the recommendation of the Adviser.
The Adviser expects that it will recommend to the Board of Managers that the
Company offer to repurchase Interests from Members at the end of 2000.
Thereafter, the Adviser expects that generally it will recommend to the Board of
Managers that the Company offer to repurchase Interests from Members twice in
each year, effective at the end of the second fiscal quarter and again at the
end of the year. The Board of Managers will also consider the following factors,
among others, in making its determination:
- whether any Members have requested to
tender Interests or portions thereof to the Company;
- the liquidity of the Company's assets;
- the investment plans and working capital
requirements of the Company;
- the relative economies of scale with
respect to the size of the Company;
- the history of the Company in repurchasing
Interests or portions thereof;
- the economic condition of the securities
markets; and
- the anticipated tax consequences of any
proposed repurchases of Interests or portions
thereof.
The Company will repurchase Interests or portions thereof from
Members pursuant to written tenders on terms and conditions that the Board of
Managers determines to be fair to the Company and to all Members or persons
holding Interests acquired from Members, or to one or more classes of Members,
as applicable. When the Board of Managers determines that the Company shall
repurchase Interests or portions thereof, notice will be provided to Members
describing the terms thereof, containing information Members should consider in
deciding whether to participate in the repurchase opportunity and containing
information on how to participate. Members who are deciding whether to tender
their Interests or portions thereof during the period that a repurchase offer is
open may ascertain the net asset value of their Interests from PFPC during the
period.
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The Company Agreement provides that the Company shall be
dissolved if the Interest of any Member that has submitted a written request to
tender its entire Interest for repurchase by the Company has not been
repurchased within a period of two years of such request.
Repurchases of Interests or portions thereof from Members by
the Company may be made, in the discretion of the Company, in part or in whole
for cash or for securities of equivalent value and shall be effective after
receipt by the Company of all eligible written tenders of Interests or portions
thereof from Members. The amount due to any Member whose Interest or portion
thereof is repurchased shall be equal to the value of the Member's capital
account or portion thereof based on the net asset value of the Company's assets
as of the effective date of repurchase, after giving effect to all allocations
to be made to the Member's capital account as of that date. Payment of the
purchase price pursuant to a tender of Interests will consist of, first, cash
and/or marketable securities traded on an established securities exchange
(valued at net asset value in accordance with the Company Agreement and
distributed to tendering Members on a pari passu basis) in an aggregate amount
equal to at least 95% of the estimated unaudited net asset value of the
Interests tendered, determined as of the expiration date of the tender offer
(the "expiration date"). Payment of this amount will be made promptly after the
expiration date (the "cash payment") in accordance with the terms of the written
offer from the Company to repurchase Interests. Generally, payment pursuant to a
tender will also consist of a promissory note (the "note") that is not expected
to bear interest and is not transferable, entitling the holder thereof to a
contingent payment equal to the excess, if any, of (a) the net asset value of
the Interests tendered as of the expiration date, determined based on the
audited financial statements of the Company, over (b) the cash payment. The note
would be delivered to the tendering Member promptly after the expiration date
and would be payable in cash promptly after completion of the annual audit of
the financial statements of the Company. The audit of the Company's financial
statements will be completed within 60 days after the end of each year. The
Company does not impose any charges on a repurchase of Interests or portion of
Interests.
The Company intends to maintain daily a segregated account on
its books or with its custodian consisting of cash or liquid securities in an
amount equal to the aggregate estimated dollar amount of the notes. Payment for
repurchased Interests may require the Company to liquidate portfolio holdings
earlier than the Adviser would otherwise liquidate these holdings, potentially
resulting in losses, and may increase the Company's portfolio turnover. The
Adviser intends to take measures (subject to such policies as may be established
by the Board of Managers) to attempt to avoid or minimize potential losses and
turnover resulting from the repurchase of Interests.
A Member who tenders for repurchase only a portion of such
Member's Interest shall be required to maintain a capital account balance equal
to the greater of: (i) $150,000, net of the amount of the Incentive Allocation,
if any, that is to be debited from the capital account of the Member and
credited to the Special Advisory Member Account of the Adviser on the date of
expiration of the tender offer or would be so debited if such date of expiration
were a day on which an Incentive Allocation was made (the "Tentative Incentive
Allocation"); or (ii) the amount of the Tentative Incentive Allocation, if any.
If a Member tenders an amount that would
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cause the Member's capital account balance to fall below the required minimum,
the Company reserves the right to reduce the amount to be purchased from such
Member so that the required minimum balance is maintained.
The Company may repurchase an Interest or portion thereof of a
Member or any person acquiring an Interest or portion thereof from or through a
Member in the event that:
- the Interest or a portion thereof has been
transferred or the Interest or a portion thereof has
vested in any person by operation of law as the
result of the death, dissolution, bankruptcy or
incompetency of a Member;
- ownership of the Interest by a Member or
other person will cause the Company to be in
violation of, or require registration of any Interest
or portion thereof under, or subject the Company to
additional registration or regulation under, the
securities, commodities or other laws of the United
States or any other relevant jurisdiction;
- continued ownership of the Interest may be
harmful or injurious to the business or reputation of
the Company, the Board of Managers or the Adviser, or
may subject the Company or any Members to an undue
risk of adverse tax or other fiscal consequences;
- any of the representations and warranties
made by a Member in connection with the acquisition
of an Interest or portion thereof was not true when
made or has ceased to be true; or
- it would be in the best interests of the
Company for the Company to repurchase the Interest or
a portion thereof.
In the event that the Adviser holds any Interests in its
capital account in its capacity as a Member, such Interest or a portion thereof
may be tendered for repurchase in connection with any repurchase offer made by
the Company. The Adviser is also entitled to withdraw its interests from its
Special Advisory Account at the times described under "Capital Accounts And
Allocations - Incentive Allocation."
TRANSFERS OF INTERESTS
Except as otherwise described below, no person shall become a
substituted Member without the written consent of the Board of Managers, which
consent may be withheld for any reason in its sole discretion. Interests held by
Members may be transferred only (i) by operation of law pursuant to the death,
divorce, bankruptcy, insolvency or dissolution of a Member or (ii) under certain
limited circumstances, with the written consent of the Board of Managers (which
may be withheld in its sole discretion and is expected to be granted, if at all,
only under extenuating circumstances). The Board of Managers generally will not
consent to a transfer unless the following conditions are met: (i) the
transferring Member has been a Member for at least six months; (ii) the proposed
transfer is to be made on the effective date of an offer by
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the Company to repurchase Interests; and (iii) the transfer does not constitute
a change in beneficial ownership. Notice to the Company of any proposed transfer
must include evidence satisfactory to the Board of Managers that the proposed
transfer is exempt from registration under the 1933 Act, that the proposed
transferee meets any requirements imposed by the Company with respect to
investor eligibility and suitability, including the requirement that any
investor (or investor's beneficial owners in certain circumstances) has a net
worth immediately prior to the time of subscription of at least $1.5 million or
such greater amounts as may be required by applicable law or by the Board of
Managers, in its sole discretion, and must be accompanied by a properly
completed subscription agreement. The Board of Managers may not consent to a
transfer of an Interest by a Member unless such transfer is to a single
transferee or after the transfer of a portion of the Interest, the balance of
the capital account of each of the transferee and transferor is not less than
$150,000.
Any transferee that acquires an Interest or portion thereof in
the Company by operation of law as the result of the death, divorce,
dissolution, bankruptcy or incompetency of a Member or otherwise, shall be
entitled to the allocations and distributions allocable to the Interest so
acquired and to transfer the Interest in accordance with the terms of the
Company Agreement, but shall not be entitled to the other rights of a Member
unless and until the transferee becomes a substituted Member as provided in the
Company Agreement.
If a Member transfers an Interest or portion thereof with the
approval of the Board of Managers, the Company shall promptly take all necessary
actions so that each transferee or successor to whom the Interest or portion
thereof is transferred is admitted to the Company as a Member. Each Member and
transferee may be charged for all expenses, including attorneys' and
accountants' fees, incurred by the Company in connection with the transfer.
By subscribing for an Interest, each Member agrees to
indemnify and hold harmless the Company, the Board of Managers, the Adviser,
each other Member and any affiliate of the foregoing against all losses, claims,
damages, liabilities, costs and expenses (including legal or other expenses
incurred in investigating or defending against any losses, claims, damages,
liabilities, costs and expenses or any judgments, fines and amounts paid in
settlement), joint or several, to which such persons may become subject by
reason of or arising from any transfer made by that Member in violation of these
provisions or any misrepresentation made by that Member in connection with any
such transfer.
The Adviser may not transfer its interest as the Special
Advisory Member. Managers may not transfer their interests as Managers.
TAX ASPECTS
The following is a summary of certain aspects of the income
taxation of the Company and its Members which should be considered by a
prospective Member. The Company has not sought a ruling from the Internal
Revenue Service (the "Service") or any other Federal, state or local agency with
respect to any of the tax issues affecting the Company, nor has it obtained an
opinion of counsel with respect to any Federal tax issues other than the
characterization of the Company as a partnership for Federal income tax
purposes.
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This summary of certain aspects of the Federal income tax
treatment of the Company is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), judicial decisions, Treasury Regulations (the
"Regulations") and rulings in existence on the date hereof, all of which are
subject to change. This summary does not discuss the impact of the various
proposals to amend the Code which could change certain of the tax consequences
of an investment in the Company. This summary also does not discuss all of the
tax consequences that may be relevant to a particular investor or to certain
investors subject to special treatment under the Federal income tax laws, such
as insurance companies.
EACH PROSPECTIVE MEMBER SHOULD CONSULT WITH ITS OWN TAX
ADVISER IN ORDER FULLY TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
In addition to the particular matters set forth in this
section, tax-exempt organizations should review carefully those sections of the
Memorandum regarding liquidity and other financial matters to ascertain whether
the investment objectives of the Company are consistent with their overall
investment plans. Each prospective tax-exempt Member is urged to consult its own
counsel regarding the acquisition of Interests.
Tax Treatment of Company Operations
Classification of the Company. The Company will receive an
opinion of Schulte Roth & Zabel LLP, counsel to the Company, that under the
provisions of the Code and the Regulations, as in effect on the date of the
opinion, as well as under the relevant authority interpreting the Code and the
Regulations, and based upon certain representations made to Schulte Roth & Zabel
LLP, the Company will be treated as a partnership for Federal income tax
purposes and not as an association taxable as a corporation.
Under Section 7704 of the Code, "publicly traded partnerships"
are generally treated as corporations for Federal income tax purposes. A
publicly traded partnership is any partnership the interests in which are traded
on an established securities market or which are readily tradable on a secondary
market (or the substantial equivalent thereof). Interests will not be traded on
an established securities market. Regulations concerning the classification of
partnerships as publicly traded partnerships (the "Section 7704 Regulations")
provide certain safe harbors under which interests in a partnership will not be
considered readily tradable on a secondary market (or the substantial equivalent
thereof). The Company may not be eligible for any of those safe harbors. In
particular, it will not qualify under the private placement safe harbor set
forth in the Section 7704 Regulations if the Company has more than 100 Members.
The Section 7704 Regulations specifically provide that the
fact that a partnership does not qualify for the safe harbors is disregarded for
purposes of determining whether interests in a partnership are readily tradable
on a secondary market (or the substantial equivalent thereof). Rather, in this
event the partnership's status is examined under a general facts and
circumstances test set forth in the Section 7704 Regulations. Schulte Roth &
Zabel LLP also will render its opinion that, under this "facts and
circumstances" test, and based upon the anticipated operations of the Company as
well as the legislative history to Section 7704, the text of the Section 7704
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Regulations and certain representations made to Schulte Roth & Zabel LLP, the
Interests will not be readily tradable on a secondary market (or the substantial
equivalent thereof) and, therefore, that the Company will not be treated as a
publicly traded partnership taxable as a corporation.
Neither of the opinions of counsel described above, however,
is binding on the Service or the courts. If it were determined that the Company
should be treated as an association or a publicly traded partnership taxable as
a corporation for Federal income tax purposes (as a result of a successful
challenge to such opinions by the Service, changes in the Code, the Regulations
or judicial interpretations thereof, a material adverse change in facts, or
otherwise), the taxable income of the Company would be subject to corporate
income tax when recognized by the Company; distributions of such income, other
than in certain redemptions of Interests, would be treated as dividend income
when received by the Members to the extent of the current or accumulated
earnings and profits of the Company; and Members would not be entitled to report
profits or losses realized by the Company.
As an entity taxed as a partnership, the Company is not itself
subject to Federal income tax. The Company files an annual partnership
information return with the Service which reports the results of operations.
Each Member is required to report separately on its income tax return its
distributive share of the Company's net long-term capital gain or loss, net
short-term capital gain or loss and all other items of ordinary income or loss.
Each Member is taxed on its distributive share of the Company's taxable income
and gain regardless of whether it has received or will receive a distribution
from the Company.
Recently enacted legislation generally allows certain
partnerships such as the Company with 100 or more partners to elect to have a
special set of rules and procedures apply that are intended to simplify the
calculation and reporting of certain partnership items, and the handling of
partnership audits. Among the items that would be affected by the election are
the calculation of long-term capital gains and the tax treatment of expenses, if
any, that are treated as itemized deductions by the partners. If the Company is
eligible, the Board of Managers may elect to have such rules and procedures
apply to the Company if it believes that they may be beneficial to a majority of
the Members. Once the election is made, it cannot be revoked without the consent
of the Service. There can be no assurance that, if such an election is made, the
anticipated benefits will be realized. Furthermore, in certain cases, it is
possible that the election would have an adverse effect on the Members.
Allocation of Profits and Losses. Under the Company Agreement,
the Company's net capital appreciation or net capital depreciation for each
accounting period is allocated among the Members and to their capital accounts
without regard to the amount of income or loss actually recognized by the
Company for Federal income tax purposes. The Company Agreement provides that
items of income, deduction, gain, loss or credit actually recognized by the
Company for each fiscal year generally are to be allocated for income tax
purposes among the Members pursuant to Regulations issued under Sections 704(b)
and 704(c) of the Code, based upon amounts of the Company's net capital
appreciation or net capital depreciation allocated to each Member's capital
account for the current and prior fiscal years.
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Under the Company Agreement, the Board of Managers has the
discretion to allocate specially an amount of the Company's capital gain and
loss for Federal income tax purposes to the Special Advisory Member and to a
withdrawing Member to the extent that the Member's capital account exceeds, or
is less than, as the case may be, its Federal income tax basis in its
partnership interest. There can be no assurance that, if the Board of Managers
makes any such special allocations, the Service will accept such allocations. If
such allocations are successfully challenged by the Service, the Company's gains
or losses allocable to the remaining Members would be affected.
Tax Elections; Returns; Tax Audits. The Code provides for
optional adjustments to the basis of partnership property upon distributions of
partnership property to a partner and transfers of partnership interests
(including by reason of death) provided that a partnership election has been
made pursuant to Section 754. Under the Company Agreement, at the request of a
Member, the Board of Managers, in its sole discretion, may cause the Company to
make such an election. Any such election, once made, cannot be revoked without
the Service's consent. As a result of the complexity and added expense of the
tax accounting required to implement such an election, the Board of Managers
presently does not intend to make such election.
The Board of Managers decides how to report the partnership
items on the Company's tax returns, and all Members are required under the Code
to treat the items consistently on their own returns, unless they file a
statement with the Service disclosing the inconsistency. In the event the income
tax returns of the Company are audited by the Service, the tax treatment of the
Company's income and deductions generally is determined at the limited liability
company level in a single proceeding rather than by individual audits of the
Members. A Member, designated as the "Tax Matters Partner", has considerable
authority to make decisions affecting the tax treatment and procedural rights of
all Members. In addition, the Tax Matters Partner has the authority to bind
certain Partners to settlement agreements and the right on behalf of all Members
to extend the statute of limitations relating to the Members' tax liabilities
with respect to Company items.
Tax Consequences to a Withdrawing Member
A Member receiving a cash liquidating distribution from the
Company, in connection with a complete withdrawal from the Company, generally
will recognize capital gain or loss to the extent of the difference between the
proceeds received by such Member and such Member's adjusted tax basis in its
partnership interest. Such capital gain or loss will be short-term or long-term
depending upon the Member's holding period for its interest in the Company.
However, a withdrawing Member will recognize ordinary income to the extent such
Member's allocable share of the Company's "unrealized receivables" exceeds the
Member's basis in such unrealized receivables (as determined pursuant to the
Regulations). For these purposes, accrued but untaxed market discount, if any,
on securities held by the Company will be treated as an unrealized receivable,
with respect to which a withdrawing Member would recognize ordinary income. A
Member receiving a cash nonliquidating distribution will recognize income in a
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similar manner only to the extent that the amount of the distribution exceeds
such Member's adjusted tax basis in its partnership interest.
As discussed above, the Company Agreement provides that the
Board of Managers may specially allocate items of Company capital gain and loss
to a withdrawing Member to the extent its capital account would otherwise exceed
or be less than, as the case may be, its adjusted tax basis in its partnership
interest. Such a special allocation of gain may result in the withdrawing Member
recognizing capital gain, which may include short-term gain, in the Member's
last taxable year in the Company, thereby reducing the amount of long-term
capital gain recognized during the tax year in which it receives its liquidating
distribution upon withdrawal. Such a special allocation of loss may result in
the withdrawing Member recognizing capital loss, which may include long-term
loss, in the Member's last taxable year in the Company, thereby reducing the
amount of short-term loss recognized during the tax year in which it receives
its liquidating distribution upon withdrawal.
Distributions of Property. A partner's receipt of a
distribution of property from a partnership is generally not taxable. However,
under Section 731 of the Code, a distribution consisting of marketable
securities generally is treated as a distribution of cash (rather than property)
unless the distributing partnership is an "investment partnership" within the
meaning of Section 731(c)(3)(C)(i) and the recipient is an "eligible partner"
within the meaning of Section 731(c)(3)(C)(iii). The Company will determine at
the appropriate time whether it qualifies as an "investment partnership."
Assuming it so qualifies, if a Member is an "eligible partner", which term
should include a Member whose contributions to the Company consisted solely of
cash, the recharacterization rule described above would not apply.
Tax Treatment of Company Investments
In General. The Company expects to act as a trader or
investor, and not as a dealer, with respect to its securities transactions. A
trader and an investor are persons who buy and sell securities for their own
accounts. A dealer, on the other hand, is a person who purchases securities for
resale to customers rather than for investment or speculation.
Generally, the gains and losses realized by a trader or an
investor on the sale of securities are capital gains and losses. Thus, subject
to the treatment of certain currency exchange gains as ordinary income (see
"Currency Fluctuations - 'Section 988' Gains or Losses" below) and certain other
transactions described below, the Company expects that its gains and losses from
its securities transactions typically will be capital gains and capital losses.
These capital gains and losses may be long-term or short-term depending, in
general, upon the length of time the Company maintains a particular investment
position and, in some cases, upon the nature of the transaction. Property held
for more than one year generally will be eligible for long-term capital gain or
loss treatment. The application of certain rules relating to short sales, to
so-called "straddle" and "wash sale" transactions and to Section 1256 Contracts
(defined below) may serve to alter the manner in which the Company's holding
period for a security is determined or may otherwise affect the characterization
as short-term or long-term, and also the timing of the
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realization, of certain gains or losses. Moreover, the straddle rules and short
sale rules may require the capitalization of certain related expenses of the
Company.
The maximum ordinary income tax rate for individuals is 39.6%
and, in general, the maximum individual income tax rate for long-term capital
gains is 20% (unless the taxpayer elects to be taxed at ordinary rates - see
"Limitation on Deductibility of Interest" below), although in all cases the
actual rates may be higher due to the phase out of certain tax deductions,
exemptions and credits. The excess of capital losses over capital gains may be
offset against the ordinary income of an individual taxpayer, subject to an
annual deduction limitation of $3,000. For corporate taxpayers, the maximum
income tax rate is 35%. Capital losses of a corporate taxpayer may be offset
only against capital gains, but unused capital losses may be carried back three
years (subject to certain limitations) and carried forward five years.
The Company may realize ordinary income from dividends and
accruals of interest on securities. The Company may hold debt obligations with
"original issue discount." In such case, the Company would be required to
include amounts in taxable income on a current basis even though receipt of such
amounts may occur in a subsequent year. The Company may also acquire debt
obligations with "market discount." Upon disposition of such an obligation, the
Company generally would be required to treat gain realized as interest income to
the extent of the market discount which accrued during the period the debt
obligation was held by the Company. Income or loss from transactions involving
certain derivative instruments, such as swap transactions, will also generally
constitute ordinary income or loss. In addition, amounts, if any, payable by the
Company in connection with equity swaps, interest rate swaps, caps, floors and
collars likely would be considered "miscellaneous itemized deductions" which,
for a noncorporate Non-Managing Member, may be subject to restrictions on their
deductibility. See "Deductibility of Company Investment Expenditures by
Noncorporate Members" below. Moreover, gain recognized from certain "conversion
transactions" will be treated as ordinary income.(1)
Currency Fluctuations - "Section 988" Gains or Losses. To the
extent that its investments are made in securities denominated in a foreign
currency, gain or loss realized by the Company frequently will be affected by
the fluctuation in the value of such foreign currencies relative to the value of
the dollar. Generally, gains or losses with respect to the Company's investments
in common stock of foreign issuers will be taxed as capital gains or losses at
the time of the disposition of such stock. However, under Section 988 of the
Code, gains and losses of the Company on the acquisition and disposition of
foreign currency (e.g., the purchase of foreign currency and subsequent use of
the currency to acquire stock) will be treated as ordinary income or loss.
Moreover, under Section 988, gains or losses on disposition of debt securities
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(1) Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is attributable to
the time value of the net investment in the transaction. The enumerated
transactions are (i) the holding of any property (whether or not actively
traded) and entering into a contract to sell such property (or substantially
identical property) at a price determined in accordance with such contract, but
only if such property was acquired and such contract was entered into on a
substantially contemporaneous basis, (ii) certain straddles, (iii) generally any
other transaction that is marketed or sold on the basis that it would have the
economic characteristics of a loan but the interest-like return would be taxed
as capital gain or (iv) any other transaction specified in Regulations.
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denominated in a foreign currency to the extent attributable to fluctuation in
the value of the foreign currency between the date of acquisition of the debt
security and the date of disposition will be treated as ordinary income or loss.
Similarly, gains or losses attributable to fluctuations in exchange rates that
occur between the time the Company accrues interest or other receivables or
accrues expenses or other liabilities denominated in a foreign currency and the
time the Company actually collects such receivables or pays such liabilities may
be treated as ordinary income or ordinary loss.
As indicated above (see "Types of Investments and Related Risk
Factors - Foreign Securities"), the Company may acquire foreign currency forward
contracts. Any gain or loss realized by the Company with respect to such
instruments will be ordinary, unless (i) the contract is a capital asset in the
hands of the Company and is not a part of a straddle transaction and (ii) the
Company makes an election (by the close of the day the transaction is entered
into) to treat the gain or loss attributable to such contract as capital gain or
loss.
Section 1256 Contracts. In the case of Section 1256 Contracts,
the Code generally applies a "mark to market" system of taxing unrealized gains
and losses on such contracts and otherwise provides for special rules of
taxation. A Section 1256 Contract includes certain regulated futures contracts,
certain foreign currency forward contracts, and certain options contracts. Under
these rules, Section 1256 Contracts held by the Company at the end of each
taxable year of the Company are treated for Federal income tax purposes as if
they were sold by the Company for their fair market value on the last business
day of such taxable year. The net gain or loss, if any, resulting from such
deemed sales (known as "marking to market"), together with any gain or loss
resulting from actual sales of Section 1256 Contracts, must be taken into
account by the Company in computing its taxable income for such year. If a
Section 1256 Contract held by the Company at the end of a taxable year is sold
in the following year, the amount of any gain or loss realized on such sale will
be adjusted to reflect the gain or loss previously taken into account under the
"mark to market" rules.
Capital gains and losses from such Section 1256 Contracts
generally are characterized as short-term capital gains or losses to the extent
of 40% thereof and as long-term capital gains or losses to the extent of 60%
thereof. Such gains and losses will be taxed under the general rules described
above. Gains and losses from certain foreign currency transactions will be
treated as ordinary income and losses. (See "Currency Fluctuations - 'Section
988' Gains or Losses.") If an individual taxpayer incurs a net capital loss for
a year, the portion thereof, if any, which consists of a net loss on Section
1256 Contracts may, at the election of the taxpayer, be carried back three
years. Losses so carried back may be deducted only against net capital gain to
the extent that such gain includes gains on Section 1256 Contracts.
Mixed Straddle Election. The Code allows a taxpayer to elect
to offset gains and losses from positions which are part of a "mixed straddle."
A "mixed straddle" is any straddle in which one or more but not all positions
are Section 1256 Contracts. Pursuant to Temporary Regulations, the Company may
be eligible to elect to establish one or more mixed straddle accounts for
certain of its mixed straddle trading positions. The mixed straddle account
rules require a daily "marking to market" of all open positions in the account
and a daily netting of
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gains and losses from positions in the account. At the end of a taxable year,
the annual net gains or losses from the mixed straddle account are recognized
for tax purposes. The application of the Temporary Regulations' mixed straddle
account rules is not entirely clear. Therefore, there is no assurance that a
mixed straddle account election by the Company will be accepted by the Service.
Short Sales. Gain or loss from a short sale of property is
generally considered as capital gain or loss to the extent the property used to
close the short sale constitutes a capital asset in the Company's hands. Except
with respect to certain situations where the property used to close a short sale
has a long-term holding period on the date the short sale is entered into, gains
on short sales generally are short-term capital gains. A loss on a short sale
will be treated as a long-term capital loss if, on the date of the short sale,
"substantially identical property" has been held by the Company for more than
one year. In addition, these rules may also terminate the running of the holding
period of "substantially identical property" held by the Company.
Gain or loss on a short sale will generally not be realized
until such time that the short sale is closed. However, if the Company holds a
short sale position with respect to stock, certain debt obligations or
partnership interests that has appreciated in value and then acquires property
that is the same as or substantially identical to the property sold short, the
Company generally will recognize gain on the date it acquires such property as
if the short sale were closed on such date with such property. Similarly, if the
Company holds an appreciated financial position with respect to stock, certain
debt obligations, or partnership interests and then enters into a short sale
with respect to the same or substantially identical property, the Company
generally will recognize gain as if the appreciated financial position were sold
at its fair market value on the date it enters into the short sale. The
subsequent holding period for any appreciated financial position that is subject
to these constructive sale rules will be determined as if such position were
acquired on the date of the constructive sale.
Effect of Straddle Rules on Members' Securities Positions. The
Service may treat certain positions in securities held (directly or indirectly)
by a Member and its indirect interest in similar securities held by the Company
as "straddles" for Federal income tax purposes. The application of the
"straddle" rules in such a case could affect a Member's holding period for the
securities involved and may defer the recognition of losses with respect to such
securities.
Limitation on Deductibility of Interest and Short Sale
Expenses. For noncorporate taxpayers, Section 163(d) of the Code limits the
deduction for "investment interest" (i.e., interest or short sale expenses for
"indebtedness properly allocable to property held for investment"). Investment
interest is not deductible in the current year to the extent that it exceeds the
taxpayer's "net investment income," consisting of net gain and ordinary income
derived from investments in the current year less certain directly connected
expenses (other than interest or short sale expenses). For this purpose, any
long-term capital gain is excluded from net investment income unless the
taxpayer elects to pay tax on such amount at ordinary income tax rates.
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For purposes of this provision, the Company's activities will
be treated as giving rise to investment income for a Member, and the investment
interest limitation would apply to a noncorporate Member's share of the interest
and short sale expenses attributable to the Company's operation. In such case, a
noncorporate Member would be denied a deduction for all or part of that portion
of its distributive share of the Company's ordinary losses attributable to
interest and short sale expenses unless it had sufficient investment income from
all sources including the Company. A Member that could not deduct losses
currently as a result of the application of Section 163(d) would be entitled to
carry forward such losses to future years, subject to the same limitation. The
investment interest limitation would also apply to interest paid by a
noncorporate Member on money borrowed to finance its investment in the Company.
Potential investors are advised to consult with their own tax advisers with
respect to the application of the investment interest limitation in their
particular tax situations.
Deductibility of Company Investment Expenditures by
Noncorporate Members. Investment expenses (e.g., investment advisory fees) of an
individual, trust or estate are deductible only to the extent they exceed 2% of
adjusted gross income.(2) In addition, the Code further restricts the ability of
an individual with an adjusted gross income in excess of a specified amount (for
2000, $128,950 or $64,475 for a married person filing a separate return) to
deduct such investment expenses. Under such provision, investment expenses in
excess of 2% of adjusted gross income may only be deducted to the extent such
excess expenses (along with certain other itemized deductions) exceed the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
specified amount or (ii) 80% of the amount of certain itemized deductions
otherwise allowable for the taxable year. Moreover, such investment expenses are
miscellaneous itemized deductions which are not deductible by a noncorporate
taxpayer in calculating its alternative minimum tax liability.
It is unclear whether all or a portion of the Company's
operations will qualify as trading -- rather than investment -- activities, the
expenses for which would not be treated as investment expenses. Therefore,
pursuant to Temporary Regulations issued by the Treasury Department, these
limitations on deductibility may apply to a noncorporate Member's share of the
expenses of the Company, including the CIBC WM Fee.
The consequences of these limitations will vary depending upon
the particular tax situation of each taxpayer. Accordingly, noncorporate Members
should consult their tax advisers with respect to the application of these
limitations.
Application of Rules for Income and Losses from Passive
Activities. The Code restricts the deductibility of losses from a "passive
activity" against certain income which is not
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(2) However, Section 67(e) of the Code provides that, in the case of a
trust or an estate, such limitation does not apply to deductions or costs which
are paid or incurred in connection with the administration of the estate or
trust and would not have been incurred if the property were not held in such
trust or estate. The Federal Court of Appeals for the Sixth Circuit, reversing a
Tax Court decision, has held that the investment advisory fees incurred by a
trust were exempt (under Section 67(e)) from the 2% of adjusted gross income
floor on deductibility. The Service, however, has stated that it will not follow
this decision outside of the Sixth Circuit. Members that are trusts or estates
should consult their tax advisors as to the applicability of this case to the
investment expenses that are allocated to them.
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derived from a passive activity. This restriction applies to individuals,
personal service corporations and certain closely held corporations. Pursuant to
Temporary Regulations issued by the Treasury Department, income or loss from the
Company's securities investment and trading activity generally will not
constitute income or loss from a passive activity. Therefore, passive losses
from other sources generally could not be deducted against a Non-Managing
Member's share of such income and gain from the Company.
"Phantom Income" From Company Investments. Pursuant to various
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign
investment company" and "foreign personal holding company" provisions),
investments (if any) by the Company in certain foreign corporations may cause a
Member to (i) recognize taxable income prior to the Company's receipt of
distributable proceeds, (ii) pay an interest charge on receipts that are deemed
as having been deferred or (iii) recognize ordinary income that, but for the
"anti-deferral" provisions, would have been treated as long-term or short-term
capital gain.
Foreign Taxes
It is possible that certain dividends and interest received by
the Company from sources within foreign countries will be subject to withholding
taxes imposed by such countries. In addition, the Company may also be subject to
capital gains taxes in some of the foreign countries where it purchases and
sells securities. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to predict in advance the
rate of foreign tax the Company will pay since the amount of the Company's
assets to be invested in various countries is not known.
The Members will be informed by the Company as to their
proportionate share of the foreign taxes paid by the Company, which they will be
required to include in their income. The Members generally will be entitled to
claim either a credit (subject, however, to various limitations on foreign tax
credits) or, if they itemize their deductions, a deduction (subject to the
limitations generally applicable to deductions) for their share of such foreign
taxes in computing their Federal income taxes. A Member that is tax exempt will
not ordinarily benefit from such credit or deduction.
Unrelated Business Taxable Income
Generally, an exempt organization is exempt from Federal
income tax on its passive investment income, such as dividends, interest and
capital gains, whether realized by the organization directly or indirectly
through a partnership in which it is a partner.(3) This type of income is exempt
even if it is realized from securities trading activity which constitutes a
trade or business.
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(3) With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net investment
income." The rate of the excise tax for any taxable year may be reduced to 1% if
the private foundation meets certain distribution requirements for the taxable
year. A private foundation will be required to make payments of estimated tax
with respect to this excise tax.
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This general exemption from tax does not apply to the
"unrelated business taxable income" ("UBTI") of an exempt organization.
Generally, except as noted above with respect to certain categories of exempt
trading activity, UBTI includes income or gain derived (either directly or
through partnerships) from a trade or business, the conduct of which is
substantially unrelated to the exercise or performance of the organization's
exempt purpose or function. UBTI also includes "unrelated debt-financed income,"
which generally consists of (i) income derived by an exempt organization
(directly or through a partnership) from income-producing property with respect
to which there is "acquisition indebtedness" at any time during the taxable
year, and (ii) gains derived by an exempt organization (directly or through a
partnership) from the disposition of property with respect to which there is
"acquisition indebtedness" at any time during the twelve-month period ending
with the date of such disposition.
The Company may incur "acquisition indebtedness" with respect
to certain of its transactions, such as the purchase of securities on margin.
Based upon a published ruling issued by the Service which generally holds that
income and gain with respect to short sales of publicly traded stock does not
constitute income from debt financed property for purposes of computing UBTI,
the Company will treat its short sales of securities as not involving
"acquisition indebtedness" and therefore not resulting in UBTI.(4) To the extent
the Company recognizes income (i.e., dividends and interest) from securities
with respect to which there is "acquisition indebtedness" during a taxable year,
the percentage of such income which will be treated as UBTI generally will be
based on the percentage which the "average acquisition indebtedness" incurred
with respect to such securities is of the "average amount of the adjusted basis"
of such securities during the taxable year.
To the extent the Company recognizes gain from securities with
respect to which there is "acquisition indebtedness" at any time during the
twelve-month period ending with the date of their disposition, the percentage of
such gain which will be treated as UBTI will be based on the percentage which
the highest amount of such "acquisition indebtedness" is of the "average amount
of the adjusted basis" of such securities during the taxable year. In
determining the unrelated debt-financed income of the Company, an allocable
portion of deductions directly connected with the Company's debt-financed
property is taken into account. Thus, for instance, a percentage of losses from
debt-financed securities (based on the debt/basis percentage calculation
described above) would offset gains treated as UBTI.
Since the calculation of the Company's "unrelated
debt-financed income" is complex and will depend in large part on the amount of
leverage, if any, used by the Company from time to time,(5) it is impossible to
predict what percentage of the Company's income and gains will be treated as
UBTI for a Member which is an exempt organization. An exempt organization's
share of the income or gains of the Company which is treated as UBTI may not be
offset by losses of the exempt organization either from the Company or
otherwise, unless such
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(4) Moreover, income realized from option writing and futures contract
transactions generally would not constitute UBTI.
(5) The calculation of a particular exempt organization's UBTI would also
be affected if it incurs indebtedness to finance its investment in the Company.
An exempt organization is required to make estimated tax payments with respect
to its UBTI.
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losses are treated as attributable to an unrelated trade or business (e.g.,
losses from securities for which there is acquisition indebtedness).
To the extent that the Company generates UBTI, the applicable
Federal tax rate for such a Member generally would be either the corporate or
trust tax rate depending upon the nature of the particular exempt organization.
An exempt organization may be required to support, to the satisfaction of the
Service, the method used to calculate its UBTI. The Company will be required to
report to a Member which is an exempt organization information as to the portion
of its income and gains from the Company for each year which will be treated as
UBTI. The calculation of such amount with respect to transactions entered into
by the Company is highly complex, and there is no assurance that the Company's
calculation of UBTI will be accepted by the Service.
In general, if UBTI is allocated to an exempt organization
such as a qualified retirement plan or a private foundation, the portion of the
Company's income and gains which is not treated as UBTI will continue to be
exempt from tax, as will the organization's income and gains from other
investments which are not treated as UBTI. Therefore, the possibility of
realizing UBTI from its investment in the Company generally should not affect
the tax-exempt status of such an exempt organization.(6) However, a charitable
remainder trust will not be exempt from Federal income tax under Section 664(c)
of the Code for any year in which it has UBTI. A title-holding company will not
be exempt from tax if it has certain types of UBTI. Moreover, the charitable
contribution deduction for a trust under Section 642(c) of the Code may be
limited for any year in which the trust has UBTI. A prospective investor should
consult its tax adviser with respect to the tax consequences of receiving UBTI
from the Company. (See "ERISA Considerations.")
Certain Issues Pertaining to Specific Exempt Organizations
Private Foundations. Private foundations and their managers
are subject to excise taxes if they invest "any amount in such a manner as to
jeopardize the carrying out of any of the foundation's exempt purposes." This
rule requires a foundation manager, in making an investment, to exercise
"ordinary business care and prudence" under the facts and circumstances
prevailing at the time of making the investment, in providing for the short-term
and long-term needs of the foundation to carry out its exempt purposes. The
factors which a foundation manager may take into account in assessing an
investment include the expected rate of return (both income and capital
appreciation), the risks of rising and falling price levels, and the need for
diversification within the foundation's portfolio.
In order to avoid the imposition of an excise tax, a private
foundation may be required to distribute on an annual basis its "distributable
amount," which includes, among other things, the private foundation's "minimum
investment return," defined as 5% of the excess of the
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(6) Certain exempt organizations which realize UBTI in a taxable year will
not constitute "qualified organizations" for purposes of Section
514(c)(9)(B)(vi)(I) of the Code, pursuant to which, in limited circumstances,
income from certain real estate partnerships in which such organizations invest
might be treated as exempt from UBTI. A prospective tax-exempt Member should
consult its tax adviser in this regard.
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fair market value of its nonfunctionally related assets (assets not used or held
for use in carrying out the foundation's exempt purposes), over certain
indebtedness incurred by the foundation in connection with such assets. It
appears that a foundation's investment in the Company would most probably be
classified as a nonfunctionally related asset. A determination that an interest
in the Company is a nonfunctionally related asset could conceivably cause cash
flow problems for a prospective Member which is a private foundation. Such an
organization could be required to make distributions in an amount determined by
reference to unrealized appreciation in the value of its interest in the
Company. Of course, this factor would create less of a problem to the extent
that the value of the investment in the Company is not significant in relation
to the value of other assets held by a foundation.
In some instances, an investment in the Company by a private
foundation may be prohibited by the "excess business holdings" provisions of the
Code. For example, if a private foundation (either directly or together with a
"disqualified person") acquires more than 20% of the capital interest or profits
interest of the Company, the private foundation may be considered to have
"excess business holdings." If this occurs, such foundation may be required to
divest itself of its interest in the Company in order to avoid the imposition of
an excise tax. However, the excise tax will not apply if at least 95% of the
gross income from the Company is "passive" within the applicable provisions of
the Code and Regulations. Although there can be no assurance, the Board of
Managers believes that the Company will meet such 95% gross income test.
A substantial percentage of investments of certain "private
operating foundations" may be restricted to assets directly devoted to their
tax-exempt purposes. Otherwise, generally, rules similar to those discussed
above govern their operations.
Qualified Retirement Plans. Employee benefit plans subject to
the provisions of ERISA, Individual Retirement Accounts and Keogh Plans should
consult their counsel as to the implications of such an investment under ERISA.
(See "ERISA Considerations.")
Endowment Funds. Investment managers of endowment funds should
consider whether the acquisition of an Interest is legally permissible. This is
not a matter of Federal law, but is determined under state statutes. It should
be noted, however, that under the Uniform Management of Institutional Funds Act,
which has been adopted, in various forms, by a large number of states,
participation in investment partnerships or similar organizations in which funds
are commingled and investment determinations are made by persons other than the
governing board of the endowment fund is allowed.
State and Local Taxation
In addition to the Federal income tax consequences described
above, prospective investors should consider potential state and local tax
consequences of an investment in the Company. State and local tax laws differ in
the treatment of limited liability companies such as the Company. A few
jurisdictions may impose entity level taxes on a limited liability company if it
is found to have sufficient contact with that jurisdiction. Such taxes are
frequently based on the income and capital of the entity that is allocated to
the jurisdiction. Although there can be no
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<PAGE> 71
assurance, except as noted below, the Company intends to conduct its activities
so that it will not be subject to entity level taxation by any state or local
jurisdiction.
State and local laws often differ from Federal income tax laws
with respect to the treatment of specific items of income, gain, loss, deduction
and credit. A Member's distributive share of the taxable income or loss of the
Company generally will be required to be included in determining its reportable
income for state and local tax purposes in the jurisdiction in which it is a
resident.
The Company, which is treated as a partnership for New York
State and New York City income tax purposes, should not be subject to the New
York City unincorporated business tax, which is not imposed on a partnership
which purchases and sells securities for its "own account." By reason of a
similar "own account" exemption, it is also expected that a nonresident
individual Member should not be subject to New York State personal income tax
with respect to his share of income or gain realized directly by the Company. A
nonresident individual Member will not be subject to New York City earnings tax
on nonresidents with respect to his investment in the Company.
Individual Members who are residents of New York State and New
York City should be aware that the New York State and New York City personal
income tax laws limit the deductibility of itemized deductions for individual
taxpayers at certain income levels. These limitations may apply to a Member's
share of some or all of the Company's expenses. Prospective Members are urged to
consult their tax advisers with respect to the impact of these provisions and
the Federal limitations on the deductibility of certain itemized deductions and
investment expenses on their New York State and New York City tax liability.
For purposes of the New York State corporate franchise tax and
the New York City general corporation tax, a corporation generally is treated as
doing business in New York State and New York City, respectively, and is subject
to such corporate taxes as a result of the ownership of a partnership interest
in a partnership which does business in New York State and New York City,
respectively.(7) Each of the New York State and New York City corporate taxes
are imposed, in part, on the corporation's taxable income or capital allocable
to the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a non-managing member in a New York partnership may, under certain
circumstances, elect to compute its New York State corporate franchise tax by
taking into account only its distributive share of such partnership's income and
loss. There is currently no similar provision in effect for purposes of the New
York City general corporation tax.
- ----------
(7) New York State (but not New York City) generally exempts from
corporate franchise tax a non-New York corporation which (i) does not actually
or constructively own a 1% or greater limited partnership interest in a
partnership doing business in New York and (ii) has a tax basis in such limited
partnership interest not greater than $1 million.
-67-
<PAGE> 72
Regulations under both the New York State corporate franchise
tax and the New York City general corporation tax, however, provide an exception
to this general rule in the case of a "portfolio investment partnership", which
is defined, generally, as a partnership which meets the gross income
requirements of Section 851(b)(2) of the Code. New York State (but not New York
City) has adopted regulations that also include income and gains from commodity
transactions described in Section 864(b)(2)(B)(iii) as qualifying gross income
for this purpose. The Company's qualification as such a portfolio investment
partnership must be determined on an annual basis and, with respect to a taxable
year, the Company may not qualify as a portfolio investment partnership.
A trust or other unincorporated organization which by reason
of its purposes or activities is exempt from Federal income tax is also exempt
from New York State and New York City personal income tax. A nonstock
corporation which is exempt from Federal income tax is generally presumed to be
exempt from New York State corporate franchise tax and New York City general
corporation tax. New York State imposes a tax with respect to such exempt
entities on UBTI (including unrelated debt-financed income) at a rate which is
currently equal to the New York State corporate franchise tax rate (plus the
corporate surtax). There is no New York City tax on the UBTI of an otherwise
exempt entity.
Each prospective corporate Member should consult its tax
adviser with regard to the New York State and New York City tax consequences of
an investment in the Company.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee
benefit plan, IRA, Keogh plan or other arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or the Code (an
"ERISA Plan") should consider, among other things, the matters described below
before determining whether to invest in the Company.
ERISA imposes certain general and specific responsibilities on
persons who are fiduciaries with respect to an ERISA Plan, including prudence,
diversification, prohibited transaction and other standards. In determining
whether a particular investment is appropriate for an ERISA Plan, Department of
Labor ("DOL") regulations provide that a fiduciary of an ERISA Plan must give
appropriate consideration to, among other things, the role that the investment
plays in the ERISA Plan's portfolio, taking into consideration whether the
investment is designed reasonably to further the ERISA Plan's purposes, an
examination of the risk and return factors, the portfolio's composition with
regard to diversification, the liquidity and current return of the total
portfolio relative to the anticipated cash flow needs of the ERISA Plan, the
income tax consequences of the investment (see "TAX ASPECTS - Unrelated Business
Taxable Income" and "- Certain Issues Pertaining to Specific Exempt
Organizations"), and the projected return of the total portfolio relative to the
ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan in
the Company, a fiduciary should determine whether such an investment is
consistent with its fiduciary responsibilities and the foregoing regulations.
For example, a fiduciary should consider whether an investment in the Company
may be too illiquid or too speculative for a particular ERISA Plan, and whether
the assets of the ERISA Plan would
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<PAGE> 73
be sufficiently diversified. If a fiduciary with respect to any such ERISA Plan
breaches his responsibilities with regard to selecting an investment or an
investment course of action for such ERISA Plan, the fiduciary may be held
personally liable for losses incurred by the ERISA Plan as a result of such
breach.
Because the Company is registered as an investment company
under the 1940 Act, the underlying assets of the Company should not be
considered to be "plan assets" of the ERISA Plans investing in the Company for
purposes of ERISA's fiduciary responsibility and prohibited transaction rules.
Thus, neither the Adviser nor any of the Managers will be fiduciaries within the
meaning of ERISA.
The Board of Managers requires an ERISA Plan proposing to
invest in the Company to represent that it, and any fiduciaries responsible for
the Plan's investments, are aware of and understand the Company's investment
objective, policies and strategies, that the decision to invest plan assets in
the Company was made with appropriate consideration of relevant investment
factors with regard to the ERISA Plan and is consistent with the duties and
responsibilities imposed upon fiduciaries with regard to their investment
decisions under ERISA.
Certain prospective Plan investors may currently maintain
relationships with the Adviser or the Managers, or with other entities which are
affiliated with the Adviser or the Managers. Each of such persons may be deemed
to be a party in interest to and/or a fiduciary of any ERISA Plan to which it
provides investment management, investment advisory or other services. ERISA
prohibits ERISA Plan assets to be used for the benefit of a party in interest
and also prohibits an ERISA Plan fiduciary from using its position to cause the
ERISA Plan to make an investment from which it or certain third parties in which
such fiduciary has an interest would receive a fee or other consideration. ERISA
Plan investors should consult with counsel to determine if participation in the
Company is a transaction which is prohibited by ERISA or the Code. Fiduciaries
of ERISA or Benefit Plan investors will be required to represent that the
decision to invest in the Company was made by them as fiduciaries that are
independent of such affiliated persons, that are duly authorized to make such
investment decision and that have not relied on any individualized advice or
recommendation of such affiliated persons, as a primary basis for the decision
to invest in the Company.
The provisions of ERISA are subject to extensive and
continuing administrative and judicial interpretation and review. The discussion
of ERISA contained in this Confidential Memorandum, is, of necessity, general
and may be affected by future publication of regulations and rulings. Potential
investors should consult with their legal advisors regarding the consequences
under ERISA of the acquisition and ownership of interests.
-69-
<PAGE> 74
ADDITIONAL INFORMATION AND SUMMARY OF
LIMITED LIABILITY COMPANY AGREEMENT
The following is a summary description of additional items and
of select provisions of the Company Agreement which may not be described
elsewhere in this Confidential Memorandum. The description of such items and
provisions is not definitive and reference should be made to the complete text
of the Company Agreement, which is attached hereto as Appendix A.
MEMBER INTERESTS
Persons who purchase Interests in the offering being made
hereby will be Members. The Adviser and its affiliates may contribute capital to
and maintain an investment in the Company, and to that extent will be Members of
the Company. The Adviser, or its successor as investment adviser of the Company,
will also be a Special Advisory Member of the Company. In that regard, the
Company has established a Special Advisory Account solely for the purpose of
receiving the Incentive Allocation. The interest of the Special Advisory Member
does not participate in the income or gains of the Company, has no voting rights
and has no right to a share of the assets of the Company upon its liquidation,
except to the extent that the Special Advisory Member has received or is
entitled to receive the Incentive Allocation credited to the Special Advisory
Account and all or a portion of that allocation has not been withdrawn. The
Adviser may not contribute capital to the Company as Special Advisory Member.
LIABILITY OF MEMBERS
Under Delaware law and the Company Agreement, each Member will
be liable for the debts and obligations of the Company only to the extent of any
contributions to the capital of the Company (plus any accretions in value
thereto prior to withdrawal) and a Member, in the sole discretion of the Board
of Managers, may be obligated to return to the Company amounts distributed to
the Member in accordance with the Company Agreement in certain circumstances
where after giving effect to the distribution, certain liabilities of the
Company exceed the fair market value of the Company's assets.
DUTY OF CARE OF MANAGERS
The Company Agreement provides that a Manager shall not be
liable to the Company or any of the Members for any loss or damage occasioned by
any act or omission in the performance of the Manager's services as such in the
absence of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the Manager's office. The
Company Agreement also contains provisions for the indemnification, to the
extent permitted by law, of a Manager by the Company (but not by the Members
individually) against any liability and expense to which the Manager may be
liable which arise in connection with the performance of the Manager's
activities on behalf of the Company.
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<PAGE> 75
Managers shall not be personally liable to any Member for the repayment of any
positive balance in the Member's capital account or for contributions by the
Member to the capital of the Company or by reason of any change in the Federal
or state income tax laws applicable to the Company or its investors. The rights
of indemnification and exculpation provided under the Company Agreement shall
not be construed so as to provide for indemnification of a Manager for any
liability (including liability under Federal securities laws which, under
certain circumstances, impose liability even on persons that act in good faith),
to the extent (but only to the extent) that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
applicable provisions of the Company Agreement to the fullest extent permitted
by law.
AMENDMENT OF THE COMPANY AGREEMENT
The Company Agreement may generally be amended, in whole or in
part, with the approval of the Board of Managers (subject to the approval of a
majority of the Managers who are not "interested persons" of the Company as
defined by the 1940 Act, if required by the 1940 Act) and, without the approval
of the Members, unless the approval of Members is required by the 1940 Act. In
addition, certain amendments to the Company Agreement involving capital accounts
and allocations thereto may not be made without the written consent of any
Member adversely affected thereby or unless each Member has received written
notice of the amendment and any Member objecting to the amendment has been
allowed a reasonable opportunity (pursuant to any procedures as may be
prescribed by the Board of Managers) to tender its entire interest for
repurchase by the Company.
POWER OF ATTORNEY
By subscribing for an interest in the Company, each Member
will appoint each of the Managers his attorney-in-fact for purposes of filing
required certificates and documents relating to the formation and maintenance of
the Company as a limited liability company under Delaware law or signing all
instruments effecting authorized changes in the Company or the Company Agreement
and conveyances and other instruments deemed necessary to effect the dissolution
or termination of the Company.
The power-of-attorney granted as part of each Member's
subscription agreement is a special power-of-attorney and is coupled with an
interest in favor of the Board of Managers and as such shall be irrevocable and
will continue in full force and effect notwithstanding the subsequent death or
incapacity of any Member granting the power-of-attorney, and shall survive the
delivery of a transfer by a Member of the whole or any portion of the Member's
interest, except that where the transferee thereof has been approved by the
Board of Managers for admission to the Company as a substitute Member, or upon
the withdrawal of a Member from the Company pursuant to a periodic tender or
otherwise this power-of-attorney given by the transferor shall terminate.
TERM, DISSOLUTION AND LIQUIDATION
The Company shall be dissolved:
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<PAGE> 76
- upon the affirmative vote to dissolve the
Company by: (1) the Board of Managers or (2) Members
holding at least two-thirds (2/3) of the total number
of votes eligible to be cast by all Members;
- upon the expiration of any two year period
which commences on the date on which any Member has
submitted a written notice to the Company requesting
to tender its entire interest for repurchase by the
Company if that interest has not been repurchased by
the Company;
- upon the failure of Members to elect
successor Managers at a meeting called by the Adviser
when no Manager remains to continue the business of
the Company; or
- as required by operation of law.
Upon the occurrence of any event of dissolution, the Board of
Managers or CIBC WM, acting as liquidator under appointment by the Board of
Managers (or another liquidator, if the Board of Managers do not appoint CIBC WM
to act as liquidator or are unable to perform this function) are charged with
winding up the affairs of the Company and liquidating its assets. Net profits or
net loss during the fiscal period including the period of liquidation will be
allocated as described in the section titled "Capital Accounts And Allocations -
Allocation of Net Profits and Net Loss."
Upon the liquidation of the Company, its assets are to be
distributed (1) first to satisfy the debts, liabilities and obligations of the
Company (other than debts to Members) including actual or anticipated
liquidation expenses, (2) next to repay debts owing to the Members, and (3)
finally to the Members proportionately in accordance with the balances in their
respective capital accounts. Assets may be distributed in kind on a pro rata
basis if the Board of Managers or liquidator determines that the distribution of
assets in kind would be in the interests of the Members in facilitating an
orderly liquidation.
REPORTS TO MEMBERS
The Company furnishes to Members as soon as practicable after
the end of each taxable year such information as is necessary for them to
complete Federal and state income tax or information returns, along with any
other tax information required by law. The Company will send to Members an
unaudited semi-annual and an audited annual report within 60 days after the
close of the period for which it is being made, or as otherwise required by the
1940 Act. Quarterly reports regarding the Company's operations during the period
will also be sent to Members.
FISCAL YEAR
The Company's fiscal year is the 12-month period ending on
December 31.
AUDITORS AND LEGAL COUNSEL
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<PAGE> 77
The Board of Managers have selected Ernst & Young LLP as the
independent public accountants of the Company. Ernst & Young LLP's principal
business address is located at 787 Seventh Avenue, 15th Floor, New York, New
York.
Schulte Roth & Zabel LLP, New York, New York, serves as legal
counsel to the Company. The firm also acts as legal counsel to the Adviser, CIBC
WM and its affiliates with respect to certain matters. Stroock & Stroock & Lavan
LLP, New York, New York, acts as legal counsel to the Managers who are not
"interested persons" of the Company, as defined by the 1940 Act.
CUSTODIAN
Chase Manhattan Bank, N.A. ("Chase") serves as the primary
custodian of the Company's assets, and may maintain custody of the Company's
assets with domestic and foreign subcustodians (which may be banks, trust
companies, securities depositories and clearing agencies), approved by the Board
of Managers of the Company in accordance with the requirements set forth in
Section 17(f) of the 1940 Act and the rules adopted thereunder. Assets of the
Company are not held by the Adviser or commingled with the assets of other
accounts other than to the extent that securities are held in the name of a
custodian in a securities depository, clearing agency or omnibus customer
account of a custodian. Chase's principal business address is 270 Park Avenue,
New York, New York 10017-2070.
INQUIRIES
Inquiries concerning the Company and Interests (including
information concerning subscription and withdrawal procedures) should be
directed to:
CIBC Oppenheimer Advisers, L.L.C.
c/o CIBC World Markets Corp.
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
Telephone: 212-667-4225
Telecopier: 212-667-5689
For additional information contact:
Howard M. Singer
Managing Director
CIBC World Markets Corp.
* * * * *
All potential investors in the Company are encouraged to
consult appropriate legal and tax counsel.
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<PAGE> 78
APPENDIX A
LIMITED LIABILITY COMPANY AGREEMENT
[to come]
A-1
<PAGE> 79
APPENDIX B
PERFORMANCE INFORMATION
The Adviser employs an investment program for the Company that is
substantially similar to the investment program that is employed by Worthington
Growth LP ("Worthington"), a Delaware limited partnership for which Scottsdale
Associates, L.P. ("Scottsdale"), a Delaware limited partnership controlled by
Clifford W. Henry, serves as general partner and investment adviser.
Because of the similarity of investment programs, as a general matter,
the Adviser will consider participation by the Company in all appropriate
investment opportunities that are under consideration by Scottsdale for
Worthington. The Adviser will evaluate for the Company, and it is anticipated
that the general partner of Worthington will evaluate for Worthington, a variety
of factors that may be relevant in determining whether a particular investment
opportunity or strategy is appropriate and feasible for the Company or
Worthington at a particular time. Because these considerations may differ for
the Company and Worthington in the context of any particular investment
opportunity, the investment activities of the Company and Worthington may differ
from time to time. (See "CONFLICTS OF INTEREST - Participation in Investment
Opportunities".)
THE FOLLOWING TABLE SETS FORTH THE PERFORMANCE RECORD OF WORTHINGTON
FOR THE PERIODS INDICATED. THE TABLE SHOULD BE READ IN CONJUNCTION WITH THE
NOTES THERETO. THIS PERFORMANCE AND THE STATISTICAL INFORMATION INCLUDED HEREIN
HAVE BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE BUT ARE NOT WARRANTED AS
TO ACCURACY OR COMPLETENESS. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
PROSPECTIVE INVESTORS SHOULD RECOGNIZE THAT THERE ARE CERTAIN DIFFERENCES
BETWEEN THE INVESTMENT POLICIES OF THE COMPANY AND WORTHINGOTN AND THAT THEIR
FEES AND EXPENSES DIFFER. FUTURE PERFORMANCE OF THE COMPANY AND OF WORTHINGTON
MAY DIFFER.
THIS TABLE MUST BE READ IN CONJUNCTION WITH THE ACCOMPANYING FOOTNOTES APPEARING
ON THE FOLLOWING PAGE WHICH ARE AN INTEGRAL PART HEREOF.
<TABLE>
<CAPTION>
WORTHINGTON ANNUAL S&P ANNUAL WORTHINGTON S&P
RETURN RETURN CUMULATIVE CUMULATIVE
RETURN RETURN
<S> <C> <C> <C> <C>
1990 [ ] 3.10% [ ] N/A
1991 [ ] 30.47% [ ] 26.43%
1992 9.93% 7.62% [ ] 36.06%
1993 4.06% 10.08% [ ] 49.77%
1994 1.50% 1.32% [ ] 51.75%
1995 60.04% 37.58% [ ] 108.78%
1996 28.59% 22.96% [ ] 156.71%
1997 8.62% 33.36% [ ] 242.35%
</TABLE>
B-1
<PAGE> 80
<TABLE>
<S> <C> <C> <C> <C>
1998 17.58% 28.57% [ ] 340.16%
1999 [ ] [ ] [ ] [ ]
Annualized
Return [ ] [ ] [ ]
</TABLE>
The above returns for Worthington are net of all fees, expenses and incentive
allocations.
B-2
<PAGE> 81
NOTES TO PERFORMANCE INFORMATION
The table on the prior page reflects Worthington's investment performance as
well as the results of the S&P Composite Index of 500 Stocks. The information
contained in the table was computed based on the following facts and
assumptions:
1. Worthington commenced operations on July 1, 1989. Worthington has a
December 31 fiscal year. The information is based on Worthington's
audited financial statements from January 1, 1990 through December 31,
1998, and on unaudited performance from January 1, 1999 through
December 31, 1999. PAST PERFORMANCE IS NOT A GUARANTY OF FUTURE
PERFORMANCE.
2. The above returns are net of all fees and expenses and a 20%
incentive allocation payable to Scottsdale Associates, L.P. (a
Delaware limited partnership of which Clifford Henry is the president
of the general partner), the general partner and investment manager of
Worthington Growth LP. The above returns are based upon the results
achieved by an investor who invested $1 million in Worthington Growth
LP on January 1, 1990. Performance of the Standard & Poor's Composite
Index of 500 Stocks (the "S&P 500") is provided for comparison
purposes. Worthington Growth LP, however, does not restrict its
investments in securities only to those securities comprising in the
S&P 500 and neither will the Company. Cumulative return is calculated
by using a compounded, time-weighted return.
3. At all times under consideration, Worthington's capital was between
$____ and $____ million, adjusted for additions and withdrawals. As of
December 31, 1999, Worthington's capital was approximately $50
million.
4. The Standard & Poor's Composite Index of 500 Stocks (the "Index")
rate of return reflects the percentage increase (or decrease) for each
period for the Index. The rate of return of the Index has been
adjusted to reflect reinvestment of dividends. The statistical data
for the Index has been obtained from sources believed to be reliable
but which are not warranted as to accuracy or completeness. The Index
is a well-known, broad based stock market index which contains only
seasoned equity securities. Worthington does not restrict its
selection of securities to those comprising the Index and accordingly,
the performance of Worthington and the performance of the Index may
not be comparable.
5. The Cumulative Return is calculated by using a compounded,
time-weighted return.
B-3
<PAGE> 82
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
As Registrant has no assets, financial statements are
omitted.
(2) Exhibits:
(a) (1) Certificate of Formation of Limited
Liability Company.
(2) Form of Limited Liability Company
Agreement.
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(2).
(e) Not Applicable.
(f) Not Applicable.
(g) Form of Investment Advisory Agreement.*
(h) Form of Placement Agency Agreement.*
(i) Not Applicable.
(j) Form of Custody Agreement.*
(k) (1) Form of Administrative Services
Agreement.*
(2) Form of Administration, Accounting
and Investor Services Agreement.*
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
* To be filed by amendment.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
C-1
<PAGE> 83
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
ALL FIGURES ARE ESTIMATES:
Blue Sky Fees and Expenses (including fees
of counsel)................................. 10,000
Transfer Agent fees............................. N/A
Accounting fees and expenses.................... 10,000
Legal fees and expenses......................... 125,000
Printing and engraving.......................... 25,000
Offering Expenses............................... 75,000
Miscellaneous................................... 5,000
---------
$ 250,000
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, Registrant
expects that no person will be directly or indirectly under common control with
Registrant.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Limited Liability Company Interests 1 (Registrant anticipates that as a result of the
initial private offering of interests there will be
more than 100 record holders of such interests.)
</TABLE>
ITEM 29. INDEMNIFICATION
Reference is made to Section 3.7 of Registrant's Form of Limited
Liability Company Agreement (the "Company Agreement") filed as Exhibit 2(a)(2)
hereto. Registrant hereby undertakes that it will apply the indemnification
provision of the Company Agreement in a manner consistent with Release 40-11330
of the Securities and Exchange Commission under the Investment Company Act of
1940, so long as the interpretation therein of Sections 17(h) and 17(i) of such
Act remains in effect.
Registrant, in conjunction with the CIBC Oppenheimer Advisers, L.L.C.
(the "Adviser") and Registrant's Managers, maintains insurance on behalf of any
person who is or was a Independent Manager, officer, employee, or agent of
Registrant, against certain liability asserted against him or her and incurred
by him or her or arising out of his or her position. However, in no event will
Registrant pay that portion of the premium, if any, for insurance to indemnify
any such person or any act for which Registrant itself is not permitted to
indemnify.
C-2
<PAGE> 84
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or
employment of a substantial nature in which the Adviser, and each director,
executive officer, managing member or partner of the Adviser, is or has been, at
any time during the past two fiscal years, engaged in for his or her own account
or in the capacity of director, officer, employee, managing member, partner or
trustee, is set forth in Registrant's Confidential Memorandum in the section
entitled "THE ADVISER AND CIBC WM." Information as to the directors and officers
of the Adviser is included in its Form ADV as filed with the Commission (File
No. 801-55640), and is incorporated herein by reference.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of Registrant at PFPC Inc., 400 Bellevue Parkway,
Wilmington, Delaware 19809. The other required books and records are maintained
by the Adviser, One World Financial Center, 200 Liberty Street, New York, New
York 10281.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
C-3
<PAGE> 85
FORM N-2
SAWGRASS FUND, L.L.C.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 10th day of December, 1999.
SAWGRASS FUND, L.L.C.
By: /s/ Howard M. Singer
-----------------------------
Name: Howard M. Singer
Title: Manager
C-4
<PAGE> 86
FORM N-2
SAWGRASS FUND, L.L.C.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT DESCRIPTION
<S> <C> <C>
(a) (1) Certificate of Formation of Limited Liability
Company
(2) Form of Limited Liability Company Agreement
(c) Not Applicable
(d) See Exhibit (a)(2) above
(e) Not Applicable
(f) Not Applicable
(g) Form of Investment Advisory Agreement*
(h) Form of Placement Agency Agreement*
(i) Not Applicable
(j) Form of Custody Agreement*
(k) (1) Form of Administrative Services Agreement*
(2) Form of Administration, Accounting and Investor
Services Agreement*
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
</TABLE>
* To be filed by amendment.
C-5
<PAGE> 1
Exhibit (a)(1)
CERTIFICATE OF FORMATION
OF
SAWGRASS FUND, L.L.C.
FIRST: The name of the limited liability company is Sawgrass
Fund, L.L.C.
SECOND: The address of its registered office in the State of
Delaware is 1013 Centre Road, County of Newcastle, Wilmington, Delaware 19805.
The name of its registered agent at such address is Corporation Service Company.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Formation this 2nd day of December, 1999.
SAWGRASS FUND, L.L.C.
By: /s/ David J. Efron
----------------------
Name: David J. Efron
Title: Authorized Person
<PAGE> 1
Exhibit (a)(2)
------------------------------------
SAWGRASS FUND, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
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LIMITED LIABILITY COMPANY AGREEMENT
DATED AS OF [JANUARY --,] 2000
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ONE WORLD FINANCIAL CENTER, 31ST FLOOR
200 LIBERTY STREET
NEW YORK, NEW YORK 10281
(212) 667-4225
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS........................................................................... 1
ARTICLE II ORGANIZATION; ADMISSION OF MEMBERS.................................................... 9
2.1 Formation of Limited Liability Company................................................ 9
2.2 Name.................................................................................. 9
2.3 Principal and Registered Office....................................................... 9
2.4 Duration.............................................................................. 9
2.5 Objective and Business of the Company................................................. 9
2.6 Board of Managers..................................................................... 10
2.7 Members............................................................................... 11
2.8 Special Advisory Member............................................................... 11
2.9 Organizational Member................................................................. 11
2.10 Both Managers and Members............................................................. 11
2.11 Limited Liability..................................................................... 11
ARTICLE III MANAGEMENT............................................................................ 12
3.1 Management and Control................................................................ 12
3.2 Actions by the Board of Managers...................................................... 13
3.3 Meetings of Members................................................................... 13
3.4 Custody of Assets of the Company...................................................... 14
3.5 Other Activities of Members and Managers.............................................. 14
3.6 Duty of Care.......................................................................... 14
3.7 Indemnification....................................................................... 15
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3.8 Fees, Expenses and Reimbursement...................................................... 17
ARTICLE IV TERMINATION OF STATUS OF ADVISER AND MANAGERS, TRANSFERS AND REPURCHASES.............. 18
4.1 Termination of Status of the Adviser.................................................. 18
4.2 Termination of Status of a Manager.................................................... 19
4.3 Removal of the Managers............................................................... 19
4.4 Transfer of Interests of Members...................................................... 19
4.5 Transfer of Interests of Special Advisory Member...................................... 20
4.6 Repurchase of Interests............................................................... 20
ARTICLE V CAPITAL............................................................................... 22
5.1 Contributions to Capital.............................................................. 22
5.2 Rights of Members to Capital.......................................................... 23
5.3 Capital Accounts...................................................................... 23
5.4 Allocation of Net Profit and Loss..................................................... 24
5.5 Allocation of Insurance Premiums and Proceeds......................................... 24
5.6 Allocation of Certain Withholding Taxes and Other Expenditures........................ 24
5.7 Reserves.............................................................................. 25
5.8 Incentive Allocation.................................................................. 26
5.9 Allocation of Organizational Expenses................................................. 26
5.10 Tax Allocations....................................................................... 26
5.11 Distributions......................................................................... 28
5.12 Foreign Withholding................................................................... 29
ARTICLE VI DISSOLUTION AND LIQUIDATION........................................................... 29
6.1 Dissolution........................................................................... 29
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6.2 Liquidation of Assets................................................................. 30
ARTICLE VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS.......................................... 31
7.1 Accounting and Reports................................................................ 31
7.2 Determinations by the Board of Managers............................................... 31
7.3 Valuation of Assets................................................................... 32
ARTICLE VIII MISCELLANEOUS PROVISIONS.............................................................. 32
8.1 Amendment of Limited Liability Company Agreement...................................... 32
8.2 Special Power of Attorney............................................................. 33
8.3 Notices............................................................................... 34
8.4 Agreement Binding Upon Successors and Assigns......................................... 35
8.5 Applicability of 1940 Act and Form N-2................................................ 35
8.6 Choice of Law; Arbitration............................................................ 35
8.7 Not for Benefit of Creditors.......................................................... 36
8.8 Consents.............................................................................. 36
8.9 Merger and Consolidation.............................................................. 37
8.10 Pronouns.............................................................................. 37
8.11 Confidentiality....................................................................... 37
8.12 Certification of Non-Foreign Status................................................... 38
8.13 Severability.......................................................................... 38
8.14 Filing of Returns..................................................................... 38
8.15 Tax Matters Partner................................................................... 38
8.16 Section 754 Election.................................................................. 39
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SAWGRASS FUND, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of Sawgrass Fund, L.L.C. (the
"Company") is dated as of [January --,] 2000 by and among Sol Gittleman, Luis
Rubio, Janet L. Schniderman, Alan Rappaport and Howard M. Singer as the
Managers, CIBC Oppenheimer Advisers, L.L.C., as the Special Advisory Member,
Howard M. Singer as the Organizational Member, and those persons hereinafter
admitted as Members.
W I T N E S S E T H :
WHEREAS, the Company has heretofore been formed as a limited liability
company under the Delaware Limited Liability Company Act pursuant to an initial
Certificate of Formation (the "Certificate") dated and filed with the Secretary
of State of Delaware on December 2, 1999;
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants hereinafter set forth, it is hereby agreed as follows:
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ARTICLE I
DEFINITIONS
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For purposes of this Agreement:
ADMINISTRATOR The person who provides
administrative services to the
Company pursuant to an administrative
services agreement.
ADVISER CIBC Oppenheimer Advisers, L.L.C., a
limited liability company organized
under Delaware law, or any person who
may hereinafter serve as the
investment adviser to the Company
pursuant to an Investment Advisory
Agreement.
ADVISER ACT The Investment Advisers Act of 1940
and the rules, regulations and orders
thereunder, as amended from time to
time, or any successor law.
AFFILIATE An affiliated person of a person as
such term is defined in the 1940 Act.
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AGREEMENT This Limited Liability Company
Agreement, as amended from time to
time.
ALLOCATION CHANGE With respect to each Member for each
Allocation Period, the difference
between:
(1) the sum of (a) the balance
of such Member's Capital
Account as of the close of
the Allocation Period (after
giving effect to all
allocations to be made to
such Member's Capital
Account as of such date
other than any Incentive
Allocation to be debited
against such Member's
Capital Account), plus (b)
any debits to such Member's
Capital Account during the
Allocation Period to reflect
any actual or deemed
distributions or repurchases
with respect to such
Member's Interest, plus (c)
any debits to such Member's
Capital Account during the
Allocation Period to reflect
any Insurance premiums
allocable to such Member,
plus (d) any debits to such
Member's Capital Account
during the Allocation Period
to reflect any items
allocable to such Member's
Capital Account pursuant to
Section 5.6 hereof; and
(2) the sum of (a) the balance
of such Member's Capital
Account as of the
commencement of the
Allocation Period, plus (b)
any credits to such Member's
Capital Account during the
Allocation Period to reflect
any contributions by such
Member to the capital of the
Company, plus (c) any
credits to such Member's
Capital Account during the
Allocation Period to reflect
any Insurance proceeds
allocable to such Member.
If the amount specified in clause (1)
exceeds the amount specified in
clause (2), such difference shall be
a POSITIVE ALLOCATION Change, and if
the amount specified in clause (2)
exceeds the amount specified in
clause (1), such difference shall be
a NEGATIVE ALLOCATION CHANGE.
ALLOCATION PERIOD With respect to each Member, the
period commencing as of the date of
admission of such Member to the
Company, and thereafter each period
commencing as of the day following
the last day of the preceding
Allocation Period
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with respect to such Member, and
ending at the close of business on
the first to occur of the following:
(1) the last day of a Fiscal
Year;
(2) the day as of which the
Company repurchases the
entire Interest of such
Member;
(3) the day as of which the
Company admits as a
substituted Member a person
to whom the Interest of such
Member has been Transferred
(unless there is no change
of beneficial ownership);
and
(4) the day as of which the
Adviser's status as the
Special Advisory Member is
terminated pursuant to
Section 4.1 hereof.
BOARD OF MANAGERS The Board of Managers established
pursuant to Section 2.6.
CAPITAL ACCOUNT With respect to each Member, the
capital account established and
maintained on behalf of each Member
pursuant to Section 5.3 hereof.
CAPITAL PERCENTAGE A percentage established for each
Member on the Company's books as of
each Expense Allocation Date. The
Capital Percentage of a Member on an
Expense Allocation Date shall be
determined by dividing the amount of
capital contributed to the Company by
the Member pursuant to Section 5.1
hereof by the sum of the capital
contributed to the Company by each
Member pursuant to Section 5.1 hereof
on or prior to such Expense
Allocation Date. The sum of the
Capital Percentages of all Members on
each Expense Allocation Date shall
equal 100%.
CERTIFICATE The Certificate of Formation of the
Company and any amendments thereto as
filed with the office of the
Secretary of State of Delaware.
CIBC WM CIBC World Markets Corp., or any
successor thereto.
CIBC WM SERVICES Such administrative services as CIBC
WM shall provide to the Company
pursuant to a separate written
agreement with the Company as
contemplated by Section 3.8(a)
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hereof.
CLOSING DATE The first date on or as of which a
Member other than the Organizational
Member is admitted to the Company.
CODE The United States Internal Revenue
Code of 1986, as amended and as
hereafter amended from time to time,
or any successor law.
COMPANY The limited liability company
governed hereby, as such limited
liability company may from time to
time be constituted.
DELAWARE ACT The Delaware Limited Liability
Company Act as in effect on the date
ACT hereof and as amended from time
to time, or any successor law.
EXPENSE ALLOCATION DATE The Closing Date, and thereafter each
day on or before December 1, 2000, as
of which a contribution to the
capital of the Company is made
pursuant to Section 5.1 hereof.
FISCAL PERIOD The period commencing on the Closing
Date, and thereafter each period
commencing on the day immediately
following the last day of the
preceding Fiscal Period, and ending
at the close of business on the first
to occur of the following dates:
(1) the last day of a Fiscal
Year;
(2) the day preceding any day as
of which a contribution to
the capital of the Company
is made pursuant to Section
5.1; or
(3) any day (other than one
specified in clause (2)
above) as of which this
Agreement provides for any
amount to be credited to or
debited against the Capital
Account of any Member, other
than an amount to be
credited to or debited
against the Capital Accounts
of all Members in accordance
with their respective
Investment Percentages.
FISCAL YEAR The period commencing on the Closing
Date and ending on December 31, 2000,
and thereafter each period commencing
on January 1 of each year and ending
on
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December 31 of each year (or on
the date of a final distribution
pursuant to Section 6.2 hereof),
unless the Board of Managers shall
elect another fiscal year for the
Company that is a permissible taxable
year under the Code.
FORM N-2 The Company's Registration Statement
on Form N-2 filed with the Securities
and Exchange Commission, as amended
from time to time.
INCENTIVE ALLOCATION With respect to each Member, 20% of
the amount, determined as of the
close of each Allocation Period with
respect to such Member, by which such
Member's Positive Allocation Change
for such Allocation Period, if any,
exceeds any positive balance in such
Member's Loss Recovery Account as of
the most recent prior date as of
which any adjustment has been made
thereto.
INDEPENDENT MANAGERS Those Managers who are not
"interested persons" of the Company
as such term is defined in the 1940
Act.
INSURANCE One or more "key man" insurance
policies on the life of any principal
of a member of the Adviser, the
benefits of which are payable to the
Company.
INTEREST The entire ownership interest in the
Company at any particular time of a
Member or the Special Advisory
Member, or other person to whom an
Interest of a Member or portion
thereof has been transferred pursuant
to Section 4.4 hereof, including the
rights and obligations of such Member
or other person under this Agreement
and the Delaware Act.
INVESTMENT ADVISORY A separate written agreement entered
AGREEMENT into by the Company pursuant to which
the Adviser provides investment
advisory services to the Company.
INVESTMENT PERCENTAGE A percentage established for each
Member on the Company's books as of
the first day of each Fiscal Period.
The Investment Percentage of a Member
for a Fiscal Period shall be
determined by dividing the balance of
the Member's Capital Account as of
the commencement of such Fiscal
Period by the sum of the Capital
Accounts of all of the Members as of
the commencement of such Fiscal
Period. The sum of the Investment
Percentages of all
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Members for each Fiscal Period shall
equal 100%.
LOSS RECOVERY ACCOUNT A memorandum account to be recorded
in the books and records of the
Company with respect to each Member,
which shall have an initial balance
of zero and which shall be adjusted
as follows:
(1) As of the first day after
the close of each Allocation
Period for such Member, the
balance of the Loss Recovery
Account shall be increased
by the amount, if any, of
such Member's Negative
Allocation Change for such
Allocation Period and shall
be reduced (but not below
zero) by the amount, if any,
of such Member's Positive
Allocation Change for such
Allocation Period.
(2) The balance of the Loss
Recovery Account shall be
reduced (but not below zero)
as of the first date as of
which the Capital Account
balance of any Member is
reduced as a result of
repurchase or transfer with
respect to such Member's
Interest by an amount
determined by multiplying
(a) such positive balance by
(b) a fraction, (i) the
numerator of which is equal
to the amount of the
repurchase or transfer, and
(ii) the denominator of
which is equal to the
balance of such Member's
Capital Account immediately
before giving effect to such
repurchase or transfer.
No transferee of any Interest shall
succeed to any Loss Recovery Account
balance or portion thereof
attributable to the transferor unless
the Transfer by which such transferee
received such Interest did not
involve a change of beneficial
ownership.
MANAGER An individual designated as a manager
of the Company pursuant to the
provisions of Section 2.6 of the
Agreement and who serves on the Board
of Managers of the Company.
MEMBER Any person who shall have been
admitted to the Company as a member
(including any Manager in such
person's capacity as a member of the
Company but excluding any Manager in
such person's capacity as a Manager
of the Company) until the Company
repurchases the entire Interest of
such person as a member pursuant to
Section 4.6 hereof or a substituted
member or members are admitted
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with respect to any such person's
entire Interest as a member pursuant
to Section 4.4 hereof; such term
includes the Adviser to the extent
the Adviser makes a capital
contribution to the Company and shall
have been admitted to the Company as
a member, and shall not include the
Special Advisory Member.
NEGATIVE ALLOCATION CHANGE The meaning given such term in the
definition of Allocation Change.
NET ASSETS The total value of all assets of the
Company, less an amount equal to all
accrued debts, liabilities and
obligations of the Company,
calculated before giving effect to
any repurchases of Interests.
NET PROFIT OR NET LOSS The amount by which the Net Assets as
of the close of business on the last
day of a Fiscal Period exceed (in the
case of Net Profit) or are less than
(in the case of Net Loss) the Net
Assets as of the commencement of the
same Fiscal Period (or, with respect
to the initial Fiscal Period of the
Company, at the close of business on
the Closing Date), such amount to be
adjusted to exclude:
(1) the amount of any Insurance
premiums or proceeds to be
allocated among the Capital
Accounts of the Members
pursuant to Section 5.5
hereof;
(2) any items to be allocated
among the Capital Accounts
of the Members on a basis
that is not in accordance
with the respective
Investment Percentages of
all Members as of the
commencement of such Fiscal
Period pursuant to Sections
5.6 and 5.7 hereof; and
(3) Organizational Expenses
allocated among the Capital
Accounts of the Members
pursuant to Section 5.9
hereof.
1940 ACT The Investment Company Act of 1940
and the rules, regulations and orders
thereunder, as amended from time to
time, or any successor law.
1934 ACT The Securities Exchange Act of 1934
and the rules, regulations and orders
thereunder, as amended from time
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to time, or any successor law.
ORGANIZATIONAL EXPENSES The expenses incurred by the Company
in connection with its formation, its
initial registration as an investment
company under the 1940 Act, and the
initial offering of Interests.
ORGANIZATIONAL MEMBER Howard M. Singer
POSITIVE ALLOCATION CHANGE The meaning given such term in the
definition of Allocation Change.
SECURITIES Securities (including, without
limitation, equities, debt
obligations, options, and other
"securities" as that term is defined
in Section 2(a)(36) of the 1940 Act)
and any contracts for forward or
future delivery of any security, debt
obligation or currency, or commodity,
all types of derivative instruments
and any contracts based on any index
or group of securities, debt
obligations or currencies, or
commodities, and any options thereon.
SPECIAL ADVISORY ACCOUNT A capital account established and
maintained on behalf of the Special
Advisory Member pursuant to Section
5.3 hereof solely for the purpose of
receiving the Incentive Allocation.
SPECIAL ADVISORY MEMBER The Adviser in its capacity as the
investment adviser to the Company.
TRANSFER The assignment, transfer, sale,
encumbrance, pledge or other
disposition of all or any portion of
an Interest, including any right to
receive any allocations and
distributions attributable to an
Interest.
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ARTICLE II
ORGANIZATION; ADMISSION OF MEMBERS
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2.1 FORMATION OF LIMITED LIABILITY COMPANY.
The Board of Managers shall execute and file in accordance
with the Delaware Act any amendment to the Certificate and shall execute and
file with applicable governmental authorities any other instruments, documents
and certificates that, in the opinion of the Company's legal counsel, may from
time to time be required by the laws of the United States of America, the State
of Delaware or any other jurisdiction in which the Company shall determine to do
business, or any political subdivision or agency thereof, or that such legal
counsel may deem necessary or appropriate to effectuate, implement and continue
the valid existence and business of the Company.
2.2 NAME.
The name of the Company shall be "Sawgrass Fund, L.L.C." or
such other name as the Board of Managers may hereafter adopt upon (i) causing an
appropriate amendment to the Certificate to be filed in accordance with the
Delaware Act and (ii) sending notice thereof to each Member.
2.3 PRINCIPAL AND REGISTERED OFFICE.
The Company shall have its principal office at One World
Financial Center, 31st Floor, 200 Liberty Street, New York, New York 10281, or
at such other place designated from time to time by the Board of Managers.
The Company shall have its registered office in Delaware at
1013 Centre Road, Wilmington, Delaware 19805-1297, and shall have Corporation
Service Company as its registered agent for service of process in Delaware,
unless a different registered office or agent is designated from time to time by
the Board of Managers.
2.4 DURATION.
The term of the Company commenced as of the date hereof and
shall continue until the Company is dissolved pursuant to Section 6.1 hereof.
2.5 OBJECTIVE AND BUSINESS OF THE COMPANY.
(a) The objective and business of the Company is to purchase,
sell (including short sales), invest and trade in Securities, on margin or
otherwise, and to engage in any financial or derivative transactions relating
thereto or otherwise. The Company may execute, deliver and
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perform all contracts, agreements and other undertakings and engage in all
activities and transactions as may in the opinion of the Board of Managers be
necessary or advisable to carry out its objective or business.
(b) The Company shall operate as a closed-end,
non-diversified, management investment company in accordance with the 1940 Act
and subject to any fundamental policies and investment restrictions set forth in
the Form N-2.
2.6 BOARD OF MANAGERS.
(a) Prior to the Closing Date, the Organizational Member may
designate such persons who shall agree to be bound by all of the terms of this
Agreement to serve as the initial Managers on the Board of Managers, subject to
the election of such persons prior to the Closing Date by the Organizational
Member. By signing this Agreement or the signature page of the Company's
subscription agreement, a Member admitted on the Closing Date shall be deemed to
have voted for the election of each of the initial Managers to the Board of
Managers. After the Closing Date, the Board of Managers may, subject to the
provisions of paragraphs (a) and (b) of this Section 2.6 with respect to the
number of and vacancies in the position of Manager and the provisions of Section
3.3 hereof with respect to the election of Managers to the Board of Managers by
Members, designate any person who shall agree to be bound by all of the terms of
this Agreement as a Manager. The names and mailing addresses of the Managers
shall be set forth in the books and records of the Company. The number of
Managers shall be fixed from time to time by the Board of Managers but, at the
Closing Date, shall not be less than five.
(b) Each Manager shall serve on the Board of Managers for the
duration of the term of the Company, unless his or her status as a Manager shall
be sooner terminated pursuant to Section 4.2 hereof. In the event of any vacancy
in the position of Manager, the remaining Managers may appoint an individual to
serve in such capacity, so long as immediately after such appointment at least
two-thirds (2/3) of the Managers then serving would have been elected by the
Members. The Board of Managers may call a meeting of Members to fill any vacancy
in the position of Manager, and shall do so within 60 days after any date on
which Managers who were elected by the Members cease to constitute a majority of
the Managers then serving on the Board of Managers.
(c) In the event that no Manager remains to continue the
business of the Company, the Adviser shall promptly call a meeting of the
Members, to be held within 60 days after the date on which the last Manager
ceased to act in that capacity, for the purpose of determining whether to
continue the business of the Company and, if the business shall be continued, of
electing the required number of Managers to the Board of Managers. If the
Members shall determine at such meeting not to continue the business of the
Company or if the required number of Managers is not elected within 60 days
after the date on which the last Manager ceased to act in that capacity, then
the Company shall be dissolved pursuant to Section 6.1 hereof and the assets of
the Company shall be liquidated and distributed pursuant to Section 6.2 hereof.
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2.7 MEMBERS.
For the first twelve months from the date the Company
commences operations, the Board of Managers may admit new Members as of the
first day of each month. Thereafter, during any period in which the Adviser is
deemed to control the Company for purposes of the BHC, the Board of Managers may
admit new Members as of the first day of each calendar quarter. At all other
times, the Board of Managers may admit new Members as of the first day of each
month. Subject to the foregoing terms, Members may be admitted to the Company
subject to the condition that each such Member shall execute an appropriate
signature page of this Agreement or of the Company's subscription agreement
pursuant to which such Member agrees to be bound by all the terms and provisions
hereof. The Board of Managers may in its absolute discretion reject
subscriptions for Interests in the Company. The Board of Managers may, in its
sole discretion, suspend subscriptions for Interests at any time. The admission
of any person as a Member shall be effective upon the revision of the books and
records of the Company to reflect the name and the contribution to the capital
of the Company of such additional Member.
2.8 SPECIAL ADVISORY MEMBER.
Upon signing this Agreement, the Adviser shall be admitted to
the Company as the Special Advisory Member. The Interest of the Special Advisory
Member shall be non-voting. If at anytime the Investment Advisory Agreement
between the Company and the person then serving as Adviser terminates, the Board
of Managers shall admit as a substitute Special Advisory Member, upon its
signing this Agreement, such person as may be retained by the Company to provide
investment advisory services pursuant to an Investment Advisory Agreement,
subject to the due approval of such Investment Advisory Agreement in accordance
with the requirements of the 1940 Act.
2.9 ORGANIZATIONAL MEMBER.
Upon the admission of any Member, the Organizational Member
shall withdraw from the Company as the Organizational Member and shall be
entitled to the return of his or her Capital Contribution, if any, without
interest or deduction.
2.10 BOTH MANAGERS AND MEMBERS.
A Member may at the same time be a Manager and a Member, or a
Special Advisory Member and Member, in which event such Member's rights and
obligations in each capacity shall be determined separately in accordance with
the terms and provisions hereof or as provided in the Delaware Act.
2.11 LIMITED LIABILITY.
Except as provided under applicable law, a Member and the
Special Advisory Member shall not be liable for the Company's debts, obligations
and liabilities in any amount in excess of the capital account balance of such
Member, plus such Member's share of undistributed
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profits and assets. Except as provided under applicable law, a Manager shall not
be liable for the Company's debts, obligations and liabilities.
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ARTICLE III
MANAGEMENT
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3.1 MANAGEMENT AND CONTROL.
(a) Management and control of the business of the Company
shall be vested in the Board of Managers, which shall have the right, power and
authority, on behalf of the Company and in its name, to exercise all rights,
powers and authority of Managers under the Delaware Act and to do all things
necessary and proper to carry out the objective and business of the Company and
their duties hereunder. No Manager shall have the authority individually to act
on behalf of or to bind the Company except within the scope of such Manager's
authority as delegated by the Board of Managers. The parties hereto intend that,
except to the extent otherwise expressly provided herein, (i) each Manager shall
be vested with the same powers, authority and responsibilities on behalf of the
Company as are customarily vested in each director of a Delaware corporation and
(ii) each Independent Manager shall be vested with the same powers, authority
and responsibilities on behalf of the Company as are customarily vested in each
director of a closed-end management investment company registered under the 1940
Act that is organized as a Delaware corporation who is not an "interested
person" of such company as such term is defined in the 1940 Act. During any
period in which the Company shall have no Managers, the Adviser shall continue
to serve as the Adviser to the Company. During such time period, CIBC WM shall
continue to provide the CIBC WM Services to the Company.
(b) Each Member agrees not to treat, on such Member's personal
income tax return or in any claim for a tax refund, any item of income, gain,
loss, deduction or credit in a manner inconsistent with the treatment of such
item by the Company. The Board of Managers shall have the exclusive authority
and discretion to make any elections required or permitted to be made by the
Company under any provisions of the Code or any other revenue laws.
(c) Members shall have no right to participate in and shall
take no part in the management or control of the Company's business and shall
have no right, power or authority to act for or bind the Company. Members shall
have the right to vote on any matters only as provided in this Agreement or on
any matters that require the approval of the holders of voting securities under
the 1940 Act or as otherwise required in the Delaware Act.
(d) The Board of Managers may delegate to any other person any
rights, power and authority vested by this Agreement in the Board of Managers to
the extent permissible under applicable law.
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3.2 ACTIONS BY THE BOARD OF MANAGERS.
(a) Unless provided otherwise in this Agreement, the Board of
Managers shall act only: (i) by the affirmative vote of a majority of the
Managers (which majority shall include any requisite number of Independent
Managers required by the 1940 Act) present at a meeting duly called at which a
quorum of the Managers shall be present (in person or, if in person attendance
is not required by the 1940 Act, by telephone) or (ii) by unanimous written
consent of all of the Managers without a meeting, if permissible under the 1940
Act.
(b) The Board of Managers may designate from time to time a
Principal Manager who shall preside at all meetings. Meetings of the Board of
Managers may be called by the Principal Manager or by any two Managers, and may
be held on such date and at such time and place as the Board of Managers shall
determine. Each Manager shall be entitled to receive written notice of the date,
time and place of such meeting within a reasonable time in advance of the
meeting. Notice need not be given to any Manager who shall attend a meeting
without objecting to the lack of notice or who shall execute a written waiver of
notice with respect to the meeting. Managers may attend and participate in any
meeting by telephone except where in person attendance at a meeting is required
by the 1940 Act. A majority of the Managers shall constitute a quorum at any
meeting.
3.3 MEETINGS OF MEMBERS.
(a) Actions requiring the vote of the Members may be taken at
any duly constituted meeting of the Members at which a quorum is present.
Meetings of the Members may be called by the Board of Managers or by Members
holding 25% or more of the total number of votes eligible to be cast by all
Members, and may be held at such time, date and place as the Board of Managers
shall determine. The Board of Managers shall arrange to provide written notice
of the meeting, stating the date, time and place of the meeting and the record
date therefor, to each Member entitled to vote at the meeting within a
reasonable time prior thereto. Failure to receive notice of a meeting on the
part of any Member shall not affect the validity of any act or proceeding of the
meeting, so long as a quorum shall be present at the meeting, except as
otherwise required by applicable law. Only matters set forth in the notice of a
meeting may be voted on by the Members at a meeting. The presence in person or
by proxy of Members holding a majority of the total number of votes eligible to
be cast by all Members as of the record date shall constitute a quorum at any
meeting. In the absence of a quorum, a meeting of the Members may be adjourned
by action of a majority of the Members present in person or by proxy without
additional notice to the Members. Except as otherwise required by any provision
of this Agreement or of the 1940 Act, (i) those candidates receiving a plurality
of the votes cast at any meeting of Members shall be elected as Managers and
(ii) all other actions of the Members taken at a meeting shall require the
affirmative vote of Members holding a majority of the total number of votes
eligible to be cast by those Members who are present in person or by proxy at
such meeting.
(b) Each Member shall be entitled to cast at any meeting of
Members a number of votes equivalent to such Member's Investment Percentage as
of the record date for such meeting. The Board of Managers shall establish a
record date not less than 10 nor more than 60 days prior to
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the date of any meeting of Members to determine eligibility to vote at such
meeting and the number of votes that each Member will be entitled to cast
thereat, and shall maintain for each such record date a list setting forth the
name of each Member and the number of votes that each Member will be entitled to
cast at the meeting.
(c) A Member may vote at any meeting of Members by a proxy
properly executed in writing by the Member and filed with the Company before or
at the time of the meeting. A proxy may be suspended or revoked, as the case may
be, by the Member executing the proxy by a later writing delivered to the
Company at any time prior to exercise of the proxy or if the Member executing
the proxy shall be present at the meeting and decide to vote in person. Any
action of the Members that is permitted to be taken at a meeting of the Members
may be taken without a meeting if consents in writing, setting forth the action
taken, are signed by Members holding a majority of the total number of votes
eligible to be cast or such greater percentage as may be required in order to
approve such action.
3.4 CUSTODY OF ASSETS OF THE COMPANY.
The physical possession of all funds, Securities or other
properties of the Company shall at all times, be held, controlled and
administered by one or more custodians retained by the Company in accordance
with the requirements of the 1940 Act and the rules thereunder.
3.5 OTHER ACTIVITIES OF MEMBERS AND MANAGERS.
(a) The Managers shall not be required to devote full time to
the affairs of the Company, but shall devote such time as may reasonably be
required to perform their obligations under this Agreement.
(b) Any Member or Manager, and any Affiliate of any Member or
Manager, may engage in or possess an interest in other business ventures or
commercial dealings of every kind and description, independently or with others,
including, but not limited to, acquisition and disposition of Securities,
provision of investment advisory or brokerage services, serving as directors,
officers, employees, advisors or agents of other companies, partners of any
partnership, members of any limited liability company, or trustees of any trust,
or entering into any other commercial arrangements. No Member or Manager shall
have any rights in or to such activities of any other Member or Manager, or any
profits derived therefrom.
3.6 DUTY OF CARE.
(a) A Manager shall not be liable to the Company or to any of
its Members for any loss or damage occasioned by any act or omission in the
performance of his or her services under this Agreement, unless it shall be
determined by final judicial decision on the merits from which there is no
further right to appeal that such loss is due to an act or omission of such
Manager constituting willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of such Manager's
office.
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(b) Members not in breach of any obligation hereunder or under
any agreement pursuant to which the Member subscribed for an Interest shall be
liable to the Company, any Member or third parties only as provided under the
Delaware Act.
3.7 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Company shall,
subject to Section 3.7(b) hereof, indemnify each Manager (including for this
purpose his or her respective executors, heirs, assigns, successors or other
legal representatives), against all losses, claims, damages, liabilities, costs
and expenses, including, but not limited to, amounts paid in satisfaction of
judgments, in compromise, or as fines or penalties, and reasonable counsel fees,
incurred in connection with the defense or disposition of any action, suit,
investigation or other proceeding, whether civil or criminal, before any
judicial, arbitral, administrative or legislative body, in which such indemnitee
may be or may have been involved as a party or otherwise, or with which such
indemnitee may be or may have been threatened, while in office or thereafter, by
reason of being or having been a Manager of the Company or the past or present
performance of services to the Company by such indemnitee, except to the extent
such loss, claim, damage, liability, cost or expense shall have been finally
determined in a decision on the merits in any such action, suit, investigation
or other proceeding to have been incurred or suffered by such indemnitee by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such indemnitee's office. The
rights of indemnification provided under this Section 3.7 shall not be construed
so as to provide for indemnification of a Manager for any liability (including
liability under federal securities laws which, under certain circumstances,
impose liability even on persons that act in good faith) to the extent (but only
to the extent) that such indemnification would be in violation of applicable
law, but shall be construed so as to effectuate the applicable provisions of
this Section 3.7 to the fullest extent permitted by law.
(b) Expenses, including reasonable counsel fees, so incurred
by any such indemnitee (but excluding amounts paid in satisfaction of judgments,
in compromise, or as fines or penalties), may be paid from time to time by the
Company in advance of the final disposition of any such action, suit,
investigation or proceeding upon receipt of an undertaking by or on behalf of
such indemnitee to repay to the Company amounts so paid if it shall ultimately
be determined that indemnification of such expenses is not authorized under
Section 3.7(a) hereof; provided, however, that (i) such indemnitee shall provide
security for such undertaking, (ii) the Company shall be insured by or on behalf
of such indemnitee against losses arising by reason of such indemnitee's failure
to fulfill such undertaking, or (iii) a majority of the Managers (excluding any
Manager who is either seeking advancement of expenses hereunder or is or has
been a party to any other action, suit, investigation or proceeding involving
claims similar to those involved in the action, suit, investigation or
proceeding giving rise to a claim for advancement of expenses hereunder) or
independent legal counsel in a written opinion shall determine based on a review
of readily available facts (as opposed to a full trial-type inquiry) that there
is reason to believe such indemnitee ultimately will be entitled to
indemnification.
(c) As to the disposition of any action, suit, investigation
or proceeding (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an
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adjudication or a decision on the merits by a court, or by any other body before
which the proceeding shall have been brought, that an indemnitee is liable to
the Company or its Members by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
indemnitee's office, indemnification shall be provided pursuant to Section
3.7(a) hereof if (i) approved as in the best interests of the Company by a
majority of the Managers (excluding any Manager who is either seeking
indemnification hereunder or is or has been a party to any other action, suit,
investigation or proceeding involving claims similar to those involved in the
action, suit, investigation or proceeding giving rise to a claim for
indemnification hereunder) upon a determination based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that such indemnitee
acted in good faith and in the reasonable belief that such actions were in the
best interests of the Company and that such indemnitee is not liable to the
Company or its Members by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
indemnitee's office, or (ii) the Board of Managers secures a written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry) to the effect that such indemnification
would not protect such indemnitee against any liability to the Company or its
Members to which such indemnitee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office.
(d) Any indemnification or advancement of expenses made
pursuant to this Section 3.7 shall not prevent the recovery from any indemnitee
of any such amount if such indemnitee subsequently shall be determined in a
decision on the merits in any action, suit, investigation or proceeding
involving the liability or expense that gave rise to such indemnification or
advancement of expenses to be liable to the Company or its Members by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such indemnitee's office. In (i) any suit
brought by a Manager (or other person entitled to indemnification hereunder) to
enforce a right to indemnification under this Section 3.7 it shall be a defense
that, and (ii) in any suit in the name of the Company to recover any
indemnification or advancement of expenses made pursuant to this Section 3.7 the
Company shall be entitled to recover such expenses upon a final adjudication
that, the Manager or other person claiming a right to indemnification under this
Section 3.7 has not met the applicable standard of conduct set forth in this
Section 3.7. In any such suit brought to enforce a right to indemnification or
to recover any indemnification or advancement of expenses made pursuant to this
Section 3.7, the burden of proving that the Manager or other person claiming a
right to indemnification is not entitled to be indemnified, or to any
indemnification or advancement of expenses, under this Section 3.7 shall be on
the Company (or any Member acting derivatively or otherwise on behalf of the
Company or its Members).
(e) An indemnitee may not satisfy any right of indemnification
or advancement of expenses granted in this Section 3.7 or to which such
indemnitee may otherwise be entitled except out of the assets of the Company,
and no Member shall be personally liable with respect to any such claim for
indemnification or advancement of expenses.
(f) The rights of indemnification provided hereunder shall not
be exclusive of or affect any other rights to which any person may be entitled
by contract or otherwise under law.
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Nothing contained in this Section 3.7 shall affect the power of the Company to
purchase and maintain liability insurance on behalf of any Manager or other
person.
3.8 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as CIBC WM provides CIBC WM Services to the
Company, it shall be entitled to receive fees for such services as may be agreed
to by CIBC WM and the Company pursuant to a separate written agreement.
(b) The Board of Managers may cause the Company to compensate
each Manager for his or her services as such. In addition, the Managers shall be
reimbursed by the Company for reasonable out-of-pocket expenses incurred by them
in performing their duties under this Agreement.
(c) The Company shall bear all expenses incurred in the
business of the Company other than those specifically required to be borne by
the Adviser pursuant to the Investment Advisory Agreement or by CIBC WM pursuant
to the agreement referred to in Section 3.8(a) hereof. Expenses to be borne by
the Company include, but are not limited to, the following:
(1) all costs and expenses related to portfolio
transactions and positions for the Company's
account, including, but not limited to,
brokerage commissions, research fees,
interest and commitment fees on loans and
debit balances, borrowing charges on
Securities sold short, dividends on
Securities sold short but not yet purchased,
custodial fees, margin fees, transfer taxes
and premiums, taxes withheld on foreign
dividends and indirect expenses from
investments in investment funds;
(2) all costs and expenses associated with the
organization and registration of the
Company, certain offering costs and the
costs of compliance with any applicable
federal or state laws;
(3) Attorneys' fees and disbursements associated
with updating the Company's Confidential
Memorandum and subscription documents (the
"Offering Materials"); the costs of printing
the Offering Materials; the costs of
distributing the Offering Materials to
prospective investors; and attorneys' fees
and disbursements associated with the review
of subscription documents executed and
delivered to the Company in connection with
offerings of interests in the Company;
(4) the costs and expenses of holding meetings
of the Board of Managers and any meetings of
Members;
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(5) fees and disbursements of any attorneys,
accountants, auditors and other consultants
and professionals engaged on behalf of the
Company. In the event that consultants and
professionals are retained for the benefit
of the Company and one or more other
accounts managed by the Adviser, such fees
will be allocated among all such accounts
based on relative net assets;
(6) the costs of a fidelity bond and any
liability insurance obtained on behalf of
the Company or its Managers;
(7) any fees payable to CIBC WM for CIBC WM
Services and the fees of custodians and
persons providing administrative services to
the Company;
(8) all expenses of computing the Company's net
asset value, including any equipment or
services obtained for such purposes;
(9) all charges for equipment or services used
in communicating information regarding the
Company's transactions among the Adviser and
any custodian or other agent engaged by the
Company; and
(10) such other types of expenses as may be
approved from time to time by the Board of
Managers, other than those required to be
borne by the Adviser or CIBC WM.
The Adviser shall be entitled to reimbursement from the Company for any of the
above expenses that it pays on behalf of the Company.
(d) Subject to procuring any required regulatory approvals,
from time to time the Company may, alone or in conjunction with other accounts
for which the Adviser, or any Affiliate of the Adviser, acts as general partner
or investment adviser, purchase Insurance in such amounts, from such insurers
and on such terms as the Board of Managers shall determine.
---------------------------------
ARTICLE IV
TERMINATION OF STATUS OF ADVISER AND MANAGERS,
TRANSFERS AND REPURCHASES
---------------------------------
4.1 TERMINATION OF STATUS OF THE ADVISER.
The status of the Adviser as the Special Advisory Member shall
terminate if the Investment Advisory Agreement with the Adviser terminates and
the Company does not enter into
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a new Investment Advisory Agreement with the Adviser, effective as of the date
of such termination.
4.2 TERMINATION OF STATUS OF A MANAGER.
The status of a Manager shall terminate if the Manager (i)
shall die; (ii) shall be adjudicated incompetent; (iii) shall voluntarily
withdraw as a Manager (upon not less than 90 days' prior written notice to the
other Managers); (iv) shall be removed; (v) shall be certified by a physician to
be mentally or physically unable to perform his or her duties hereunder; (vi)
shall be declared bankrupt by a court with appropriate jurisdiction, file a
petition commencing a voluntary case under any bankruptcy law or make an
assignment for the benefit of creditors; (vii) shall have a receiver appointed
to administer the property or affairs of such Manager; or (viii) shall otherwise
cease to be a Manager of the Company under the Delaware Act.
4.3 REMOVAL OF THE MANAGERS.
Any Manager may be removed either by (a) the vote or written
consent of at least two-thirds (2/3) of the Managers not subject to the removal
vote or (b) the vote or written consent of Members holding not less than
two-thirds (2/3) of the total number of votes eligible to be cast by all
Members.
4.4 TRANSFER OF INTERESTS OF MEMBERS.
(a) An Interest of a Member may be Transferred only (i) by
operation of law pursuant to the death, divorce, bankruptcy, insolvency or
dissolution of such Member or (ii) with the written consent of the Board of
Managers (which may be withheld in its sole and absolute discretion); provided,
however, that the Board of Managers may not consent to any Transfer other than a
Transfer (i) in which the tax basis of the interest in the hands of the
transferee is determined, in whole or in part, by reference to its tax basis in
the hands of the transferor (e.g., certain Transfers to affiliates, gifts and
contributions to family partnerships), (ii) to members of the Member's immediate
family (brothers, sisters, spouse, parents and children), or (iii) a
distribution from a qualified retirement plan or an individual retirement
account, unless it consults with counsel to the Company and counsel to the
Company confirms that such Transfer will not cause the Company to be treated as
a "publicly traded partnership" taxable as a corporation.
(b) The Board of Managers may not consent to a Transfer of an
Interest or a portion thereof of a Member unless: (i) the person to whom such
Interest is Transferred (or each of such person's beneficial owners if such a
person is a "private investment company" as defined in paragraph (d)(3) of Rule
205-3 under the Advisers Act) is a person whom the Board of Managers believes
meets the requirements of paragraph (d)(1) of Rule 205-3 under the Advisers Act
or any successor rule thereto; (ii) the entire Interest of the Member is
Transferred to a single transferee or after the Transfer of a portion of an
Interest, the balance of the Capital Account of each of the transferee and
transferor is not less than $150,000. Any transferee that acquires an Interest
by operation of law as the result of the death, divorce, bankruptcy, insolvency
or dissolution of a Member or otherwise, shall be entitled to the allocations
and distributions allocable to the Interest so acquired and to Transfer such
Interest in accordance with the terms of this Agreement, but shall
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not be entitled to the other rights of a Member unless and until such transferee
becomes a substituted Member. If a Member transfers an Interest with the
approval of the Board of Managers, the Board of Managers shall promptly take all
necessary actions so that the transferee to whom such Interest is transferred is
admitted to the Company as a Member. Each Member effecting a Transfer and its
transferee agree to pay all expenses, including attorneys' and accountants'
fees, incurred by the Company in connection with such Transfer.
(c) Each Member shall indemnify and hold harmless the Company,
the Managers, the Adviser, each other Member and any Affiliate of the foregoing
against all losses, claims, damages, liabilities, costs and expenses (including
legal or other expenses incurred in investigating or defending against any such
losses, claims, damages, liabilities, costs and expenses or any judgments, fines
and amounts paid in settlement), joint or several, to which such persons may
become subject by reason of or arising from (i) any Transfer made by such Member
in violation of this Section 4.4 and (ii) any misrepresentation by such Member
in connection with any such Transfer.
4.5 TRANSFER OF INTERESTS OF SPECIAL ADVISORY MEMBER.
The Adviser may not Transfer its Interest as the Special
Advisory Member.
4.6 REPURCHASE OF INTERESTS.
(a) Except as otherwise provided in this Agreement, no Member
or other person holding an Interest or portion thereof shall have the right to
withdraw or tender to the Company for repurchase that Interest or portion
thereof. The Board of Managers from time to time, in its complete and exclusive
discretion and on such terms and conditions as it may determine, may cause the
Company to repurchase Interests or portions thereof pursuant to written tenders.
However, the Company shall not offer to repurchase Interests on more than two
occasions during any one Fiscal Year unless it has received an opinion of
counsel to the effect that such more frequent offers would not cause any adverse
tax consequences to the Company or the Members. In determining whether to cause
the Company to repurchase Interests or portions thereof pursuant to written
tenders, the Board of Managers shall consider the recommendation of the Adviser,
and shall also consider the following factors, among others:
(1) whether any Members have requested to tender
Interests or portions thereof to the Company;
(2) the liquidity of the Company's assets;
(3) the investment plans and working capital
requirements of the Company;
(4) the relative economies of scale with respect to
the size of the Company;
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(5) the history of the Company in repurchasing
Interests or portions thereof;
(6) the economic condition of the securities markets;
and
(7) the anticipated tax consequences of any
proposed repurchases of Interests or
portions thereof.
The Board of Managers shall cause the Company to repurchase Interests or
portions thereof pursuant to written tenders only on terms fair to the Company
and to all Members or one or more classes of Members (including persons holding
Interests acquired from Members), as applicable.
(b) A Member who tenders for repurchase only a portion of such
Member's Interest shall be required to maintain a capital account balance equal
to the greater of: (i) $150,000, net of the amount of the Incentive Allocation,
if any, that is to be debited from the capital account of the member and
credited to the Special Advisory Member Account of the Adviser on the date of
expiration of the tender offer or would be so debited if such date of expiration
were a day on which an incentive allocation was made (the "Tentative Incentive
Allocation"); or (ii) the amount of the Tentative Incentive Allocation, if any.
If a Member tenders an amount that would cause the Member's capital account
balance to fall below the required minimum, the Company reserves the right to
reduce the amount to be purchased from such Member so that the required minimum
balance is maintained.
(c) The Adviser may tender its Interest or a portion thereof
as a Member or Special Advisory Member of the Company under Section 4.6(a)
hereof.
(d) If the Adviser's status as Special Advisory Member is
terminated pursuant to Section 4.1 hereof, it (or its trustee or other legal
representative) may, by written notice to the Board of Managers within 60 days
of the effective date of such termination, tender to the Company for repurchase
all or any portion of its Special Advisory Account. Not later than thirty (30)
days after the receipt of such notice, the Board of Managers shall cause such
tendered portion of the Special Advisory Account to be repurchased by the
Company for cash.
(e) The Board of Managers may cause the Company to repurchase
an Interest or portion thereof of a Member or any person acquiring an Interest
or portion thereof from or through a Member in the event that the Board of
Managers determines or has reason to believe that:
(1) such an Interest or portion thereof has been
transferred in violation of Section 4.4
hereof, or such an Interest or portion
thereof has vested in any person by
operation of law as the result of the death,
divorce, dissolution, bankruptcy or
incompetency of a Member;
(2) ownership of such an Interest by a Member or
other person will cause the Company to be in
violation of, or require registration of any
Interest or portion thereof under, or
subject the Company to
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additional registration or regulation under, the
securities laws of the United States or any
other relevant jurisdiction;
(3) continued ownership of such an Interest may
be harmful or injurious to the business or
reputation of the Company, the Managers or
the Adviser, or may subject the Company or
any of the Members to an undue risk of
adverse tax or other fiscal consequences;
(4) any of the representations and warranties
made by a Member in connection with the
acquisition of an Interest or portion
thereof was not true when made or has ceased
to be true; or
(5) it would be in the best interests of the
Company, as determined by the Board of
Managers in its absolute discretion, for the
Company to repurchase such an Interest or
portion thereof.
(f) Repurchases of Interests or portions thereof by the
Company shall be payable promptly after the expiration date of such repurchase
in accordance with the terms of the Company's repurchase offer. Payment of the
purchase price shall consist of: (i) cash in an aggregate amount equal to such
percentage, as may be determined by the Board of Managers, of the estimated
unaudited net asset value of Interests repurchased by the Company determined as
of the expiration date of such repurchase (the "Cash Payment"); and, if
determined to be necessary or appropriate by the Board of Managers, (ii) a
promissory note entitling the holder thereof to a contingent payment equal to
the excess, of any, of (x) the net asset value of the Interests repurchased by
the Company as of the expiration date of such repurchases, determined based on
the audited financial statements of the Company for the Fiscal Year in which
such repurchases were effective, over (y) the Cash Payment. Notwithstanding
anything in the foregoing to the contrary, the Board of Managers, in its
discretion, may pay any portion of the purchase price in marketable Securities
(or any combination of marketable Securities and cash) having a value,
determined as of the date of repurchase, equal to the amount to be repurchased.
All such repurchases shall be subject to any and all conditions as the Board of
Managers may impose in its sole discretion. The amount due to any Member whose
Interest or portion thereof is repurchased shall be equal to the value of such
Member's Capital Account or portion thereof as applicable as of the effective
date of repurchase, after giving effect to all allocations to be made to such
Member's Capital Account as of such date.
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------------------------------------
ARTICLE V
CAPITAL
------------------------------------
5.1 CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Member to the
capital of the Company shall be such amount as the Board of Managers, in its
discretion, may determine from time to time, but in no event shall be less than
$150,000. The amount of the initial contribution of each Member shall be
recorded on the books and records of the Company upon acceptance as a
contribution to the capital of the Company. The Managers shall not be entitled
to make voluntary contributions of capital to the Company as Managers of the
Company, but may make voluntary contributions to the capital of the Company as
Members. The Adviser may make voluntary contributions to the capital of the
Company as a Member.
(b) The Members and the Adviser, as a Member, may make
additional contributions to the capital of the Company of at least $25,000,
effective as of such times as the Board of Managers, in its discretion, may
permit, subject to Section 2.7 hereof, but no Member shall be obligated to make
any additional contribution to the capital of the Company except to the extent
provided in Section 5.7 hereof.
(c) Except as otherwise permitted by the Board of Managers,
(i) initial and any additional contributions to the capital of the Company by
any Member shall be payable in cash or in such Securities that the Board of
Managers, in its absolute discretion, may agree to accept on behalf of the
Company, and (ii) initial and any additional contributions in cash shall be
payable in readily available funds at the date of the proposed acceptance of the
contribution. The Company shall charge each Member making a contribution in
Securities to the capital of the Company such amount as may be determined by the
Board of Managers not exceeding 2% of the value of such contribution in order to
reimburse the Company for any costs incurred by the Company by reason of
accepting such Securities, and any such charge shall be due and payable by the
contributing Member in full at the time the contribution to the capital of the
Company to which such charges relate is due. The value of contributed Securities
shall be determined in accordance with Section 7.3 hereof as of the date of
contribution.
(d) The minimum initial and additional contributions set forth
in (a) and (b) of this Section 5.1 may be reduced by the Board of Managers.
5.2 RIGHTS OF MEMBERS TO CAPITAL.
No Member shall be entitled to interest on any contribution to
the capital of the Company, nor shall any Member be entitled to the return of
any capital of the Company except (i) upon the repurchase by the Company of a
part or all of such Member's Interest pursuant to Section 4.6 hereof, (ii)
pursuant to the provisions of Section 5.7(c) hereof or (iii) upon the
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liquidation of the Company's assets pursuant to Section 6.2 hereof. No Member
shall be liable for the return of any such amounts. No Member shall have the
right to require partition of the Company's property or to compel any sale or
appraisal of the Company's assets.
5.3 CAPITAL ACCOUNTS.
(a) The Company shall maintain a separate Capital Account for
each Member.
(b) Each Member's Capital Account shall have an initial
balance equal to the amount of cash and the value of any Securities (determined
in accordance with Section 7.3 hereof) constituting such Member's initial
contribution to the capital of the Company.
(c) Each Member's Capital Account shall be increased by the
sum of (i) the amount of cash and the value of any Securities (determined in
accordance with Section 7.3 hereof) constituting additional contributions by
such Member to the capital of the Company permitted pursuant to Section 5.1
hereof, plus (ii) all amounts credited to such Member's Capital Account pursuant
to Sections 5.4 through 5.7 or 5.9 hereof.
(d) Each Member's Capital Account shall be reduced by the sum
of (i) the amount of any repurchase of the Interest, or portion thereof, of such
Member or distributions to such Member pursuant to Sections 4.6, 5.11 or 6.2
hereof which are not reinvested, plus (ii) any amounts debited against such
Capital Account pursuant to Sections 5.4 through 5.9 hereof.
(e) The Company shall maintain a Special Advisory Account for
the Adviser in its capacity as Special Advisory Member solely for purposes of
receiving the Incentive Allocation pursuant to Section 5.8 hereof. The Special
Advisory Account shall have an initial balance of zero.
5.4 ALLOCATION OF NET PROFIT AND LOSS.
As of the last day of each Fiscal Period, any Net Profit or
Net Loss for the Fiscal Period shall be allocated among and credited to or
debited against the Capital Accounts of the Members in accordance with their
respective Investment Percentages for such Fiscal Period.
5.5 ALLOCATION OF INSURANCE PREMIUMS AND PROCEEDS.
(a) Any premiums payable by the Company for Insurance
purchased pursuant to Section 3.8(d) hereof shall be apportioned evenly over
each Fiscal Period or portion thereof falling within the period to which such
premiums relate under the terms of such Insurance, and the portion of the
premiums so apportioned to any Fiscal Period shall be allocated among and
debited against the Capital Accounts of each Member who is a member of the
Company during such Fiscal Period in accordance with such Member's Investment
Percentage for such Fiscal Period.
(b) Proceeds, if any, to which the Company may become entitled
pursuant to such Insurance shall be allocated among and credited to the Capital
Accounts of each Member who is a member of the Company during the Fiscal Period
in which the event that gives rise to recovery
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of proceeds occurs in accordance with such Member's Investment Percentage for
such Fiscal Period.
5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER
EXPENDITURES.
(a) If the Company incurs a withholding tax or other tax
obligation with respect to the share of Company income allocable to any Member,
then the Board of Managers, without limitation of any other rights of the
Company or the Managers, shall cause the amount of such obligation to be debited
against the Capital Account of such Member when the Company pays such
obligation, and any amounts then or thereafter distributable to such Member
shall be reduced by the amount of such taxes. If the amount of such taxes is
greater than any such distributable amounts, then such Member and any successor
to such Member's Interest shall pay to the Company as a contribution to the
capital of the Company, upon demand of the Board of Managers, the amount of such
excess. The Board of Managers shall not be obligated to apply for or obtain a
reduction of or exemption from withholding tax on behalf of any Member that may
be eligible for such reduction or exemption; provided, that in the event that
the Board of Managers determines that a Member is eligible for a refund of any
withholding tax, the Board of Managers may, at the request and expense of such
Member, assist such Member in applying for such refund.
(b) Except as otherwise provided for in this Agreement and
unless prohibited by the 1940 Act, any expenditures payable by the Company, to
the extent determined by the Board of Managers to have been paid or withheld on
behalf of, or by reason of particular circumstances applicable to, one or more
but fewer than all of the Members, shall be charged to only those Members on
whose behalf such payments are made or whose particular circumstances gave rise
to such payments. Such charges shall be debited from the Capital Accounts of
such Members as of the close of the Fiscal Period during which any such items
were paid or accrued by the Company.
5.7 RESERVES.
(a) Appropriate reserves may be created, accrued and charged
against Net Assets and proportionately against the Capital Accounts of the
Members for contingent liabilities, if any, as of the date any such contingent
liability becomes known to the Adviser or the Board of Managers, such reserves
to be in the amounts that the Board of Managers, in its sole discretion, deems
necessary or appropriate. The Board of Managers may increase or reduce any such
reserves from time to time by such amounts as the Board of Managers, in its sole
discretion, deems necessary or appropriate. The amount of any such reserve, or
any increase or decrease therein, shall be proportionately charged or credited,
as appropriate, to the Capital Accounts of those parties who are Members at the
time when such reserve is created, increased or decreased, as the case may be;
provided, however, that if any such individual reserve item, adjusted by any
increase therein, exceeds the lesser of $500,000 or 1% of the aggregate value of
the Capital Accounts of all such Members, the amount of such reserve, increase,
or decrease shall instead be charged or credited to those parties who were
Members at the time, as determined by the Board of Managers, in its sole
discretion, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
Capital Accounts at that time.
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(b) If at any time an amount is paid or received by the
Company (other than contributions to the capital of the Company, distributions
or repurchases of Interests or portions thereof) and such amount exceeds the
lesser of $500,000 or 1% of the aggregate value of the Capital Accounts of all
Members at the time of payment or receipt and such amount was not accrued or
reserved for but would nevertheless, in accordance with the Company's accounting
practices, be treated as applicable to one or more prior Fiscal Periods, then
such amount shall be proportionately charged or credited, as appropriate, to
those parties who were Members during such prior Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this
Section 5.7 to be charged or credited to a party who is no longer a Member, such
amount shall be paid by or to such party, as the case may be, in cash, with
interest from the date on which the Board of Managers determines that such
charge or credit is required. In the case of a charge, the former Member shall
be obligated to pay the amount of the charge, plus interest as provided above,
to the Company on demand; provided, however, that (i) in no event shall a former
Member be obligated to make a payment exceeding the amount of such Member's
Capital Account at the time to which the charge relates; and (ii) no such demand
shall be made after the expiration of three years since the date on which such
party ceased to be a Member. To the extent that a former Member fails to pay to
the Company, in full, any amount required to be charged to such former Member
pursuant to paragraph (a) or (b), whether due to the expiration of the
applicable limitation period or for any other reason whatsoever, the deficiency
shall be charged proportionately to the Capital Accounts of the Members at the
time of the act or omission giving rise to the charge to the extent feasible,
and otherwise proportionately to the Capital Accounts of the current Members.
5.8 INCENTIVE ALLOCATION.
(a) So long as the Adviser serves as the Special Advisory
Member of the Company, the Incentive Allocation shall be debited against the
Capital Account of each Member as of the last day of each Allocation Period with
respect to such Member and the amount so debited shall simultaneously be
credited to the Special Advisory Account or, subject to compliance with the 1940
Act and the Advisers Act, to the Capital Accounts of such Members who are
directors, officers or employees of CIBC WM or its Affiliates, or with respect
to which such directors, officers or employees are the sole beneficial owners,
as have been designated in any written notice delivered by the Adviser to the
Board of Managers within 90 days after the close of such Allocation Period.
(b) By the last business day of the month following the date
on which an Incentive Allocation is made, the Special Advisory Member may
withdraw up to 100% of the Incentive Allocation (computed on the basis of
unaudited data) that was credited to the Special Advisory Account. Within 30
days after the completion of the audit of the books of the Company for the year
in which allocations to the Special Advisory Account are made, the Company shall
pay to the Special Advisory Member any additional amount of Incentive Allocation
determined to be owed to the Special Advisory Member based on the audit, and the
Special Advisory Member shall pay to the Company any excess amount of Incentive
Allocation determined to be owed to the Company.
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5.9 ALLOCATION OF ORGANIZATIONAL EXPENSES.
(a) As of the first Expense Allocation Date, Organizational
Expenses shall be allocated among and debited against the Capital Accounts of
the Members in accordance with their respective Capital Percentages on such
Expense Allocation Date.
(b) As of each Expense Allocation Date following the first
Expense Allocation Date, all amounts previously debited against the Capital
Account of a Member pursuant to this Section 5.9 on the preceding Expense
Allocation Date will be credited to the Capital Account of such Member, and
Organizational Expenses shall then be re-allocated among and debited against the
Capital Accounts of all Members in accordance with their respective Capital
Percentages on such Expense Allocation Date.
5.10 TAX ALLOCATIONS.
For each fiscal year, items of income, deduction, gain, loss
or credit shall be allocated for income tax purposes among the Members in such
manner as to reflect equitably amounts credited or debited to each Member's
Capital Account for the current and prior fiscal years (or relevant portions
thereof). Allocations under this Section 5.10 shall be made pursuant to the
principles of Sections 704(b) and 704(c) of the Code, and in conformity with
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e)
promulgated thereunder, as applicable, or the successor provisions to such
Section and Regulations. Notwithstanding anything to the contrary in this
Agreement, there shall be allocated to the Members such gains or income as shall
be necessary to satisfy the "qualified income offset" requirement of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d).
If the Company realizes capital gains (including short-term
capital gains) for Federal income tax purposes ("gains") for any fiscal year
during or as of the end of which one or more Positive Basis Members (as
hereinafter defined) withdraw from the Company pursuant to Article IV, the Board
of Managers, unless otherwise determined by the Board of Managers, in its sole
discretion, shall allocate such gains as follows: (i) to allocate such gains
among such Positive Basis Members, pro rata in proportion to the respective
Positive Basis (as hereinafter defined) of each such Positive Basis Member,
until either the full amount of such gains shall have been so allocated or the
Positive Basis of each such Positive Basis Member shall have been eliminated and
(ii) to allocate any gains not so allocated to Positive Basis Members to the
other Members in such manner as shall equitably reflect the amounts allocated to
such Members' Capital Accounts pursuant to Section 5.4; provided, however, that
if, following such fiscal year, the Company realizes gains from a sale of
Securities the proceeds of which are designated on the Company's books and
records as being used to effect payments of all or part of the interest in the
Company of any Positive Basis Member, there shall be allocated to any Positive
Basis Member an amount of such gains equal to the amount, if any, by which such
Member's Positive Basis as of the effective date of such Member's withdrawal
exceeds the amount allocated to such Member pursuant to clause (i) of this
sentence.
If the Company realizes capital losses (including long-term
capital losses) for Federal income tax purposes ("losses") for any fiscal year
during or as of the end of which one or more Negative Basis Members (as
hereinafter defined) withdraw from the Company pursuant to
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Article IV, the Board of Managers, unless otherwise determined by the Board of
Managers, in its sole discretion, shall allocate such losses as follows: (i) to
allocate such losses among such Negative Basis Members, pro rata in proportion
to the respective Negative Basis (as hereinafter defined) of each such Negative
Basis Member, until either the full amount of such losses shall have been so
allocated or the Negative Basis of each such Negative Basis Member shall have
been eliminated and (ii) to allocate any losses not so allocated to Negative
Basis Members to the other Members in such manner as shall equitably reflect the
amounts allocated to such Members' Capital Accounts pursuant to Section 5.4;
provided, however, that if, following such fiscal year, the Company realizes
losses from a sale of Securities the proceeds of which are designated on the
Company's books and records as being used to effect payments of all or part of
the interest in the Company of any Negative Basis Member, there shall be
allocated to any Negative Basis Member an amount of such losses equal to the
amount, if any by which such Member's Negative Basis as of the effective date of
such Member's withdrawal exceeds the amount allocated to such Member pursuant to
clause (i) of this sentence.
As used herein, (i) the term "Positive Basis" shall mean, with
respect to any Member and as of any time of calculation, the amount by which its
interest in the Company as of such time exceeds its "adjusted tax basis," for
Federal income tax purposes, in its interest in the Company as of such time
(determined without regard to any adjustments made to such "adjusted tax basis"
by reason of any transfer or assignment of such interest, including by reason of
death, and without regard to such Member's share of the liabilities of the
Company under Section 752 of the Code), and (ii) the term "Positive Basis
Member" shall mean any Member who withdraws from the Company and who has
Positive Basis as of the effective date of its withdrawal, but such Member shall
cease to be a Positive Basis Member at such time as it shall have received
allocations pursuant to clause (i) of the second paragraph of this Section 5.10
equal to its Positive Basis as of the effective date of its withdrawal.
As used herein, (i) the term "Negative Basis" shall mean, with
respect to any Member and as of any time of calculation, the amount by which its
interest in the Company as of such time is less than its "adjusted tax basis,"
for Federal income tax purposes, in its interest in the Company as of such time
(determined without regard to any adjustments made to such "adjusted tax basis"
by reason of any transfer or assignment of such interest, including by reason of
death, and without regard to such Member's share of the liabilities of the
Company under Section 752 of the Code), and (ii) the term "Negative Basis
Member" shall mean any Member who withdraws from the Company and who has
Negative Basis as of the effective date of its withdrawal, but such Member shall
cease to be a Negative Basis Member at such time as it shall have received
allocations pursuant to clause (i) of the third paragraph of this Section. 5.10
equal to its Negative Basis as of the effective date of its withdrawal.
Notwithstanding anything to the contrary in the foregoing, if
the Company realizes taxable gains in any fiscal year with respect to which the
Special Advisory Member is entitled to an Incentive Allocation under Section 5.8
hereof, the Board of Managers (at the request of the Special Advisory Member)
may specially allocate such gains to the Special Advisory Member in an amount by
which the Incentive Allocation exceeds the Special Advisory Member's "adjusted
tax basis" (determined without regard to any allocation to be made pursuant
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to this paragraph) in its interest in the Company as of the time it withdraws
such Incentive Allocation. The Special Advisory Member's "adjusted tax basis",
for these purposes, shall be increased by any amount of the Incentive Allocation
withdrawal that it elects to contribute as a Member to the Company as of the
date of the withdrawal of the Incentive Allocation.
5.11 DISTRIBUTIONS.
(a) The Board of Managers, in its sole discretion, may
authorize the Company to make distributions in cash at any time to all of the
Members on a pro rata basis in accordance with the Members' Investment
Percentages.
(b) The Board of Managers may withhold taxes from any
distribution to any Member to the extent required by the Code or any other
applicable law. For purposes of this Agreement, any taxes so withheld by the
Company with respect to any amount distributed by the Company to any Member
shall be deemed to be a distribution or payment to such Member, reducing the
amount otherwise distributable to such Member pursuant to this Agreement and
reducing the Capital Account of such Member.
5.12 FOREIGN WITHHOLDING.
Notwithstanding any provision of this Agreement to the
contrary, the Board of Managers shall withhold and pay over to the Internal
Revenue Service, pursuant to Section 1441, 1442, 1445 or 1446 of the Code, or
any successor provisions, at such times as required by such Sections, such
amounts as the Company is required to withhold under such Sections, as from time
to time are in effect. To the extent that a foreign Member claims to be entitled
to a reduced rate of, or exemption from, U.S. withholding tax pursuant to an
applicable income tax treaty, or otherwise, the foreign Member shall furnish the
Board of Managers with such information and forms as such foreign Member may be
required to complete where necessary to comply with any and all laws and
regulations governing the obligations of withholding tax agents. Each foreign
Member represents and warrants that any such information and forms furnished by
such foreign Member shall be true and accurate and agrees to indemnify the
Company and each of the Members from any and all damages, costs and expenses
resulting from the filing of inaccurate or incomplete information or forms
relating to such withholding taxes.
Any amount of withholding taxes withheld and paid over by
the Board of Managers with respect to a foreign Member's distributive share of
the Company's gross income, income or gain shall be treated as a distribution to
such foreign Member and shall be charged against the Capital Account of such
foreign Member.
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--------------------------
ARTICLE VI
DISSOLUTION AND LIQUIDATION
---------------------------
6.1 DISSOLUTION.
The Company shall be dissolved:
(1) upon the affirmative vote to dissolve the
Company by: (i) the Board of Managers or
(ii) Members holding at least two-thirds
(2/3) of the total number of votes eligible
to be cast by all Members;
(2) upon the failure of Members to elect a
successor Manager at a meeting called by the
Adviser in accordance with Section 2.6(c)
hereof when no Manager remains to continue
the business of the Company;
(3) upon the expiration of any two year period
that commences on the date on which any
Member has submitted a written notice to the
Company requesting to tender its entire
Interest for repurchase by the Company if
such Interest has not been repurchased by
the Company;
(4) as required by operation of law.
Dissolution of the Company shall be effective on the later of the day on which
the event giving rise to the dissolution shall occur or the conclusion of any
applicable 60 day period during which the Board of Managers and Members may
elect to continue the business of the Company as provided above, but the Company
shall not terminate until the assets of the Company have been liquidated in
accordance with Section 6.2 hereof and the Certificate has been canceled.
6.2 LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Company as provided in Section
6.1 hereof, the Board of Managers shall promptly appoint the Administrator as
the liquidator and the Administrator shall liquidate the business and
administrative affairs of the Company, except that if the Board of Managers does
not appoint the Administrator as the liquidator or the Administrator is unable
to perform this function, a liquidator elected by Members holding a majority of
the total number of votes eligible to be cast by all Members shall promptly
liquidate the business and administrative affairs of the Company. Net Profit and
Net Loss during the period of liquidation shall be allocated pursuant to Section
5.4 hereof. The proceeds from liquidation (after establishment of appropriate
reserves for contingencies in such amount as the Board of Managers or
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liquidator shall deem appropriate in its sole discretion as applicable) shall be
distributed in the following manner:
(1) the debts of the Company, other than debts,
liabilities or obligations to Members, and
the expenses of liquidation (including legal
and accounting expenses incurred in
connection therewith), up to and including
the date that distribution of the Company's
assets to the Members has been completed,
shall first be paid on a pro rata basis;
(2) such debts, liabilities or obligations as
are owing to the Members shall next be paid
in their order of seniority and on a pro
rata basis;
(3) The Special Advisory Member shall next be
paid any balance in the Special Advisory
Account after giving effect to the Incentive
Allocation, if any, to be made pursuant to
Section 5.8 hereof; and
(4) the Members shall next be paid on a pro rata
basis the positive balances of their
respective Capital Accounts after giving
effect to all allocations to be made to such
Members' Capital Accounts for the Fiscal
Period ending on the date of the
distributions under this Section 6.2(a)(3).
(b) Anything in this Section 6.2 to the contrary
notwithstanding, upon dissolution of the Company, the Board of Managers or other
liquidator may distribute ratably in kind any assets of the Company; provided,
however, that if any in-kind distribution is to be made (i) the assets
distributed in kind shall be valued pursuant to Section 7.3 hereof as of the
actual date of their distribution and charged as so valued and distributed
against amounts to be paid under Section 6.2(a) above, and (ii) any profit or
loss attributable to property distributed in-kind shall be included in the Net
Profit or Net Loss for the Fiscal Period ending on the date of such
distribution.
-----------------------------
ARTICLE VII
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
-----------------------------
7.1 ACCOUNTING AND REPORTS.
(a) The Company shall adopt for tax accounting purposes any
accounting method that the Board of Managers shall decide in its sole discretion
is in the best interests of the Company. The Company's accounts shall be
maintained in U.S. currency.
(b) After the end of each taxable year, the Company shall
furnish to each Member such information regarding the operation of the Company
and such Member's Interest as is necessary for Members to complete federal,
state and local income tax or information returns and any other tax information
required by federal, state or local law.
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(c) Except as otherwise required by the 1940 Act, or as may
otherwise be permitted by rule, regulation or order, within 60 days after the
close of the period for which a report required under this Section 7.1(c) is
being made, the Company shall furnish to each Member a semi-annual report and an
annual report containing the information required by such Act. The Company shall
cause financial statements contained in each annual report furnished hereunder
to be accompanied by a certificate of independent public accountants based upon
an audit performed in accordance with generally accepted accounting principles.
The Company may furnish to each Member such other periodic reports as it deems
necessary or appropriate in its discretion.
7.2 DETERMINATIONS BY THE BOARD OF MANAGERS.
(a) All matters concerning the determination and allocation
among the Members of the amounts to be determined and allocated pursuant to
Article V hereof, including any taxes thereon and accounting procedures
applicable thereto, shall be determined by the Board of Managers unless
specifically and expressly otherwise provided for by the provisions of this
Agreement or required by law, and such determinations and allocations shall be
final and binding on all the Members.
(b) The Board of Managers may make such adjustments to the
computation of Net Profit or Net Loss, the Allocation Change with respect to any
Member, or any components comprising any of the foregoing as it considers
appropriate to reflect fairly and accurately the financial results of the
Company and the intended allocation thereof among the Members.
7.3 VALUATION OF ASSETS.
(a) Except as may be required by the 1940 Act, the Board of
Managers shall value or have valued any Securities or other assets and
liabilities of the Company as of the close of business on the last day of each
Fiscal Period in accordance with such valuation procedures as shall be
established from time to time by the Board of Managers and which conform to the
requirements of the 1940 Act. In determining the value of the assets of the
Company, no value shall be placed on the goodwill or name of the Company, or the
office records, files, statistical data or any similar intangible assets of the
Company not normally reflected in the Company's accounting records, but there
shall be taken into consideration any items of income earned but not received,
expenses incurred but not yet paid, liabilities, fixed or contingent, and any
other prepaid expenses to the extent not otherwise reflected in the books of
account, and the value of options or commitments to purchase or sell Securities
or commodities pursuant to agreements entered into prior to such valuation date.
(b) The value of Securities and other assets of the Company
and the net worth of the Company as a whole determined pursuant to this Section
7.3 shall be conclusive and binding on all of the Members and all parties
claiming through or under them.
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---------------------------
ARTICLE VIII
MISCELLANEOUS PROVISIONS
-----------------------------
8.1 AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this
Agreement may be amended, in whole or in part, with: (i) the approval of the
Board of Managers (including the vote of a majority of the Independent Managers,
if required by the 1940 Act) and (ii) if required by the 1940 Act, the approval
of the Members by such vote as is required by the 1940 Act.
(b) Any amendment that would:
(1) increase the obligation of a Member to make
any contribution to the capital of the
Company;
(2) reduce the Capital Account of a Member or
Special Advisory Account other than in
accordance with Article V; or
(3) modify the events causing the dissolution of
the Company;
may be made only if (i) the written consent of each Member adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Member has received written notice of
such amendment and (B) any Member objecting to such amendment has been afforded
a reasonable opportunity (pursuant to such procedures as may be prescribed by
the Board of Managers) to tender its entire Interest for repurchase by the
Company.
(c) The power of the Board of Managers to amend this Agreement
at any time without the consent of the other Members as set forth in paragraph
(a) of this Section 8.1 shall specifically include the power to:
(1) restate this Agreement together with any
amendments hereto that have been duly
adopted in accordance herewith to
incorporate such amendments in a single,
integrated document;
(2) amend this Agreement (other than with
respect to the matters set forth in Section
8.1(b) hereof) to cure any ambiguity or to
correct or supplement any provision hereof
that may be inconsistent with any other
provision hereof, provided that such action
does not adversely affect the rights of any
Member in any material respect; and
(3) amend this Agreement to make such changes as
may be necessary or advisable to ensure that
the Company will not be treated as an
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association taxable as a corporation or as a
publicly traded partnership as defined in
Section 7704(b) of the Code.
(d) The Board of Managers shall cause written notice to be
given of any amendment to this Agreement (other than any amendment of the type
contemplated by clause (1) of Section 8.1(c) hereof) to each Member, which
notice shall set forth (i) the text of the amendment or (ii) a summary thereof
and a statement that the text thereof will be furnished to any Member upon
request.
8.2 SPECIAL POWER OF ATTORNEY.
(a) Each Member hereby irrevocably makes, constitutes and
appoints each Manager, acting severally, and any liquidator of the Company's
assets appointed pursuant to Section 6.2 hereof with full power of substitution,
the true and lawful representatives and attorneys-in-fact of, and in the name,
place and stead of, such Member, with the power from time to time to make,
execute, sign, acknowledge, swear to, verify, deliver, record, file and/or
publish:
(1) any amendment to this Agreement that
complies with the provisions of this
Agreement (including the provisions of
Section 8.1 hereof);
(2) any amendment to the Certificate required
because this Agreement is amended,
including, without limitation, an amendment
to effectuate any change in the membership
of the Company; and
(3) all such other instruments, documents and
certificates that, in the opinion of legal
counsel to the Company, may from time to
time be required by the laws of the United
States of America, the State of Delaware or
any other jurisdiction in which the Company
shall determine to do business, or any
political subdivision or agency thereof, or
that such legal counsel may deem necessary
or appropriate to effectuate, implement and
continue the valid existence and business of
the Company as a limited liability company
under the Delaware Act.
(b) Each Member is aware that the terms of this Agreement
permit certain amendments to this Agreement to be effected and certain other
actions to be taken or omitted by or with respect to the Company without such
Member's consent. If an amendment to the Certificate or this Agreement or any
action by or with respect to the Company is taken in the manner contemplated by
this Agreement, each Member agrees that, notwithstanding any objection that such
Member may assert with respect to such action, the attorneys-in-fact appointed
hereby are authorized and empowered, with full power of substitution, to
exercise the authority granted above in any manner that may be necessary or
appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Member is fully aware that each Member will rely on the
effectiveness of this special power-of-attorney with a view to the orderly
administration of the affairs of the Company.
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(c) This power-of-attorney is a special power-of-attorney and
is coupled with an interest in favor of each of the Managers and as such:
(1) shall be irrevocable and continue in full
force and effect notwithstanding the
subsequent death or incapacity of any party
granting this power-of-attorney, regardless
of whether the Company or Board of Managers
shall have had notice thereof; and
(2) shall survive the delivery of a Transfer by
a Member of the whole or any portion of such
Member's Interest, except that where the
transferee thereof has been approved by the
Board of Managers for admission to the
Company as a substituted Member, this
power-of-attorney given by the transferor
shall survive the delivery of such
assignment for the sole purpose of enabling
the Board of Managers to execute,
acknowledge and file any instrument
necessary to effect such substitution.
8.3 NOTICES.
Notices which may or are required to be provided under this
Agreement shall be made, if to a Member, by regular mail, or if to the Board of
Managers or the Adviser, by hand delivery, registered or certified mail return
receipt requested, commercial courier service, telex or telecopier, and shall be
addressed to the respective parties hereto at their addresses as set forth in
the books and records of the Company. Notices shall be deemed to have been
provided when delivered by hand, on the date indicated as the date of receipt on
a return receipt or when received if sent by regular mail, commercial courier
service, telex or telecopier. A document that is not a notice and that is
required to be provided under this Agreement by any party to another party may
be delivered by any reasonable means.
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective heirs, successors, assigns,
executors, trustees or other legal representatives, but the rights and
obligations of the parties hereunder may not be Transferred or delegated except
as provided in this Agreement and any attempted Transfer or delegation thereof
that is not made pursuant to the terms of this Agreement shall be void.
8.5 APPLICABILITY OF 1940 ACT AND FORM N-2.
The parties hereto acknowledge that this Agreement is not
intended to, and does not, set forth the substantive provisions contained in the
1940 Act and the Form N-2 that affect numerous aspects of the conduct of the
Company's business and of the rights, privileges and obligations of the Members.
Each provision of this Agreement shall be subject to and interpreted in a manner
consistent with the applicable provisions of the 1940 Act and the Form N-2.
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8.6 CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed under the laws of the State of
Delaware, including the Delaware Act without regard to the conflict of law
principles of such State.
(b) UNLESS OTHERWISE AGREED IN WRITING, EACH MEMBER AND THE
SPECIAL ADVISORY MEMBER AGREE TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN
MEMBERS OR ONE OR MORE MEMBERS OR THE SPECIAL ADVISORY MEMBER AND THE COMPANY TO
ARBITRATION IN ACCORDANCE WITH THE PROVISIONS SET FORTH BELOW AND UNDERSTANDS
THAT:
(1) ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
(2) THEY ARE WAIVING THEIR RIGHT TO SEEK
REMEDIES IN COURT, INCLUDING THE RIGHT TO A
JURY TRIAL;
(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE
LIMITED AND DIFFERENT FROM COURT
PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO
INCLUDE FACTUAL FINDINGS OR LEGAL REASONING
AND A PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY ARBITRATORS IS
STRICTLY LIMITED; AND
(5) THE PANEL OF ARBITRATORS WILL TYPICALLY
INCLUDE A MINORITY OF ARBITRATORS WHO WERE
OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
(c) ALL CONTROVERSIES THAT MAY ARISE AMONG MEMBERS AND ONE OR
MORE MEMBERS OR THE SPECIAL ADVISORY MEMBER AND THE COMPANY CONCERNING THIS
AGREEMENT SHALL BE DETERMINED BY ARBITRATION IN NEW YORK CITY IN ACCORDANCE WITH
THE FEDERAL ARBITRATION ACT, TO THE FULLEST EXTENT PERMITTED BY LAW. ANY
ARBITRATION UNDER THIS AGREEMENT SHALL BE DETERMINED BEFORE AND IN ACCORDANCE
WITH THE RULES THEN OBTAINING OF EITHER THE NEW YORK STOCK EXCHANGE, INC. (THE
"NYSE") OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"), AS
THE MEMBER OR SPECIAL ADVISORY MEMBER OR ENTITY INSTITUTING THE ARBITRATION MAY
ELECT. IF THE NYSE OR NASD DOES NOT ACCEPT THE ARBITRATION FOR CONSIDERATION,
THE ARBITRATION SHALL BE SUBMITTED TO, AND DETERMINED IN ACCORDANCE WITH THE
RULES THEN OBTAINING OF, THE CENTER FOR PUBLIC RESOURCES, INC. IN NEW YORK CITY.
JUDGMENT ON ANY AWARD OF ANY SUCH ARBITRATION MAY BE ENTERED IN THE SUPREME
COURT OF THE STATE OF NEW YORK OR IN ANY OTHER COURT HAVING JURISDICTION OF THE
PERSON OR PERSONS AGAINST WHOM SUCH AWARD IS RENDERED. ANY NOTICE OF SUCH
ARBITRATION OR FOR THE CONFIRMATION OF ANY AWARD IN ANY ARBITRATION SHALL BE
SUFFICIENT IF GIVEN IN ACCORDANCE WITH THE PROVISIONS OF THIS AGREEMENT. EACH
MEMBER AGREES THAT THE DETERMINATION OF THE ARBITRATORS SHALL BE BINDING AND
CONCLUSIVE UPON THEM.
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(d) NO MEMBER SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION
TO ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT
AGAINST ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION; OR WHO IS
A MEMBER OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO
ANY CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNTIL: (i) THE CLASS
CERTIFICATION IS DENIED; OR (ii) THE CLASS IS DECERTIFIED; OR (iii) THE MEMBER
IS EXCLUDED FROM THE CLASS BY THE COURT. SUCH FORBEARANCE TO ENFORCE AN
AGREEMENT TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS
AGREEMENT EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the
regulation of relations among past, present and future Members, Managers, the
Special Advisory Member and the Company. This Agreement is not intended for the
benefit of non-Member creditors and no rights are granted to non-Member
creditors under this Agreement.
8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Company.
8.9 MERGER AND CONSOLIDATION.
(a) The Company may merge or consolidate with or into one or
more limited liability companies formed under the Delaware Act or other business
entities pursuant to an agreement of merger or consolidation that has been
approved in the manner contemplated by Section 18-209(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, an agreement of merger or consolidation approved in
accordance with Section 18-209(b) of the Delaware Act may, to the extent
permitted by Section 18-209(f) of the Delaware Act, (i) effect any amendment to
this Agreement, (ii) effect the adoption of a new limited liability company
agreement for the Company if it is the surviving or resulting limited liability
company in the merger or consolidation, or (iii) provide that the limited
liability company agreement of any other constituent limited liability company
to the merger or consolidation (including a limited liability company formed for
the purpose of consummating the merger or consolidation) shall be the limited
liability company agreement of the surviving or resulting limited liability
company.
8.10 PRONOUNS.
All pronouns shall be deemed to refer to the masculine,
feminine, neuter, singular or plural, as the identity of the person or persons,
firm or corporation may require in the context thereof.
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<PAGE> 42
8.11 CONFIDENTIALITY.
(a) A Member may obtain from the Company such information
regarding the affairs of the Company as is just and reasonable under the
Delaware Act, subject to reasonable standards (including standards governing
what information and documents are to be furnished, at what time and location
and at whose expense) established by the Board of Managers.
(b) Each Member covenants that, except as required by
applicable law or any regulatory body, it will not divulge, furnish or make
accessible to any other person the name and/or address (whether business,
residence or mailing) of any Member (collectively, "Confidential Information")
without the prior written consent of the Board of Managers, which consent may be
withheld in its sole discretion.
(c) Each Member recognizes that in the event that this Section
8.11 is breached by any Member or any of its principals, partners, members,
directors, officers, employees or agents or any of its affiliates, including any
of such affiliates' principals, partners, members, directors, officers,
employees or agents, irreparable injury may result to the non-breaching Members
and the Company. Accordingly, in addition to any and all other remedies at law
or in equity to which the non-breaching Members and the Company may be entitled,
such Members shall also have the right to obtain equitable relief, including,
without limitation, injunctive relief, to prevent any disclosure of Confidential
Information, plus reasonable attorneys' fees and other litigation expenses
incurred in connection therewith. In the event that any non-breaching Member or
the Company determines that any of the other Members or any of its principals,
partners, members, directors, officers, employees or agents or any of its
affiliates, including any of such affiliates' principals, partners, members,
directors, officers, employees or agents should be enjoined from or required to
take any action to prevent the disclosure of Confidential Information, each of
the other non-breaching Members agrees to pursue in a court of appropriate
jurisdiction such injunctive relief.
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Member or transferee of an Interest from a Member shall
certify, upon admission to the Company and at such other times thereafter as the
Board of Managers may request, whether such Member is a "United States Person"
within the meaning of Section 7701(a)(30) of the Code on forms to be provided by
the Company, and shall notify the Company within 30 days of any change in such
Member's status. Any Member who shall fail to provide such certification when
requested to do so by the Board of Managers may be treated as a non-United
States Person for purposes of U.S. federal tax withholding.
8.13 SEVERABILITY.
If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Member agrees that it is the intention of the Members that such
provision should be enforceable to the maximum extent possible under applicable
law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
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<PAGE> 43
8.14 FILING OF RETURNS.
The Board of Managers or its designated agent shall prepare
and file, or cause the accountants of the Company to prepare and file, a Federal
information tax return in compliance with Section 6031 of the Code and any
required state and local income tax and information returns for each tax year of
the Company.
8.15 TAX MATTERS PARTNER.
(a) A Manager who is a Member shall be designated on the
Company's annual Federal income tax return, and have full powers and
responsibilities, as the Tax Matters Partner of the Company for purposes of
Section 6231(a)(7) of the Code. In the event that no Manager is a Member, a
Member shall be so designated. Should any Member be designated as the Tax
Matters Partner for the Company pursuant to Section 6231(a)(7) of the Code, it
shall, and each Member hereby does, to the fullest extent permitted by law,
delegate to a Manager selected by the Board of Managers all of its rights,
powers and authority to act as such Tax Matters Partner and hereby constitutes
and appoints such Manager as its true and lawful attorney-in-fact, with power to
act in its name and on its behalf, including the power to act through such
agents or attorneys as it shall elect or appoint, to receive notices, to make,
execute and deliver, swear to, acknowledge and file any and all reports,
responses and notices, and to do any and all things required or advisable, in
the Manager's judgment, to be done by such a Tax Matters Partner. Any Member
designated as the Tax Matters Partner for the Company under Section 6231(a)(7)
of the Code shall be indemnified and held harmless by the Company from any and
all liabilities and obligations that arise from or by reason of such
designation.
(b) Each person (for purposes of this Section 8.15, called a
"Pass-Thru Partner") that holds or controls an interest as a Member on behalf
of, or for the benefit of, another person or persons, or which Pass-Thru Partner
is beneficially owned (directly or indirectly) by another person or persons,
shall, within 30 days following receipt from the Tax Matters Partner of any
notice, demand, request for information or similar document, convey such notice
or other document in writing to all holders of beneficial interests in the
Company holding such interests through such Pass-Thru Partner. In the event the
Company shall be the subject of an income tax audit by any Federal, state or
local authority, to the extent the Company is treated as an entity for purposes
of such audit, including administrative settlement and judicial review, the Tax
Matters Partner shall be authorized to act for, and its decision shall be final
and binding upon, the Company and each Member thereof. All expenses incurred in
connection with any such audit, investigation, settlement or review shall be
borne by the Company.
8.16 SECTION 754 ELECTION.
In the event of a distribution of Company property to a Member
or an assignment or other transfer (including by reason of death) of all or part
of the interest of a Member in the Company, at the request of a Member, the
Board of Managers, in its discretion, may cause the Company to elect, pursuant
to Section 754 of the Code, or the corresponding provision of subsequent law, to
adjust the basis of the Company property as provided by Sections 734 and 743 of
the Code.
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<PAGE> 44
THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS ENTIRETY
BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSE SET FORTH IN
SECTION 8.6 AND THE CONFIDENTIALITY CLAUSE SET FORTH IN SECTION 8.11.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MANAGERS:
/s/ /s/
- ---------------------------- ------------------------------
/s/ /s/
- ---------------------------- ------------------------------
/s/
- ----------------------------
ORGANIZATIONAL MEMBER:
/s/
- ----------------------------
MEMBERS:
Each person who shall sign a Member Signature Page and who shall be accepted by
the Board of Managers to the Company as a Member.
SPECIAL ADVISORY MEMBER:
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC World Markets Corp.
Managing Member
By: /s/
----------------------------
Name:
Title:
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