As filed with the Securities and Exchange Commission on February 29, 2000
Investment Company Act File No. 811-09727
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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
[X] Amendment No. 1
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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.
<PAGE>
Copy Number: ________________
--------------------------------
SAWGRASS FUND, L.L.C.
-------------------------------
CONFIDENTIAL MEMORANDUM
January 2000
------------------------------
CIBC Oppenheimer Advisers, L.L.C.
Investment Adviser
------------------------------
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.
<PAGE>
TO ALL INVESTORS
Interests are not insured by the United States Federal Deposit Insurance
Corporation or any other governmental agency. Interests are not deposits or
other obligations of, and are not guaranteed by, Canadian Imperial Bank of
Commerce or any other bank. Interests are subject to investment risks, including
the possible loss of the full amount invested.
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.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY OF TERMS............................................................. 1
THE COMPANY..................................................................12
STRUCTURE....................................................................12
INVESTMENT PROGRAM...........................................................12
TYPES OF INVESTMENTS AND RELATED RISK FACTORS................................15
ADDITIONAL RISK FACTORS......................................................28
PERFORMANCE INFORMATION......................................................30
BOARD OF MANAGERS............................................................30
COMPENSATION TABLE...........................................................32
THE ADVISER, CIBC WM AND CWH ASSOCIATES, INC.................................33
VOTING.......................................................................36
CONFLICTS OF INTEREST........................................................36
BROKERAGE....................................................................39
FEES AND EXPENSES............................................................41
CAPITAL ACCOUNTS AND ALLOCATIONS.............................................43
SUBSCRIPTION FOR INTERESTS...................................................47
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS..........................49
TAX ASPECTS..................................................................53
ERISA CONSIDERATIONS.........................................................66
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY COMPANY AGREEMENT....67
APPENDIX A LIMITED LIABILITY COMPANY AGREEMENT.......................... A-1
APPENDIX B PERFORMANCE INFORMATION...................................... B-1
<PAGE>
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
size 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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<PAGE>
CIBC Oppenheimer Advisers, L.L.C., the
investment adviser of the Company (the
"Adviser"), will rely 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. 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. 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.
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<PAGE>
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 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
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<PAGE>
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 $65
million of assets under management.
The Company has entered into an
investment advisory agreement (the
"Investment Advisory Agreement") with
the Adviser, which is effective for an
initial term expiring January 5, 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 will
bear 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
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<PAGE>
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 the Company could be disadvantaged
because of the investment activities
conducted by CWH and its affiliates for
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
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<PAGE>
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 its 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 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
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<PAGE>
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 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, a
sales charge of up to 3% of
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<PAGE>
the amount transmitted for such
investments may be imposed in the sole
discretion of the investor's account
executive. 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, the Board of Managers
may accept initial and additional
subscriptions for Interests by eligible
investors at such times as may be
determined by the Board of Managers, but
not more frequently than as of the first
day of each calendar quarter, unless the
Board of Managers has received a letter
from counsel stating that, under
applicable banking laws, the Board of
Managers may accept initial and
additional subscriptions from eligible
investors on a more frequent basis. 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
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
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<PAGE>
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
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
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<PAGE>
"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 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.
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<PAGE>
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
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 small to medium size emerging growth companies. Equity
securities include common and preferred stock and other securities having equity
characteristics, including convertible debt
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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 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.
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
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take advantage of market volatility by selling into what it believes to be
valuation excesses and buying into what it believes to be depressed periods.
In managing the investments of the Company, the Adviser will rely 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 research process will involve 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 particular
industries and geographic areas. 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 Company's portfolio managers have become acquainted
during the years in which they have worked as investment advisers will be
utilized as informal sources of information.
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 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
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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 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
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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 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
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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 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 of the value of its total assets in
securities of foreign issuers
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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 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
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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 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,
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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
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
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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 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
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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 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.
-22-
<PAGE>
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
leverage, and the Company may incur a loss if securities purchased with the
collateral from securities loans decline in value.
-23-
<PAGE>
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 institutional investors by permitting the sale of certain
unregistered securities to qualified institutional buyers. The Company will be
eligible to purchase securities in Rule 144A transactions if and when it and all
other 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 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.
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<PAGE>
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
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
-25-
<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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 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 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.
-28-
<PAGE>
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, a member of the Adviser whose personnel 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 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
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<PAGE>
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 board of directors
of a registered investment company organized as a corporation, and it has
complete and exclusive authority to oversee and to establish policies regarding
the management, conduct and operation of the Company's business. The persons
comprising the Board of Managers ("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>
The identity of the members 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,
Tufts University Inc. and CIBC Oppenheimer Technology Partners,
Medford, MA 02155 L.L.C., as well as an Individual General Partner
Age 64 of Augusta Partners, 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
Centro de Investigacion Development), Adjunct Fellow, Center for Strategic
Para El Desarrollo, A.C. and International Studies and a Member of the
Jaime Balmes No. 11, D-2 Advisory Board of the National Council of Science
Los Morales Polanco and Technology of Mexico. He is also a Director
Mexico D.F. 11510 of the Central European Value Fund, Inc., The
Age 43 Mexico Equity and Income Fund, Inc. and CIBC
Oppenheimer Technology Partners, L.L.C., as well
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
Columbia Business School at Columbia Business School of Columbia
Office of the Dean University. From 1987 to 1990, she served as
101 Uris Hall Executive Assistant to the President at the
Columbia University Illinois Institute of Technology. Ms. Schinderman
New York, NY 10027 is also an Individual General Partner of Augusta
Age 47 Partners, L.P. and Troon Partners, L.P.
Howard M. Singer* Manager Mr. Singer is a Managing Director, Asset
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Age with the Company During Past 5 years
--------------- ---------------- ---------------------
<S> <C> <C>
Management, CIBC WM.
CIBC World Markets Corp.
1 World Financial Center
New York, New York 10281
Age 36
</TABLE>
* Manager who is an "interested person" (as defined by 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 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 who are not "interested
persons" (as defined by the 1940 Act) of the Company or the Adviser (the
"Independent 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. No compensation is paid by the
Company to Managers who are "interested persons" (as defined by the 1940 Act) of
the Company or the Adviser.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Benefits
Accrued as Part of Estimated Annual Total Compensation
Compensation Company Benefits Upon from CIBC WM
Name of Person from Company Expenses Retirement 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 Independent 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, and
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<PAGE>
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 5, 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 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 are enforceable against the assets of that
series only, and not against the assets of any other series or of the Adviser
generally. Similarly, the debts, liabilities and obligations of the Adviser
relating to any other series of interests in the Adviser 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.
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. CIBC may also be deemed to
"control" the Adviser under certain provisions of the U.S. banking laws. 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
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<PAGE>
regulations of the Federal Reserve. CIBC WM is also registered as an investment
adviser with the SEC under 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. $170 billion as of October 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 under the Advisers Act and manages investment portfolios
for individual and institutional accounts. CWH had assets under management of
approximately $65 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:
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
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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
(including a majority of the Independent Managers), at a meeting held in person
on January 5, 2000, and was also approved on that date by Janet L. Schinderman,
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 5, 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 Independent Managers by vote cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory Agreement also
provides that it will terminate automatically in the event of its "assignment,"
as defined by the 1940 Act and the rules thereunder.
The Investment Advisory Agreement provides that, in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of its
obligations to the Company, the Adviser and any member, director, officer or
employee thereof, or any of their affiliates, executors, heirs, assigns,
successors or other legal representative, will not be liable to the Company for
any error of judgment, for any mistake of law or for any act or omission by such
person in connection with the performance of services to the Company. The
Investment Advisory Agreement also provides for indemnification, to the fullest
extent permitted by law, by the Company of the Adviser, or any member, director,
officer or employee thereof, and any of their affiliates, executors, heirs,
assigns, successors or other legal representatives, against any liability or
expense to which such person may be liable which arise in connection with the
performance of services to the Company, provided that the liability or expense
is not incurred by 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
(including a majority of the Independent Managers), and by vote of Janet L.
Schinderman, as the then sole member of the Company, on January 5, 2000.
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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 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 activities 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), in 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,
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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.
IBC 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 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
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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 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 by 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.
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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 transaction will involve restricted
securities or other 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 and 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 that they
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 placing orders for the execution of the
Company's portfolio transactions and the allocation of brokerage. Transactions
on U.S. stock exchanges and
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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 on a
principal basis in over-the-counter markets, but the prices of those securities
include undisclosed commissions or mark-ups. Transactions may also be executed
on an agency basis in over-the-counter markets, which will involve the payment
of negotiated or fixed commissions, when deemed consistent with the Company's
brokerage policies.
In selecting brokers and dealers to effect transactions on behalf of or
with 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, the
scope and quality of brokerage services provided, 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 of brokers in executing transactions
in portfolio securities.
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 generally
range between 100% and 200%. 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
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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 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
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 the value of their
capital accounts at the beginning of that fiscal period. A portion of the CIBC
WM Fee is paid by CIBC WM to CWH for services provided by CWH pursuant to the
terms of a Sub-Administration Agreement.
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
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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;
-- 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;
however, 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
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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 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 Members.
CAPITAL ACCOUNTS AND ALLOCATIONS
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 the fiscal year, (2) the day preceding any day on which a
contribution to the capital of the Company is made, (3) any day on which the
Company repurchases any Interest or portion of an Interest of any Member, or (4)
any 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.
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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 each
Member's capital account for the current and prior fiscal years. (See "Tax
Aspects - Allocation of Profits and Losses.")
Incentive Allocation
So long as the Adviser serves as the investment adviser of the Company, the
Adviser 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.
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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.
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
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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
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
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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 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, the Board of Managers
may accept initial and additional subscriptions for Interests by eligible
investors at such times as may be determined by the Board of Managers, but not
more frequently than as of the first day of each calendar quarter, unless the
Board of Managers has received a letter from counsel stating that, under
applicable banking laws, the Board of Managers may accept initial and additional
subscriptions from eligible investors on a more frequent basis. 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,
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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 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), in the sole discretion of the account executive.
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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 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
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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.
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
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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.
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,
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only under extenuating circumstances). The Board of Managers generally will not
consent to a transfer unless the following conditions are met: (i) the
transferring Member has been a Member for at least six months; (ii) the proposed
transfer is to be made on the effective date of an offer by the Company to
repurchase Interests; and (iii) the transfer does not constitute a change in
beneficial ownership. Notice to the Company of any proposed transfer must
include evidence satisfactory to the Board of Managers that the proposed
transfer is exempt from registration under the 1933 Act, that the proposed
transferee meets any requirements imposed by the Company with respect to
investor eligibility and suitability, including the requirement that any
investor (or investor's beneficial owners in certain circumstances) has a net
worth immediately prior to the time of subscription of at least $1.5 million or
such greater amounts as may be required by applicable law or by the Board of
Managers, in its sole discretion, and must be accompanied by a properly
completed subscription agreement. The Board of Managers 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, to transfer the
Interest in accordance with the terms of the Company Agreement and to tender the
Interest for repurchase by the Company, 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.
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
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it obtained an opinion of counsel with respect to any Federal tax issues other
than the characterization of the Company as a partnership for Federal income tax
purposes.
This summary of certain aspects of the Federal income tax treatment of the
Company is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), judicial decisions, Treasury Regulations (the "Regulations") and
rulings in existence on the date hereof, all of which are subject to change.
This summary does not discuss the impact of 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
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opinion that, under this "facts and circumstances" test, and based upon the
anticipated operations of the Company as well as the legislative history to
Section 7704, the text of the Section 7704 Regulations and certain
representations 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 Members to
settlement agreements and the right on behalf of all Members to extend the
statute of limitations relating to the Members' tax liabilities with respect to
Company items.
Tax Consequences to a Withdrawing Member
A Member receiving a cash liquidating distribution from the Company, in
connection with a complete withdrawal from the Company, generally will recognize
capital gain or loss to the extent of the difference between the proceeds
received by such Member and such Member's adjusted tax basis in its partnership
interest. Such capital gain or loss will be short-term or long-term depending
upon the Member's holding period for its interest in the Company. However, a
withdrawing Member will recognize ordinary income to the extent such Member's
allocable share of the Company's "unrealized receivables" exceeds the Member's
basis in such unrealized receivables (as determined pursuant to the
Regulations). For these purposes, accrued but untaxed market discount, if any,
on securities held by the Company will be treated as an unrealized receivable,
with respect to which a withdrawing Member would recognize ordinary income. A
Member receiving a cash nonliquidating distribution will recognize income in a
similar manner only to the extent that the amount of the distribution exceeds
such Member's adjusted tax basis in its partnership interest.
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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
entity 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 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),
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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 denominated in a
foreign currency to the extent attributable to fluctuation in the value of the
foreign currency between the date of acquisition of the debt security and the
date of disposition will be treated as ordinary income or loss. Similarly, gains
or losses attributable to fluctuations in exchange rates that occur between the
time the Company accrues interest or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the
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(1) Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is attributable to
the time value of the net investment in the transaction. The enumerated
transactions are (i) the holding of any property (whether or not actively
traded) and entering into a contract to sell such property (or substantially
identical property) at a price determined in accordance with such contract, but
only if such property was acquired and such contract was entered into on a
substantially contemporaneous basis, (ii) certain straddles, (iii) generally any
other transaction that is marketed or sold on the basis that it would have the
economic characteristics of a loan but the interest-like return would be taken
as capital gain or (iv) any other transaction specified in Regulations.
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Company actually collects such receivables or pays such liabilities may be
treated as ordinary income or ordinary loss.
As indicated above (see "Types of Investments and Related Risk Factors -
Foreign Securities"), the Company may acquire foreign currency forward
contracts. 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 gains and losses from positions in the account. At the end of a
taxable year, the annual net gains or losses from the mixed straddle account are
recognized for tax purposes. The application of the Temporary Regulations' mixed
straddle account rules is not entirely clear. Therefore, there is no assurance
that a mixed straddle account election by the Company will be accepted by the
Service.
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Short Sales. Gain or loss from a short sale of property is generally
considered as capital gain or loss to the extent the property used to close the
short sale constitutes a capital asset in the Company's hands. Except with
respect to certain situations where the property used to close a short sale has
a long-term holding period on the date the short sale is entered into, gains on
short sales generally are short-term capital gains. A loss on a short sale will
be treated as a long-term capital loss if, on the date of the short sale,
"substantially identical property" has been held by the Company for more than
one year. In addition, these rules may also terminate the running of the holding
period of "substantially identical property" held by the Company.
Gain or loss on a short sale will generally not be realized until such time
that the short sale is closed. However, if the Company holds a short sale
position with respect to stock, certain debt obligations or partnership
interests that has appreciated in value and then acquires property that is the
same as or substantially identical to the 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.
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
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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 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.
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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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"Phantom Income" From Company Investments. Pursuant to various
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign
investment company" and "foreign personal holding company" provisions),
investments (if any) by the Company in certain foreign corporations may cause a
Member to (i) recognize taxable income prior to the Company's receipt of
distributable proceeds, (ii) pay an interest charge on receipts that are deemed
as having been deferred or (iii) recognize ordinary income that, but for the
"anti-deferral" provisions, would have been treated as long-term or short-term
capital gain.
Foreign Taxes
It is possible that certain dividends and interest received by the Company
from sources within foreign countries will be subject to withholding taxes
imposed by such countries. In addition, the Company may also be subject to
capital gains taxes in some of the foreign countries where it purchases and
sells securities. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes. It is impossible to predict in advance the
rate of foreign tax the Company will pay since the amount of the Company's
assets to be invested in various countries is not known.
The Members will be informed by the Company as to their proportionate share
of the foreign taxes paid by the Company, which they will be required to include
in their income. The Members generally will be entitled to claim either a credit
(subject, however, to various limitations on foreign tax credits) or, if they
itemize their deductions, a deduction (subject to the limitations generally
applicable to deductions) for their share of such foreign taxes in computing
their Federal income taxes. A Member that is tax exempt will not ordinarily
benefit from such credit or deduction.
Unrelated Business Taxable Income
Generally, an exempt organization is exempt from Federal income tax on its
passive investment income, such as dividends, interest and capital gains,
whether realized by the organization directly or indirectly through a
partnership in which it is a partner.(3) This type of income is exempt even if
it is realized from securities trading activity which constitutes a trade or
business.
This general exemption from tax does not apply to the "unrelated business
taxable income" ("UBTI") of an exempt organization. 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
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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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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 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
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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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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 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
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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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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 assurance, except as noted below, the
Company intends to conduct its activities so that it will not be subject to
entity level taxation by any state or local jurisdiction.
State and local laws often differ from Federal income tax laws with respect
to the treatment of specific items of income, gain, loss, deduction and credit.
A Member's distributive
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share of the taxable income or loss of the Company generally will be required to
be included in determining its reportable income for state and local tax
purposes in the jurisdiction in which it is a resident.
The Company, which is treated as a partnership for New York State and New
York City income tax purposes, should not be subject to the New York City
unincorporated business tax, which is not imposed on a partnership which
purchases and sells securities for its "own account." By reason of a similar
"own account" exemption, it is also expected that a nonresident individual
Member should not be subject to New York State personal income tax with respect
to his share of income or gain realized directly by the Company. A nonresident
individual Member will not be subject to New York City earnings tax on
nonresidents with respect to his investment in the Company.
Individual Members who are residents of New York State and New York City
should be aware that the New York State and New York City personal income tax
laws limit the deductibility of itemized deductions for individual taxpayers at
certain income levels. These limitations may apply to a Member's share of some
or all of the Company's expenses. Prospective Members are urged to consult their
tax advisers with respect to the impact of these provisions and the Federal
limitations on the deductibility of certain itemized deductions and investment
expenses on their New York State and New York City tax liability.
For purposes of the New York State corporate franchise tax and the New York
City general corporation tax, a corporation generally is treated as doing
business in New York State and New York City, respectively, and is subject to
such corporate taxes as a result of the ownership of a partnership interest in a
partnership which does business in New York State and New York City,
respectively.(7) Each of the New York State and New York City corporate taxes
are imposed, in part, on the corporation's taxable income or capital allocable
to the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a non-managing member in a New York partnership may, under certain
circumstances, elect to compute its New York State corporate franchise tax by
taking into account only its distributive share of such partnership's income and
loss. There is currently no similar provision in effect for purposes of the New
York City general corporation tax.
Regulations under both the New York State corporate franchise tax and the
New York City general corporation tax, however, provide an exception to this
general rule in the case of a "portfolio investment partnership", which is
defined, generally, as a partnership which meets the gross income requirements
of Section 851(b)(2) of the Code. New York State (but not New 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
- ------------------------
(7) New York State (but not New York City) generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a partnership
doing business in New York and (ii) has a tax basis in such limited partnership
interest not greater than $1 million.
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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 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
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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.
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
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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. 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 (including a majority of the Independent
Managers, 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
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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 or her 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 all or any portion of an Interest, except
that where the transferee thereof has been approved by the Board of Managers for
admission to the Company as a substitute Member, or upon the withdrawal of a
Member from the Company pursuant to a periodic tender or otherwise this
power-of-attorney given by the transferor shall terminate.
Term, Dissolution and Liquidation
The Company shall be dissolved:
-- upon the affirmative vote to dissolve the Company by: (1) the Board of
Managers or (2) Members holding at least two-thirds (2/3) of the total
number of votes eligible to be cast by all Members;
-- upon the expiration of any two year period which commences on the date
on which any Member has submitted a written notice to the Company
requesting to tender its entire interest for repurchase by the Company
if that interest has not been repurchased by the Company;
-- 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) is 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."
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Upon the liquidation of the Company, its assets will 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
The Board of Managers has selected Ernst & Young LLP as the independent
public accountants of the Company. Ernst & Young LLP's principal business
address is located at 787 Seventh Avenue, 15th Floor, New York, New York.
Schulte Roth & Zabel LLP, New York, New York, 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 Independent Managers.
Custodian
PFPC Trust Company ("PFPC Trust") 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. PFPC
Trust's principal business address is 103 Bellevue Parkway, Wilmington, DE
19809.
Inquiries
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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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APPENDIX A
------------------------------------
SAWGRASS FUND, L.L.C.
(A Delaware Limited Liability Company)
------------------------------------
LIMITED LIABILITY COMPANY AGREEMENT
Dated as of January 5, 2000
------------------------------------
One World Financial Center, 31st Floor
200 Liberty Street
New York, New York 10281
(212) 667-4225
<PAGE>
TABLE OF CONTENTS
Page
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
3.8 Fees, Expenses and Reimbursement..................... 17
<PAGE>
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.................................. 28
ARTICLE VI DISSOLUTION AND LIQUIDATION................................... 29
6.1 Dissolution.......................................... 29
6.2 Liquidation of Assets................................ 30
ARTICLE VII ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS.................. 31
7.1 Accounting and Reports............................... 31
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7.2 Determinations by the Board of Managers.............. 31
7.3 Valuation of Assets.................................. 31
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............................. 36
8.10 Pronouns............................................. 37
8.11 Confidentiality...................................... 37
8.12 Certification of Non-Foreign Status.................. 37
8.13 Severability......................................... 38
8.14 Filing of Returns.................................... 38
8.15 Tax Matters Partner.................................. 38
8.16 Section 754 Election................................. 39
iii
<PAGE>
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 5, 2000 by and among Sol Gittleman, Luis
Rubio, Janet L. Schinderman 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.
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:
----------------------
ARTICLE I
DEFINITIONS
----------------------
For purposes of this Agreement:
Administrator The person who provides administrative
services to the Company pursuant to an
administrative services agreement.
Adviser CIBC Oppenheimer Advisers, L.L.C., a
limited liability company organized
under Delaware law, or any person who
may hereinafter serve as the investment
adviser to the Company pursuant to an
Investment Advisory Agreement.
Advisers Act The Investment Advisers Act of 1940
and the rules, regulations and orders
thereunder, as amended from time to
time, or any successor law.
Affiliate An affiliated person of a person as such
term is defined in the 1940 Act.
Agreement This Limited Liability Company
Agreement, as amended from time to time.
Allocation Change With respect to each Member for each
Allocation Period,
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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 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;
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(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) 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
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any successor law.
Company The limited liability company governed
hereby, as such limited liability
company may from time to time be
constituted.
Delaware Act The Delaware Limited Liability Company
Act as in effect on the date hereof and
as amended from time to time, or any
successor law.
Expense Allocation Date The Closing Date, and thereafter each
day on or before December 1, 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 on which the Company
repurchases any Interest or
portion of an Interest of any
Member;
(4) 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
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.
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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
Agreement A separate written agreement entered
into by the Company pursuant to which
the Adviser provides investment advisory
services to the Company.
Investment Percentage A percentage established for each Member
on the Company's books as of the first
day of each Fiscal Period. The
Investment Percentage of a Member for a
Fiscal Period shall be determined by
dividing the balance of the Member's
Capital Account as of the commencement
of such Fiscal Period by the sum of the
Capital Accounts of all of the Members
as of the commencement of such Fiscal
Period. The sum of the Investment
Percentages of all Members for each
Fiscal Period shall equal 100%.
Loss Recovery Account A memorandum account to be recorded in
the books and records of the Company
with respect to each Member, which shall
have an initial balance of zero and
which shall be adjusted as follows:
(1) As of the first day after the
close of each Allocation
Period for such Member, the
balance
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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 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.
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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 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.
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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
-------------------------
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 on the filing of the Certificate with the
Secretary of State of Delaware and shall continue until the Company is dissolved
pursuant to Section 6.1 hereof.
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.
(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, the Board of Managers may admit new Members at such times as may be
determined by the Board of Managers, but not more frequently than as of the
first day of each calendar quarter, unless the Board of Managers has received a
letter from counsel stating that, under applicable banking laws, the Board of
Managers may admit new Members on a more frequent basis. Subject to the
foregoing, 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 any subscription for Interests. 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 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
--------------------------
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.
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
(including the vote of a majority of the Independent Managers if 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
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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 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
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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.
(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
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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 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
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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. 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.
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(c) The Company shall bear all expenses incurred in its business and
operations, 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 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 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;
(4) the costs and expenses of holding meetings of the Board of
Managers and any meetings of Members;
(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) any fees payable to CIBC WM for CIBC WM Services and the fees of
custodians and persons providing administrative services to the
Company;
(7) the costs of a fidelity bond and any liability insurance obtained
on behalf of the Company or its Managers;
(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
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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 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.
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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; and (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 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.
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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;
(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
such lesser amount as may be permitted by the Board of Managers; 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.
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(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 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
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effective, over (y) the Cash Payment. Notwithstanding anything in the foregoing
to the contrary, the Board of Managers, in its discretion, may pay all or 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 repurchases of Interests
shall be subject to any and all conditions as the Board of Managers may impose
in its sole discretion. The amount due to any Member whose Interest or portion
thereof is repurchased shall be equal to the value of such Member's Capital
Account or portion thereof, as applicable, as of the effective date of
repurchase, after giving effect to all allocations to be made to such Member's
Capital Account as of such date.
------------------------------------
ARTICLE V
CAPITAL
------------------------------------
5.1 Contributions to Capital.
(a) The minimum initial contribution of each Member to the capital of the
Company shall be such amount as the Board of Managers, in its discretion, may
determine from time to time, but in no event shall be less than $150,000. 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.
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(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 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
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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 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
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those parties who were Members at the time, as determined by the Board of
Managers, in its sole discretion, of the act or omission giving rise to the
contingent liability for which the reserve was established, increased or
decreased in proportion to their Capital Accounts at that time.
(b) If at any time an amount is paid or received by the Company (other than
contributions to the capital of the Company, distributions or repurchases of
Interests or portions thereof) and such amount exceeds the lesser of $500,000 or
1% of the aggregate value of the Capital Accounts of all Members at the time of
payment or receipt and such amount was not accrued or reserved for but would
nevertheless, in accordance with the Company's accounting practices, be treated
as applicable to one or more prior Fiscal Periods, then such amount shall be
proportionately charged or credited, as appropriate, to those parties who were
Members during such prior Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this Section 5.7
to be charged or credited to a party who is no longer a Member, such amount
shall be paid by or to such party, as the case may be, in cash, with interest
from the date on which the Board of Managers determines that such charge or
credit is required. In the case of a charge, the former Member shall be
obligated to pay the amount of the charge, plus interest as provided above, to
the Company on demand; provided, however, that (i) in no event shall a former
Member be obligated to make a payment exceeding the amount of such Member's
Capital Account at the time to which the charge 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
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pay to the Company any excess amount of Incentive Allocation determined to be
owed to the Company.
5.9 Allocation of Organizational Expenses.
(a) As of the first Expense Allocation Date, Organizational Expenses shall
be allocated among and debited against the Capital Accounts of the Members in
accordance with their respective Capital Percentages on such Expense Allocation
Date.
(b) As of each Expense Allocation Date following the first Expense
Allocation Date, all amounts previously debited against the Capital Account of a
Member pursuant to this Section 5.9 on the preceding Expense Allocation Date
will be credited to the Capital Account of such Member, and Organizational
Expenses shall then be re-allocated among and debited against the Capital
Accounts of all Members in accordance with their respective Capital Percentages
on such Expense Allocation Date.
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 ss.
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.
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If the Company realizes capital losses (including long-term capital losses)
for Federal income tax purposes ("losses") for any fiscal year during or as of
the end of which one or more Negative Basis Members (as hereinafter defined)
withdraw from the Company pursuant to Article IV, 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
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Member in an amount by which the Incentive Allocation exceeds the Special
Advisory Member's "adjusted tax basis" (determined without regard to any
allocation to be made pursuant to this paragraph) in its interest in the Company
as of the time it withdraws such Incentive Allocation. The Special Advisory
Member's "adjusted tax basis", for these purposes, shall be increased by any
amount of the Incentive Allocation withdrawal 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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<PAGE>
--------------------------
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 liquidator
shall deem appropriate in its sole discretion as applicable) shall be
distributed in the following manner:
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<PAGE>
(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.
(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
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<PAGE>
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.
A-31
<PAGE>
---------------------------
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
association taxable as a corporation or as a publicly traded
partnership as defined in Section 7704(b) of the Code.
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<PAGE>
(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.
(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
A-33
<PAGE>
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.
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.
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<PAGE>
(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.
(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.
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<PAGE>
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.
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.
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<PAGE>
(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).
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
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<PAGE>
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>
EACH OF 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/
- -------------------------------------- ----------------------------------------
Sol Gittleman Luis Rubio
/s/ /s/
- -------------------------------------- ----------------------------------------
Janet L. Schinderman Howard M. Singer
ORGANIZATIONAL MEMBER:
/s/
- --------------------------------------
Janet L. Schinderman
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: Howard M. Singer
Title: Managing Director
A-39
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
The Company's investment adviser (the "Adviser") employs an investment
program for the Company that is substantially similar to the investment program
that is employed by Worthington Growth L.P. ("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 Worthington 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 S&P
Worthington Annual S&P Annual Cumulative Return Cumulative
Return (1),(2) Return (3) (1),(2),(4) Return (3),(4)
<S> <C> <C> <C> <C>
1990 45.29% (3.17%) 45.29% (3.10%)
1991 48.28% 30.55% 115.44% 26.43%
1992 10.09% 7.59% 137.18% 36.06%
1993 4.27% 10.02% 147.31% 49.77%
1994 1.59% 1.32% 151.26% 51.75%
1995 57.28% 37.57% 295.18% 108.78%
1996 28.27% 23.08% 406.91% 156.71%
1997 8.83% 33.38% 451.67% 242.35%
1998 17.60% 28.58% 548.76% 340.16%
1999 76.98% 21.03% 1048.18% 432.77%
Annualized 27.64% 18.21%
Return
</TABLE>
The above returns for Worthington are net of all fees, expenses and incentive
allocations.
B-1
<PAGE>
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 in July 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
RESULTS.
2. The above returns for Worthington are net of all fees and expenses
(including a management fee of 1% per annum) and a 20% incentive
allocation payable to Scottsdale Associates L.P. (a Delaware limited
partnership the general Partner of which is CWH Associates, Inc., a
registered investment advisor controlled by Clifford Henry) the
general partner and investment manager of Worthington. The above
returns are based upon the results achieved by an investor who
invested in Worthington 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.
3. 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.
4. The Worthington Cumulative Return is calculated by using an
arithmetic, compounded return. The S&P 500 Cumulative Return is
calculated by using an arithmetic, compounded return.
B-2
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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.
Incorporated by reference to Registrant's Registration Statement
on Form N-2, File No. 811-09727, filed on December 10, 1999.
(2) Form of Limited Liability Company Agreement. See Appendix
A of Registrant's Confidential Memorandum.
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(2).
(e) Not Applicable.
(f) Not Applicable.
(g) Form of Investment Advisory Agreement.
(h) Form of Placement Agency Agreement.
(i) Not Applicable.
(j) Form of Custody Agreement.
(k) (1) Form of Administrative Services Agreement.
(2) Form of Administration, Accounting and Investor
Services Agreement.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
Item 25. Marketing Arrangements
Not Applicable.
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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
Title of Class Number of Record Holders
-------------- ------------------------
Limited Liability Company Interests 1 (Registrant anticipates
that as a result of the
initial private offering of
interests there will be more
than 100 record holders of
such interests.)
Item 29. Indemnification
Reference is made to Section 3.7 of Registrant's Form of Limited Liability
Company Agreement (the "Company Agreement") filed as Exhibit 2(a)(2) hereto.
Registrant hereby undertakes that it will apply the indemnification provision of
the Company Agreement in a manner consistent with Release 40-11330 of the
Securities and Exchange Commission under the Investment Company Act of 1940, so
long as the interpretation therein of Sections 17(h) and 17(i) of such Act
remains in effect.
Registrant, in conjunction with the CIBC Oppenheimer Advisers, L.L.C. (the
"Adviser") and Registrant's Managers, maintains insurance on behalf of any
person who is or was a Independent Manager, officer, employee, or agent of
Registrant, against certain liability asserted against him or her and incurred
by him or her or arising out of his or her position. However, in no event will
Registrant pay that portion of the premium, if any, for insurance to indemnify
any such person or any act for which Registrant itself is not permitted to
indemnify.
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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>
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 February __, 2000.
SAWGRASS FUND, L.L.C.
By: /s/ Howard M. Singer
-------------------------------
Name: Howard M. Singer
Title: Manager
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FORM N-2
SAWGRASS FUND, L.L.C.
EXHIBIT INDEX
Exhibit Document Description
(g) Form of Investment Advisory Agreement
(h) Form of Placement Agency Agreement
(j) Form of Custody Agreement
(k) (1) Form of Administrative Services Agreement
(2) Form of Administration, Accounting and Investor Services Agreement
C-5
Exhibit (g)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made the 5th day of January, 2000, by
and between Sawgrass Fund, L.L.C., a Delaware limited liability company (the
"Fund"), and CIBC Oppenheimer Advisers, L.L.C., a Delaware limited liability
company (the "Adviser").
WHEREAS, the Fund intends to engage in business as a closed-end,
non-diversified management investment company and is registered as such under
the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and engages in the business of
acting as an investment adviser; and
WHEREAS, the Fund desires to retain the Adviser to render investment
advisory services to the Fund in the manner and on the terms and conditions
hereinafter set forth; and
WHEREAS, the Adviser desires to be retained to perform such services on
said terms and conditions;
NOW, THEREFORE, in consideration of the terms and conditions herein
contained, the Fund and the Adviser agree as follows:
1. The Fund hereby retains the Adviser to act as its investment adviser
and, subject to the supervision and control of the Board of Managers of the Fund
(the "Board"), to manage the investment activities of the Fund as hereinafter
set forth. Without limiting the generality of the foregoing, the Adviser shall:
obtain and evaluate such information and advice relating to the economy,
securities markets, and securities as it deems necessary or useful to discharge
its duties hereunder; continuously manage the assets of the Fund in a manner
consistent with the investment objective, policies and restrictions of the Fund,
as set forth in the Confidential Memorandum of the Fund and as may be adopted
from time to time by the Board, and applicable laws and regulations; determine
the securities to be purchased, sold or otherwise disposed of by the Fund and
the timing of such purchases, sales and dispositions; and take such further
action, including the placing of purchase and sale orders and the voting of
securities on behalf of the Fund, as the Adviser shall deem necessary or
appropriate. The Adviser shall furnish to or place at the disposal of the Fund
such of the information, evaluations, analyses and opinions formulated or
obtained by the Adviser in the discharge of its duties as the Fund may, from
time to time, reasonably request.
2. Without limiting the generality of paragraph 1 hereof, the Adviser shall
be authorized to open, maintain and close accounts in the name and on behalf of
the Fund with brokers and dealers as it determines are appropriate; to select
and place orders with brokers, dealers or other financial intermediaries for the
execution, clearance or settlement of any transactions on behalf of the Fund on
such terms as the Adviser considers appropriate and that
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are consistent with the policies of the Fund; and, subject to any policies
adopted by the Board and to the provisions of applicable law, to agree to such
commissions, fees and other charges on behalf of the Fund as it shall deem
reasonable in the circumstances taking into account all such factors as it deems
relevant (including the quality of research and other services made available to
it even if such services are not for the exclusive benefit of the Fund and the
cost of such services does not represent the lowest cost available) and shall be
under no obligation to combine or arrange orders so as to obtain reduced charges
unless otherwise required under the federal securities laws. The Adviser may,
subject to such procedures as may be adopted by the Board, use affiliates of the
Adviser as brokers to effect the Fund's securities transactions and the Fund may
pay such commissions to such brokers in such amounts as are permissible under
applicable law.
3. The Adviser shall, at its own expense, maintain such staff and employ or
retain such personnel and consult with such other persons as may be necessary to
render the services required to be provided by the Adviser or furnished to the
Fund under this Agreement. Without limiting the generality of the foregoing, the
staff and personnel of the Adviser shall be deemed to include persons employed
or otherwise retained by the Adviser or made available to the Adviser by its
members.
4. The Fund will, from time to time, furnish or otherwise make available to
the Adviser such financial reports, proxy statements, policies and procedures,
and other information relating to the business and affairs of the Fund as the
Adviser may reasonably require in order to discharge its duties and obligations
hereunder.
5. The Adviser shall bear the cost of rendering the services to be
performed by it under this Agreement.
6. The Fund assumes and shall pay or cause to be paid all expenses of the
Fund not expressly assumed by the Adviser under this Agreement, including
without limitation: all costs and expenses directly related to portfolio
transactions and positions for the Fund's account, including, but not limited
to, brokerage commissions, research fees, interest and commitment fees on loans
and debit balances, borrowing charges on securities sold short, dividends on
securities sold but not yet purchased, custodial fees, margin fees, transfer
taxes and premiums, taxes withheld on foreign dividends and indirect expenses
from investments in investment funds; all costs and expenses associated with the
organization and registration of the Fund, certain offering costs and the costs
of compliance with any applicable Federal or state laws; attorneys' fees and
disbursements associated with updating the Fund's Confidential Memorandum and
subscription documents (the "Offering Materials"); the costs of printing the
Offering Materials; the costs of distributing the Offering Materials to
prospective investors; and attorneys' fees and disbursements associated with the
review of subscription documents executed and delivered to the Fund in
connection with offerings of interests of the Fund; the costs and expenses of
holding meetings of the Board and any meetings of members of the Fund; fees and
disbursements of any attorneys, accountants, auditors and other consultants and
professionals engaged on behalf of the Fund or the Board; the administrative
services fee paid to CIBC World Markets Corp. pursuant to the Administrative
Services Agreement and the fees of custodians and persons providing
administrative services to the Fund; the costs of a fidelity bond and any
liability insurance obtained on behalf of the Fund or the Board; all expenses of
computing the Fund's net asset value, including any equipment or services
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<PAGE>
obtained for these purposes; and all charges for equipment or services used in
communicating information regarding the Fund's transactions among the Adviser
and any custodian or other agent engaged by the Fund.
7. As full compensation for the services provided to the Fund and the
expenses assumed by the Adviser under this Agreement, the Adviser shall be
entitled to be the Special Advisory Member of the Fund pursuant to the terms of
the Limited Liability Company Agreement of the Fund (the "L.L.C. Agreement"). As
the Special Advisory Member, the Adviser shall be entitled to receive an
incentive allocation in accordance with the terms and conditions of Section 5.8
of the L.L.C. Agreement.
8. The Adviser will use its best efforts in the supervision and management
of the investment activities of the Fund and in providing services hereunder,
but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations hereunder, the Adviser, its members, their
respective directors, officers or employees and their respective affiliates,
executors, heirs, assigns, successors or other legal representatives
(collectively, the "Affiliates") shall not be liable to the Fund for any error
of judgment for any mistake of law or for any act or omission by the Adviser or
any of the Affiliates.
9. (a) The Fund shall indemnify the Adviser, its members, their respective
directors, officers or employees and their respective affiliates, executors,
heirs, assigns, successors or other legal representatives (each an "Indemnified
Person") against any and all costs, losses, claims, damages or liabilities,
joint or several, including, without limitation, reasonable attorneys' fees and
disbursements, resulting in any way from the performance or non-performance of
any Indemnified Person's duties with respect to the Fund, except those resulting
from the willful malfeasance, bad faith or gross negligence of an Indemnified
Person or the Indemnified Person's reckless disregard of such duties, and in the
case of criminal proceedings, unless such Indemnified Person had reasonable
cause to believe its actions unlawful (collectively, "disabling conduct").
Indemnification shall be made following: (i) a final decision on the merits by a
court or other body before which the proceeding was brought that the Indemnified
Person was not liable by reason of disabling conduct or (ii) a reasonable
determination, based upon a review of the facts and reached by (A) the vote of a
majority of the members of the Board (the "Managers") who are not parties to the
proceeding or (B) legal counsel selected by a vote of a majority of the Board in
a written advice, that the Indemnified Person is entitled to indemnification
hereunder. The Fund shall advance to an Indemnified Person (to the extent that
it has available assets and need not borrow to do so) reasonable attorneys' fees
and other costs and expenses incurred in connection with defense of any action
or proceeding arising out of such performance or non-performance. The Adviser
agrees, and each other Indemnified Person will agree as a condition to any such
advance, that in the event the Indemnified Person receives any such advance, the
Indemnified Person shall reimburse the Fund for such fees, costs and expenses to
the extent that it shall be determined that the Indemnified Person was not
entitled to indemnification under this paragraph 9.
(b) Notwithstanding any of the foregoing to the contrary, the provisions of
this paragraph 9 shall not be construed so as to relieve the Indemnified Person
of, or provide indemnification with respect to, any liability (including
liability under Federal Securities laws, which, under certain circumstances,
impose liability even on persons who act in good faith) to
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<PAGE>
the extent (but only to the extent) that such liability may not be waived,
limited or modified under applicable law or that such indemnification would be
in violation of applicable law, but shall be construed so as to effectuate the
provisions of this paragraph 9 to the fullest extent permitted by law.
10. Nothing contained in this Agreement shall prevent the Adviser or any
affiliated person of the Adviser from acting as investment adviser or manager
for any other person, firm or corporation and, except as required by applicable
law (including Rule 17j-1 under the 1940 Act), shall not in any way bind or
restrict the Adviser or any such affiliated person from buying, selling or
trading any securities or commodities for their own accounts or for the account
of others for whom they may be acting. Nothing in this Agreement shall limit or
restrict the right of any member, officer or employee of the Adviser to engage
in any other business or to devote his or her time and attention in part to the
management or other aspects of any other business whether of a similar or
dissimilar nature.
11. This Agreement shall remain in effect for an initial term expiring
January 5, 2002, and shall continue in effect from year to year thereafter
provided such continuance is approved at least annually by the vote of a
majority of the outstanding voting securities of the Fund, as defined by the
1940 Act and the rules thereunder, or by the Board; and provided that in either
event such continuance is also approved by a majority of the Managers who are
not parties to this Agreement or "interested persons" (as defined by the 1940
Act) of any such party (the "Independent Managers"), by vote cast in person at a
meeting called for the purpose of voting on such approval. The Fund may at any
time, without payment of any penalty, terminate this Agreement upon sixty days'
prior written notice to the Adviser, either by majority vote of the Board or by
the vote of a majority of the outstanding voting securities of the Fund (as
defined by the 1940 Act and the rules thereunder). The Adviser may at any time,
without payment of penalty, terminate this Agreement upon sixty days' prior
written notice to the Fund. This Agreement shall automatically terminate in the
event of its assignment (to the extent required by the 1940 Act and the rules
thereunder) unless such automatic termination shall be prevented by an exemptive
order of the Securities and Exchange Commission.
12. Any notice under this Agreement shall be given in writing and shall be
deemed to have been duly given when delivered by hand or facsimile or five days
after mailed by certified mail, post-paid, by return receipt requested to the
other party at the principal office of such party.
13. This Agreement may be amended only by the written agreement of the
parties. Any amendment shall be required to be approved by the Board and by a
majority of the Independent Managers in accordance with the provisions of
Section 15(c) of the 1940 Act and the rules thereunder. If required by the 1940
Act, any amendment shall also be required to be approved by such vote of members
of the Fund as is required by the 1940 Act and the rules thereunder.
14. This Agreement shall be construed in accordance with the laws of the
state of New York and the applicable provisions of the 1940 Act. To the extent
the applicable law of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the 1940 Act, the latter shall
control.
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<PAGE>
15. The Fund represents that this Agreement has been duly approved by the
Board, including a majority of the Independent Managers, and by the sole initial
member of the Fund, in accordance with the requirements of the 1940 Act and the
rules thereunder.
16. The parties to this Agreement agree that the obligations of the Fund
under this Agreement shall not be binding upon any of the Managers, members of
the Fund or any officers, employees or agents, whether past, present or future,
of the Fund, individually, but are binding only upon the assets and property of
the Fund.
{The remainder of this page has been intentionally left blank}
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first above written.
SAWGRASS FUND, L.L.C.
By:
-----------------------------
Attest: Name: Howard M. Singer
Title: Manager
- -----------------------------
CIBC OPPENHEIMER ADVISERS, L.L.C.
By: CIBC World Markets Corp.,
its Managing Member
By:
-----------------------------
Attest: Name:
Title:
- -----------------------------
G-6
Exhibit (h)
SAWGRASS FUND, L.L.C.
One World Financial Center
31st Floor
200 Liberty Street
New York, New York 10281
CIBC World Markets Corp.
One World Financial Center - 31st Floor
200 Liberty Street
New York, New York 10281
Re: Appointment as Placement Agent
Ladies and Gentlemen:
Sawgrass Fund, L.L.C., a limited liability company organized under the laws
of the State of Delaware (the "Fund"), hereby agrees with you as follows:
1. Fund Offering.
The Fund proposes to issue and to sell its limited liability company
interests ("Interests") in accordance with a Confidential Memorandum issued by
the Fund dated January 2000, as amended or supplemented from time to time (the
"Memorandum").
2. Definitions.
All capitalized terms used in this Agreement which are not separately
defined herein shall have the respective meaning set forth in the Memorandum.
3. Placement of Interests.
(a) Subject to the terms and conditions set forth herein, the Fund hereby
appoints you as its placement agent in connection with the placement of
Interests. Subject to the performance in all material respects by the Fund of
its obligations hereunder, and to the completeness and accuracy in all material
respects of all of the representations and warranties of the Fund contained
herein, you hereby accept such agency and agree on the terms and conditions
herein set forth to use your best efforts to find qualified subscribers for
Interests and to use all reasonable efforts to assist the Fund in obtaining
performance by each subscriber. You shall not have any liability to the Fund in
the event that any subscriber fails to consummate the purchase of Interests for
any reason other than your willful misconduct or gross negligence.
(b) The offers and sales of Interests are to be effected pursuant to the
exemption from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 4(2) thereof and Regulation
D under the Securities Act. Both you and the Fund have established the following
procedures in connection with the offer
H-1
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and sale of Interests and agree that neither of you will make offers or sales of
any Interests except in compliance with such procedures:
(i) Offers and sales of Interests will be made only in compliance with
Regulation D under the Securities Act and only to investors that qualify as
"accredited investors," as defined in Rule 501(a) under the Securities Act.
(ii) No sale of Interests to any one Purchaser will be for less than
the minimum denominations as may be specified in the Memorandum.
(iii) No offer or sale of any Interest shall be made in any state or
jurisdiction, or to any prospective investor located in any state or
jurisdiction, where such Interests have not been registered or qualified
for offer and sale under applicable state securities laws unless such
Interests are exempt from the registration or qualification requirements of
such laws.
(iv) Sales of Interests will be made only to investors that are
qualified clients under Rule 205-3 under the Investment Advisers Act of
1940, as amended.
(c) For purposes of the offering of Interests, the Fund has furnished to
you copies of the Memorandum and subscription documentation which shall be
furnished to prospective investors. Additional copies will be furnished in such
numbers as you may reasonably request for purposes of the offering. You are
authorized to furnish to prospective purchasers only such information concerning
the Fund and the offering as may be contained in the Memorandum or any written
supplements thereto, and such other materials as you have prepared and which
comply with applicable laws and regulations, including to the extent applicable
the rules of the National Association of Securities Dealers, Inc. (the "NASD").
4. Subscriptions During the Initial Offering Period.
(a) The initial offering period for the Interests shall commence as soon as
practicable after the date as of which this Agreement is effective and be closed
on March 15, 2000 or such later date as may be specified by the Board of
Managers of the Fund (the "Board"), in its sole discretion, which date shall not
be more than 90 days thereafter (the "Initial Offering Period").
(b) All subscriptions for Interests and payments by subscribers of
subscription amounts for Interests shall be made pursuant to the terms and
conditions set forth in the Memorandum and subscription documentation.
Subscriptions shall be subject to acceptance by you as agent for the Fund, as
described in Section 6 below.
(c) All payments received by you hereunder for subscriptions in the name
and on behalf of the Fund shall be handled by you in accordance with the terms
of the subscription documentation.
(d) If the offering is not completed in accordance with the conditions set
forth in the Memorandum, the Fund may terminate the offering. In such case, you
will instruct PFPC
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<PAGE>
Inc. or any other escrow agent who may be serving in such capacity for the time
being to return all subscription payments to investors.
5. Subscriptions After the Initial Offering Period.
(a) After the Initial Offering Period, the Fund may from time to time, in
the sole discretion of the Board, offer Interests to investors for purchase
("Subsequent Offerings").
(b) In Subsequent Offerings, the minimum additional investment requirements
shall be such amounts as are specified in the Memorandum. All subscriptions for
Interests in Subsequent Offerings and payments therefor shall be made pursuant
to the terms and conditions set forth in the Memorandum, and subscriptions shall
be subject to acceptance by you as agent for the Fund, as described in Section 6
below. In Subsequent Offerings, the procedures set forth in Sections 4(c) and
(d) shall also be applicable.
6. Acceptance of Subscriptions.
You are appointed as agent of the Fund for purposes of determining whether
to accept or to reject subscriptions for Interests. Subscriptions shall be
accepted only if the investor: (a) has supplied, or in the case of an additional
subscription by an existing member, previously supplied, to you properly
completed subscription documentation; and (b) has made proper payment for
Interests. Subscriptions shall be rejected if it appears to you that any of the
terms or conditions applicable to subscriptions for Interests as set forth in
the Memorandum or subscription documentation have not been satisfied. The Board
reserves the right to reject any subscription for Interests in the Fund.
7. Representations and Warranties of the Fund.
The Fund represents and warrants to you that:
(a) The Fund has been duly formed and is validly existing as a limited
liability company in good standing under the laws of the State of Delaware with
all requisite power and authority, all necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulatory officials and bodies, and all necessary rights, licenses and permits
from other parties, to conduct its business as described in the Memorandum.
(b) Interests to be or which may be issued by the Fund have been duly
authorized for issuance and sale and, when issued and delivered by the Fund,
Interests will conform to all statements relating thereto contained in the
Memorandum.
(c) The issue and sale of Interests and the execution, delivery and
performance of the Fund's obligations under the Memorandum will not result in
the violation of any applicable law.
(d) The Fund will apply the proceeds from the sale of Interests for the
purposes set forth in the Memorandum.
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<PAGE>
(e) The Memorandum will not contain an untrue statement of any material
fact or omit to state any material fact necessary in order to make statements
therein in the light of the circumstances under which they were made, not
misleading.
(f) This Agreement has been duly authorized, executed and delivered by the
Fund and, assuming your execution hereof, will constitute a valid and binding
agreement of the Fund.
(g) Prior to and on the effective date of this Agreement, neither the Fund,
nor to the knowledge of the Fund any person acting on behalf of the Fund, has
directly or indirectly offered or sold, or attempted to offer or sell any
Interests to or solicited offers to buy any Interests from, or otherwise
approached or negotiated with respect thereto with, any prospective investor in
connection with the placement thereof.
8. Covenants of the Fund.
The Fund covenants and agrees with you as follows:
(a) You and your counsel shall be furnished with such documents and
opinions as you and they may require, from time to time, for the purpose of
enabling you or them to pass upon the issuance and sale of Interests as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations and warranties, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Fund and in
connection with the issuance and sale of Interests as herein contemplated shall
be satisfactory in form and substance to you and your counsel.
(b) If, at any time after the commencement of an offering of Interests and
prior to its termination, an event occurs which in the opinion of counsel to the
Fund materially affects the Fund and which should be set forth in an amendment
or supplement to the Memorandum in order to make the statements therein not
misleading in light of the circumstances under which they are made, the Fund
will notify you as promptly as practical of the occurrence of such event and
prepare and furnish to you copies of an amendment or supplement to the
Memorandum, in such reasonable quantities as you may request in order that the
Memorandum will not contain any untrue statement of any material fact or omit to
state a material fact which in the opinion of such counsel is necessary to make
the statements therein not misleading in light of the circumstances under which
they are made.
9. Representations and Warranties of the Placement Agent.
You represent and warrant that:
(a) You are duly authorized to enter into and perform, and have duly
executed and delivered, this Agreement.
(b) You have and will maintain all licenses and registrations necessary
under applicable law and regulations (including the rules of the NASD) to
provide the services required to be provided by you hereunder.
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<PAGE>
(c) You have not and will not solicit any offer to buy or offer to sell
Interests in any manner which would be inconsistent with applicable laws and
regulations, or with the procedures for solicitations contemplated by the
Memorandum or by any form of general solicitation or advertising, including, but
not limited to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio or conduct any seminar or meeting whose attendees have been
invited by any general solicitation or advertising.
(d) You will furnish each subscriber of Interests, identified either by you
or the Fund, a copy of the Memorandum and subscription documentation prior to
such person's admission as a member of the Fund.
10. Compensation of Placement Agent.
(a) You will receive no fee, payment or other remuneration from the Fund
for your services under this Agreement; provided, that as set forth in the
Memorandum, you are entitled to charge a sales commission on the purchase price
of Interests of up to 3%, or such other percentage as established by the Board;
and further provided, that you shall have the authority to waive or reduce the
sales commission in particular cases, at your sole discretion.
(b) Except as may otherwise be agreed to by the Fund, you shall be
responsible for the payment of all costs and expenses incurred by you in
connection with the performance of your obligations under this Agreement,
including the costs associated with the preparation, printing and distribution
of any sales materials.
(c) We acknowledge that you intend to compensate your account executives
for their ongoing servicing of clients with whom they have placed Interests in
the Fund. This compensation will be based upon a formula that takes into account
the amount of client assets being serviced as well as the investment results
attributable to clients' assets invested in the Fund.
11. Indemnification and Contribution.
The parties agree to indemnify one another as follows:
(a) The Fund agrees to indemnify and hold harmless you and each person, if
any, who controls you within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"),
against any and all losses, liabilities, claims, damages and expenses whatsoever
(including, but not limited to, attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which you or they may become subject under the Securities Act, the Exchange Act
or any other law or statute in any jurisdiction otherwise, insofar as such
losses, liabilities, claims, damages or expense (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in the Memorandum or the subscription documentation
or any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that the Fund will not be liable in any such
H-5
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case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Fund by you or through you expressly for the use therein; and further
provided that this indemnity shall not protect you or any other person who may
otherwise be entitled to indemnity hereunder from or against any liability to
which you or they would be subject by reason of your own or their own willful
misfeasance, bad faith, gross negligence or reckless disregard of your or their
duties hereunder. This indemnity will be in addition to any liability which the
Fund may otherwise have included under this Agreement.
(b) You agree to indemnify and hold harmless the Fund and each person who
controls the Fund within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against any losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to, attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which you or they may become subject under the
Securities Act, the Exchange Act or any other law or statute in any
jurisdiction, insofar as such losses, liabilities, claims, damages or expenses
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Memorandum or Subscription Agreement, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that any such loss, liability, claim, damage or expense arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein in reliance upon and in conformity with written
information furnished to the Fund by you or on your behalf through you expressly
for use therein. This indemnity will be in addition to any liability which you
may otherwise have incurred under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the party against whom indemnification is to
be sought in writing of the commencement thereof (but the failure so to notify
an indemnifying party shall not relieve it from any other liability which it may
have under this Section 11 (except to the extent that it has been prejudiced in
any material respect by such failure) or from any liability which it may have
otherwise). In case any such action is brought against any indemnified party,
and it notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent it
may elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof with counsel satisfactory to such indemnified party; provided,
however, that if, in the judgment of such indemnified party, a conflict of
interest exists where it is advisable for such indemnified party to be
represented by separate counsel, the indemnified party shall have the right to
employ separate counsel in any such action, in which event the fees and expenses
of such separate counsel shall be borne by the indemnifying party or parties.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of counsel, the indemnifying party shall not be liable to such indemnified
party
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under such subsections for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of investigation
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party or parties shall not be liable for the
expenses of more than one such separate counsel representing the indemnified
parties under subparagraph (a) of this Section 11 who are parties to such
action), (ii) the indemnifying party or parties shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party or parties have authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party or parties; and
except that, if clause (i) or (iii) is applicable, such liability shall be only
in respect of the counsel referred to in such clause (i) or (iii). No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
12. Representations and Indemnities to Survive Delivery.
The agreements, representations, warranties, indemnities and other
statements of the parties and their officers set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
you, or the Fund, any Managers serving on the Board (the "Managers"), directors
or officers of any of the foregoing or any person controlling any of the
foregoing, and (iii) acceptance of any payment for Interests hereunder. The
provisions of this Section 12 shall survive the termination or cancellation of
this Agreement.
13. Effective Date and Term of Agreement.
This Agreement shall become effective for all purposes as of January 5,
2000 and shall remain in effect for an initial term of two years from such date.
Thereafter, this Agreement shall continue in effect from year to year, provided
that each such continuance is approved by the Board, including the vote of a
majority of the Managers who are not "interested persons," as defined by the
Investment Company Act of 1940 (the "1940 Act") and the rules thereunder, of the
Fund or of CIBC World Markets Corp.
14. Termination.
This Agreement may be terminated as follows:
(a) Either party may terminate this Agreement without cause by written
notice to the other on not less than thirty (30) days notice, or, if there has
been a material breach of any condition, warranty, representation or other term
of this Agreement by the other, by written notice to such other at any time.
(b) By written notice to the Fund, you may terminate this Agreement at any
time if (i) there has been, since the respective dates as of which information
is given in the
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<PAGE>
Memorandum, any material adverse change in the condition, financial or
otherwise, of the Fund, which in your opinion, will make it inadvisable to
proceed with the delivery of Interests; (ii) there has occurred any outbreak of
hostilities or other domestic or international calamity or crisis the effect of
which on the financial markets is so substantial and adverse as to make it, in
your judgment, impracticable to market Interests or enforce contracts for the
sale of Interests; and (iii) any order suspending the sale of Interests shall
have been issued by any jurisdiction in which a sale or sales of Interests shall
have been made, or proceedings for that purpose shall have been initiated or, to
your best knowledge and belief, shall be contemplated.
(c) This Agreement shall terminate automatically in the event of its
"assignment" as such term is defined by the 1940 Act and the rules thereunder.
15. Delegation of Powers.
You shall be entitled to delegate all or any of your duties, functions or
powers under this Agreement to another person as sub-agents subject to the
approval of the Fund. However, you shall be solely responsible for the acts and
omissions of any such sub-agent and for the payment of any remuneration to such
sub-agent.
16. Notices.
All communications under this Agreement shall be given in writing, sent by
(i) telecopier, (ii) telex confirmed by answerback, or (iii) registered mail to
the address set forth below or to such other address as such party shall have
specified in writing to the other party hereto, and shall be deemed to have been
delivered effective at the earlier of its receipt or within two (2) days after
dispatch,
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If to CIBC World Markets Corp.:
CIBC World Markets Corp.
One World Financial Center
37th Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-7398
Attn.: Mark Kaplan, Assistant General Counsel
If to Sawgrass Fund, L.L.C.:
Sawgrass Fund, L.L.C.
One World Financial Center
31st Floor
200 Liberty Street
New York, NY 10281
Telephone: (212) 667-4225
Attn.: Howard M. Singer
17. Miscellaneous.
(a) This Agreement may be executed in two or more counterparts, each of
which when so executed and delivered shall constitute one and the same
instrument. This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns and no other person
shall have any right or obligation hereunder.
(b) This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof, and neither this Agreement nor any term
hereof may be changed, waived, discharged or terminated except by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
18. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to the conflicts of laws provisions
thereof, and with the provisions of the 1940 Act. In the event of any conflict
between the provisions of the laws of New York and those of the 1940 Act, the
1940 Act provisions shall control.
19. The parties to this Agreement agree that the obligations of the Fund
under this Agreement shall not be binding upon any Managers, members of the Fund
or any officers, employees or agents, whether past, present or future, of the
Fund, individually, but are binding only upon the assets and property of the
Fund.
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<PAGE>
If the foregoing correctly sets forth our understanding with you, please
indicate your acceptance in the space provided below.
Very truly yours,
SAWGRASS FUND, L.L.C.
By:
--------------------------------
Name: Howard M. Singer
Title: Manager
Date:
--------------------------------
Agreed to and accepted:
CIBC WORLD MARKETS CORP.
By:
---------------------------
Name:
Title:
Date:
---------------------------
H-10
Exhibit (j)
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of ____________________, 2000 by and between PFPC
TRUST COMPANY, a limited purpose trust company incorporated under the laws of
Delaware ("PFPC Trust"), and SAWGRASS FUND, L.L.C. a Delaware limited liability
company (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is registered as a closed-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Company wishes to retain PFPC Trust to provide custodian services,
and PFPC Trust wishes to furnish custodian services, either directly or through
an affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Definitions. As Used in This Agreement:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(c) "Authorized Person" means any officer of the Company and any other person
duly authorized by the Company's Board of Managers to give Oral Instructions and
Written Instructions on behalf of the Company and listed on the Authorized
Persons Appendix attached hereto and made a part hereof or any amendment thereto
as may be received by PFPC Trust. An Authorized Person's scope of authority may
be limited by the Company by setting forth such limitation in the Authorized
Persons Appendix.
(d) "Board of Managers" and "Members" shall have the same meanings as set forth
in the Company's Limited Liability Company Agreement.
(e) "Book-Entry System" means Federal Reserve Treasury book-entry system for
United States and federal agency securities, its successor or successors, and
its nominee or nominees and any book-entry system maintained by an exchange
registered with the SEC under the 1934 Act.
(f) "CEA" means the Commodities Exchange Act, as amended.
(g) "Interests" mean membership interests in the Company.
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(h) "Oral Instructions" mean oral instructions received by PFPC Trust from an
Authorized Person or from a person reasonably believed by PFPC Trust to be an
Authorized Person.
(i) "PFPC Trust" means PFPC Trust Company, or a subsidiary or affiliate of PFPC
Trust Company.
(j) "SEC" means the Securities and Exchange Commission.
(k) "Securities" means Securities (including, without limitation, equities, debt
obligations, options, and other "securities" as that term is defined in Section
2(a)(36) of the 1940 Act) and any contracts for forward or future delivery of
any security, debt obligation or currency, or commodity, all manner of
derivative instruments and any contracts based on any index or group of
Securities, debt obligations or currencies, or commodities, and any options
thereon, as well as investments in registered investment companies and private
investment funds.
(m) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act and the CEA.
(n) "Property" means:
(i) any and all Securities and other investment items which the Company may from
time to time deposit, or cause to be deposited, with PFPC Trust or which PFPC
Trust may from time to time hold for the Company;
(ii) all income in respect of any of such Securities or other investment items;
(iii) all proceeds of the sale of any of such Securities or investment items;
and
(iv) all proceeds of the sale of securities issued by the Company, which are
received by PFPC Trust from time to time, from or on behalf of the Company.
(o) "Written Instructions" mean written instructions signed by two Authorized
Persons, unless specified otherwise herein, and received by PFPC Trust. The
instructions may be delivered electronically or by hand, mail, tested telegram,
cable, telex or facsimile sending device.
2. Appointment. The Company hereby appoints PFPC Trust to provide custodian
services to the Company, in accordance with the terms set forth in this
Agreement. PFPC Trust accepts such appointment and agrees to furnish such
services.
3. Delivery of Documents. The Company has provided or, where applicable, will
provide PFPC Trust with the following:
(a) certified or authenticated copies of the resolutions of the Company's Board
of Managers, approving the appointment of PFPC Trust or its affiliates to
provide services and approving this Agreement;
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(b) a copy of the Company's current Form N-2 registration statement;
(c) a copy of the Limited Liability Company Agreement;
(d) a copy of the Company's investment advisory agreement pursuant to which CIBC
Oppenheimer Advisers, L.L.C., as Investment Adviser, provides investment advice
to the Company;
(e) a copy of the placement agent agreement with respect to the Company;
(f) a copy of any administration agreements;
(g) copies of any investor servicing agreement; and
(h) certified or authenticated copies of any and all amendments or supplements
to the foregoing.
4. Compliance with Laws.
PFPC Trust undertakes to comply with the applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental authorities
having jurisdiction with respect to the duties to be performed by PFPC Trust
hereunder. Except as specifically set forth herein, PFPC Trust assumes no
responsibility for such compliance by the Company.
5. Instructions.
(a) Unless otherwise provided in this Agreement, PFPC Trust shall act only upon
Oral Instructions and Written Instructions, including standing Written
Instructions related to ongoing instructions received electronically.
(b) PFPC Trust shall be entitled to rely upon any Oral and Written Instructions
it receives from an Authorized Person (or from a person reasonably believed by
PFPC Trust to be an Authorized Person) pursuant to this Agreement. PFPC Trust
may assume that any Oral or Written Instructions received hereunder are not in
any way inconsistent with the provisions of organizational documents of the
Company or of any vote, resolution or proceeding of the Company's Board of
Managers or the Company's members, unless and until PFPC Trust receives Written
Instructions to the contrary.
(c) The Company agrees to forward to PFPC Trust Written Instructions confirming
Oral Instructions given on behalf of the Company (except where such Oral
Instructions are given by PFPC Trust or its affiliates) and shall endeavor to
ensure that PFPC Trust receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact that
such confirming Written Instructions are not received by PFPC Trust shall in no
way invalidate the transactions or enforceability of the transactions authorized
by the Oral Instructions. Where Oral Instructions or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC Trust
shall incur no liability to the Company in acting upon such Oral Instructions or
Written Instructions provided that PFPC Trust's actions comply with the other
provisions of this Agreement.
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<PAGE>
6. Right to Receive Advice.
(a) Advice of the Company. If PFPC Trust is in doubt as to any action it should
or should not take, PFPC Trust may request directions or advice, including Oral
Instructions or Written Instructions, from the Company.
(b) Advice of Counsel. If PFPC Trust shall be in doubt as to any question of law
pertaining to any action it should or should not take, PFPC Trust may request
advice at its own cost from such counsel of its own choosing.
(c) Conflicting Advice. In the event of a conflict between directions, advice or
Oral Instructions or Written Instructions PFPC Trust receives from the Company,
and the advice it receives from counsel, PFPC Trust shall be entitled to rely
upon and follow the advice of counsel. PFPC Trust shall promptly inform the
Company of such conflict and PFPC Trust shall refrain from acting in the event
of a conflict unless counsel advises PFPC Trust that a failure to take action is
likely to result in additional loss, liability or expense. In the event PFPC
Trust relies on the advice of counsel, PFPC Trust remains liable for any action
or omission on the part of PFPC Trust which constitutes willful misfeasance, bad
faith, negligence or reckless disregard by PFPC Trust of any duties, obligations
or responsibilities set forth in this Agreement.
(d) Protection of PFPC Trust. PFPC Trust shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Company or (to the extent permitted
under clause (c) above) from counsel and which PFPC Trust believes, in good
faith, to be consistent with those directions, advice or Oral Instructions or
Written Instructions. Nothing in this section shall be construed so as to impose
an obligation upon PFPC Trust (i) to seek such directions, advice or Oral
Instructions or Written Instructions, or (ii) to act in accordance with such
directions, advice or Oral Instructions or Written Instructions unless, under
the terms of other provisions of this Agreement, the same is a condition of PFPC
Trust's properly taking or not taking such action. Nothing in this subsection
shall excuse PFPC Trust when an action or omission on the part of PFPC Trust
constitutes willful misfeasance, bad faith, negligence or reckless disregard by
PFPC Trust of any duties, obligations or responsibilities set forth in this
Agree-ment.
7. Records; Visits. The books and records pertaining to the Company, which are
in the possession or under the control of PFPC Trust shall be the property of
the Company. Such books and records shall be prepared and maintained as required
by the 1940 Act and other applicable securities laws, rules and regulations. The
Company and its duly authorized officers, employees and agents and the staff of
the Securities and Exchange Commission shall have access to such books and
records at all times during PFPC Trust's normal business hours. Upon the
reasonable request of the Company, copies of any such books and records shall be
provided by PFPC Trust to the Company or to an Authorized Person, at the
Company's expense. No records will be destroyed without the Company's written
consent.
8. Confidentiality. PFPC Trust agrees to keep confidential all records of the
Company and information relating to the Company and its Members, unless the
release of such records or information is otherwise consented to, in writing, by
the Company. The Company agrees that such consent shall not be unreasonably
withheld and may not be withheld where PFPC Trust
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<PAGE>
may be exposed to civil or criminal contempt proceed-ings or when required to
divulge such information or records to duly constituted authorities.
9. Cooperation with Accountants. PFPC Trust shall cooperate with the Company's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such auditors and accountants for the
expression of their opinion, as required by the Company.
10. Disaster Recovery. PFPC Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment. In the event of equipment
failures, PFPC Trust shall, at no additional expense to the Company, take
reasonable steps to minimize service interruptions. PFPC Trust shall have no
liability with respect to the loss of data or service interruptions caused by
equipment failure provided such loss or interruption is not caused by PFPC
Trust's own willful misfeasance, bad faith, negligence or reckless disregard of
its duties or obligations under this Agreement.
11. Year 2000 Readiness Disclosure. PFPC (a) has reviewed its business and
operations as they relate to the services provided hereunder, (b) has developed
or is developing a program to remediate or replace computer applications and
systems, and (c) has developed a testing plan to test the remediation or
replacement of computer applications/systems, in each case, to address on a
timely basis the risk that certain computer applications/systems used by PFPC
may be unable to recognize and perform properly date sensitive functions
involving dates prior to, including and after December 31, 1999, including dates
such as February 29, 2000 (the "Year 2000 Challenge"). To the best of PFPC's
knowledge and belief, the reasonably foreseeable consequences of the Year 2000
Challenge will not adversely effect PFPC's ability to perform its duties and
obligations under this Agreement.
12. Compensation. As compensation for custody services rendered by PFPC Trust
during the term of this Agreement, the Company will pay to PFPC Trust a fee or
fees as may be agreed to in writing from time to time by the Company and PFPC
Trust.
13. Indemnification. The Company, agrees to indemnify and hold harmless PFPC
Trust and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign Securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which PFPC Trust takes (i) at the request or on the direction
of or in reliance on the advice of the Company or (ii) upon Oral Instructions or
Written Instructions; provided, however, neither PFPC Trust, nor any of its
affiliates, shall be indemnified against any liability (or any expenses incident
to such liability) arising out of PFPC Trust's or its affiliates' own willful
misfeasance, bad faith, negligence or reckless disregard of its duties under
this Agreement.
14. Responsibility of PFPC Trust.
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<PAGE>
(a) PFPC Trust shall be under no duty to take any action on behalf of the
Company except as necessary to fulfill its duties and obligations as
specifically set forth herein or as may be specifically agreed to by PFPC Trust
in writing. PFPC Trust shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC Trust shall be liable for any damages arising out of PFPC
Trust's failure to perform its duties under this Agreement to the extent such
damages arise out of PFPC Trust's willful misfeasance, bad faith, negligence or
reckless disregard of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other provision
of this Agreement, (i) PFPC Trust shall not be liable for losses beyond its
control, provided that PFPC Trust has acted in accordance with the standard of
care set forth above; and (ii) PFPC Trust shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral Instruction or
Written Instruction, notice or other instrument which conforms to the applicable
requirements of this Agreement, and which PFPC Trust reasonably believes to be
genuine; or (B) subject to section 10, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC Trust's control, including acts
of civil or military authority, national emergencies, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither PFPC
Trust nor its affiliates shall be liable to the Company for any consequential,
special or indirect losses or damages which the Company may incur or suffer by
or as a consequence of PFPC Trust's or its affiliates' performance of the
services provided hereunder, whether or not the likelihood of such losses or
damages was known by PFPC Trust or its affiliates.
(d) Notwithstanding anything in this Agreement to the contrary, the Company
shall not be liable to PFPC Trust for any consequential, special or indirect
losses or damages which PFPC Trust may incur or suffer as a consequence of this
Agreement, whether or not the likelihood of such losses or damages was known by
the Company.
15. Description of Services.
(a) Delivery of the Property. The Company will deliver or arrange for delivery
to PFPC Trust, all the Property owned by the Company, including cash received as
a result of the purchase of Interests, during the period that is set forth in
this Agreement. PFPC Trust will not be responsible for such property until
actual receipt.
(b) Receipt and Disbursement of Money. PFPC Trust, acting upon Written
Instructions, shall open and maintain separate accounts (each an "Account") in
the Company's name using all cash received from or for the account of the
Company, subject to the terms of this Agreement.
PFPC Trust shall make cash payments from or for the Accounts only for:
(i) purchases of Securities in the name of the Company, PFPC Trust or PFPC
Trust's nominee or a sub-custodian or nominee thereof as provided in sub-section
(j) and for which PFPC Trust has received a copy of (A) the subscription
document, or (B) the broker's or dealer's confirmation, or (C) payee's invoice,
as appropriate;
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(ii) the repurchase of Interests of the Company;
(iii) payment of, subject to Written Instructions, interest, taxes,
administration, accounting, distribution, advisory, management fees or similar
expenses which are to be borne by the Company;
(iv) payment to, subject to receipt of Written Instructions, the Company's
administrator, as agent for the Members, of an amount equal to the amount of any
distributions stated in the Written Instructions to be distributed in cash by
the administrator to Members, or, in lieu of paying the Company's administrator,
PFPC Trust may arrange for the direct payment of cash dividends and
distributions to Members in accordance with procedures mutually agreed upon from
time to time by and among the Company, PFPC Trust and the Company's
administrator.
(v) payments, upon receipt of Written Instructions signed by one Authorized
Person, in connection with the conversion, exchange or surrender of Securities
owned or subscribed to by the Company and held pursuant to this Agreement or
delivered to PFPC Trust;
(vi) payments of, subject to receipt of Written Instructions signed by one
Authorized Person, the amounts of dividends received with respect to Securities
sold short;
(vii) payments made to a sub-custodian pursuant to provisions in sub-section (c)
of this Section; and
(viii) other payments, upon Written Instructions.
PFPC Trust is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the Company.
(c) Receipt of Securities; Subcustodians.
(i) PFPC Trust shall hold all Securities received by it for the Company in a
separate account that physically segregates such Securities from those of any
other persons, firms or corporations, except for Securities held in a Book-Entry
System. All such Securities shall be held or disposed of only upon Written
Instructions of the Company pursuant to the terms of this Agreement. PFPC Trust
shall have no power or authority to assign, hypothecate, pledge or otherwise
dispose of any such Securities or investment, except upon the express terms of
this Agreement or upon Written Instructions authorizing the transaction. In no
case may any member of the Company's Board of Managers, or any officer, employee
or agent of the Company withdraw any Securities.
At PFPC Trust's own expense and for its own convenience, PFPC Trust may enter
into sub-custodian agreements with other United States banks or trust companies,
which are banks as defined by the 1940 Act, to perform duties described in this
sub-section (c) with respect to domestic assets. Such bank or trust company
shall have an aggregate capital, surplus and undivided profits, according to its
last published report, of at least one million dollars ($1,000,000), if it is a
subsidiary or affiliate of PFPC Trust, or at least twenty million dollars
($20,000,000) if such bank or trust company is not a subsidiary or affiliate of
PFPC Trust. In
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addition, such bank or trust company must be qualified to act as custodian and
agree to comply with the relevant provisions of the 1940 Act and other
applicable rules and regulations, including but not limited to, if applicable,
standards relating to the custody of foreign Securities. Any such arrangement
will not be entered into without prior written notice to the Company.
PFPC Trust shall remain responsible for the performance of all of its duties as
described in this Agreement and shall hold the Company harmless from its own
acts or omissions, under the standards of care provided for herein and from the
acts and omissions of any sub-custodian chosen by PFPC Trust under the terms of
this sub-section (c).
(d) Transactions Requiring Instructions. Upon receipt of Oral Instructions or
Written Instructions and not otherwise, PFPC Trust, directly or through the use
of a Book-Entry System, shall:
(i) deliver any Securities held for the Company against the receipt of payment
for the sale of such Securities;
(ii) execute and deliver to such persons as may be designated in such Oral
Instructions or Written Instructions, proxies, consents, authorizations, and any
other instruments received by PFPC Trust as custodian whereby the authority of
the Company as owner of any Securities may be exercised;
(iii) deliver any Securities to the issuer thereof, or its agent, when such
Securities are called, redeemed, retired or otherwise become payable; provided
that, in any such case, the cash or other consideration is to be delivered to
PFPC Trust;
(iv) deliver any Securities held for the Company against receipt of other
Securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, tender offer, merger, consolidation or
recapitalization of any corporation, or the exercise of any conversion
privilege;
(v) deliver any Securities held for the Company to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or documents as
may be issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Company and take such
other steps as shall be stated in said Oral Instructions or Written Instructions
to be for the purpose of effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the Company;
(vii) release Securities belonging to the Company to any bank or trust company
for the purpose of a pledge or hypothecation to secure any loan incurred by the
Company; provided, however, that Securities shall be released only upon payment
to PFPC Trust of the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made subject to proper
prior authorization, further Securities may be released for that
J-8
<PAGE>
purpose; and repay such loan upon redelivery to it of the Securities pledged or
hypothecated therefor and upon surrender of the note or notes evidencing the
loan;
(viii) release and deliver Securities owned by the Company in connection with
any repurchase agreement entered into on behalf of the Company, but only on
receipt of payment therefor; and pay out moneys of the Company in connection
with such repurchase agreements, but only upon the delivery of the Securities;
(ix) release and deliver or exchange Securities owned by the Company in
connection with any conversion of such Securities, pursuant to their terms, into
other Securities;
(x) release and deliver Securities to a broker in connection with the broker's
custody of margin collateral relating to futures and options transactions;
(xi) release and deliver Securities owned by the Company for the purpose of
redeeming in kind Interests of the Company upon delivery thereof to PFPC Trust;
and
(xii) release and deliver or exchange Securities owned by the Company for other
purposes.
(e) Use of Book-Entry System. PFPC Trust is authorized and instructed on a
continuous basis, to deposit in Book-Entry Systems all Securities belonging to
the Company eligible for deposit therein and to utilize Book-Entry Systems to
the extent possible in connection with settlements of purchases and sales of
Securities by the Company, and deliveries and returns of Securities loaned,
subject to repurchase agreements or used as collateral in connection with
borrowings. PFPC Trust shall continue to perform such duties until it receives
Written Instructions or Oral Instructions authorizing contrary actions.
PFPC Trust shall administer the Book-Entry System as follows:
(i) With respect to Securities of the Company which are maintained in the
Book-Entry System, the records of PFPC Trust shall identify by book-entry or
otherwise those Securities belonging to the Company.
(ii) Assets of the Company deposited in the Book-Entry System will at all times
be segregated from any assets and cash controlled by PFPC Trust in other than a
fiduciary or custodian capacity but may be commingled with other assets held in
such capacities.
PFPC Trust will provide the Company with such reports on its own system of
internal control as the Company may reasonably request from time to time.
(f) Registration of Securities. All Securities held for the Company which are
issued or issuable only in bearer form, except such Securities held in the
Book-Entry System, shall be held by PFPC Trust in bearer form; all other
Securities held for a Portfolio may be registered in the name of the Company,
PFPC Trust, a Book-Entry System, a sub-custodian, or any duly appointed nominees
of the Company, PFPC Trust, Book-Entry System or sub-custodian. The Company
reserves the right to instruct PFPC Trust as to the method of registration and
safekeeping of the Securities of the Company. The Company agrees to furnish to
PFPC Trust appropriate instruments to enable PFPC Trust to hold or deliver in
proper form for transfer, or to
J-9
<PAGE>
register in the name of its nominee or in the name of the Book-Entry System or
in the name of another appropriate entity, any Securities which it may hold for
the Company and which may from time to time be registered in the name of the
Company.
(g) Voting and Other Action. Neither PFPC Trust nor its nominee shall vote any
of the Securities held pursuant to this Agreement by or for the account of the
Company, except in accordance with Written Instructions. PFPC Trust, directly or
through the use of a Book-Entry System, shall execute in blank and promptly
deliver all notices, proxies and proxy soliciting materials received by PFPC
Trust as custodian to the registered holder of such Securities. If the
registered holder is not the Company, then Written Instructions or Oral
Instructions must designate the person who owns such Securities.
(h) Transactions Not Requiring Instructions. In the absence of contrary Written
Instructions, PFPC Trust is authorized to take the following actions:
(i) Collection of Income and Other Payments.
(A) collect and receive for the account of the Company, all income, dividends,
distributions, coupons, option premiums, other payments and similar items,
included or to be included in the Property, and, in addition, promptly advise
the Company of such receipt and credit such income, as collected, to the
Company's custodian account;
(B) endorse and deposit for collection, in the name of the Company, checks,
drafts, or other orders for the payment of money;
(C) receive and hold for the account of the Company all Securities received as a
distribution on the Company's Securities as a result of a stock dividend, share
split-up or reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar Securities issued with
respect to any Securities belonging to the Company and held by PFPC Trust
hereunder;
(D) present for payment and collect the amount payable upon all Securities which
may mature or be called, redeemed, or retired, or otherwise become payable on
the date such Securities become payable; and
(E) take any action which may be necessary and proper in connection with the
collection and receipt of such income and other payments and the endorsement for
collection of checks, drafts, and other negotiable instruments.
(ii) Miscellaneous Transactions.
(A) PFPC Trust is authorized to deliver or cause to be delivered Property
against payment or other consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for the account of the Company
in accordance with street delivery custom;
(2) for the exchange of interim receipts or temporary Securities for definitive
Securities; and
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<PAGE>
(3) for transfer of Securities into the name of the Company or PFPC Trust or a
sub-custodian or a nominee of one of the foregoing, or for exchange of
Securities for a different number of bonds, certificates, or other evidence,
representing the same aggregate face amount or number of units bearing the same
interest rate, maturity date and call provisions, if any; provided that, in any
such case, the new Securities are to be delivered to PFPC Trust.
(B) unless and until PFPC Trust receives Oral Instructions or Written
Instructions to the contrary, PFPC Trust shall:
(1) pay all income items held by it which call for payment upon presentation and
hold the cash received by it upon such payment for the account of the Company;
(2) collect interest and cash dividends received, with notice to the Company,
for the account of the Company;
(3) hold for the account of the Company all stock dividends, rights and similar
Securities issued with respect to any Securities held by PFPC Trust; and
(4) execute as agent on behalf of the Company all necessary ownership
certificates required by the Internal Revenue Code or the Income Tax Regulations
of the United States Treasury Department or under the laws of any state now or
hereafter in effect, inserting the Company's name, on such certificate as the
owner of the Securities covered thereby, to the extent it may lawfully do so.
(i) Segregated Accounts.
PFPC Trust shall upon receipt of Written Instructions or Oral Instructions
establish and maintain segregated accounts on its records for and on behalf of
the Company. Such accounts may be used to transfer cash and Securities,
including Securities in a Book-Entry System:
(A) for the purposes of compliance by the Company with the procedures required
by a securities, futures or option exchange, providing such procedures comply
with the 1940 Act and any releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies; and
(B) upon receipt of Written Instructions, for other purposes.
(j) Purchases of Securities. PFPC Trust shall settle purchased Securities upon
receipt of Oral Instructions or Written Instructions that specify:
(i) the name of the issuer and the title of the Securities, including CUSIP
number if applicable;
(ii) the number of Interests or the principal amount purchased and accrued
interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
J-11
<PAGE>
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through whom the purchase
was made. PFPC Trust shall upon receipt of Securities purchased by or for the
Company pay out of the moneys held for the account of the Company the total
amount payable to the person from whom or the broker through whom the purchase
was made, provided that the same conforms to the total amount payable as set
forth in such Oral Instructions or Written Instructions.
(k) Sales of Securities. PFPC Trust shall settle sold Securities upon receipt of
Oral Instructions or Written Instructions that specify:
(i) the name of the issuer and the title of the security, including CUSIP number
if applicable;
(ii) the number of Interests or principal amount sold, and accrued interest, if
any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Company upon such sale;
(vi) the name of the broker through whom or the person to whom the sale was
made; and
(vii) the location to which the security must be delivered and delivery
deadline, if any.
PFPC Trust shall deliver the Securities upon receipt of the total amount payable
to the Company upon such sale, provided that the total amount payable is the
same as was set forth in the Oral Instructions or Written Instructions.
Notwithstanding the other provisions hereof, PFPC Trust may accept payment in
such form which is consistent with industry practice and may deliver Securities
and arrange for payment in accordance with the customs prevailing among dealers
in Securities.
(l) Reports; Proxy Materials.
(i) PFPC Trust shall furnish to the Company the following reports:
(A) such periodic and special reports as the Company may reasonably request;
(B) a monthly statement summarizing all transactions and entries for the account
of the Company, listing each portfolio security belonging to the Company with
the adjusted average cost of each issue and the market value at the end of such
month and stating the cash account of the Company including disbursements;
(C) the reports required to be furnished to the Company pursuant to Rule 17f-4
of the 1940 Act; and
(D) such other information as may be agreed upon from time to time between the
Company and PFPC Trust.
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<PAGE>
(ii) PFPC Trust shall transmit promptly to the Company any proxy statement,
proxy material, notice of a call or conversion, other corporate action or
similar communication received by it as custodian of the Property. PFPC Trust
shall be under no other obligation to inform the Company as to such actions or
events.
(m) Crediting of Accounts. If PFPC Trust in its sole discretion credits an
Account with respect to (a) income, dividends, distributions, coupons, option
premiums, other payments or similar items on a contractual payment date or
otherwise in advance of PFPC Trust's actual receipt of the amount due, (b) the
proceeds of any sale or other disposition of assets on the contractual
settlement date or otherwise in advance of PFPC Trust's actual receipt of the
amount due or (c) provisional crediting of any amounts due, and (i) PFPC Trust
is subsequently unable to collect full and final payment for the amounts so
credited within a reasonable time period using reasonable efforts or (ii)
pursuant to standard industry practice, law or regulation PFPC Trust is required
to repay to a third party such amounts so credited, or if any Property has been
incorrectly credited, PFPC Trust shall have the absolute right in its sole
discretion without demand to reverse any such credit or payment, to debit or
deduct the amount of such credit or payment from the Account, and to otherwise
pursue recovery of any such amounts so credited from the Company. Nothing herein
or otherwise shall require PFPC Trust to make any advances or to credit any
amounts until PFPC Trust's actual receipt thereof. The Company hereby grants a
first priority contractual possessory security interest in and a right of setoff
against the assets maintained hereunder in the amount necessary to secure the
return and payment to PFPC Trust of any advance or credit made by PFPC Trust
(including reasonable charges related thereto).
(n) Collections. All collections of monies or other property in respect, or
which are to become part, of the Property (but not the safekeeping thereof upon
receipt by PFPC Trust) shall be at the sole risk of the Company. If payment is
not received by PFPC Trust within a reasonable time after proper demands have
been made, PFPC Trust shall notify the Company in writing, including copies of
all demand letters, any written responses and memoranda of all oral responses
and shall await instructions from the Company. PFPC Trust shall not be obliged
to take legal action for collection unless and until reasonably indemnified to
its satisfaction. PFPC Trust shall also notify the Company as soon as reasonably
practicable whenever income due on Securities is not collected in due course and
shall provide the Company with periodic status reports of such income collected
after a reasonable time.
16. Duration and Termination. This Agreement shall continue until terminated by
either party upon ninety (90) days' prior written notice to the other party by
certified mail with confirmed receipt. In the event this Agreement is terminated
(pending appointment of a successor to PFPC Trust or vote of the Members of the
Company to dissolve or to function without a custodian of its cash, Securities
or other property), PFPC Trust shall not deliver cash, Securities or other
property of the Portfolios to the Company. It may deliver them to a bank or
trust company of PFPC Trust's choice, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000), as a custodian for the Company to be held
under terms similar to those of this Agreement.
17. Notices. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PFPC Trust at
Airport Business Center, 200 Stevens Drive, Lester,
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<PAGE>
Pennsylvania 19113, attention: Custody Manager (b) if to the Company, at c/o
CIBC World Markets Corp., One World Financial Center, 200 Liberty Street, 31st
Floor, New York, NY 10281, Attn: Howard M. Singer or (c) if to neither of the
foregoing, at such other address as shall have been given by like notice to the
sender of any such notice or other communication by the other party. If notice
is sent by confirming telegram, cable, telex or facsimile sending device, it
shall be deemed to have been given immediately. If notice is sent by first-class
mail, it shall be deemed to have been given five days after it has been mailed.
If notice is sent by messenger, it shall be deemed to have been given on the day
it is delivered.
18. Amendments. This Agreement, or any term hereof, may be changed or waived
only by a written amendment, signed by the party against whom enforcement of
such change or waiver is sought.
19. Delegation; Assignment. This Agreement and the rights and duties of the
parties herein may not be assigned; provided, however, that PFPC Trust may
assign its rights and delegate its duties hereunder at no additional cost to the
Company to any affiliate of or any majority-owned direct or indirect subsidiary
of PFPC Inc. or of PNC Bank Corp., provided that (i) PFPC Trust gives the
Company sixty (60) days' prior written notice of such assignment or delegation;
(ii) the assignee or delegate agrees to comply with the relevant provisions of
the Securities Laws; and (iii) PFPC Trust and such assignee or delegate promptly
provide such information as the Company may request, and respond to such
questions as the Company may ask, relative to the assignment or delegation,
(including, without limitation) the capabilities of the assignee or delegate.
Except as stated above, this Agreement may not be assigned or delegated by any
party without the written consent of each party.
20. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
21. Further Actions. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
22. Miscellaneous.
(a) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instruc-tions.
(b) Captions. The captions in this Agreement are included for conve-nience of
reference only and in no way define or delimit any of the provi-sions hereof or
otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law, without regard to principles of conflicts
of law.
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<PAGE>
(d) Partial Invalidity. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this Agreement
shall constitute the valid and binding execution hereof by such party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
PFPC TRUST COMPANY
By:
Title:
SAWGRASS FUND, L.L.C.
By:
Title:
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
J-15
Exhibit (k)(1)
ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT (the "Agreement") is made as of this
5th day of January, 2000, by and between CIBC World Markets Corp. ("CIBC WM")
and Sawgrass Fund, L.L.C. (the "Fund").
WHEREAS, CIBC WM is in the business of providing administrative services to
investment partnerships and limited liability companies; and
WHEREAS, the Fund wishes to retain CIBC WM to provide certain
administrative services;
NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:
1. Appointment of CIBC WM.
(a) The Fund hereby retains CIBC WM to provide and CIBC WM hereby
agrees to provide certain administrative services to the Fund. These
services shall include:
(i) the provision of office space, telephone and utilities;
(ii) the provision of administrative and secretarial, clerical
and other personnel as necessary to provide the services
required to be provided under this Agreement;
(iii) the general supervision of the entities that are retained by
the Fund to provide administrative services and custody
services to the Fund;
(iv) the handling of investor inquiries regarding the Fund and
providing investors with information concerning their
investment in the Fund and capital account balances;
(v) monitoring relations and communications between investors
and the Fund;
(vi) assisting in the drafting and updating of disclosure
documents relating to the Fund and assisting in the
preparation of offering materials;
(vii) maintaining and updating investor information, such as
change of address and employment;
K-1-1
<PAGE>
(viii) assisting in the preparation and mailing of investor
subscription documents and confirming the receipt of such
documents and investor funds;
(ix) assisting in the preparation of regulatory filings with the
Securities and Exchange Commission, state securities
regulators and other Federal and state regulatory
authorities;
(x) preparing reports to and other informational materials for
members and assisting in the preparation of proxy statements
and other member communications;
(xi) monitoring compliance with regulatory requirements and with
the Fund's investment objective, policies and restrictions
as established by the Board of Managers of the Fund (the
"Board");
(xii) reviewing accounting records and financial reports of the
Fund, assisting with the preparation of the financial
reports of the Fund and acting as liaison with the Fund's
accounting agent and independent auditors;
(xiii) assisting in preparation and filing of tax returns;
(xiv) coordinating and organizing meetings of the Board and
meetings of the members of the Fund, in each case when
called by such persons;
(xv) preparing materials and reports for use in connection with
meetings of the Board;
(xvi) maintaining and preserving those books and records of the
Fund not maintained by CIBC Oppenheimer Advisers, L.L.C.,
the Fund's investment adviser (the "Adviser") or the Fund's
accounting agent or custodian;
(xvii) reviewing and arranging for payment of the expenses of the
Fund;
(xviii) assisting the Fund in conducting offers to members of the
Fund to repurchase member interests; and
(xix) reviewing and approving all regulatory filings of the Fund
required under applicable law.
(b) Notwithstanding the appointment of CIBC WM to provide administrative
services hereunder, the Board shall remain responsible for supervising and
controlling the management, business and affairs of the Fund.
K-1-2
<PAGE>
2. CIBC WM Fee; Expenses.
(a) In consideration for the provision by CIBC WM of its services
hereunder, the Fund will pay CIBC WM a monthly management fee of 0.08333% (1% on
annualized basis) of the Fund's "net assets" (the "CIBC WM Fee"). "Net assets"
shall equal the total value of all assets of the Fund, less an amount equal to
all accrued debts, liabilities, and obligations of the Fund calculated before
giving effect to any repurchases of interests.
(b) The CIBC WM Fee will be computed based on the net assets of the Fund as
of the start of business on the first business day of each month, after
adjustment for any subscriptions effective on such date, and will be due and
payable in arrears within five business days after the end of such month. In the
event that the CIBC WM Fee is payable in respect of a partial month, such fee
will be appropriately pro-rated.
(c) CIBC WM is responsible for all costs and expenses associated with the
provision of its services hereunder. The Fund shall pay all other expenses
associated with the conduct of its business.
(d) The Fund understands that CIBC WM may pay a portion of the CIBC WM Fee
to CWH Associates, Inc., a member of the Adviser.
3. Liability. CIBC WM will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund, the Managers serving on the
Board ("Managers") or the Fund's members in connection with the performance of
its duties under this Agreement, except a loss (as to which it will be liable
and will indemnify and hold harmless the Fund) resulting from willful
misfeasance, bad faith or gross negligence on CIBC WM's part (or on the part of
an officer or employee of CIBC WM) in the performance of its duties hereunder or
reckless disregard by it of its duties under this Agreement.
4. Effective Date and Termination. This Agreement shall become effective as
of the date first noted above, and shall remain in effect for an initial term of
two years from the date of its effectiveness. This Agreement may be continued in
effect from year to year after its initial term provided that such continuance
is approved annually by the Board, including the vote of a majority of the
Managers who are not "interested persons" of the Fund, as defined by the
Investment Company Act of 1940 and the rules thereunder (the "1940 Act"). This
Agreement may be terminated by CIBC WM, by the Board or by vote of a majority of
the outstanding voting securities of the Fund at any time, in each case upon not
less than 60 days' prior written notice. This Agreement shall also terminate
automatically in the event of its "assignment," as such term is defined by the
1940 Act.
5. Entire Agreement.This Agreement embodies the entire understanding of the
parties. This Agreement cannot be altered, amended, supplemented, or abridged,
or any provisions waived except by written agreement of the parties.
6. Choice of Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York and the 1940 Act. In the event
the laws of New York conflict with the 1940 Act, the applicable provisions of
the 1940 Act shall control.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CIBC WORLD MARKETS CORP.
By:
----------------------------------
Name:
Title:
SAWGRASS FUND, L.L.C.
By:
----------------------------------
Name: Howard M. Singer
Title: Manager
K-1-4
ADMINISTRATION, ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of _____________, 2000 by and between SAWGRASS
FUND, L.L.C., a Delaware limited liability company, (the "Company"), and PFPC
INC., a Delaware corporation ("PFPC"), which is an indirect subsidiary of PNC
Bank Corp.
W I T N E S S E T H :
WHEREAS, the Company is registered as a closed-end, non-diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company wishes to retain PFPC to provide certain
administration and accounting services and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. DEFINITIONS, AS USED IN THIS AGREEMENT:
(a) "1933 Act" means the Securities Act of 1933, as amended.
(b) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Authorized Person" means any officer of the Company and any
other person duly authorized by the Company's Board of Managers to give Oral
Instructions and Written Instructions on behalf of the Company and listed on the
Authorized Persons Appendix attached
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<PAGE>
hereto and made a part hereof or any amendment thereto as may be received by
PFPC. An Authorized Person's scope of authority may be limited by the Company by
setting forth such limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "Board of Managers" and "Members" shall have the same meanings
as set forth in the Company's Limited Liability Agreement.
(f) "Oral Instructions" mean oral instructions received by PFPC from
an Authorized Person or from a person reasonably believed by PFPC to be an
Authorized Person.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act
and the CEA.
(i) "Written Instructions" mean written instructions signed by an
Authorized Person and received by PFPC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. APPOINTMENT. The Company hereby appoints PFPC to provide
administration, accounting and investor services, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to furnish
such services.
3. DELIVERY OF DOCUMENTS. The Company has provided or, where applicable,
will provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Company's Board of Managers, approving the appointment of PFPC
or its affiliates to provide services and approving this
Agreement;
(b) a copy of the Company's most recent effective registration
statement;
(c) a copy of the limited liability company agreement;
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<PAGE>
(d) a copy of the investment advisory agreement (pursuant to which
CIBC Oppenheimer Advisers, L.L.C., as Investment Adviser,
provides investment advice to the Company);
(e) a copy of any distribution agreement with respect to the
Company;
(f) a copy of any additional administration agreements;
(g) a copy of any other investor servicing agreement; and
(h) copies (certified or authenticated, where applicable) of any
and all amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with
all applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PFPC hereunder. Except as specifically set forth
herein, PFPC assumes no responsibility for such compliance by the Company.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only
upon Oral Instructions and Written Instructions including standing Written
Instructions related to ongoing instructions received electronically.
(b) PFPC shall be entitled to rely upon any Oral and Written
Instructions it receives from an Authorized Person (or from a person reasonably
believed by PFPC to be an Authorized Person) pursuant to this Agreement. PFPC
may assume that any Oral or Written Instruction received hereunder is not in any
way inconsistent with the provisions of organizational documents or this
Agreement or of any vote, resolution or proceeding of the
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<PAGE>
Company's Board of Managers or of the Company's Members, unless and until PFPC
receives Written Instructions to the contrary.
(c) The Company agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
PFPC or its affiliates) and shall endeavor to ensure that PFPC receives the
Written Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written Instructions
are not received by PFPC shall in no way invalidate the transactions or
enforceability of the transactions authorized by the Oral Instructions. Where
Oral Instructions or Written Instructions reasonably appear to have been
received from an Authorized Person, PFPC shall incur no liability to the Company
in acting upon such Oral or Written Instructions provided that PFPC's actions
comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Company. If PFPC is in doubt as to any action it
should or should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Company.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing.
(c) Conflicting Advice. In the event of a conflict between
directions, advice or Oral Instructions or Written Instructions PFPC receives
from the Company and the advice PFPC receives from counsel, PFPC may rely upon
and follow the advice of counsel. PFPC shall
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<PAGE>
promptly inform the Company of such conflict and PFPC shall refrain from acting
in the event of a conflict unless counsel advises PFPC that a failure to take
action is likely to result in additional loss, liability or expense. In the
event PFPC relies on the advice of counsel, PFPC remains liable for any action
or omission on the part of PFPC which constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by PFPC of any duties, obligations
or responsibilities set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it
takes or does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Company or (to the extent permitted
under clause (c) above) from counsel and which PFPC believes, in good faith, to
be consistent with those directions, advice and Oral Instructions or Written
Instructions. Nothing in this section shall be construed so as to impose an
obligation upon PFPC (i) to seek such directions, advice or Oral Instructions or
Written Instructions, or (ii) to act in accordance with such directions, advice
or Oral Instructions or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PFPC's properly taking
or not taking such action. Nothing in this subsection shall excuse PFPC when an
action or omission on the part of PFPC constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by PFPC of any duties, obligations
or responsibilities set forth in this Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Company which are in the
possession or under the control of PFPC shall be the property of the Company.
Such books and records
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shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Company and Authorized
Persons shall have access to such books and records at all times during PFPC's
normal business hours. Upon the reasonable request of the Company, copies of any
such books and records shall be provided by PFPC to the Company or to an
Authorized Person, at the Company's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to the Company's
books of account;
(ii) records of the Company's securities transactions;
and
(iii) all other books and records as the Company is
required to maintain pursuant to Rule 31a-1 of the 1940
Act in connection with the services provided by PFPC
hereunder.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the
Company and information relating to the Company and its Members, unless the
release of such records or information is otherwise consented to, in writing, by
the Company. The Company agrees that such consent shall not be unreasonably
withheld and may not be withheld where PFPC may be exposed to civil or criminal
contempt proceedings or when required to divulge such information or records to
duly constituted authorities.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Company's
independent public accountants and shall provide account analyses, fiscal year
summaries, and other audit-related schedules. PFPC shall take all reasonable
action in the performance of its duties under this Agreement to assure that the
necessary information is made available to such auditors and accountants in a
timely fashion for the expression of their opinion, as required by the
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Company.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PFPC shall, at no
additional expense to the Company, take reasonable steps to minimize service
interruptions. PFPC shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure, provided such loss or
interruption is not caused by PFPC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PFPC (a) has reviewed its business and
operations as they relate to the services provided hereunder, (b) has developed
or is developing a program to remediate or replace computer applications and
systems, and (c) has developed a testing plan to test the remediation or
replacement of computer applications/systems, in each case, to address on a
timely basis the risk that certain computer applications/systems used by PFPC
may be unable to recognize and perform properly date sensitive functions
involving dates prior to, including and after December 31, 1999, including dates
such as February 29, 2000 (the "Year 2000 Challenge"). To the best of PFPC's
knowledge and belief, the reasonably foreseeable consequences of the Year 2000
Challenge will not adversely effect PFPC's ability to perform its duties and
obligations under this Agreement.
12. COMPENSATION. As compensation for services rendered by PFPC during the
term of this Agreement, the Company will pay to PFPC a fee or fees as may be
agreed to in writing by
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the Company and PFPC.
13. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
PFPC and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) reasonable
attorneys' fees and disbursements arising directly or indirectly from any action
or omission to act which PFPC takes (i) at the request or on the direction of or
in reliance on the advice of the Company or (ii) upon Oral Instructions or
Written Instructions; Provided, however, neither PFPC, nor any of its
affiliates, shall be indemnified against any liability (or any expenses incident
to such liability) arising out of PFPC's or its affiliates own willful
misfeasance, bad faith, gross negligence or reckless disregard of its duties and
obligations under this Agreement.
14. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the
Company except as necessary to fulfill its duties and obligations as
specifically set forth herein or as may be specifically agreed to by PFPC in
writing. PFPC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PFPC shall be liable for any damages arising out of PFPC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PFPC's willful misfeasance, bad faith, gross negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of
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this Agreement, (i) PFPC shall not be liable for losses beyond its control,
provided that PFPC has acted in accordance with the standard of care set forth
above; and (ii) PFPC shall not be liable for (A) the validity or invalidity or
authority or lack thereof of any Oral Instruction or Written Instruction, notice
or other instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B) subject to
Section 10, delays or errors or loss of data occurring by reason of
circumstances beyond PFPC's control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Company for any
consequential, special or indirect losses or damages which the Company or any
Portfolio may incur or suffer by or as a consequence of PFPC's or any
affiliates' performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PFPC or its affiliates.
15. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following accounting services:
(i) Journalize investment, income and expense activities;
(ii) Verify investment buy/sell trade tickets when received from
the investment adviser for a Portfolio in accordance with
PFPC's written procedures;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
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(v) Record and reconcile corporate action activity and all other
capital changes with the Company's Adviser;
(vi) Reconcile cash and investment balances of the Company with the
Custodian, and provide the Adviser with the beginning cash
balance available for investment purposes;
(vii) Update the cash availability throughout the day as required by
the Adviser, the Portfolio Manager or the custodian (as
necessary) including details of cash movements related to
securities and payment of Company expenses;
(viii) Calculate contractual expenses (e.g., advisory and custody
fees) in accordance with the Company's Confidential
Memorandum;
(ix) Prepare quarterly the Statement of Assets and Liabilities, the
Statement of Operations, Statement of Changes in Partner's
Capital, and the Statement of Changes in Net Assets, Listing
of Investment and Quarterly Reports, as required for reporting
to the Members of the Board;
(x) Maintain detailed line item expense budget for the Company and
notify an officer of the Company of any proposed adjustments;
(xi) Control all disbursements and authorize such disbursements
from the Company's account at PNC Bank, Delaware upon Written
Instructions;
(xii) Calculate capital gains and losses;
(xiii) Determine net income;
(xiv) Determine applicable foreign exchange gains and losses on
payables and receivables;
(xv) Interface with global custodian to monitor collection of tax
reclaims;
(xvi) Calculate daily asset coverage ratio;
(xvii) Obtain daily security market quotes from independent
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<PAGE>
pricing services approved by the Adviser, or if such quotes
are unavailable, then obtain such prices from the Adviser,
and in either case calculate the market value of and the
appreciation/depreciation on the Company's Investments;
(xviii) Transmit or otherwise send a copy of the daily portfolio
valuation to the Adviser;
(xix) Compute net asset value with frequency to conform to the
terms of the Company;
(xx) Research portfolio accounting tax treatment for unique
security types; and
(xxi) As appropriate, compute yields, total return, expense
ratios, portfolio turnover rate, and, if required, portfolio
average dollar-weighted maturity in accordance with
applicable regulations.
(xxii) Assist with the annual audit of the Company's financial
statements; and
(xxiii) Such other services as the parties agree in writing.
16. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PFPC
will perform the following administration services:
(i) Prepare quarterly broker security transactions summaries
including principal and agency transactions and related
commissions;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary portfolio and Company
statistical data as requested on an ongoing basis;
(iv) Provide to the extent contained in accounting records
materials required for board reporting as may be requested
from time to time;
(v) Prepare for execution and file the Company's Federal Form
1065 and state tax returns;
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<PAGE>
(vi) Prepare and file the Company's Annual and Semi-Annual
Reports with the SEC on Form N-SAR via EDGAR;
(vii) Prepare and coordinate printing of and filing with the SEC
via EDGAR the Company's annual and semi-annual reports;
(viii) Transmit or otherwise send, to the extent practicable and
feasible, requested detailed information related to the
Members, including admission details, income, capital gains
and losses, and performance detail;
(ix) Mail Company offering materials to prospective investors;
and
(x) Mail quarterly reports of the Adviser and Semi-Annual
Financial Statements to investors as well as any other
necessary correspondence;
(xi) Copy the Board of Managers on routine correspondence sent to
Members;
(xii) Coordinate contractual relationships and communications
between the Company and its contractual service providers;
and
(xiii) Maintain certain bank accounts of the Company for authorized
purposes.
17. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following functions:
(i) Maintain the register of Members of the Company and enter on
such register all issues, transfers and repurchases of
interests in the Company;
(ii) Arrange for the calculation of the issue and repurchase
prices of interests in the Company in accordance with the
limited liability company agreement and private offering
memorandum; and
(iii) Allocate income, expenses, gains and losses to individual
Members' capital accounts in accordance with applicable tax
laws and with the private offering memorandum;
(iv) Calculate the Incentive Allocation in accordance with the
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<PAGE>
Confidential Memorandum and reallocate corresponding amounts
from the applicable Members' accounts to the Special
Advisory Account;
(v) Mail to Members annual Form K-1's in accordance with
applicable tax regulations;
(vi) Mail tender offers to Members for purposes of executing
repurchases;
(vii) Retain in a safe place Share Registers and transfer forms
for a period of at least six years from the time of
execution;
(viii) Maintain and tabulate information regarding Company votes;
(ix) Transmit to the Board of Managers the investor data for
inclusion in monthly investor brokerage statements, as
agreed upon by the Company and PFPC;
(x) Mail, as applicable, quarterly reports of the Portfolio
Manager as requested by the Board of Managers to investors,
as well as any other correspondence requested by the Board
of Managers;
(xi) Transmit or otherwise send, to the extent practical and
feasible, requested detailed information related to the
Members, including admission details, income, capital gains
and losses, and performance detail; and
(xii) Mail Company offering materials to prospective investors in
accordance with instructions from an Authorized Person.
18. DURATION AND TERMINATION. This Agreement shall continue until
terminated by either party on sixty (60) days' prior written notice to the other
party.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. If notice is sent by confirming telegram, cable, telex
or facsimile sending device, it shall be deemed to
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<PAGE>
have been given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given three days after it has been mailed. If notice is sent
by messenger, it shall be deemed to have been given on the day it is delivered.
Notices shall be addressed (a) if to PFPC, at 400 Bellevue Parkway, Wilmington,
Delaware 19809; Attn: Rene Paradis (b) if to the Company, at c/o CIBC World
Markets Corp., One World Financial Center, 200 Liberty Street, 31st Floor, New
York, NY 10281, Attn: Howard M. Singer; or (c) if to neither of the foregoing,
at such other address as shall have been provided by like notice to the sender
of any such notice or other communication by the other party.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or
waived only by written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
21. DELEGATION; ASSIGNMENT. This Agreement and the rights and duties of
the parties herein may not be assigned; provided, however, that PFPC may assign
its rights and delegate its duties hereunder, at no additional cost to the
Company, to any affiliate of or any majority-owned direct or indirect subsidiary
of PFPC or PNC Bank Corp., provided that (i) PFPC gives the Company sixty (60)
days' prior written notice of such assignment or delegation; (ii) the assignee
or delegate agrees to comply with all relevant provisions of the Securities
Laws; and (iii) PFPC and such assignee or delegate promptly provide such
information as the Company may request, and respond to such questions as the
Company may ask, relative to the assignment or delegation, (including, without
limitation) the capabilities of the assignee or delegate. Except as stated
above, this Agreement may not be assigned or delegated by any party without the
written consent
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of each party.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
24. MISCELLANEOUS.
(a) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
shall
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<PAGE>
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to
this Agreement shall constitute the valid and binding execution hereof by such
party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:_____________________________
Title: _________________________
SAWGRASS FUND, L.L.C.
By:_____________________________
Title: _________________________
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AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
________________________________ ______________________________________
________________________________ ______________________________________
________________________________ ______________________________________
________________________________ ______________________________________
________________________________ ______________________________________
________________________________ ______________________________________
________________________________ ______________________________________
________________________________ ______________________________________
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