As filed with the Securities and Exchange Commission on August 9, 2000
Registration No. 333-30986
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-2A
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|X| Pre-Effective Amendment No. 2
|_| Post-Effective Amendment No.
EXCELSIOR VENTURE PARTNERS III, LLC
(Exact name of registrant as specified in charter)
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036-1532
(Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (212) 852-3125
DAVID I. FANN
DOUGLAS A. LINDGREN
EXCELSIOR VENTURE PARTNERS III, LLC
114 WEST 47TH STREET, NEW YORK, NEW YORK 10036-1532
(Name and Address of Agents for Service)
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COPIES TO:
THOMAS A. DECAPO, ESQ. IRENE S. GREENBERG, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP UNITED STATES TRUST COMPANY OF NEW YORK
ONE BEACON STREET 114 WEST 47TH STREET
BOSTON, MA 02108-3194 NEW YORK, NEW YORK 10036-1532
PHONE NO.: (617) 573-4814 PHONE NO.: (212) 852-1367
FAX NO.: (617) 573-4822 FAX NO.: (212) 852-1310
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Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis in reliance on Rule 415 under the
Securities Act of 1933, other than securities offered in connection with a
dividend reinvestment plan, check the following
box |X|
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Proposed
Proposed Maximum
Amount Offering Price Amount of
Title of Securities being Per Maximum Aggregate Registration
being Registered Registered Unit* Offering Price* Fee*
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Membership Interests (without
par value) 1,600,000 units $500 $800,000,000 $211,200
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*Estimated solely for the purpose of calculating the registration fee;
$132,000 in registration fees; previously paid.
The registrant hereby amends this Registration Statement under the
Securities Act of 1933 on such date or dates as may be necessary to delay
its effective date until the registrant shall file a further amendment
which specifically states that this Registration Statement shall thereafter
become effective in accordance with Section 8(a) of the Securities Act of
1933 or until this Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may
determine.
CROSS REFERENCE SHEET
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PART A
ITEM NUMBER LOCATION IN PROSPECTUS
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Item 1. Outside Front Cover Outside Front Cover
Item 2. Cover Pages; Other Offering Information Inside Front and Outside Back Cover Page
Item 3. Fee Table and Synopsis Fee Table; Prospectus Summary
Item 4. Financial Highlights Not applicable
Item 5. Plan Of Distribution The Offering; Selling Arrangements
Item 6. Selling Shareholders Not applicable
Item 7. Use of Proceeds Use Of Proceeds
Item 8. General Description of the Registrant Outside Front Cover; The Company; Investment
Objective and Policies; Risk Factors
Item 9. Management Management
Item 10. Capital Stock, Long-Term Debt, and Other
Securities Description of Units
Item 11. Defaults and Arrears on Senior Securities Not applicable
Item 12. Legal Proceedings Not applicable
Item 13. Table of Contents of the Statement Table of Contents of the Statement of
Additional Information Additional Information
PART B
ITEM NUMBER
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Item 14. Cover Page Cover Page
Item 15. Table of Contents Cover Page
Item 16. General Information and History The Company
Item 17. Investment Objectives and Policies Investment Objective and Policies
Item 18. Management Management
Item 19. Control Persons and Principal Holders of
Securities Management
Item 20. Investment Advisory and Other Services Management
Item 21. Brokerage Allocation and Other Practices Brokerage Allocation and Other Practices
Item 22. Tax Status Certain Federal Income Tax Considerations
Item 23. Financial Statements Financial Statements
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[Flag]
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the regustration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
Subject to completion, dated August 9, 2000
EXCELSIOR VENTURE PARTNERS III, LLC
$600,000,000
Units of Membership Interest
Minimum Subscription -- $100,000
Excelsior Venture Partners III, LLC, or the Company, is a newly
organized closed-end investment company. We have elected to be treated as a
business development company under the Investment Company Act. Our
investment objective is to achieve long-term capital appreciation. We will
pursue our objective primarily by investing in domestic venture capital and
other private companies and, to a lesser extent, domestic and international
private funds, negotiated private investments in public companies and
international direct investments that our Investment Adviser or Investment
Sub-Adviser believe offer significant long-term capital appreciation
potential. U.S. Trust Company, the Investment Adviser, and United States
Trust Company of New York, the Investment Sub-Adviser, are responsible for
selecting our investments and for management of our day-to-day affairs. The
duration of the Company will be ten years from the final subscription
closing date (not later than December 31, 2000), subject to extension as
described in this prospectus. See "Summary of the Limited Liability Company
Operating Agreement--Term, Dissolution And Liquidation."
This Prospectus contains information you should know before investing,
including risk information. Please read it before you invest and keep it
for future reference. Additional information about the Registrant,
including the Statement of Additional Information dated August 9, 2000,
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission (the "Commission") and is available upon
written or oral request without charge. You can review the table of
contents of the Statement of Additional Information on page 65 of this
prospectus. In addition, the Commission maintains a Web site
(http://www.sec.gov) that contains material incorporated by reference, the
Statement of Additional Information and other information regarding
registrants that file electronically with the Commission. You may also
request a free copy by writing or calling the Company at c/o United States
Trust Company of New York, 114 West 47th Street, New York, New York
10036-1532, (212) 852-3125. You may request a copy of the Statement of
Additional Information at no charge by calling PFPC, Inc. at 1-800-[ ].
AN INVESTMENT IN THE COMPANY WILL BE ILLIQUID UNTIL ITS UNDERLYING
INVESTMENTS ARE DISTRIBUTED OR LIQUIDATED. INVESTORS MUST BE WILLING AND
ABLE TO BEAR THE RISKS OF AN INVESTMENT IN THE COMPANY UNTIL THAT TIME.
THESE ARE SPECULATIVE SECURITIES. YOU SHOULD INVEST ONLY IF YOU CAN
AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE "RISK FACTORS" BEGINNING ON
PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THE COMPANY IS NOT AVAILABLE FOR
INVESTMENT BY RESIDENTS IN THE STATES OF ALABAMA, ARKANSAS, KANSAS, MAINE,
MARYLAND, MASSACHUSETTS, MISSISSIPPI, MISSOURI, OKLAHOMA, VERMONT AND
TEXAS. SEE APPENDIX D FOR ADDITIONAL INFORMATION FOR RESIDENTS OF CERTAIN
STATES.
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PROCEEDS TO
COMPANY AFTER PROCEEDS TO
INITIAL COMPANY AFTER SECOND
CAPITAL CAPITAL CONTRIBUTION
PRICE TO SALES CONTRIBUTION OF $500
PUBLIC (1) LOAD(2) OF $500 (1) ($1,000 TOTAL) (1)(3)
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Per Unit (3) $500 None $500 $500
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Total Minimum $250,000,000 None $125,000,000 $250,000,000
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Total Maximum $600,000,000 None $300,000,000 $600,000,000
========================================================================================
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(1) The Company expects to incur organizational and offering expenses of
approximately $1,406,000. Charles Schwab & Co., Inc., the Company's
principal distributor, has agreed to pay the Company's organizational
costs, estimated to be $50,000, in the event that the Company receives
subscriptions totaling less than $300,000,000. If the Company receives
subscriptions totaling $300,000,000 or more, the Company will pay its
own organizational expenses estimated to be $50,000. Your share of
organizational and offering costs will be deducted from your initial
capital contribution.
(2) The Investment Advisor or an affiliate has agreed to compensate the
principal distributor from its own assets, not the assets of the
Company, in an amount equal to 0.02% of the price to the public of all
Units subscribed for, and has agreed to compensate the principal
distributor for the sale of Units and the provision of ongoing
investor services in an amount equal to the annual rate of 0.45% of
the average quarterly net asset value of all Units held by investors
introduced to the Company by the principal distributor, subject to
reduction after five years.
(3) Your subscription amount is required to be paid in two installments:
one-half as an initial capital contribution payable on or before the
final subscription closing date and one-half as a second capital
contribution payable on the first anniversary of the final
subscription closing. Investors who breach their agreement to pay the
remainder of their subscription amount will be subject to legal action
and various remedies of the Company, including total forfeiture of
their interest in the Company, resulting in a total loss by the
breaching investor of amounts previously paid. The Company will issue
Units in exchange for capital contributions. At the first subscription
closing the Company will issue one Unit for each $500 of capital
contribution. Thereafter, Units will be issued at net asset value.
Units are made available through Charles Schwab & Co., Inc., the
Company's principal distributor. A first subscription closing will be held
on or about the fifth business day after receipt by the Company of
subscriptions totaling $250,000,000. The Company may continue to offer
Units and accept subscriptions for such Units from time to time at
subsequent subscription closings until December 31, 2000, subject to
extension. If the minimum subscription of $250,000,000 has not been reached
by such date, or extension, the offering will terminate. See "Selling
Arrangements." The Company reserves the right to withdraw, cancel or modify
the offering and to reject any subscription in whole or in part. The
Company will not accept proceeds until the minimum subscription of
$250,000,000 has been obtained. Funds transmitted to the Company by
investors prior to the applicable closing date will be deposited in an
interest-bearing bank escrow account with PFPC Inc. pending closing.
FOR ARIZONA RESIDENTS ONLY
THESE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OF ARIZONA, BUT
THE FACT OF THE REGISTRATION IS NOT TO BE DEEMED A FINDING BY THE ARIZONA
CORPORATION COMMISSION OR THE DIRECTOR OF THE SECURITIES DIVISION THAT THE
PROSPECTUS IS TRUE OR ACCURATE, NOR DOES THE REGISTRATION MEAN THAT THE
COMMISSION OR THE DIRECTOR HAS PASSED ON THE MERITS OF OR OTHERWISE
APPROVED THE SECURITIES DESCRIBED IN THIS PROSPECTUS.
SEE APPENDIX D FOR ADDITIONAL INFORMATION FOR RESIDENTS OF CERTAIN STATES.
The date of this Prospectus is August 9, 2000.
TABLE OF CONTENTS
Page
FEE TABLE.............................................................. 4
PROSPECTUS SUMMARY..................................................... 5
THE COMPANY............................................................12
INVESTMENT OBJECTIVE AND POLICIES......................................13
RISK FACTORS...........................................................16
THE OFFERING...........................................................22
USE OF PROCEEDS........................................................23
MANAGEMENT.............................................................23
BROKERAGE ALLOCATION AND OTHER PRACTICES...............................45
REGULATION.............................................................46
VALUATION OF PORTFOLIO SECURITIES......................................47
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS........................48
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS..............................49
ERISA CONSIDERATIONS...................................................55
DESCRIPTION OF UNITS...................................................57
SELLING ARRANGEMENTS...................................................60
LEGAL MATTERS..........................................................60
INDEPENDENT AUDITORS...................................................60
AVAILABLE INFORMATION..................................................60
REPORTS TO MEMBERS.....................................................61
FINANCIAL STATEMENTS...................................................61
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...........65
FEE TABLE
UNITHOLDER TRANSACTION EXPENSES
SALES LOAD (as a percentage of offering price).................. None*
ANNUAL EXPENSES (as a percentage of net assets attributable to Units)
Management Fees........................................... 2.00%**
Other Expenses............................................ 0.17%***
Total Annual Expenses..................................... 2.15%
---------------------
* A distribution fee equal to 0.02% of the total of all subscriptions
received in this offering will be paid by the Investment Adviser or an
affiliate. The Investment Adviser or an affiliate will also pay the
Company's distributor an ongoing fee for the sale of Units and the
provision of ongoing investor services in an amount equal to the annual
rate of 0.45% of the average quarterly net asset value of all
outstanding Units held by investors introduced to the Company by the
distributor through the fifth anniversary of the final subscription
closing date and at the annual rate of 0.22% thereafter, subject to
elimination upon all such fees totaling 6.5% of the gross proceeds
received by the Company from this offering.
** The management fee through the fifth anniversary of the final
subscription closing date will be payable at the annual rate of 2.00%
of the Company's average quarterly net assets, determined as of the end
of each fiscal quarter. Thereafter, the management fee will be payable
at the annual rate of 1.00% of the Company's average quarterly net
assets, determined at the end of each fiscal quarter. The Investment
Adviser has agreed to waive its fee during the subscription period,
which will end on the final subscription closing date (not later than
December 31, 2000, subject to extension ). The Investment Adviser is
also entitled to an Incentive Carried Interest in an amount equal to
20% of the Company's cumulative realized net capital gains on
investments other than private funds (determined net of cumulative
realized capital losses and current net unrealized capital depreciation
on all of the Company's investments). See "Management" and
"Allocations and Distributions."
*** "Other Expenses" include among other things, administration fees,
legal fees, the independent auditor's fees, printing costs and fees
payable to the independent managers.
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EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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You would pay the following expenses on a $10,000 investment,
assuming a 5% annual return:
Example 1 (1)................................................. $218 $673 $1,154 $1,883
Example 2 (2)................................................. $318 $971 $1,649 $2,915
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THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN IN THE EXAMPLES.
The purpose of the above table is to assist the investor in
understanding the various costs and expenses that an investor in the
Company will bear directly or indirectly. To the extent that the Company
invests in other private funds, you will also indirectly through the
Company bear your pro rata share of the fees, expenses and any carried
interest or incentive compensation paid by such funds. For a more complete
description of the various costs and expenses, see "Management" and
"Allocations and Distributions."
------------------
(1) Assumes management fee of 2.00% of the Company's net assets in years
1-5 and 1.00% thereafter and other expenses of 0.15% of the Company's
net assets and does not include the Incentive Carried Interest.
(2) Assumes management fee of 2.00% of the Company's net assets in years
1-5 and 1.00% thereafter and other expenses of 0.15% of the Company's
net assets and includes the Incentive Carried Interest. These expense
estimates are based on the assumption that the entire 5% annual
return is the result of realized capital gains on investments other
than private funds.
PROSPECTUS SUMMARY
This summary is qualified in its entirety by reference to the more
detailed information included in this Prospectus, the Statement of
Additional Information and to the Operating Agreement attached hereto as
Exhibit A.
THE COMPANY
The Company is a Delaware limited liability company formed on
February 18, 2000. We have elected to be treated as a business development
company, or BDC, under the Investment Company Act. We provide investors
with the opportunity to participate, with a minimum investment of $100,000,
in direct private equity investments and privately offered investment funds
managed by third parties. These investment opportunities are generally not
available to the public and typically require substantially larger
commitments than the minimum investment in the Company. Other advantages
that may otherwise be unavailable to investors if they were to invest
directly in private equity investments include professional management,
portfolio diversification and administrative convenience. We operate more
like a private venture capital fund than a traditional closed-end
investment company. See "The Company," "Regulation," "Risk Factors," "The
Offering" and "Description of Units."
INVESTMENT OBJECTIVE AND POLICIES
The Company's investment objective is to achieve long-term capital
appreciation. Current income is not an objective. We will pursue long-term
capital appreciation primarily by investing in private domestic venture
capital companies and other private companies (collectively, "Venture
Capital Investments"). Venture Capital Investments are domestic companies
in which the equity is closely held by company founders, management and/or
a limited number of institutional investors. We also intend to invest to a
lesser extent in domestic and international venture capital, buyout and
other private equity funds managed by third parties ("Private Funds"),
negotiated private investments in public companies ("Private Placements in
Public Companies") and foreign companies in which the equity is closely
held by company founders, management and/or a limited number of
institutional investors ("International Venture Capital Investments"). We
refer to Venture Capital Investments, Private Placements in Public
Companies and International Venture Capital Investments as Direct
Investments. A company in which a direct investment is made is considered a
Portfolio Company. Pending investment, for operating purposes and for
temporary or emergency purposes, we will make liquid investments in
short-term securities.
We currently expect to make investments in companies engaged in
businesses that are consistent with the general investment philosophy used
by U.S. Trust Corporation and its affiliated banks ("U.S. Trust") in its
investment management advisory business. With the approval of the Board of
Managers, we may change this policy. U.S. Trust follows a long-term
investment philosophy and uses a growth strategy and a transaction value
strategy to guide investment decision making. The growth strategy seeks to
identify industries and companies that can provide solutions to or
otherwise benefit from markets that are growing in response to underlying
trends. The transaction value strategy involves a comparison of a company's
real underlying asset value with similar assets changing ownership in the
market. It is based on a belief that differences between a company's real
asset value and the price of its shares correct over time. U.S. Trust
applies these strategies together with a focus on longer-term investment
themes that U.S. Trust believes represent long-term trends. U. S. Trust
currently believes that the following themes represent strong and
inexorable trends:
o Communications and Information
o Productivity Enhancers
o Infrastructure Development
o Early Life Cycle Companies
o Demographics/Rising Living Standards
o Globalization Forces
o Business and Industrial Restructuring
Each of these is described in greater detail under the caption "Investment
Objective and Policies - Investment Strategies." Under current market
conditions, we expect to emphasize the technological innovations that are
driving the new economy, with specific focus on Information Technology,
Communications, Life Sciences and Information Services.
We may from time to time borrow funds in an amount up to 25% of our
total assets (after giving effect to the borrowing) in order to make
additional investments in existing Portfolio Companies (referred to as
follow-on investments), to maintain various regulatory qualifications, to
pay contingencies and expenses or in anticipation of the receipt of funds
from capital contributions or the disposition of investments. We do not
intend to borrow in order to make the initial investment in a company. We
will not borrow to pay the management fee payable to the Investment
Adviser.
There can be no assurance that we will achieve our investment
objective. See "Investment Objective and Policies" and "Risk Factors."
MANAGEMENT AND COMPENSATION
The Investment Adviser and Investment Sub-Adviser are responsible
pursuant to the Investment Advisory Agreement and Investment Sub-Advisory
Agreement for identifying, evaluating, structuring, monitoring and
disposing of our investments and providing, or arranging for third parties
to provide, any and all management and administrative services reasonably
necessary for the operation of the Company and the conduct of its business.
The Investment Adviser or its affiliates have served as the
investment advisers to UST Private Equity Investors Fund, Inc. ("Fund I")
and Excelsior Private Equity Fund II, Inc. ("Fund II"), each a registered
business development company, since their inceptions in September 1994 and
March 1997, respectively. The investment management personnel of the
Investment Adviser and Investment Sub-Adviser consist of the same persons
that perform the investment management functions for Fund I and Fund II.
The Company's investment objective and policies are similar to those of
Fund I and Fund II, although the Investment Adviser and Investment
Sub-Adviser expect to employ an investment strategy more similar to that of
Fund II. As of July 31, 2000 Fund I had made investments in 12 Portfolio
Companies and 6 private funds with an aggregate of approximately $40
million of invested and/or committed capital. As of July 31, 2000, Fund II
had made investments in 20 Portfolio Companies and 13 private funds with an
aggregate of approximately $176 million of invested and/or committed
capital.
Through the fifth anniversary of the final subscription closing date,
the Company will pay the Investment Adviser a management fee at an annual
rate equal to 2.00% of the Company's average quarterly net assets,
determined as of the end of each fiscal quarter. Thereafter, the management
fee will be at an annual rate of 1.00% of the Company's average quarterly
net assets, determined as of the end of each fiscal quarter. From this fee
the Investment Adviser will pay the investment advisory fee of the
Investment Sub-Adviser. The Investment Adviser has agreed to waive its
management fee during the subscription period, which will end on the final
subscription closing date (not later than December 31, 2000, subject to
extension).
The Investment Adviser also will be entitled to allocations and
distributions equal to the Incentive Carried Interest. The Incentive
Carried Interest is an amount equal to 20% of the Company's cumulative
realized capital gains on all Direct Investments determined net of:
o cumulative realized capital losses on all investments of any type and
o current net unrealized capital depreciation on all investments of any
type.
The Incentive Carried Interest will be determined annually as of the end of
each calendar year. The Investment Adviser's allocations and distributions
will be made net of, respectively, all prior allocations and all prior
distributions made of the Incentive Carried Interest to the Investment
Adviser.
PFPC Inc. (the "Administrator"), performs certain administration,
accounting and investor services for the Company. In consideration for
these services, the Company pays the Administrator an annual fee based upon
the Company's aggregate net assets, subject to a minimum monthly fee, and
will reimburse the Administrator for certain of the Administrator's
expenses.
THE OFFERING
The Company is offering investors the opportunity to subscribe to
make capital contributions to the Company in exchange for units of
membership interests ("Units") in the Company. The Company has registered
the Units under the Securities Act of 1933, as amended (the "Securities
Act"). Units are made available through Charles Schwab & Co., Inc. as
principal distributor (the "Distributor"). The Investment Adviser or an
affiliate will pay the Distributor from its own assets an amount equal to
0.02% of the total of all subscriptions received in this offering. Units
may be sold by the Distributor to investors directly or through financial
intermediaries acting as broker or agent ("Selling Agent") for their
customers. The Investment Adviser or an affiliate may compensate from its
own assets Selling Agents who sell Units of the Company to investors. The
Investment Adviser or an affiliate will also pay the Distributor an ongoing
fee for the sale of Units and the provision of ongoing investor services in
an amount equal to the annual rate of 0.45% of the average quarterly net
asset value of all outstanding Units held by investors introduced to the
Company by the Distributor through the fifth anniversary of the final
subscription closing date and at the annual rate of 0.22% thereafter,
subject to elimination upon all such fees totaling 6.5% of the gross
proceeds received by the Company from this offering. The offering will
terminate on October 31, 2000 or such other subsequent date not later than
December 31, 2000 as the Company may determine, subject to extension by the
Board of Managers (the "Termination Date"). If the Company has not received
subscriptions totaling at least $250,000,000 by the Termination Date, the
offering will terminate. See "Risk Factors -- Minimum Proceeds; Portfolio
Diversification."
We expect to have our first closing (the "first subscription
closing") approximately five business days after we have received
subscriptions totaling at least $250,000,000. The Company may continue to
accept subscriptions for Units from time to time at subsequent closings
(each a "subsequent subscription closing") until the Termination Date.
Each subscriber will be required to complete, execute and deliver to
the Company an executed copy of a Subscription Agreement attached hereto as
Appendix B (in the case of Charles Schwab & Co., Inc. clients) or Appendix
C (in the case of other investors) (collectively, the "Subscription
Agreement"), which will form a binding contract of the investor. Funds
transmitted to the Company by subscribers prior to the applicable closing
date will be deposited in an interest bearing escrow account with PFPC Inc.
pending each closing. The Company will not accept proceeds until the
minimum subscription of $250,000,000 has been obtained. Organizational and
offering costs of approximately $1,406,000, have been or will be incurred
by the Company. All or a portion of such costs have been or may be advanced
by the Investment Adviser or an affiliate and will be reimbursed by the
Company. Charles Schwab & Co., Inc., the Company's principal distributor,
has agreed to pay the Company's organizational costs, estimated to be
$50,000, in the event that the Company receives subscriptions totaling less
than $300,000,000. If the Company receives subscriptions totaling
$300,000,000 or more, the Company will pay its own organizational expenses
estimated to be $50,000. Each investor's share of organizational and
offering costs will be deducted from his or her capital account. See "The
Offering."
Pursuant to the Subscription Agreement, your subscription amount is
required to be paid in two installments: one-half as an initial capital
contribution payable on or before the final subscription closing date (not
later than December 31, 2000, subject to extension) and one-half as a
second capital contribution payable on the first anniversary of the final
subscription closing date. If you breach your agreement in the Subscription
Agreement to pay the remainder of the subscription amount, you will be
subject to legal action and various remedies of the Company, including
total forfeiture of your interest in the Company. This would result in your
total loss of amounts previously paid. The Company will issue Units in
exchange for capital contributions. At the first subscription closing the
Company will issue one Unit for each $500 of capital contribution.
Thereafter, Units will be issued at net asset value.
ERISA Considerations. The Company intends to restrict ownership of
the Units (and other classes of equity that may be issued by the Company)
by benefit plan investors so that no assets of the Company will be deemed
to be "plan assets" subject to ERISA and/or Section 4975 of the Code as
such term is defined in the "Plan Assets Regulation" issued by the United
States Department of Labor. Although the Company intends to restrict the
acquisition of the Units by benefit plan investors (which is defined in the
Plan Assets Regulation to include all employee benefit plans, whether or
not the plans are subject to ERISA and/or Section 4975 of the Code) to less
than 25% of all Units (excluding Units held by, persons that have
discretionary authority or control with respect to the assets of an entity
or that provide investment advice for a fee with respect to such assets, or
any affiliate of such a person, that are not benefit plan investors), there
can be no assurance that the ownership of the Units (or any other class of
equity securities issued by the Company) by benefit plan investors will
always remain below the 25% threshold established under the Plan Assets
Regulation.
If the assets of the Company were deemed to be "plan assets," certain
transactions that the Company might enter into, or may have entered into,
in the ordinary course of business might constitute non-exempt prohibited
transactions under ERISA and/or Section 4975 of the Code and might have to
be rescinded.
In addition, each investor will be required to make certain
representations, warranties and covenants, or will be deemed to have
represented, warranted and covenanted, to the effect that its purchase of
the Units will not result in a non-exempt prohibited transaction under
ERISA and/or Section 4975 of the Code.
See "ERISA Considerations" herein for a more detailed discussion of
certain ERISA and related considerations with respect to an investment in
the Units.
MINIMUM INVESTMENTS
The minimum subscription amount is $100,000. We have the right to
waive the minimum, at our discretion. See "The Offering."
USE OF PROCEEDS
We intend to apply the net proceeds of this offering to make
investments in furtherance of our investment objective and policies. We
anticipate that there will be a significant period of time (up to four
years) before the Company becomes fully invested. Although the Company
intends to invest or commit to invest more than 50% of the proceeds from
each of the initial and second capital contributions in Venture Capital
Investments within the earlier of (i) two years after the final
subscription closing date and (ii) two and one-half years after the
commencement of this offering, a delay is common for BDCs because of the
competition for investments in entities that meet the requirements for
"qualifying assets" under the Investment Company Act. See "Use of
Proceeds."
RISK FACTORS
These are speculative securities. Units of the Company are not
deposits or obligations of, or guaranteed or endorsed by, U.S. Trust, and
the Units are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other agency or person.
RISKS RELATED TO THE COMPANY
UNSPECIFIED USE OF PROCEEDS. Since the Company has not identified the
particular uses for the net proceeds from this offering, prospective
investors must rely on the ability of the Investment Adviser and Investment
Sub-Adviser to identify and make portfolio investments consistent with the
Company's investment objective.
LACK OF OPERATING HISTORY. While the key personnel of the Investment
Adviser and the Investment Sub-Adviser have considerable experience in
venture capital and private equity investing, the Company has recently been
formed and has no operating history of its own upon which an investor may
base an evaluation of the likely performance of the Company.
MINIMUM PROCEEDS; PORTFOLIO DIVERSIFICATION. To the extent that the
Company makes fewer investments, it may be subject to greater risks from
developments adversely affecting one or a limited number of issuers. If the
Company obtains only the minimum amount of subscriptions it will have less
assets to invest and will likely acquire fewer investments than it would if
it obtained more subscriptions. This would increase the Company's
volatility and risk.
RELIANCE ON THE INVESTMENT ADVISER. The investment decisions of the
Company will be made by the Investment Adviser and the Investment
Sub-Adviser. Investors will have no right to take part in the management of
the Company.
INCENTIVE CARRIED INTEREST. The Incentive Carried Interest is based
on 20% of the net realized capital gain of the Company and may create an
incentive for the Investment 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 Carried Interest.
POTENTIAL CONFLICTS OF INTERESt. The Investment Adviser and the
Investment Sub-Adviser and their affiliates may be subject to various
conflicts of interest in connection with their relationships and
transactions with the Company. These include conflicts associated with:
o the Incentive Carried Interest;
o investment opportunities;
o allocating management time and services;
o relationships with Portfolio Companies; and
o affiliated transactions.
See "Risk Factors - Potential Conflicts of Interest."
LIABILITIES OF MEMBERS. You will be obligated to pay your full
subscription amount. However, you will not be liable for any obligations of
the Company in excess of your capital account balance, plus your share of
undistributed profits. If, however, you receive a distribution from the
Company and after such distribution the liabilities of the Company exceed
the fair value of the Company's assets (and you had knowledge of this fact
at the time of the distribution) you may be required to return such
distribution to the Company. The Company has no intention of making such
distributions. You will not have the right to a return of the subscription
amount except in accordance with the distribution provisions of the
Operating Agreement.
CAPITAL CALL. Failure to pay your full subscription amount (including
the second capital contribution) as required by the Subscription Agreement
may result in the forfeiture of your entire interest in the Company.
NO PUBLIC OR OTHER MARKET FOR UNITS. The Company is a newly organized
entity. A member may transfer Units only by operation of law pursuant to
the death, bankruptcy, insolvency or dissolution of the member or
otherwise, or with the written consent of the Company (which it may
withhold in its sole and absolute discretion and will grant, if at all,
only in extenuating circumstances) or in connection with a transfer to a
family trust or another entity that does not result in a change of
beneficial ownership. Any permitted transferees will not, however, be
allowed to become substituted members in the Company without the consent of
the Company, which consent may be withheld in our sole and absolute
discretion. No member will have the right to require the Company to redeem
his, her or its Units. In addition, none of the Company, the Investment
Adviser, the Investment Sub-Adviser or the Distributor (nor any of their
respective affiliates) will make a market in or otherwise make offers to
repurchase Units, and Units will not be traded on any securities exchange
or other market.
FOR THESE VARIOUS REASONS, AN INVESTMENT IN THE COMPANY WILL BE
ILLIQUID UNTIL ITS UNDERLYING INVESTMENTS ARE DISTRIBUTED OR LIQUIDATED.
INVESTORS MUST BE WILLING AND ABLE TO BEAR THE RISKS OF AN INVESTMENT IN
THE COMPANY UNTIL THAT TIME.
TAX STATUS. At the first subscription closing, the Company will
receive an opinion of its counsel to the effect that, under current law and
based on certain assumptions and representations, the Company will be
treated as a partnership and not as a publicly traded partnership that is
treated as a corporation for federal income tax purposes. Such opinion will
be based upon the maintenance of certain factual and other conditions, the
continuation of which cannot be assured. No ruling has been or will be
sought from the Internal Revenue Service ("IRS") regarding the status of
the Company as a partnership. An opinion of counsel is not binding on the
IRS or any court. If the Company were treated as a publicly traded
partnership or otherwise treated as a corporation for federal income tax
purposes, material adverse consequences for the members would result. See
"Certain Federal Income Tax Considerations - Tax Status of the Company."
DISTRIBUTIONS IN KIND. The Company may determine to make
distributions of securities or other property in kind. To the extent that
the Company does so, you will incur additional expenses when you determine
to dispose of such securities or other assets. In addition, the
determination of whether and when to dispose of such securities or other
assets will be your responsibility. Such securities or other property may
be worth more or less when you dispose of them than their value at the time
of distribution. Although the Company generally intends to distribute
securities prior to liquidation only if such securities are traded in an
active secondary market without registration, such securities may be
subject to a minimum holding period or other limitations on resale.
REGULATION. The Company has elected to be treated as a business
development company under the Investment Company Act, and as such is
subject to numerous restrictions on the nature of its investments, the use
of leverage and the issuance of securities, options, warrants or rights,
which could prohibit the Company from investing in potentially attractive
situations that might otherwise be available. At the same time, our
election to be treated as a business development company exempts us from
certain provisions of the Investment Company Act. As a result, we operate
differently than a registered investment company and are subject to
different and potentially greater risks as compared to a registered
investment company.
GENERAL RISKS OF INVESTMENTS
RISK OF PRIVATE EQUITY INVESTMENTS. Though private equity investments
offer the opportunity for significant capital gains, such investments also
involve a high degree of business and financial risk that can result in
substantial losses.
ILLIQUIDITY OF PRIVATE EQUITY INVESTMENTS. The Company anticipates
that it may take up to four years before it is fully invested or committed
to invest in Portfolio Companies, and it is unlikely that any significant
distribution of the proceeds from the disposition of private equity
investments will be made until the later years of the Company's term.
Securities laws, contractual limitations and practical limitations may
inhibit the Company's ability to sell, distribute or liquidate its
investments in Portfolio Companies and could reduce the amount of proceeds
that might otherwise be realized.
NEED FOR FOLLOW-ON INVESTMENTS. There is no assurance that the
Company will have sufficient funds available or choose to make follow-on
investments. Failure to make follow-on investments may have a substantial
impact on Portfolio Companies in need of such an investment or may result
in a missed opportunity for the Company to increase its participation in a
successful operation.
COMPETITION FOR INVESTMENTS. The Company expects to encounter
competition from, and to be a co-investor with, other professional venture
capital, private equity or leveraged buyout groups including several in
which the Company may be an investor.
INVESTMENT IN COMPANIES DEPENDENT UPON NEW TECHNOLOGIES. Under
current market conditions, the Company plans to focus on investments in
companies that rely significantly on technological events or advances in
their product development, production or operations. The value of the
Company's units may be susceptible to factors affecting technology and
technology-related industries and to greater risk and market fluctuation
than an investment in a fund that invests in a broader range of portfolio
securities.
BORROWING. The use of leverage even on a short-term basis could have
the effect of magnifying increases or decreases in the Company's net asset
value and could result in lenders placing restrictions on the Company
including reserve requirements or operating restrictions that would limit
the ability of the Company to control investments or refinancing and the
ability of the Company to make distributions.
LACK OF DIVERSIFICATION. The Company intends to operate as a
non-diversified investment company within the meaning of the Investment
Company Act. A non-diversified company may invest to a greater degree in
fewer issuers than may a diversified company. As a result, the Company will
be more exposed to developments adversely affecting only one or a few
companies that it has invested in. The net asset value of a nondiversified
company may be more volatile than that of a diversified company.
ALLOCATIONS, DISTRIBUTIONS AND LIQUIDATION
The Company has been formed as a Delaware limited liability company
and as such is governed by Delaware law and an operating agreement (the
"Operating Agreement") that defines many of the rights and responsibilities
of the Board of Managers and members. A copy of the Operating Agreement is
attached hereto as Appendix A. Investors will become members of the
Company, which will establish a capital account for each member. Your
capital contributions and your share of items of income and gain will be
credited to your capital account, and your distributions and your share of
items of loss, deduction and expense will be debited from your capital
account.
ALLOCATIONS. The income, gain, loss, deduction and expense of the
Company generally will be determined and allocated as of the end of each
fiscal year to reflect the economic interests of the members and the
Investment Adviser.
Allocations generally will be made in the following order:
o gains will be allocated to the Investment Adviser until the
cumulative amount of all gain that has been allocated to the
Investment Adviser from the commencement of operations equals
the Incentive Carried Interest calculated through the period
for which the allocation is being made, and
o all remaining items of income, gain, loss, deduction and
expense will be allocated to the members pro rata in accordance
with their invested capital.
DISTRIBUTIONS. The Company will distribute all cash that the
Investment Adviser does not expect to use in the operation of the Company.
The Company will consider making such distributions at least annually but,
as described below, investors should not expect distributions of cash or
property during the first several years of the Company's operations. Each
year, the Investment Adviser generally will be entitled to a distribution
of the Incentive Carried Interest. The members generally will be entitled
to all amounts remaining for distribution pro rata in accordance with their
invested capital.
Due to the nature of the Company's investments, investors should not
expect distributions of cash or property during the first several years of
the Company's operations. The Company will not reinvest income from its
investments or the proceeds from the sale of its investments, in each case
other than in Short-Term Investments, except to make follow-on investments.
The Company may make distributions in kind of its property. The Company
does not intend to make any distribution if, after making such
distribution, the liabilities of the Company would exceed the fair value of
the Company's assets.
LIQUIDATION. The duration of the Company will be ten years from the
final subscription closing; however, the Board of Managers has the right,
in its sole discretion, to extend the term for up to two additional
two-year periods, after which the approval of members who represent 66 2/3%
of the Company's outstanding Units may determine to extend the term of the
Company. Upon dissolution of the Company, the affairs of the Company will
be wound up and its assets distributed as provided in the Operating
Agreement. See "Summary of the Limited Liability Company Operating
Agreement."
TAX STATUS OF THE COMPANY
The Company intends to be treated as a partnership for federal income
tax purposes. See "Certain Federal Income Tax Considerations - Tax Status
of the Company." Thus, each member in computing its federal income tax
liability for a taxable year will be required to take into account his, her
or its allocable share of Company items of income, gain, loss, deduction
and expense for the taxable year of the Company ending within or with each
taxable year of the member, regardless of whether the member has received
any distributions from the Company. It is possible that a member's federal
income tax liability with respect to his, her or its allocable share of
Company earnings in a particular year could exceed the distributions to the
member for the year, thus giving rise to an out-of-pocket payment by the
member.
THE COMPANY
The Company is a newly organized, non-diversified, closed-end
management investment company which has elected to be treated as a business
development company under the Investment Company Act, and which has
registered its securities for sale under the Securities Act of 1933. The
Company will offer managerial assistance to certain Portfolio Companies.
The Board of Managers may change the Company's status as a BDC under the
Investment Company Act only with the vote of a majority of the outstanding
Units. The Company provides investors with the opportunity to participate
in investments which are generally not available to the public and
typically require substantially larger financial commitments than the
minimum investment in the Company.
The Company was organized as Excelsior Private Equity Fund III, LLC,
a Delaware limited liability company, on February 18, 2000. On April 26,
2000 the Company filed an amended Certificate changing its name from
Excelsior Private Equity Fund III, LLC to Excelsior Venture Partners III,
LLC. The business and affairs of the Company are overseen by a four member
Board of Managers, three of whom are not "interested persons" of the
Company as that term is defined in the Investment Company Act. The Board of
Managers is analogous to a Board of Directors of a corporation. Pursuant to
the Investment Advisory Agreement and the Investment Sub-Advisory
Agreement, the Investment Adviser and Investment Sub-Adviser, subject to
the supervision of the Board of Managers, are responsible for finding,
evaluating, structuring, monitoring and liquidating the Company's
investments as described in "Management" and are responsible for providing,
or arranging for third parties to provide, any and all management and
administrative services reasonably necessary for the operation of the
Company and the conduct of its business. Pursuant to the Investment
Advisory Agreement, the Investment Adviser is entitled to the management
fee. Pursuant to the Operating Agreement, the Investment Adviser is
entitled to the Incentive Carried Interest. Pursuant to the Investment
Sub-Advisory Agreement, the Investment Sub-Adviser is paid a management fee
by the Investment Adviser. The Company's and United States Trust Company of
New York's principal offices are located at 114 West 47th Street, New York,
New York 10036, and the telephone number of the Company is (212) 852-3125.
U.S. Trust Company's principal office is located at 225 High Ridge Road,
Stamford, Connecticut 06905.
The duration of the Company will be ten years from the final
subscription closing date (not later than December 31, 2000, subject to
extension); however, the Board of Managers has the right, in its sole
discretion, to extend the term for up to two additional two-year periods,
after which the approval of members who represent 66 2/3% of the Company's
outstanding Units may determine to extend the term of the Company. Upon
dissolution of the Company, the affairs of the Company will be wound up and
its assets distributed as provided in the Operating Agreement.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Company is to seek long-term capital
appreciation. Current income is not a significant factor in the selection
of investments. We will pursue long-term capital appreciation primarily by
investing in private domestic venture capital companies and other private
companies (collectively, "Venture Capital Investments"). Venture Capital
Investments are domestic companies in which the equity is closely held by
company founders, management and/or a limited number of institutional
investors. Subject to the limitations of the Investment Company Act, we
also intend to invest in domestic and international venture capital, buyout
and other private equity funds managed by third parties ("Private Funds"),
negotiated private investments in public companies ("Private Placements in
Public Companies") and foreign companies in which the equity is closely
held by company founders, management and/or a limited number of
institutional investors ("International Venture Capital Investments"). We
refer to Venture Capital Investments, Private Placements in Public
Companies and International Venture Capital Investments as Direct
Investments. Pending investment, for operating purposes and for temporary
or emergency purposes, the Company will invest in interest bearing bank
accounts, money market mutual funds, U.S. treasury securities and/or
certificates of deposit with maturities of less than one year, commercial
paper and other short term securities (collectively "Short-Term
Investments"). Although the Company's objective is to seek long-term
capital appreciation, there is no minimum holding period for the Company's
investments and the Company may sell any investment at any time that the
Investment Adviser or Investment Sub-Adviser believe it is advantageous to
do so. The disposition of Direct Investments requires the approval of the
Board of Managers.
As a BDC, the Company must invest at least 70% of its assets
("qualifying assets") in certain specified investments, including
securities of companies that qualify as "eligible portfolio companies"
under the Investment Company Act. The Company may maintain up to 30% of its
assets in non-qualifying assets; however, the Company intends to retain
maximum flexibility in connection with its investments and, therefore, does
not have a policy as to the minimum percentage of its assets that will be
so invested. See "The Company" and "Regulation."
Venture Capital Investments
We will seek to achieve our investment objective by investing
primarily in Venture Capital Investments. We may also commit to invest
funds in a Venture Capital Investment beyond our initial investment or
guarantee the obligations of a Venture Capital Investment. We will attempt
to reduce the risks inherent in private equity investing by investing in a
portfolio of companies involved in different industries and different
stages of development, through the utilization of professional management
provided by the Investment Adviser and the Investment Sub-Adviser in the
selection of private equity investments and through the active monitoring
of such investments.
Other Private Equity Investments
Subject to the limitations of the Investment Company Act, we may
invest in Private Funds, International Venture Capital Investments and
Private Placements in Public Companies (collectively, "Other Private Equity
Investments"). We generally will not make an investment in Other Private
Equity Investments if, immediately after such investment is made, more than
30% of the value of our total investment assets would be invested in such
assets. Any Private Fund investments will generally be made in domestic or
foreign venture capital, buyout or other private equity funds managed by
third parties. We do not expect to invest more than 10% of our total assets
in any one Other Private Equity Investment. Neither the Investment Adviser
nor the Investment Sub-Adviser will have a role in the management of
Private Funds. Private Funds typically charge a management fee and an
incentive fee based upon gains. These fees are in addition to the
management fees payable to the Investment Adviser, although the Incentive
Carried Interest will not be based on gains from Private Funds.
INVESTMENT STRATEGIES
The Investment Adviser or Investment Sub-Adviser will evaluate the
ability of prospective investments to produce long-term capital
appreciation based upon criteria that may be modified from time to time.
The criteria that will initially be used by the Investment Adviser and
Investment Sub-Adviser in determining whether to make an investment
include:
o the presence or availability of strong management;
o the existence of a substantial market for the products or
services of a potential Portfolio Company, characterized by
favorable growth potential, or a substantial market position in
a stable industry;
o evidence that a potential Portfolio Company offers a
differentiated product or service and defensible market position;
o the opportunity for liquidity to eventually be obtained for the
proposed investment through an initial public offering or through
a sale of the business; and
o the willingness of a potential Portfolio Company to permit us
and our co-investors, if any, to take a substantial position in
the company and have representation on its board of directors
or a right to attend board meetings as a nonvoting participant,
so as to enable us to influence the strategic direction of the
company.
Although the Company is a non-diversified company as defined in the
Investment Company Act, we do not expect to invest more than 10% of our
total assets in any one Portfolio Company or Private Fund. While we retain
the flexibility to invest in all types of industries, we currently expect
to make investments in companies engaged in businesses that are consistent
with the general investment philosophy used by U.S. Trust in its investment
management advisory business. With the approval of the Board of Managers,
we may change this policy. U.S. Trust follows a long-term investment
philosophy based on identifying opportunities with sustainable fundamental
values and uses two specific portfolio strategies to guide investment
decision-making.
U.S. Trust's first strategy is one of growth. This strategy seeks to
identify industries and companies with the capabilities to provide
solutions to or benefit from markets which are growing in response to
underlying trends, such as companies' need to enhance productivity through
technological innovation or the changing demographics of the U.S.
population. U.S. Trust's second strategy is a "transaction value"
comparison of a company's real underlying asset value with similar assets
changing ownership in market transactions. Differences between a company's
real asset value and the price of its shares often are corrected over time
by restructuring of the assets or by market recognition of their value.
The two portfolio strategies discussed above are applied together
with several "longer-term investment themes" to help identify specific
investment opportunities. U.S. Trust believes that the longer-term themes
described below represent strong and inexorable trends and that the
beneficiaries of these trends will be rewarded in the long-term.
o Communication and Information -- companies benefiting from the
technological and international transformation of the
communications and information industries, particularly the
convergence of information, communication and entertainment
o Productivity Enhancers -- companies benefiting from their roles
as innovators, developers and/or suppliers of goods and
services which enhance service and manufacturing productivity
or companies that are the most effective at obtaining and
applying productivity enhancements
o Infrastructure Development-- companies benefiting from the
development and expansion of global infrastructure expenditure
o Early Life Cycle-- companies in an earlier stage of development
looking to exploit new market opportunities
o Demographics/Rising Living Standards -- companies concerned
with the quality characteristics, lifestyles and changing
demographic profiles of individuals, families and companies
o Globalization Forces-- companies benefiting from their position
as effective and strong competitors on a global basis
o Business and Industrial Restructuring -- companies benefiting
from their restructuring or redeployment of assets and
operations in order to become more competitive or profitable
In the context of the above, the Company expects to emphasize the
technological innovations that are driving the transformation of the
economy, with specific focus on:
o Information Technology
o Communications
o Life Sciences
o Information Services
INVESTMENT PRACTICES
Borrowing. The Company may from time to time borrow funds for
operating purposes in an amount up to 25% of the value of its total assets
(after giving effect to the borrowing) in order to make additional
investments in existing Portfolio Companies, to maintain various regulatory
qualifications or to pay contingencies and expenses. If the Company borrows
funds (other than through a private loan), distributions to Unitholders or
the repurchase of Units generally is prohibited under the Investment
Company Act unless the ratio of our total assets (less liabilities and
indebtedness not subject to this test) to the amount of all such borrowings
is at least 200% at the time of and after giving effect to the distribution
or repurchase. In general, the Company does not intend to borrow for
investment purposes other than for the purpose of making additional
investments in existing Portfolio Companies and will not borrow to pay the
management fee payable to the Investment Adviser. See "Regulation."
The use of leverage even on a short-term basis will have the effect
of magnifying increases or decreases in the Company's net asset value. We
also expect that, as a condition to lending, lenders may place restrictions
on us, which may include reserve requirements or operating restrictions,
and may limit our ability to make distributions. There can be no assurance
that the Company will borrow when considered desirable. The Company may not
be able to arrange debt financing on terms acceptable to the Investment
Adviser, the Investment Sub-Adviser and the Board of Managers, or the
Investment Adviser, the Investment Sub-Adviser and the Board of Managers
may believe borrowings are not in the Company's best interest. If the
Company were unable to obtain debt financing, the Company might be required
to sell a portfolio investment at an inopportune time, or to forego the
purchase of an attractive investment. In either case, the value of the
Company's investment portfolio, and of the Units, could be adversely
affected. See "Risk Factors -- Borrowing."
Other Investment Policies. The Company will not sell securities short
or on margin. Except for hedging purposes, the Company will not write puts
or calls or purchase or sell commodities or commodity contracts. The
Company will not underwrite the issuance of securities of other companies,
except to the extent the Company is deemed to be an underwriter of any
company that it invests in. Hedging instruments used to hedge Direct
Investments will be treated as Direct Investments for purposes of the
Company's allocation and distribution policies.
The Company will not lend its assets to any person or individual,
except through the purchase of bonds or other debt obligations customarily
sold to institutional investors. However, the Company may, subject to
limitations of the Investment Company Act, lend portfolio securities if
collateral values are continuously maintained at no less than 100% by
"marking to market" daily. The collateral received will consist of cash,
U.S. short-term government securities, bank letters of credit or such other
collateral as may be permitted under the Company's investment objective and
policies and by regulatory agencies and approved by the Board of Managers
of the Company. While a loan of portfolio securities is outstanding, the
Company will continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities, as well as interest on the
investment of the collateral or a fee from the borrower. The risks in
lending portfolio securities, as with other extensions of secured credit,
consist of possible delay in receiving additional collateral or in recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially.
The Company will not invest in real estate or oil, gas or other
mineral leases, either directly or indirectly (including limited
partnership interests of entities which invest in real property or
interests in oil, gas or minerals), although the Company may invest in
other entities whose business involves the holding or acquisition of real
estate or the holding or making of such leases.
The Company's objective and its policies (other than its status as a
BDC) are not deemed to be fundamental policies and all may be changed at
any time and from time to time by the Board of Managers without member
approval.
RISK FACTORS
The Units offered hereby involve a high degree of risk, including,
but not limited to, the risk factors described below. Each prospective
investor should carefully consider the following risk factors inherent in
and affecting the business of the Company and this offering before making
an investment decision. Prospective investors should consider the
information set forth under "Management."
RISKS RELATED TO THE COMPANY
LACK OF OPERATING HISTORY
While the key personnel of the Investment Adviser and the Investment
Sub-Adviser have considerable experience in venture capital and private
equity investing, including experience with Fund I and Fund II, the Company
has recently been formed and has no operating history of its own upon which
an investor may base an evaluation of the likely performance of the
Company. See "Management - Investment Adviser; Investment Sub-Adviser and
Compensation."
MINIMUM PROCEEDS; PORTFOLIO DIVERSIFICATION
The Company will begin operations upon the receipt of proceeds from
its initial closing after the receipt of subscriptions for capital
commitments of $250,000,000. To the extent that the Company makes fewer
investments, it may be subject to greater risks from developments adversely
affecting one or a limited number of issuers. If the Company receives only
the minimum amount of subscriptions, it will have fewer assets to invest
and will likely acquire fewer investments than it would if it received more
subscriptions. This would increase the Company's volatility and risk. See
"The Offering."
RELIANCE ON THE INVESTMENT ADVISER AND THE INVESTMENT SUB-ADVISER
The investment decisions of the Company will be made by the
Investment Adviser and the Investment Sub-Adviser. Investors will have no
right or power to take part in the management of the Company and will not
receive the detailed financial information made available by issuers to the
Investment Adviser and the Investment Sub-Adviser in connection with the
review of possible purchases for the Company's portfolio. Accordingly,
investors must be willing to entrust management of the Company to the
Investment Adviser and the Investment Sub-Adviser. See "Management -
Investment Adviser; Investment Sub-Adviser and Compensation."
REGULATION
The Company has elected to be treated as a BDC under the Investment
Company Act. The applicable provisions of the Investment Company Act impose
numerous restrictions on the activities of the Company, including
restrictions on the nature of its investments, its use of leverage and its
issuance of securities, options, warrants or rights. Among the restrictions
is the requirement that a majority of the Board of Managers be individuals
who are not "interested persons" within the meaning of the Investment
Company Act and that the Company must generally invest at least 70% of its
assets in securities of companies that meet the requirements for "eligible
portfolio companies" under the Investment Company Act. In addition, a BDC
must make significant managerial assistance available to a significant
number of the companies whose securities it purchases. The Investment
Adviser and Investment Sub-Adviser believe that the constraints applicable
to BDCs are consistent with the objectives of the Company. However, such
constraints could prohibit the Company from investing in some potentially
attractive situations that might otherwise be available. At the same time,
our election to be treated as a business development company exempts us
from certain provisions of the Investment Company Act. As a result, we
operate differently than a registered investment company and are subject to
different and potentially greater risks as compared to a registered
investment company.
There are relatively few judicial decisions under and administrative
interpretations of the portions of the Investment Company Act applicable to
the Company, and there can be no assurance that such provisions will be
interpreted or administratively implemented in a manner consistent with the
Company's objectives and intended manner of operation. In the event that
the Board of Managers determines that it cannot operate effectively as a
BDC, the Board of Managers may at some future date decide to withdraw the
Company's election to be treated as a BDC and transform it into a
registered investment company or an operating company not subject to
regulation under the Investment Company Act, or cause the Company to be
liquidated. The Company could not operate as an operating company
unregulated under the Investment Company Act consistent with its current
investment policies. Should the Board of Managers seek to withdraw the
Company's election as a BDC, it must obtain the approval of members who
represent a majority of the Company's outstanding Units. See "Regulation."
POTENTIAL CONFLICTS OF INTEREST
The Investment Adviser and the Investment Sub-Adviser and their
affiliates may be subject to various conflicts of interest in connection
with their relationships and transactions with the Company. Such conflicts
of interest include the following:
INCENTIVE CARRIED INTEREST. The Investment Adviser receives certain
allocations and distributions determined by the amount of net realized
capital gains (net of realized capital losses and net unrealized capital
depreciation) of the Company as set forth under "Description of the Company
- Allocations and Distributions." This may cause the Investment Adviser to
select investments for the Company that involve greater risk than it would
select if it did not receive a portion of such capital gains.
CONFLICTS AS TO INVESTMENT OPPORTUNITIES. The Investment Adviser, the
Investment Sub-Adviser and their affiliates serve as investment advisers
for their fiduciary accounts and other private or public investment
vehicles that have investment objectives identical with or similar to those
of the Company. While the Investment Adviser and Investment Sub-Adviser are
obligated to endeavor to provide the Company with continuing and suitable
investment opportunities consistent with its investment objective and
policies, the Investment Adviser and Investment Sub-Adviser are not
required to present to the Company any particular opportunity that falls
within the investment objective and policies of the Company. The Investment
Adviser and Investment Sub-Adviser will endeavor to offer to the Company on
an equitable basis investment opportunities that would be suitable for both
the Company and other accounts for which they provide discretionary
investment advisory services. The Investment Adviser and Investment
Sub-Adviser will endeavor to resolve conflicts with respect to investment
opportunities in a manner deemed equitable to all and consistent with its
fiduciary duties.
ALLOCATION OF MANAGEMENT TIME AND SERVICES. The Company will not have
independent officers or employees and will rely upon the Investment
Adviser, the Investment Sub-Adviser and their affiliates for management of
the Company and its assets. The Investment Adviser and Investment
Sub-Adviser believe that they and their affiliates have or can attract
sufficient personnel to discharge all of their responsibilities to the
Company. Conflicts of interest may arise in allocating management time,
services or functions between the Company and other entities for which the
Investment Adviser, the Investment Sub-Adviser and their affiliates may
provide similar services. The officers and employees of the Investment
Adviser will devote such time to the affairs of the Company as they, in
their sole discretion, determine to be necessary for the conduct of the
business of the Company.
RELATIONSHIPS WITH PORTFOLIO COMPANIES. The Investment Adviser, the
Investment Sub-Adviser and their affiliates may serve as directors or
officers of or consultants to certain Portfolio Companies and, in
connection therewith, earn various fees which may be paid in the form of
cash, securities or other consideration. Any such consideration earned from
a Portfolio Company by the Investment Adviser, the Investment Sub-Adviser
or any of their officers or directors will be paid-over to the Company. In
addition, the Investment Adviser and Investment Sub-Adviser expect that
they or their affiliates will from time to time provide investment
advisory, trust, banking or insurance services to certain Portfolio
Companies in connection with their ordinary business operations. The
Investment Adviser and Investment Sub-Adviser expect that the terms of such
relationships will be consistent with the terms on which the Investment
Adviser and Investment Sub-Adviser or their affiliates generally provide
such services to their customers.
AFFILIATED TRANSACTIONS. The Investment Company Act restricts
transactions between the Company and Portfolio Companies controlled by the
Company and any "affiliated person" of the Company (as defined in the
Investment Company Act) including, among others, the Company's officers,
members of its Board of Managers, principal Unitholders, employees, the
Investment Adviser, the Investment Sub-Adviser certain of their affiliated
persons and other affiliates of the Company. In many cases, the Investment
Company Act prohibits transactions unless the Company first applies for and
obtains an exemptive order from the Commission. Delays and costs involved
in obtaining necessary approvals may decrease the profitability of such
transactions or make it impracticable or impossible to consummate such
transactions. Further, provisions of federal and state banking regulations
impose restrictions on certain types of transactions between a bank and its
affiliates. The Company does not believe that an order from the Commission
would ordinarily be required for the transactions discussed above under
"Relationships with Portfolio Companies." Certain other transactions may
require an order from the Commission. The Company may in the future engage
in such activities, but does not have a present plan to do so. The Company
does not intend to engage in such transactions unless it has obtained an
order from the Commission or determined that an order is not required.
Among such other activities are joint investments in Portfolio
Companies. The Investment Adviser, the Investment Sub-Adviser and their
affiliates and employees may in the future participate with the Company in
joint investments in Portfolio Companies and other securities and may make
loans to, or other investments in, Portfolio Companies. Any investment in
the same security at or about the same time will be required to be on a
basis which, in the judgment of the Board of Managers, is not more
advantageous to such other persons than the basis upon which the Company
participates in such joint investments, will require the prior approval of
the Board of Managers, including a majority of the disinterested members of
the Board of Managers, and may require an order of the Commission. Because
of their potentially varying investment objectives or other factors,
conflicts could arise between the Company and its affiliates relating to
co-investments, which can only be resolved through the exercise by the
Investment Adviser and Investment Sub-Adviser of such judgment as is
consistent with their fiduciary duties to the Company. Even with the proper
exercise of such judgment, however, there can be no assurance that
potential conflicts would be resolved in a manner favorable to the Company.
UNSPECIFIED USE OF PROCEEDS
Inasmuch as the Company has not identified the particular uses for
the net proceeds from this offering other than to make investments on the
basis of opportunities as they may arise, prospective investors must rely
on the ability of the Investment Adviser and Investment Sub-Adviser to
identify and make portfolio investments consistent with the Company's
investment objective. Investors will not have the opportunity to evaluate
personally the relevant economic, financial and other information which
will be utilized by the Investment Adviser and Investment Sub-Adviser in
deciding whether or not to make a particular investment or to dispose of
any such investment. See "Use of Proceeds."
FEDERAL INCOME TAXATION
TAX STATUS OF THE COMPANY. At the first subscription closing, the
Company will receive an opinion of its counsel to the effect that, under
current law and based on certain assumptions and representations, the
Company will be treated as a partnership and not as a "publicly traded
partnership" that is treated as a corporation for federal income tax
purposes. Such opinion will be based upon the maintenance of certain
factual and other conditions, the continuation of which cannot be assured.
No ruling has been or will be sought from the IRS regarding the status of
the Company as a partnership. An opinion of counsel is not binding on the
IRS or any court.
A limited liability company (such as the Company) that has elected to
be treated as a business development company under the Investment Company
Act would be treated as a corporation for federal income tax purposes if it
were to become a publicly traded partnership. If the Company were treated
as a publicly traded partnership or otherwise treated as a corporation for
federal income tax purposes, material adverse consequences for the members
would result. The Company would be subject to tax on its income at
corporate tax rates without a deduction for any distribution to the
members, thereby materially reducing the amount of any cash available for
distribution to the members. In addition, the members would be treated as
shareholders for federal income tax purposes. Thus, capital gains and
losses and other income and deductions of the Company would not be passed
through to the members, and all distributions by the Company to the members
would be treated as dividends, return of capital and/or gains. See "Certain
Federal Income Tax Considerations - Tax Status of the Company."
TAXATION OF MEMBERS ON COMPANY PROFITS AND LOSSES. The Company, if
treated as a partnership for tax purposes as discussed above, will not
itself be subject to federal income tax. Rather, each member in computing
his, her or its federal income tax liability will be required to take into
account his, her or its allocable share of Company items of income, gain,
loss, deduction and expense for the taxable year of the Company ending
within or with such taxable year of the member, regardless of whether the
member has received any distributions from the Company. Prospective
investors should also be aware that they will be subject to various
limitations on their ability to deduct their allocable share of Company
losses (or items of loss and deduction thereof). For these and various
other reasons, it is possible that a member's federal income tax liability
with respect to his, her or its allocable share of Company earnings in a
particular year could exceed the cash distributions to the member for the
year, thus giving rise to an out-of-pocket payment by the member. See
"Certain Federal Income Tax Considerations - Taxation of Members of the
Company."
GENERAL. In view of the complexity of the tax aspects of the
offering, particularly in light of recent changes in the law and the fact
that certain of the tax aspects of the offering will not be the same for
all investors, prospective investors must consult their own tax advisers
with specific reference to their own tax situations prior to investing in
the Company. No assurance can be given that the current federal income tax
treatment applicable to an investment in the Company will not be modified
by legislative, administrative or judicial action in the future. Any such
changes may retroactively affect existing transactions and investments.
Prospective investors must also consult their own tax advisers with respect
to the effects of applicable state, local and non-U.S. tax laws.
The foregoing is a summary of certain significant federal income tax
risks relating to an investment in the Company. This summary should not be
interpreted as a representation that the matters referred to herein are the
only tax risks involved in this investment or that the magnitude of such
risks is necessarily equal. For a more detailed discussion of these and
other federal income tax risks of an investment in the Company, see
"Certain Federal Income Tax Considerations."
LIABILITY OF MEMBERS
You will be obligated to pay your full subscription amount. However,
you will not be liable for any obligations of the Company in excess of your
capital account balance, plus your share of undistributed profits. If,
however, you receive a distribution from the Company, and, after such
distribution, the liabilities of the Company exceed the fair value of the
Company's assets (and you had knowledge of this fact at the time of the
distribution), you may be required to return such distribution to the
Company. The Company has no intention of making such distributions. You
will not have the right to a return of the subscription amount except in
accordance with the distribution provisions of the Operating Agreement.
NO PUBLIC OR OTHER MARKET FOR UNITS
No person may become a substitute member without the written consent
of the Company, which may withhold its consent for any reason in its sole
and absolute discretion. A member may transfer Units only by operation of
law pursuant to the death, bankruptcy, insolvency or dissolution of the
member or otherwise, or with the written consent of the Company (which it
may withhold in its sole and absolute discretion and will grant, if at all,
only in extenuating circumstances) or in connection with the transfer to a
family trust or another entity that does not result in a change in
beneficial ownership. Notice to the Company of any proposed transfer must
include evidence satisfactory to the Company that the proposed transferee
meets any eligibility and suitability standards and must be accompanied by
properly completed transfer documents.
Any transferee that acquires Units by operation of law as a result of
death, bankruptcy, insolvency or dissolution of the member or otherwise
shall be entitled to the allocations and distributions, if any, with
respect to the Units so acquired and to transfer those Units subject to the
restrictions of the Operating Agreement, but shall not be entitled to the
other rights of a member unless and until that transferee becomes a
substituted member as provided in the Operating Agreement. If a member
transfers Units with the approval of the Company under the policies
established by the Company, the Company shall promptly take all necessary
actions so that each transferee or successor to whom those Units is
transferred is admitted to the Company as a member. Each member and
transferee must pay all expenses, including attorneys' and accountants'
fees, incurred by the Company in connection with such transfer. See
"Description of Units - Summary of Limited Liability Company Operating
Agreement."
By subscribing for Units, each member will agree to indemnify and
hold harmless the Company, each member of the Board of Mangers of the
Company, the Investment Adviser, the Investment Sub-Adviser, the
Distributor and any of their affiliates and controlling persons and each
other member and any successor or assign of any of the foregoing, against
all losses, claims, damages, liabilities, costs and expenses (including
losses, claims, damages, liabilities, costs and expenses of any judgments,
fines and amounts paid in settlement), joint or several, to which those
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. A similar
indemnification is required to be made by a permitted transferee.
DISTRIBUTIONS IN KIND
The Company may determine to make distributions of securities or
other property in kind. To the extent that the Company does so, you will
incur additional expenses when you determine to dispose of such securities
or other assets. In addition, the determination of whether and when to
dispose of such securities or other assets will be your responsibility.
Such securities or other property may be worth more or less when you
dispose of them than their value at the time of distribution. Although the
Company generally intends to distribute securities prior to liquidation
only if such securities are traded in an active secondary market without
registration, such securities may be subject to a minimum holding period or
other limitations on resale.
GENERAL RISKS OF INVESTMENTS
RISK OF PRIVATE EQUITY INVESTMENTS
While the Company will be a non-diversified company as defined by the
Investment Company Act, it does not expect to invest more than 10% of its
total assets in any one Portfolio Company. The Company's investments in
Private Funds serve to further diversify its holdings. Since the Company's
assets may be concentrated in relatively few investments, substantial
declines in the values of its investments could have a material adverse
effect on the net asset value of the Company. Although private equity
investments offer the opportunity for significant capital gains, such
investments involve a high degree of business and financial risk that can
result in substantial losses. Among these are the risks associated with
investments in companies in an early stage of development or with little or
no operating history, companies operating at a loss or with substantial
variation in operating results from period to period, companies with the
need for substantial additional capital to support expansion or to maintain
a competitive position, or companies with significant financial leverage.
Such companies may also face intense competition from others including
those with greater financial resources, more extensive development,
manufacturing, distribution or other attributes over which the Company will
have no control. The Company anticipates that it may also make investments
in high-technology companies that may face risks of product obsolescence.
ILLIQUIDITY OF PRIVATE EQUITY INVESTMENTS
Because of the competition for investments that meet the requirements
for "qualifying assets," the Company anticipates that it may take up to
four years before it is fully invested or committed to invest in Portfolio
Companies. Private equity investments may typically take from two to seven
years from the date of initial investment to reach a state of maturity at
which disposition can be considered. In light of the foregoing, it is
unlikely that any significant distribution of the proceeds from the
disposition of private equity investments will be made until the later
years of the Company's term.
The Company's private equity investments will consist primarily of
securities that are subject to restrictions on sale by the Company because
they were acquired from the issuer in "private placement" transactions or
because the Company is deemed to be an affiliate of the issuer. Generally,
the Company cannot sell these securities publicly without the expense and
time required to register the securities under the Securities Act or sell
the securities under Rule 144 or other rules under the Securities Act which
permit only limited sales under specified conditions. When restricted
securities are sold to the public, the Company may be deemed an
"underwriter" or possibly a controlling person under the Securities Act and
be subject to liability as such under the Securities Act.
In addition, contractual or practical limitations may inhibit the
Company's ability to sell, distribute or liquidate its investments in
Portfolio Companies because the issuers are privately held, because the
Company owns a relatively large percentage of the issuer's outstanding
securities or because joint venture associates, other investors, financial
institutions or management are relying on the Company's continued
investment. Sales may also be limited by financial market conditions, which
may be unfavorable for sales of securities of particular issuers or issuers
in particular markets. The above limitations on liquidity of the Company's
portfolio investments could prevent a successful sale and result in the
delay of any sale or reduction in the amount of proceeds that might
otherwise be realized. Although the Company will reflect these restrictive
factors in the valuation of its investments, no assurance can be given that
the estimated values will represent the return that might ultimately be
realized by the Company from the investment. See "Valuation of Portfolio
Securities."
NEED FOR FOLLOW-ON INVESTMENTS
Following its initial investments in Portfolio Companies, the Company
anticipates that it may be called upon to provide additional funds to
Portfolio Companies or have the opportunity to increase investments in
successful operations. Although the Company may borrow to make follow-on
investments, there is no assurance that the Company will make follow-on
investments or that the Company will have sufficient funds to make such
investments. Any decision by the Company not to make follow-on investments
or its inability to make them may have a substantial impact on Portfolio
Companies in need of such an investment or may result in a missed
opportunity for the Company to increase its participation in a successful
operation.
COMPETITION FOR INVESTMENTS
The Company expects to encounter competition from other entities
having similar investment objectives. Historically, the primary competition
for venture capital, buyout and other private equity investments has been
from venture capital, buyout and private equity partnerships and
corporations, private equity affiliates of large industrial and financial
companies, small business investment companies and wealthy individuals. The
Company will frequently be a co-investor with other professional venture
capital, private equity or leveraged buyout groups including several in
which the Company may be an investor. These relationships with other groups
should expand the Company's access to investment opportunities.
In addition, it is possible that there may be circumstances under
which an additional investment would be considered an affiliated
transaction, requiring prior Commission approval. The receipt of an
exemptive order from the Commission could be time consuming and costly and
there can be no assurance that such approval would be obtained.
INVESTMENT IN COMPANIES DEPENDENT UPON NEW TECHNOLOGIES
Under current market conditions, the Company plans to focus on
investments in companies that rely significantly on technological events or
advances in their product development, production or operations. The value
of the Company's Units may be susceptible to factors affecting technology
and technology-related industries and to greater risk and market
fluctuation than an investment in a fund that invests in a broader range of
portfolio securities. The specific risks faced by technology companies
include:
o rapidly changing technologies and products that may quickly
become obsolete;
o changing investor sentiments and preferences with regard to
technology sector investments (which are generally perceived as
risky);
o cyclical patterns in information technology spending which may
result in inventory write-offs;
o scarcity of management, engineering and marketing personnel with
appropriate technological training;
o the possibility of lawsuits related to technological patents and
intellectual property; and
o exposure to a high degree of government regulation, making these
companies susceptible to changes in government policy and
failures to secure regulatory approvals.
BORROWING
In general, the Company does not intend to borrow funds for
investment purposes. However, the Company may borrow funds to facilitate
the making of follow-on investments, to maintain various regulatory
qualifications or to pay contingencies and expenses. The Company will not
borrow to pay the advisory fee payable to the Investment Adviser. The
Company is permitted under the Investment Company Act to borrow funds if,
immediately after the borrowing, it will have an asset coverage (as defined
in the Investment Company Act) of at least 200%. The amount and nature of
any borrowings will depend upon a number of factors over which neither the
Board of Managers nor the Investment Adviser has control, including general
economic conditions, conditions in the financial markets and the impact of
the financing on the tax treatment of the members. Subject to the
foregoing, the Company may borrow funds in an amount up to 25% of the value
of its assets. See "Investment Objective and Policies -- Borrowing."
Although the Company does not intend to borrow funds to make initial
investments, the use of leverage even on a short-term basis could have the
effect of magnifying increases or decreases in the Company's net asset
value. The Company also expects that, as a condition to lending, lenders
may place restrictions on the Company, which may include reserve
requirements or operating restrictions, and may limit the ability of the
Company to make distributions to members. There can be no assurance that
debt financing will be available on terms that the Investment Adviser,
Investment Sub-Adviser or Board of Managers consider to be acceptable and
in the best interests of the Company. If borrowing is unavailable, the
Company may be required to make an untimely disposition of an investment.
LACK OF DIVERSIFICATION
The Company intends to operate as a non-diversified investment
company within the meaning of the Investment Company Act and, therefore,
the Company's investments may not be substantially diversified. In any
event, the Company will not be able to achieve the same level of
diversification as much larger entities engaged in similar activities. The
Company's assets may be subject to greater risk of loss than if they were
more widely diversified, inasmuch as the failure of one or more of a
limited number of investments could have a greater adverse effect on the
Company than the failure of one of a large number of investments. The net
asset value of a nondiversified company may be more volatile than in the
case of a diversified company. See "Investment Objective and Policies."
THE OFFERING
The Company is offering investors the opportunity to subscribe to
make capital contributions to the Company in exchange for membership
interests in the Company. Units are made available through Charles Schwab &
Co., Inc. as principal distributor. Units may be sold by the Distributor to
investors directly or through financial intermediaries acting as broker or
agent for their customers. The Investment Adviser or an affiliate, out of
its own assets and not the assets of the Company. The Investment Adviser or
an affiliate will pay the Distributor from its own assets an amount equal
to 0.02% of the total of all subscriptions received in this offering. Units
may be sold by the Distributor to investors directly or through financial
intermediaries acting as broker or agent ("Selling Agent") for their
customers. The Investment Adviser or an affiliate may compensate from its
own assets Selling Agents who sell Units of the Company to investors. The
Investment Adviser or an affiliate will also pay the Distributor an ongoing
fee for the sale of Units and the provision of ongoing investor services in
an amount equal to the annual rate of 0.45% of the average quarterly net
asset value of all outstanding Units held by investors introduced to the
Company by the Distributor through the fifth anniversary of the final
subscription closing date and at the annual rate of 0.22% thereafter,
subject to elimination upon all such fees totaling 6.5% of the gross
proceeds received by the Company from this offering. The offering will
terminate on October 31, 2000, or such later date not later than December
31, 2000, subject to extension by the Board of Managers, as the Company may
determine. If subscriptions for at least $250,000,000 have not been
received by the Termination Date, the offering will terminate See "Risk
Factors -- Minimum Proceeds and Portfolio Diversification." The minimum
subscription is $100,000. We have the right to waive the minimum at our
discretion.
Each investor will be required to complete, execute and deliver to
the Company an executed copy of the Subscription Agreement, which will form
a binding contract of the investor. Pursuant to the Subscription Agreement,
your subscription amount is required to be paid in two equal installments:
one-half as an initial capital contribution payable on or before the final
subscription closing date (not later than December 31, 2000, subject to
extension) and one-half as a second capital contribution payable on the
first anniversary of the final subscription closing date. If any member
fails to make the second capital contribution when due, the Company will
give the member prompt notice of default. If such member fails to cure such
default promptly after receiving the notice of default from the Company,
the Company may take such action as may be necessary, including enforcing
the Subscription Agreement in any court of competent jurisdiction. The
Company may in its sole discretion elect instead to avail itself of any
other remedies afforded under the Operating Agreement and Delaware law,
including potentially complete forfeiture to the Company of the delinquent
member's interest in the Company. This would result in the complete loss of
amounts previously contributed by the delinquent member.
Funds transmitted to the Company by investors prior to the applicable
closing date will be deposited in an interest-bearing bank escrow account
with PFPC Inc. pending closing. In the event the Company rejects a
subscriber's Subscription Agreement or a subscriber elects to withdraw his
subscription prior to his or her initial subscription closing date, PFPC
Inc. will promptly deliver to such subscriber all funds received; any
interest earned on such funds will be returned within five business days of
the next subscription closing after such rejection or withdrawal.
We expect that a first subscription closing will be held on or about
the fifth business day after receipt of subscriptions totaling at least
$250,000,000. The Company may continue to offer Units and accept
subscriptions for such Units from time to time at subsequent closings until
the Termination Date. Within five business days after each closing, PFPC
Inc. will mail to each subscriber checks in the respective amounts of
interest earned by funds held in escrow. If the minimum of $250,000,000 of
subscriptions are received, any charges or expenses associated with the
escrow account will be paid by the Investment Adviser or an affiliate.
The Company intends to offer to a registered investment company that
will invest substantially all of its assets in the Company the opportunity
to subscribe for Units on a private placement basis. The terms and
conditions of such offering will be substantially the same as those
applicable to the offering made by the prospectus, including the obligation
to make an initial and second capital contribution to the Company. The
Company may be required to execute the registration statement under the
Securities Act of 1933, as amended, of such registered investment company.
In such event, the Company will be exposed to potential liabilities under
such Act arising out of the statements included in, or excluded from, such
registration statement. The Company does not intend to accept subscriptions
from all investors (including such registered investment company) totaling
in the aggregate more than $800,000,000.
USE OF PROCEEDS
If the offering is fully subscribed for, the net proceeds to the
Company through the final subscription closing, before deducting
organizational and offering expenses estimated to be approximately
$1,406,000, will be $300,000,000, and the net proceeds to the Company from
the second capital contribution will be an additional $300,000,000, for
total net proceeds of $600,000,000. Organizational and offering expenses
will be payable from the initial capital contributions and will be deducted
from members' capital accounts. Charles Schwab & Co., Inc., the Company's
principal distributor, has agreed to pay the Company's organizational
costs, estimated to be $50,000, in the event that the Company receives
subscriptions totaling less than $300,000,000. If the Company receives
subscriptions totaling $300,000,000 or more, the Company will pay its own
organizational expenses estimated to be $50,000.
No portion of the net proceeds of the offering has been allocated to
any particular investment. However, the payments will be utilized in a
manner consistent with the Investment Company Act and the Company's
investment objective and policies. Pending investment, for operating
purposes and for temporary or emergency purposes, such proceeds will be
invested in Short-Term Investments.
It is anticipated that there will be a significant period of time (up
to four years) before the Company becomes fully invested. Although the
Company intends to invest or commit to invest more than 50% of the proceeds
from each of the initial and second capital contributions in Venture
Capital Investments within the earlier of (i) two years after the final
subscription closing date and (ii) two and one-half years after the
commencement of this offering, a delay is common for BDCs because of the
competition for investments in entities that meet the requirements for
"qualifying assets" under the Investment Company Act. Further, investments
in Venture Capital Investments and other Direct Investments may typically
take from two to seven years from the date of initial investment to reach a
state of maturity at which disposition can be considered. In light of the
foregoing, it is unlikely that any significant distribution of the proceeds
from the disposition of Venture Capital Investments and other Direct
Investments will be made until the later years of the existence of the
Company. See "Risk Factors."
MANAGEMENT
INVESTMENT ADVISER; INVESTMENT SUB-ADVISER AND COMPENSATION
Investment Adviser and Investment Sub-Adviser. U.S. Trust Company, a
Connecticut state chartered bank and trust company, will serve as the
Investment Adviser of the Company pursuant to an investment advisory
agreement with the Company (the "Investment Advisory Agreement"). United
States Trust Company of New York, a New York state chartered bank and trust
company, will serve as the Investment Sub-Adviser to the Company pursuant
to an investment sub-advisory agreement among the Investment Sub-Adviser,
the Investment Adviser and the Company (the "Investment Sub-Advisory
Agreement"). U.S. Trust Company and United States Trust Company of New York
are wholly owned subsidiaries of U.S. Trust Corporation, a registered bank
holding company. The Investment Adviser or Investment Sub-Adviser have been
the investment advisers to Fund I and Fund II, each a registered BDC, since
September 1994 and March 1997, respectively. The investment management
personnel of the Investment Adviser and Investment Sub-Adviser consist of
the same persons that perform the investment management functions for Fund
I and Fund II. United States Trust Company of New York's principal address
is 114 West 47th Street, New York, New York 10036. U.S. Trust Company's
address is 225 High Ridge Road, Stamford, Connecticut 06905. On December
31, 1999, U.S. Trust's Asset Management Group, which includes U.S. Trust
Company and United States Trust Company of New York and other affiliates of
U.S. Trust Corporation, had approximately $86 billion in assets under
management.
Under the supervision of the Company's Board of Managers, the
Investment Adviser and Investment Sub-Adviser are responsible for finding,
evaluating, structuring and monitoring the Company's investments and for
providing or arranging for management and administrative services for the
Company. The investment professionals in charge of the day-to-day
management of the Company have extensive experience in venture capital and
private equity investing. See "Managers, Officers and Investment
Professionals" below.
U.S. Trust Corporation is an indirect, wholly owned subsidiary of The
Charles Schwab Corporation ("Schwab"). Through its principal subsidiary,
Charles Schwab & Co., Inc., Schwab is the nation's fourth largest financial
services firm and the nation's largest electronic brokerage firm, in each
case, as measured by customer assets. At December 31, 1999, Schwab served
6.6 million active accounts with $725 billion in customer assets through
340 branch offices, four regional customer telephone service centers and
automated telephone online channels. Approximately 30% of Schwab's customer
assets and approximately 13% of its customer accounts are managed by 5,800
independent, fee-based investment advisers served by Schwab's institutional
investor segment. Charles R. Schwab is the founder, Chairman and Co-Chief
Executive Officer and a director and significant shareholder of Schwab.
Management Fee. In return for its services and the expenses which the
Investment Adviser assumes under the Investment Advisory Agreement, the
Company will pay the Investment Adviser, on a quarterly basis, a management
fee at an annual rate equal to 2.00% of the Company's average quarterly net
assets through the fifth anniversary of the first closing date and at an
annual rate of 1.00% of net assets thereafter. The management fee is
payable in arrears on the last day of each fiscal quarter. The Investment
Adviser has agreed to waive the management fee during the subscription
period, which will end on the final subscription closing date. Pursuant to
the Investment Sub-Advisory Agreement, the Investment Adviser pays an
investment management fee to the Investment Sub-Adviser. See "The Company"
and "Regulation."
Investment Advisory Agreement and Investment Sub-Advisory Agreement.
The Company will enter into an investment advisory agreement with the
Investment Adviser. The Investment Adviser and the Company will enter into
an investment sub-advisory agreement with the Investment Sub-Adviser. The
Investment Advisory Agreement and Investment Sub-Advisory Agreement provide
that the Investment Adviser and Investment Sub-Adviser shall, subject to
the supervision of the Board of Managers, identify, evaluate, structure,
monitor, dispose of and make managerial assistance available to the
Company's investments, and assist in the administration of the Company's
affairs. Such administrative assistance may include: providing the Company
with office space, equipment, facilities and supplies and clerical
services; keeping and maintaining certain of the books and records of the
Company, accounts and communications and correspondence with members,
preparing and assisting in preparing accounting, management and other
reports; and providing such other managerial and administrative services as
may be reasonably requested by the Company. The Company also uses the
services of an Administrator.
Under the Investment Advisory Agreement and Investment Sub-Advisory
Agreement, the Company will pay all of its expenses and liabilities,
including, but not limited to, fees and expenses of the Board of Managers;
fees and expenses of the Investment Adviser; expenses of the Investment
Sub-Adviser; fees and expenses of registering the Units under federal and
state securities laws; interest; taxes; fees and expenses of the Company's
legal counsel and independent accountants; fees and expenses of the
Company's administrator (PFPC Inc.), transfer agent and custodian; expenses
of printing and mailing Unit certificates, reports to members, notices to
members and proxy statements; reports to regulatory bodies; brokerage and
other expenses in connection with the execution, recording and settlement
of portfolio security transactions; expenses in connection with the
acquisition and disposition of portfolio securities or the registration of
privately issued portfolio securities; costs of third party evaluations or
appraisals of the Company (or its assets) or its actual investments;
expenses of membership in investment company and other trade associations;
expenses of fidelity bonding and other insurance premiums; expenses of
members' meetings; fees payable to the National Association of Securities
Dealers, Inc. (the "NASD"), if any, in connection with this offering;
indemnification costs and expenses; fees and expenses of legal counsel to
the members of the Board of Managers who are not interested persons of the
Company (within the meaning of the Investment Company Act); and the
Company's other business and operating expenses.
The Investment Advisory Agreement and the Investment Sub-Advisory
Agreement provide for indemnification by the Company of the Investment
Adviser and the Investment Sub-Adviser, their affiliates and each of their
respective officers, directors, employees, members and agents from any and
all losses, claims, damages, liabilities or expenses (including reasonable
counsel fees and expenses) incurred by them in connection with, or
resulting from their actions or inactions in connection with the
performance of or under the Investment Advisory Agreement and the
Investment Sub-Advisory Agreement. Indemnification is only available to the
extent the loss, claim, liability or expense did not result from willful
misfeasance, bad faith or gross negligence in the performance by the
persons seeking indemnification of their duties, or the reckless disregard
of their obligations and duties, under the Investment Advisory Agreement or
Investment Sub-Advisory Agreement.
The Investment Advisory Agreement and Investment Sub-Advisory
Agreement provide that they will continue in effect for two years and that,
after the initial period of effectiveness, will continue in effect for
successive annual periods, provided that such continuance is specifically
approved at least annually by the vote of a majority of the Board of
Managers of the Company who are not parties to the agreement or interested
persons of any such party cast in person at a meeting called for the
purpose of voting on such continuance, and either: (i) the vote of a
majority of the outstanding Units of the Company; or (ii) the vote of a
majority of the full Board of Managers of the Company. The Investment
Advisory Agreement and Investment Sub-Advisory Agreement also provide that
they may be terminated at any time, without the payment of any penalty,
either by: (i) the Company, by action of the Board of Managers or by vote
of a majority of the outstanding Units of the Company, on 60 days' written
notice; or (ii) the Investment Adviser or Investment Sub-Adviser, on 90
days' written notice to the Company. The Investment Advisory Agreement and
Investment Sub-Advisory Agreement will terminate immediately in the event
of their "assignment" (as defined in the Investment Company Act).
INVESTMENT OPERATIONS
The Investment Adviser and/or the Investment Sub-Adviser will
initiate, screen and monitor the Company's investments.
Direct Investments will typically be structured in negotiated,
private transactions directly with the issuer. The Company's investments
will generally consist of non-publicly traded equity and equity-like
securities, including common stock, preferred stock, limited partnership
interests, limited liability company interests, warrants and convertible
debentures, subject to certain regulatory and other restrictions. In
connection with most Company investments, the Company will work with the
Portfolio Company to develop and implement the Portfolio Company's
long-term financial strategy and to enhance its value.
The Investment Committee of the Investment Sub-Adviser, which
consists of senior investment professionals of the Investment Sub-Adviser,
will make the final investment decisions regarding any investment proposal
made by the Investment Adviser or Investment Sub-Adviser.
Deal Origination. Investment proposals may come to the attention of
the Investment Adviser or Investment Sub-Adviser from many sources
including unsolicited proposals from the public, personal contacts of the
Investment Adviser, the Investment Sub-Adviser or their affiliates, other
private equity investors and referrals from investment banks, commercial
banks, lawyers, accountants and other members of the financial community,
including U.S. Trust personnel. The Investment Adviser and the Investment
Sub-Adviser believe that investment opportunities may also come from
several venture capital and private equity funds of which they or any of
their affiliates may be an investor. Under certain circumstances, such
opportunities may require prior exemptive relief from the Commission. See
"Risk Factors -- Transactions with Affiliates; Potential Conflicts of
Interest" and "Regulation."
Evaluation of Investment Opportunities. Prior to committing funds to
an investment opportunity, a disciplined investment process is undertaken
which includes a legal, financial, tax, industry and company due diligence
investigation by the Investment Adviser and/or the Investment Sub-Adviser
to assess the prospects and risks of the potential investment. The
experience and expertise of the officers of the Investment Adviser and the
Investment Sub-Adviser will be essential in evaluating products, markets,
industry trends, financial requirements, competition and the management
team associated with a prospective investment. Each investment will be
approved by the Investment Committee of the Investment Sub-Adviser.
Structuring of Investments. The terms and conditions of the
investments acquired will result from negotiations directly with the
Portfolio Company or an affiliate thereof. The Investment Adviser or the
Investment Sub-Adviser will be responsible for conducting such negotiations
on behalf of the Company and will seek to structure the terms of the
investment to provide for the capital needs and success of the issuer and
at the same time to maximize the Company's opportunity for long-term
capital appreciation. An important factor in successful private equity
investing is proper structuring of the transaction in terms of such matters
as price, type of security, restrictions on use of funds, commitments or
rights to provide additional financing, control and involvement in the
issuer's business and liquidity.
Management Assistance and Monitoring of Investments. Successful
business development investing requires active monitoring and participation
and influence on major financial decisions. Representatives of the Company,
the Investment Adviser or the Investment Sub-Adviser and their affiliates
will frequently serve as members of the board of directors or advisory
boards of Portfolio Companies or will have visitation rights to those
companies. Board representation, as well as a close working relationship
with the operating management, should enable the Company to exercise
influence and provide management assistance with respect to such matters as
capital structure, budgets, profit goals, diversification strategy,
financing requirements, management additions or replacements and developing
a public market for the securities of the Portfolio Companies. The close
tracking of internal financial statements and progress reports, as well as
an active working relationship with management, form the basis of effective
portfolio monitoring and risk management.
Liquidation of Investments. In order to realize the benefits of
capital appreciation, private equity investments must be liquidated. The
method and timing of the liquidation of investments are critical elements
to maximizing portfolio return. The Company expects to liquidate its
investments through a variety of transactions, including mergers,
negotiated sales of Portfolio Companies, sales in registered public
offerings, sales in the public markets of registered securities and
recapitalizations. In structuring the investments, the Investment Adviser
or the Investment Sub-Adviser will endeavor to reach such understanding
with the Portfolio Company or its affiliates as may be appropriate as to
the method and timing of liquidation of the Company's investments and will
usually seek to obtain registration rights at the expense of the issuer and
reporting compliance for eligible companies under Rule 144 under the
Securities Act. Timing of divestiture or liquidation depends on the
performance of the Portfolio Company, the ability of the Portfolio Company
to refinance its outstanding securities and other financial market
opportunities. See "Risk Factors -- Liquidity of Private Equity
Investments." The Company will bear the costs of liquidating investments to
the extent that such expenses are not paid by the issuer. The Company may
as an alternative to liquidating certain investments distribute such
investments in kind. Prior to liquidation of the Company, the Company
intends to distribute in kind only securities that may be resold without
registration under the Securities Act and for which an active trading
market exists. Such distributions may have benefits for investors,
including greater control over the timing of recognition of capital gains
for income tax purposes. Distributions in kind also involve certain
expenses and risks. See "Risk Factors --Distributions of Securities In
Kind."
ADMINISTRATOR
The Administrator, PFPC Inc., performs certain administration,
accounting and investor services for the Company. In consideration for
these services, the Company (i) pays the Administrator a variable fee
between 0.105% and 0.07% based on average quarterly net assets, subject to
a minimum quarterly fee of approximately $30,000, (ii) annual fees of
approximately $11,000 for taxation services and (iii) will reimburse the
Administrator for out-of-pocket expenses.
BACKGROUND
The following list includes all the private companies and private
funds in which Fund I and Fund II have invested as of July 31, 2000 and as
reported in their respective filings with the commission. Unrealized
gain/(loss) and total value reflect the values assigned for purposes of
determining the net asset values of Fund I and Fund II. The values of
securities for which no active trading market exists or which are subject
to material restrictions on resale reflect fair value as determined
pursuant to such fund's valuation policies. All or substantially all of the
investments listed below are valued at fair value. The list is intended to
illustrate the types of investments with which the Investment Adviser and
the Investment Sub-Adviser have experience.
<TABLE>
<CAPTION>
SUMMARY OF DIRECT INVESTMENTS
MADE BY U.S. TRUST
INFORMATION AS OF JULY 31, 2000
(UNAUDITED)
TOTAL VALUE
AVERAGE (COST BASIS AND REALIZED
HOLDING COST REALIZED UNREALIZED GAIN/(LOSS) AND
DIRECT INVESTMENTS PERIOD YEARS) BASIS GAIN/(LOSS) GAIN/(LOSS) UNREALIZED GAIN/(LOSS))
==================================================================================================================================
<S> <C> <C> <C> <C> <C>
INVESTMENTS REALIZED AND/OR
PUBLIC
COMPANIES
Accrue Software, Inc. (NeoVista)* 2.4 $ 1,038,488 $ 680,572 $ 563,937 $ 2,282,997
Commsite International, Inc. 2.6 2,718,750 106,058 - 2,824,808
Corsair Communications, Inc. 2.7 3,000,003 1,743,843 - 4,743,846
Lifeminders, Inc.* 1.1 11,499,997 24,050,821 69,758,741 105,309,559
QuickLogic Corporation* 3.7 3,000,000 5,389,597 1,115,941 9,505,538
Rental Services Corp. 1.7 985,000 2,086,479 - 3,071,479
Signius Corporation 3.1 3,418,146 (3,414,128) - 4,018
Softcom Microsystems, Inc. 1.0 4,178,649 9,998,176 1,243,640 15,420,465
WNP Communications, Inc. 0.9 5,877,855 13,338,276 - 19,216,131
==================================================================================================================================
SUB-TOTAL $35,716,888 $53,979,694 $72,682,258 $ 162,378,840
PRIVATE COMPANIES
Advantage Schools, Inc. 1.5 $ 4,606,551 $ - $ 6,264,725 $ 10,871,276
Best Friends Pet Care, Inc. 3.3 3,525,000 - - 3,525,000
BPA Systems Inc. 0.2 5,000,000 - - 5,000,000
Captura Software, Inc. 1.5 4,799,998 - 3,078,260 7,878,258
Classroom Connect, Inc. 1.6 7,999,951 - 1,819,965 9,819,915
Constellar Corporation 2.3 6,999,995 - - 6,999,995
Curon Medical, Inc. 0.8 7,624,144 - - 7,624,144
ePod Corporation 0.5 1,550,000 - 1,071,240 2,621,240
firstsource Corporation 0.0 10,000,000 - - 10,000,000
Killerbiz, Inc. 0.6 583,333 - - 583,333
LogicVision, Inc. 2.7 1,549,499 - 106,208 1,655,707
Managemark, Inc. 1.4 5,500,002 - - 5,500,002
MarketFirst Software, Inc. 0.8 5,849,543 - - 5,849,543
MySeasons.com, Inc. 0.0 2,000,100 - - 2,000,100
PowerSmart, Inc. 2.4 9,237,500 - 4,851,261 14,088,761
Protogene Laboratories, Inc. 0.0 5,680,000 - - 5,680,000
ReleaseNow.com, Inc. 1.9 6,810,039 - 2,646,106 9,456,145
Survivalink Corporation 1.9 7,584,999 - - 7,584,999
Zeus Wireless, Inc. 0.0 5,000,001 - - 5,000,001
==================================================================================================================================
SUB-TOTAL $101,900,655 $ - $19,837,764 $ 121,738,419
INVESTMENTS WRITTEN OFF
Abtox, Inc. 3.2 $ 2,800,001 $(2,800,001) $ - $ -
Cardiopulmonary Corporation 3.6 2,150,000 - (2,150,000) -
P2 Holdings Corp./Plynetic 1.3 2,750,000 (2,750,000) - -
Express
The Party Experience, Inc. 1.4 2,055,206 (2,055,206) - -
==================================================================================================================================
SUB-TOTAL $ 9,755,207 $(4,805,206) $(4,950,001) $ -
==================================================================================================================================
TOTAL - ALL DIRECT INVESTMENTS 1.6 $147,372,744 $ 9,174,488 $87,570,022 $ 284,117,259
==================================================================================================================================
</TABLE>
SUMMARY OF FUND INVESTMENTS
MADE BY U.S. TRUST
INFORMATION AS OF JULY 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL COST REALIZED UNREALIZED
FUND INVESTMENTS COMMITTED BASIS GAIN/(LOSS GAIN/(LOSS) TOTAL VALUE
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Advanced Technology Ventures V $ 3,000,000 $ 2,175,000 $ - $ 1,765,474 $ 3,940,474
Allegra Capital Partners III 2,000,000 2,000,000 1,302,878 1,254,388 4,557,266
Brand Equity Ventures I 2,500,000 2,250,000 636,454 597,946 3,484,399
Brentwood Associates Buyout Fund II 2,000,000 2,000,000 158,388 (27,576) 2,130,812
Brentwood Associates III 5,000,000 1,993,700 - (206,965) 1,786,735
Broadview Capital II 5,000,000 2,250,000 - (111,964) 2,138,036
Bruckmann, Rosser, Sherrill & Co. 2,000,000 2,000,000 152,242 234,351 2,386,593
Commonwealth Capital Ventures II 4,000,000 2,900,000 1,349,341 (205,831) 4,043,510
Communications Ventures III 5,000,000 5,000,000 - 15,239,374 20,239,374
Friedman, Fleischer & Lowe 5,000,000 941,218 - (216,926) 724,292
Mayfield Fund X 5,000,000 4,000,000 - 3,059,017 7,059,017
Mid-Atlantic Venture Fund III 5,000,000 4,000,000 - 4,015,159 8,015,159
Morgenthaler Venture Partners IV 2,000,000 2,000,000 1,773,594 3,240,866 7,014,460
Morgenthaler Venture Partners V 8,000,000 5,600,000 279,036 10,600,205 16,479,241
Quad-C Partners V 5,000,000 3,361,017 - 785,788 4,146,805
Sevin Rosen Fund V 2,000,000 2,000,000 1,654,983 819,055 4,474,038
Sevin Rosen Fund VI 2,500,000 2,175,000 1,849,706 642,347 4,667,053
Trinity Ventures VI 3,000,000 2,342,249 439,319 2,173,320 4,954,889
Vanguard Venture Partners V 2,000,000 2,000,000 2,378,469 2,746,747 7,125,216
=================================================================================================================
TOTAL - ALL FUND INVESTMENTS $ 70,000,000 $50,988,184 $11,974,411 $ 46,404,772 $109,367,368
=================================================================================================================
=================================================================================================================
TOTAL - ALL INVESTMENTS $198,360,934 $61,148,900 $133,974,794 $393,484,627
=================================================================================================================
</TABLE>
INVESTMENTS REALIZED AND/OR PUBLIC COMPANIES
Accrue Software, Inc., Cupertino, CA ("Accrue")
Initial Investment Date: June 1997
Total Investment: $1.0 million
Total Investment Value:* $2.2 million
In January 2000, Accrue Software (NASDAQ: ACRU) acquired NeoVista in
exchange for 2.4 million shares of Accrue stock. NeoVista develops
data mining software and applications related to customer
relationship management. Data mining allows companies to discover
non-obvious relationships by applying various algorithms to data
stored in databases and data warehouses and is applied to inventory
management, customer profiling, behavior prediction and fraud
detection.
*Does not assign an illiquidity discount to the Fund's position.
CommSite International, Inc., Vienna, VA ("CommSite")
Initial Investment Date: April 1996
Total Investment: $2.7 million
Total Proceeds:** $2.8 million
CommSite is a provider of wireless towers and construction services.
On May 13, 1999, American Tower Corporation, a publicly traded
company, acquired CommSite.
**Total proceeds include estimate of additional milestone payments to
CommSite from American Tower.
Corsair Communications, Inc., Palo Alto, CA. ("Corsair")
Initial Investment Date: October 1996
Total Investment: $3.0 million
Total Investment Value: $4.8 million
Corsair (NASDAQ: CAIR) is a wireless communication infrastructure
company providing pre-paid wireless handset and fraud detection
software and services.
LifeMinders, Inc., Herndon, VA ("LifeMinders")
Initial Investment Date: February 1999
Total Investment: $11.5 million
Total Investment Value:* $189 million
LifeMinders (NASDAQ:LFMN) is an online direct marketing company that
provides personalized information or content, and advertisements via
email to a community of members. Email messages contain helpful
reminders and tips that enable its members to better organize and
manage their lives. As of July 31, 2000, the company had
approximately 15 million members and numerous advertising partners.
LifeMinders has experienced significant membership growth since our
initial investment in February 1999, when the company had less than
50,000 members. LifeMinders held its initial public offering in
November 1999. Fund II has invested $11.5 million in LifeMinders at
an average cost of $2.70 per share and the company's stock, as of
July 31, 2000, was trading at $22.50 per share.
*Does not assign an illiquidity discount to the Fund's position.
QuickLogic Corporation, Sunnyvale, CA ("QuickLogic")
Initial Investment Date: November 1996
Total Investment: $3.0 million
Total Investment Value:* $9.5 million
QuickLogic (NASDAQ: QUIK) designs, manufactures and markets
high-capacity programmable logic semiconductors, known as field
programmable gate arrays, along with comprehensive design software.
The company's products shorten the design cycle time for electronic
systems and accelerate time-to-market. QuickLogic's new class of
devices, embedded standard products, facilitate extremely fast
development of complex systems. Quicklogic held its initial public
offering in October 1999.
*Does not assign an illiquidity discount to the Fund's position.
Rental Service Corp., Scottsdale, AZ ("Rental Service")
Initial Investment Date: January 1996
Total Investment: $1.0 million
Total Proceeds: $3.1 million
Rental Service is a consolidator of heavy equipment rental businesses
and an outsourced provider of heavy equipment. The Company had its
initial public offering in September 1996 and was subsequently
acquired by Atlas, Copco North America in July, 1999.
Signius Corporation (formerly known as ProCommunications Corp.),
Somerset, NJ ("Signius")
Initial Investment Date: September 1996
Total Investment: $3.4 million
Total Investment Value: $0
Signius provides telemessaging services for small and medium-sized
businesses. In March 2000, Signius was sold for a nominal amount.
Softcom Microsystems, Inc., Fremont, CA ("Softcom")
Initial Investment Date: August 1998
Total Investment: $4.2 million
Total Proceeds:*** $15.4 million
Softcom designs, develops and markets data acceleration products used
in high-speed communications networks. Softcom's single-chip network
accelerator solutions and integrated subsystems provide processing
capabilities which help alleviate the "data bottleneck" at the point
where baseband Local Area Network traffic moves on to a high-speed
broadband Internet backbone. Softcom was sold in August 1999 to
Intel.
***10% of proceeds remain unrealized due to escrow holdback as part of
the Intel acquisition
WNP Communications, Inc., Reston, VA ("WNP")
Initial Investment Date: January 1998
Total Investment: $5.9 million
Total Proceeds: $19.2 million
WNP acquired broadband spectrum covering 30 of the top 50 markets in
the United States in the Local Multipoint Distribution Services
auction conducted by the FCC in 1998. Subsequently, the company was
acquired in May 1999 by NextLink, a publicly traded wireless
communication services provider, for cash and stock.
PRIVATE COMPANIES
Advantage Schools, Inc., Boston, MA ("Advantage")
Initial Investment Date: June 1998
Total Investment: $4.6 million
Investment Carrying Value: $10.9 million
Advantage is an education management organization which manages
public charter schools on a for-profit basis. Advantage manages
charter schools in urban school districts in cooperation with local
partners. Its schools are publicly funded, receiving per-student
capitalization rates generally consistent with those received by
other schools in the district. Founded in 1996, Advantage currently
manages 14 schools across the country.
Best Friends Pet Care, Inc., Norwalk, CT ("Best Friends")
Initial Investment Date: December 1996
Total Investment: $3.5 million
Total Investment Value: $3.5 million
Best Friends is the largest operator of pet kennels in the United
States. The company's facilities offer a wide range of pet services
including boarding, grooming and training.
BPA Systems, Inc., Austin, TX ("BPA")
Initial Investment Date: June 2000
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million
BPA Systems develops fulfillment software solutions that help
Internet-enabled companies rapidly take advantage of e-commerce
opportunities. BPA SYSTEMS product suite allows large global
companies as well as internet startups to fully integrate their
existing supply chains with their web sites.
Captura Software, Inc., Bothell, WA ("Captura")
Initial Investment Date: February 1999
Total Investment: $4.8 million
Investment Carrying Value: $7.9 million
Captura is an e-finance application services provider developing and
marketing expense management software and solutions for large
companies. The company's products significantly increase the
efficiency and lower the cost of expense reports by providing a
web-based software application that automates much of the process.
Captura's customer base includes General Motors, Ford, Compaq and
Aetna.
Classroom Connect Inc., Foster City, CA ("Classroom Connect")
Initial Investment Date: September 1998
Total Investment: $8.0 million
Investment Carrying Value: $9.8 million
Classroom Connect, is a provider of educational Internet products to
students in the kindergarten to eighth grade market. The company
offers products and services, including proprietary instruction
guides, teaching plans, seminars, and unique Internet content via
electronic commerce and direct mail, to teachers and school districts
wishing to incorporate the Internet into the classroom.
Constellar Corporation, Redwood Shores, CA ("Constellar")
Initial Investment Date: April 1998
Total Investment: $7.0 million
Investment Carrying Value: $7.0 million
Constellar is a provider of enterprise application integration
software and services to large organizations in North America, Europe
and Australia. Constellar provides products and services that work to
untangle complex information technology environments by managing
data, making it accessible, and moving it across several different
applications. Constellar's customer list includes Sprint, British
Telecom, Deutsche Bank, NatWest, Princeton University, London Stock
Exchange and General Electric.
Curon Medical, Inc., Sunnyvale, CA ("Curon")
Initial Investment Date: December 1999
Total Investment: $7.6 million
Investment Carrying Value: $7.6 million
Curon develops and markets medical devices for the treatment of
gastrointestinal diseases using radio frequency delivered through a
catheter. Curon had developed a product targeting gastroesophageal
reflux disease that received 510(k)-clearance from the Food and Drug
Administration in April 2000. Curon filed its S-1 for Initial Public
Offering on May 25, 2000.
ePod Corporation, New York, NY ("ePod")
Initial Investment Date: December 1999
Total Investment: $1.6 million
Investment Carrying Value: $2.6 million
ePod provides distributed e-commerce, content syndication and media
advertising services to manufacturers, retailers, Web publishers and
content providers in the entertainment, retail and advertising
industries. The ePod.com commerce network uses a common merchandising
infrastructure through which companies can promote and sell products
by packaging and distributing content and merchandise through
commerce-enabled showcases called ePods.
firstsource Corporation, Santa Ana, CA ("firstsource")
Initial Investment Date: February 2000
Total Investment: $10.0 million
Investment Value: $10.0 million
firstsource is a provider of business products, services and online
business procurement solutions for small and medium sized businesses.
With approximately 250,000 SKUs (Store Keeping Units) and numerous
different service providers, the firstsource.com web site allows
customers to search, compare, price and buy products and services
directly from multiple distributors' inventories.
KillerBiz, Inc., Fremont, CA ("KillerBiz")
Initial Investment Date: December 1999
Total Investment: $0.6 million
Investment Carrying Value: $0.6 million
KillerBiz is an online business-to-business marketplace connecting
small businesses to service providers. The company is dedicated to
lowering the time and costs associated with services procurement,
while providing sellers with a cost effective means to access and
respond to qualified sales leads through a "request-for-quote" or
"request-for-proposal" engine. The KillerBiz web site offers a
business-to-business marketplace that leverages both Extensible
Mark-up Language and patent-pending Intelligent Trained Agent
technology.
LogicVision, Inc., San Jose, CA ("LogicVision")
Initial Investment Date: May 1997
Total Investment: $1.5 million
Total Investment Value: $1.7 million
LogicVision is a developer of built-in self testing technologies used
in semiconductor design, testing and manufacture. As semiconductors
become more complex (i.e. large systems reduced to a customized
chip), the need to adopt new testing technology has become critical.
LogicVision's customers include Sun Microsystems, Cisco Systems, NCR
Corp., Hitachi and Hughes.
Managemark, Inc., Sunnyvale, CA ("Managemark")
Initial Investment Date: June 1999
Total Investment: $5.5 million
Investment Carrying Value: $5.5 million
Managemark is an Internet application software company focused on
developing finance and administration software and services to small
and middle-market firms. The company's current offerings are focused
on increasing the efficiency and lowering the cost of processing
corporate expenses.
MarketFirst Software, Inc., Mountain View, CA ("MarketFirst")
Initial Investment Date: August 1999
Total Investment: $5.8 million
Investment Carrying Value: $5.8 million
MarketFirst is a developer and marketer of hosted e-marketing
software and services targeting middle-market corporations. The
company's solution is focused on enabling and managing interactive
marketing campaigns through the Internet. The company's customers are
motivated by the prospect of increasing customer revenue, improving
customer relationships and reducing costs by automating key marketing
functions with the MarketFirst solution. MarketFirst filed its S-1
for Initial Public Offering on April 18, 2000.
MySeasons.com, Inc., New York, NY ("MySeasons")
Initial Investment Date: February 2000
Total Investment: $2.0 million
Investment Value: $2.0 million
MySeasons is a business-to-consumer and business-to-business Internet
commerce site aimed at selling gardening and related horticultural
products, as well as providing associated content to the gardening
community. MySeasons is a newly capitalized entity and represents the
internet initiative of Foster & Gallagher, a direct mail company and
the largest non-store horticulture retailer in the United States.
PowerSmart, Inc., Shelton, CT ("PowerSmart")
Initial Investment Date: January 1998
Total Investment: $9.2 million
Investment carrying Value: $14.1 million
PowerSmart is a provider of "smart" battery management products
designed to maximize battery run-times and safety in laptop
computers, cellular telephones and camcorders as well as a variety of
hand-held industrial devices. PowerSmart recently introduced two new
lines of Application Specific Integrated Circuits and electronic
modules that offer performance and flexibility at competitive prices.
PowerSmart was formed as a spin-off of technology and related assets
from Duracell.
Protogene Laboratories, Inc., Menlo Park, CA ("Protogene")
Initial Investment Date: December 1999
Total Investment $5.7 million
Investment Carrying Value: $5.7 million
Protogene is a developer and manufacturer of DNA gene chip technology
used in molecular biology and genetic research. The company's
products allow for flexible, short-run testing of genetic expression
that has broad applications in genetic research and pharmaceutical
development.
ReleaseNow.com, Menlo Park, CA ("ReleaseNow")
Initial Investment Date: June 1998
Total Investment: $6.8 million
Investment Carrying Value: $9.5 million
ReleaseNow is an outsourced provider of e-commerce services for
vendors and resellers of software and other digital goods. The
company builds and manages e-commerce solutions that enable customers
to market, sell and deliver software online. ReleaseNow provides
software publishers, software resellers, and content-driven web sites
with technology and services to establish an Internet-based sales and
distribution channel. ReleaseNow filed its S-1 for Initial Public
Offering on January 28, 2000.
SurVivaLink Corporation, Minnetonka, MN ("SurVivaLink")
Initial Investment Date: August 1998
Total Investment: $7.6 million
Investment Carrying Value: $7.6 million
SurVivaLink designs, develops and markets automated external
defibrillators ("AEDs"), which are portable, emergency medical
devices that deliver electrical shocks to resuscitate victims of
cardiac arrest. SurVivaLink's AEDs are small, lightweight and easy to
use, making them suitable for law enforcement personnel, firefighters
and paramedics. To date, SurVivaLink estimates that its AEDs have
been responsible for saving over 250 lives.
Zeus Wireless, Inc., Columbia, MD ("Zeus")
Initial Investment Date: December 1999
Total Investment: $5.0 million
Investment Carrying Value: $5.0 million
Zeus builds and markets long-range frequency hopping radios for
commercial and industrial facilities. The company utilizes radio
frequency technology as a substitute for wire with comparable range,
reliability and security at an equivalent price.
INVESTMENTS WRITTEN-OFF
AbTox, Inc., Mundelein, IL ("AbTox")
Initial Investment Date: March 1997
Total Investment: $2.8 million
Total Investment Value: $0
AbTox a manufacturer of gas plasma sterilizers, has filed for
bankruptcy due to operating problems arising from regulatory issues
related to one of its products.
Cardiopulmonary Corporation, Milford, CT ("Cardiopulmonary Corporation")
Initial Investment Date: November 1996
Total Investment: $2.2 million
Total Investment Value: $0
Cardiopulmonary Corporation is a manufacturer of a smart ventilator
used in the acute and sub-acute hospital market that adapts to
patients' changing breathing patterns. Fund I's position has been
written down pursuant to a recent recapitalization of the company.
P2 Holdings Corp. (formerly known as Plynetic Express), San Leandro, CA
("P2 Holdings")
Initial Investment Date: June 1997
Total Investment: $2.8 million
Total Investment Value: $0
P2 Holdings was a provider of rapid prototyping and rapid tooling
services. Fund I wrote off its investment as the company filed for
bankruptcy in 1998.
Party Stores Holdings, Inc., Melville, NY ("Party Stores")
Initial Investment Date: May 1997
Total Investment: $2.1 million
Total Investment Value: $0
Party Stores operated the Party Experience, the Paperama and Paper
Cutter retail stores. The company filed for bankruptcy in 1998. Fund
I's $2.1 million investment was written off as the company filed for
bankruptcy.
PRIVATE FUNDS
Advanced Technology Ventures V, LP ("ATV V")
Fund Size: $175 million
Investment commitment: $3.0 million
ATV V is an early-stage focused fund targeting information technology
and health care markets. Since 1979, ATV has invested in and worked
with over 100 emerging companies, including Actel, Berkeley Networks,
Cadence Design Systems, Epigram and VLSI Technology.
Allegra Capital Partners III, LP ("Allegra III")
Fund Size: $40 million
Investment commitment: $2.0 million
Allegra III is a later-stage focused venture fund based in New York
City. Allegra III invests primarily in companies in the
telecommunications, software and service industries with
"Internet-driven" strategies. Allegra's principals have been
investors in Autotote, Axent Technologies, Business Evolution and
Viasoft.
Brand Equity Ventures I, LP ("BEV")
Fund Size: $95 million
Investment commitment: $2.5 million
BEV is focused on investing broadly across the consumer sector,
particularly in branded opportunities within e-commerce, retailing,
direct response and other consumer services. To date, the fund has
made distributions resulting from investments in Alloy Online and
Outpost.com.
Brentwood Associates Buyout Fund II, LP ("Brentwood II")
Fund Size: $240 million
Investment commitment: $2.0 million
Brentwood II is focused on middle-market buyouts and consolidations.
Brentwood II's strategy is to identify industries with consolidation
characteristics, develop a strategy for implementation and recruit
management to execute that strategy. Brentwood was an investor in
Rental Services and is an investor in Classroom Connect, companies in
which Fund I and Fund II, respectively, have invested.
Brentwood Associates III, LP ("Brentwood III")
Fund Size: $360 million
Investment commitment: $5 million
See Brentwood II above.
Broadview Capital II, LP ("Broadview")
Fund Size: $220 million
Investment commitment: $5 million
Broadview is focused on buyouts and other recapitalizations within
the technology sector. The fund is sponsored by Broadview
International LLC, a leading technology mergers and acquisitions
focused investment banking firm. To date, Broadview International has
advised on mergers and acquisitions for companies such as Nokia, Fore
Systems, Lycos and BMC Software and will be able to provide Broadview
Capital with substantial resources to make its investments.
Bruckmann, Rosser, Sherrill & Co., LP ("BRS")
Fund Size: $375 million
Investment commitment: $2.0 million
BRS is a leveraged buyout fund based in New York. The firm's
portfolio contains investments ranging from Restaurant Associates, a
restaurant operator and food service contractor, to Doane Pet Care
Enterprises, a manufacturer and distributor of pet food.
Commonwealth Capital Ventures II, LP ("Commonwealth II")
Fund Size: $80 million
Investment commitment: $4.0 million
Commonwealth II makes investments in early to later-stage information
technology companies in the New England region. Commonwealth II
maintains a particular focus on communications technology, Internet
software and services and e-commerce companies. Commonwealth II has
been an investor in Altiga Networks, Direct Hit Technologies and
Smarterkids.com.
Communications Ventures III, LP ("Communications Ventures III")
Fund Size: $125 million
Investment commitment: $5.0 million
Communications Ventures III invests exclusively in the communications
sector, targeting early stage companies. As investors, the principals
of Communications Ventures III have played roles in the formation of
many companies in the communications industry, including Advanced
Fibre Communications, Ascend, Broadcom, Ciena, Copper Mountain,
Digital Microwave, Digital Island, Intecom, MCI, Newbridge, Octel,
PairGain, Paradyne, Tellabs, Tut Systems and 3Com.
Friedman, Fleischer & Lowe, LP ("Freidman, Fleischer & Lowe")
Fund Size: $325 million
Investment commitment: $5.0 million
Freidman, Fleischer & Lowe is a first-time fund focused exclusively
on participation in middle-market buyouts. The principals of
Freidman, Fleischer & Lowe have been involved in a number of buyout
transactions including Young & Rubicam, Levi-Strauss, Hoyts and
Western Wireless.
Mayfield Fund X, LP ("Mayfield X")
Fund Size: $450 million
Investment commitment: $5.0 million
Mayfield X is focused on early stage information technology and
healthcare investments, primarily located in Silicon Valley, CA.
Founded in 1969, Mayfield has raised over $1 billion in nine venture
funds and invested in over 340 high-growth companies. Among their
investments are 3COM, Compaq, Immunex, Silicon Graphics, Citrix
Systems and Legato.
Mid-Atlantic Venture Fund III, LP ("MAVF III")
Fund Size: $60 million
Investment commitment: $5.0 million
MAVF III invests in early and expansion stage technology companies in
the Mid-Atlantic region. The principals of MAVF III have significant
investment experience and have established over the years a presence
within the investment community in the Mid-Atlantic region. The
principals of MAVF III have been investors in Visual Networks and
Net2000 Communications.
Morgenthaler Venture Partners IV, LP ("MVP IV")
Fund Size: $135 million
Investment commitment: $2.0 million
MVP IV is an early-stage venture fund, investing primarily in
information technology and healthcare companies as well as buyouts of
basic businesses. The fund's principals have been involved with
successful venture capital investments in Apple Computer, Synopsys,
Atria Software, Premysis Software and CardioThoracic. To date, Fund I
has received from MVP IV shares of Nortel, Microsoft, Guidant, as
well as several cash distributions.
Morgenthaler Venture Partners V, LP ("MVP V")
Fund Size: $300 million
Investment commitment: $8.0 million
See MVP IV above.
Quad-C Partners V, LP ("Quad-C")
Fund Size: $300 million
Investment commitment: $5.0 million
Quad-C is focused on taking control positions in leveraged
acquisitions and recapitalizations of middle-market companies.
Quad-C's principals have significant operating and financial
experience and have made investments across industries such as
restaurants, banking, automotive logistics and media.
Sevin Rosen Fund V, LP ("Sevin Rosen V")
Fund Size: $160 million
Investment commitment: $2.0 million
Sevin Rosen V invests in early-stage technology companies, focusing
specifically on companies in communications and eBusiness
infrastructure and solutions, as well as those companies with
Internet-enabled business models. The principals at Sevin Rosen Funds
have a track record that includes being early investors in Compaq,
Lotus, Cyrix, Citrix and Ciena. To date, this fund has made
distributions of stock including Ciena, Pure Atria Software and Cisco
Systems.
Sevin Rosen Fund VI, LP ("Sevin Rosen VI")
Fund Size: $165 million
Investment commitment: $2.5 million
See Sevin Rosen V above.
Trinity Ventures VI, LP ("Trinity VI")
Fund Size: $140 million
Investment commitment: $3.0 million
Trinity VI is focused on investing in early to late-stage companies
in the software, communications and electronic commerce sectors. The
principals of Trinity VI have been involved with numerous successful
investments, including SciQuest, NextCard, Quokka Sports, Starbucks
and Fatbrain.com.
Vanguard Venture Partners V, LP ("Vanguard V")
Fund Size: $55 million
Investment commitment: $2.0 million
Vanguard V is an early-stage fund investing in information technology
and healthcare. Among the principals' previous successful investments
are Ciena, Advanced Fibre Communications and Network Appliances. The
fund has distributed shares of Cisco Systems and currently holds
Cobalt Networks, Image X and Digital Island.
THE FOREGOING INFORMATION WITH RESPECT TO FUND I AND FUND II IS
PRESENTED TO ILLUSTRATE THE TYPES OF INVESTMENTS THAT THE INVESTMENT
ADVISER AND INVESTMENT SUB-ADVISER HAVE EXPERIENCE WITH IN THE BDC CONTEXT
AND TO SHOW THE POTENTIAL ECONOMIC BENEFITS AND RISKS INHERENT IN MAKING
SUCH INVESTMENTS. THE INFORMATION SHOWN SHOULD NOT BE CONSIDERED TO BE
REPRESENTATIVE OF THE GAINS OR LOSSES THAT THE COMPANY WILL EXPERIENCE ON
ITS INVESTMENTS. IN ADDITION, THE COMPANY MAY MAKE INVESTMENTS IN A WIDE
RANGE OF BUSINESSES AND ENTITIES AND THE FOREGOING INFORMATION SHOULD NOT
BE VIEWED AS REPRESENTATIVE OF THE COMPANY'S ACTUAL PORTFOLIO. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THE
INFORMATION SET FORTH ABOVE REPRESENTS ACTUAL COST AND REALIZED AND
UNREALIZED GAIN AND LOSS FOR EACH INDIVIDUAL INVESTMENT MADE BY FUND I AND
FUND II, OTHER THAN SHORT-TERM INVESTMENTS. FUND I AND FUND II EXPERIENCED
COSTS AND EXPENSES IN MAKING SUCH INVESTMENTS, MONITORING SUCH INVESTMENTS
AND WHERE APPLICABLE, DISPOSING OF SUCH INVESTMENTS. ADDITIONAL COSTS WILL
BE EXPERIENCED ON THE DISPOSITION OF INVESTMENTS NOT YET DISPOSED OF.
UNREALIZED GAIN AND LOSS AMOUNTS ARE BASED ON UNITED STATES TRUST COMPANY
OF NEW YORK'S DETERMINATION OF THE CURRENT VALUE OF THE INVESTMENTS, WHICH
DETERMINATION ORDINARILY INVOLVES A HIGH DEGREE OF JUDGMENT AND
SUBJECTIVITY (SEE "VALUATION OF PORTFOLIO SECURITIES"). UPON DISPOSITION,
FUND I AND FUND II MAY REALIZE MORE OR LESS THAN THE ASSIGNED VALUATION. IN
ADDITION, FUND I AND FUND II ARE SUBJECT TO INVESTMENT MANAGEMENT FEES,
INCENTIVE FEES AND ONGOING OPERATING EXPENSES, NONE OF WHICH ARE REFLECTED
IN THE FOREGOING INFORMATION. FUND I AND FUND II ALSO MAINTAINED
SUBSTANTIAL HOLDINGS OF SHORT-TERM INVESTMENTS PENDING INVESTMENT IN THE
ABOVE LISTED INVESTMENTS. ACCORDINGLY, THE FOREGOING INFORMATION IS NOT
INDICATIVE OF THE ACTUAL RETURNS EXPERIENCED BY INVESTORS IN FUND I AND
FUND II.
Set forth below are the performance figures for Fund I and Fund
II for the periods shown through the Fund's most recent fiscal
quarter ended July 21, 2000, calculated in conformity with the
standardized performance methodology required by the Securities and
Exchange Commission.
Since
1-Year 3-Year Inception
UST Private Equity Investors Fund, Inc. 41.13% 3.36% 6.71%
Excelsior Private Equity Fund II, Inc. 47.16% N/A 24.94%
CODE OF ETHICS
The Company, the Distributor, the Investment Adviser and the
Investment Sub-Adviser have adopted codes of ethics under Rule 17j-1 of the
Investment Company Act that restrict the personal securities transactions
of certain associated persons of the Company, the Distributor, the
Investment Adviser and the Investment Sub-Adviser. The primary purpose of
such codes is to ensure that personal trading by their respective employees
does not disadvantage the Company. U.S. Trust portfolio managers and other
investment personnel who comply with the code of ethic's preclearance and
disclosure procedures may be permitted to purchase, sell or hold certain
types of securities which also may be purchased or sold by or are held in
the fund(s) they advise. The codes of ethics can be reviewed and copied at
the Commission's Public Reference Room in Washington, D.C. Information on
the Public Reference Room can be obtained by calling the Commission at
1-202-942-8090. The codes of ethics are also available on the EDGAR
Database on the Commission's Internet site at http://www.sec.gov or may be
obtained after paying a duplicate fee, by electronic request to the
following E-mail address: [email protected] or by writing the Commission's
Public Reference Section, Washington, D.C. 20549-0102.
BOARD OF MANAGERS, OFFICERS AND INVESTMENT PROFESSIONALS
Pursuant to the Operating Agreement, the business and affairs of the
Company will be managed under the direction of its Board of Managers. The
following are descriptions of members of the Board of Managers, and the
officers of the Company, as well as of key employees of the Investment
Adviser and Investment Sub-Adviser, including the members of the Investment
Sub-Adviser's Investment Committee. Unless otherwise noted, each member of
the Investment Sub-Adviser's Investment Committee has been an employee of
United States Trust Company of New York for at least the previous five
years and the business address of each individual listed below is 114 West
47th Street, New York, New York 10036. Mr. Hover may be deemed an
"interested person" of the Company, as defined in the Investment Company
Act, on the basis of his affiliation with U.S. Trust.
Board of Managers
Gene M. Bernstein, (53). As of September 1, 2000, Mr. Bernstein
will be the Dean of the Skodneck Business Development Center at Hofstra
University in Hempstead, New York. Prior to that, he worked at (and
remains a principal of) Northville Industries Corp., a third generation
privately held petroleum marketing, trading, storage and distribution
company since 1994. While at Northville he held positions ranging from
Vice President to President to Vice-Chairman. Prior to working at
Northville Industries, he taught at the University of Notre Dame. He
is Chairman of the Board of Trustees at his alma mater, Alfred
University, from which he holds a B.A. degree in English Literature.
He also has an M.A. degree in English Literature from the University of
Wisconsin and a Ph.D. in English Literature from the University of
Massachusetts. Mr. Bernstein serves as a director of Fund I and Fund
II.
John C. Hover II, (57).* Mr. Hover retired as Executive Vice
President of the United States Trust Company of New York in 1998 after
22 years of service. He was responsible for the Personal Asset
Management and Private Banking Group and served as Chairman of U. S.
Trust International. Prior to joining United States Trust Company of
New York, he was a commercial banker with Chemical Bank. Mr. Hover
received his B.A. degree in English Literature from the University of
Pennsylvania and a M.B.A. degree in Marketing from The Wharton School.
He is a trustee of the University of Pennsylvania, and is Chairman of
the Board of Overseers of the University's Museum of Archaeology and
Anthropology. He is a trustee and Vice President of the Penn Club of
New York. Mr. Hover serves as chairman of the board of directors of
Fund I and Fund II.
Stephen V. Murphy, (54). Since 1991, Mr. Murphy has been
President of S.V. Murphy & Co., Inc., an investment banking firm that
specializes in mergers and acquisitions, divestitures and strategic and
capital-related advisory services for financial and other
institutions. From 1988 until 1990, he was Managing Director of
Merrill Lynch Capital Markets in charge of the Financial Institutions
Mergers and Acquisitions Department. Prior to 1988, Mr. Murphy was
Managing Director of The First Boston Corporation where he headed up
its Investment Banking Department's Commercial Bank Group. Mr. Murphy
holds a B.S.B.A. degree from Georgetown University and a M.B.A. degree
from Columbia University. Mr. Murphy serves as a director of Fund I
and II.
Victor F. Imbimbo, Jr., (47). Victor Imbimbo was the founder in
1996 of Bedrock Communications, Inc. a consulting company addressing
the merger of traditional and digital communications solutions. He was
also the founder of the Hadley Group, a promotional marketing company,
in 1985, which he ran until 1996. Mr. Imbimbo serves as a director of
Fund I and II.
--------------------
* Interested person of the Company.
Officers of the Company
David I. Fann, (36), Co-Chief Executive Officer and President of
the Company and Managing Director of United States Trust Company of New
York. Mr. Fann serves as President and Chief Executive Officer of Fund
I and Fund II. He is focused on direct investments in information
services and life sciences. Prior to joining United States Trust
Company of New York in April 1994, Mr. Fann served in various
capacities for Citibank from 1986 through 1994, including, as a Vice
President of Citibank and its small business investment company
subsidiary, Citicorp Venture Capital Ltd. from 1991 until 1994. While
at Citicorp Venture Capital Ltd., Mr. Fann invested in buyout and
venture capital transactions and venture capital funds and served on
the Board of Directors of several of its Portfolio Companies. Mr. Fann
holds a B.A.S. degree in industrial engineering and economics from
Stanford University. Mr. Fann serves on the United States Trust
Company of New York Portfolio Policy Committee, Strategy Review
Committee and Special Fiduciary Committee. Mr. Fann is on the boards
of Classroom Connect, Inc., Curon Medical, Inc., SurVivaLink Corp. and
Protogene Laboratories, Inc.
Douglas A. Lindgren, (38), Co-Chief Executive Officer and Chief
Investment Officer of the Company and Managing Director of United
States Trust Company of New York. Mr. Lindgren is Chief Investment
Officer of Fund II and Executive Vice President of Fund I. He is
focused on direct investments in information technology, information
services, and communications. Prior to joining United States Trust
Company of New York in April 1995, Mr. Lindgren served in various
capacities for Inco Venture Capital Management ("IVCM") from January
1988 through March of 1995, including President and Managing Principal
from January 1993 through March of 1995. While at IVCM, Mr. Lindgren
invested in venture capital and buyout transactions and served on the
board of directors of several of its Portfolio Companies. Before
joining IVCM, Mr. Lindgren was employed by Salomon Brothers Inc. and
Smith Barney, Harris Upham & Co., Inc. He is an Adjunct Professor of
Finance at Columbia University's Graduate School of Business, where he
has taught courses on venture capital since 1993. Mr. Lindgren holds a
M.B.A. and B.A. from Columbia University. He serves on the United
States Trust Company of New York Portfolio Policy Committee. Mr.
Lindgren is on the boards of Powersmart, Inc., MarketFirst Software,
Inc., Constellar Corporation, ReleaseNow.com, Inc., LifeMinders, Inc.,
Zeus Wireless, Inc. and firstsource Corporation.
Lee A. Gardella, (32), Vice President of the Company and Vice
President of United States Trust Company of New York, joined United
States Trust Company of New York in September 1997. He is focused on
direct investments in information technology companies and on fund
investments. Mr. Gardella currently has monitoring responsibilities
for several Portfolio Companies including Captura Software, Inc. and
LogicVision, Inc. From July 1994 to September 1997, Mr. Gardella held
several positions with the Edison Venture Fund, an expansion stage
venture capital firm in Lawrenceville, NJ. In addition, Mr. Gardella
has worked at Wilshire Associates and National Steel Corporation. Mr.
Gardella has served as a Director of the Greater Philadelphia Venture
Group. He received a M.B.A. from the University of Notre Dame and a
B.S.B.A. in Finance from Shippensburg University. Mr. Gardella is a
Chartered Financial Analyst. Mr. Gardella is on the board of BPA
Systems.
James F. Rorer, (30), Vice President of the Company and United
States Trust Company of New York. Mr. Rorer is focused on direct
investments in information services and life sciences. Prior to
joining United States Trust Company of New York in May 1999, he
worked at Bain & Company ("Bain"), a leading global strategic
consulting firm, from 1996 until April 1999. He was a consultant in
the Private Equity Practice, providing strategic due diligence
services to large private equity firms. In addition, Mr. Rorer also
spent time in Bain's standard consulting practice, working with
companies on a variety of strategic issues in a number of different
industries including automotive, electric power, telecommunications,
consumer products and financial services. Mr. Rorer was an investment
banking analyst at CS First Boston from 1992 to 1994, where he worked
on mergers and acquisitions and financing for banks and consumer
finance companies. Mr. Rorer graduated from Duke University, Phi Beta
Kappa, with a degree in economics and mathematics. He holds a M.B.A.
from Harvard Business School.
James F. Dorment, (26), Chief Administrative Officer and
Secretary of the Company and Assistant Vice President of United
States Trust Company of New York has been with the Private Equity
Division of United States Trust Company of New York since December
1997. Mr. Dorment is involved in all areas of investment analysis and
decision-making. From August 1995 through November 1997, he worked in
the wealth management division of United States Trust Company of New
York. Mr. Dorment graduated from Bates College with a B.A. degree in
economics. He is a Chartered Financial Analyst and a member of the
New York Society of Security Analysts and the Association for
Investment Management and Research.
Brian F. Schmidt, (41), Chief Financial Officer of the Company
and Senior Vice President of U.S. Trust Company. Mr. Schmidt is the
Chief Financial Officer of Fund I and Fund II. He is the Division
Manager of Mutual Funds with U.S. Trust Company. He is responsible for
the operation and administration of the Excelsior Family of Funds and
the U.S. Trust Company Common Trust Funds. Mr. Schmidt joined U.S.
Trust Company in 1991 from Prudential Insurance Company of America,
where he was Director of Accounting. Prior to that he was a senior
accounting manager at Dreyfus Corporation. Mr. Schmidt has 20 years of
experience in financial services, concentrating in mutual funds. He
received his B.S. degree from Marist College. He is on the
accountant's and treasurer's committee of the Investment Company
Institute.
Frank D. Bruno, (40), Treasurer of the Company and Vice President
of U.S. Trust Company. Mr. Bruno is a Vice President in the Mutual
Funds Administration Department of an affiliate of U.S. Trust Company.
Prior to joining U.S. Trust Company, he worked for the Dreyfus
Corporation and Price Waterhouse. Mr. Bruno received his B.S. degree
from The Pennsylvania State University.
Investment Committee of the Investment Sub-Adviser
Frederick B. Taylor, (58), Chairman of the Investment Committee.
Mr. Taylor is Vice Chairman and Chief Investment Officer of United
States Trust Company of New York and is a member of the Board of
Directors and Chairman of the Portfolio Policy Committee. He has been
with United States Trust Company of New York for over 30 years, and has
been responsible for developing and implementing the current investment
policy since 1981. Mr. Taylor received his B.A. degree from Wesleyan
University, with distinction, and his M.B.A. degree from the University
of Pennsylvania, Wharton School. He is a member of the New York
Society of Security Analysts and the Association for Investment
Management and Research.
Paul K. Napoli, (54), Co-Chairman of the Investment Committee.
Mr. Napoli is an Executive Vice President of United States Trust
Company of New York and is responsible for the Personal Wealth
Management Group. He is a member of the Management Committee, the Risk
Policy Committee, the Trust Committee, the Broker Relations Committee
and Derivatives Committee. Mr. Napoli received his undergraduate
degree in Economics and Mathematics from Boston College and his M.B.A.
in Finance and Economics from Columbia University. He holds the
designation of Chartered Financial Analyst and Certified Trust &
Financial Adviser. Mr. Napoli is a member of the New York Society of
Security Analysts and the Association of Investment Management and
Research.
John J. Apruzzese, (42), Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Apruzzese is a
Division Manager in the Wealth Management Group. Previously, Mr.
Apruzzese was a staff member of the Labor and Human Resources Committee
of the U.S. Senate and worked on federal budget matters. Mr. Apruzzese
received his B.A. from Bucknell University and his M.B.A. from New York
University. Mr. Apruzzese is a Chartered Financial Analyst, a member
of the New York Society of Security Analysts and a member of the Board
of Advisers of Outward Bound.
Richard L. Bayles, (56), Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Bayles manages
the Stock Fund for Trusts. Mr. Bayles earned his B.A. from Dartmouth
College. He is a warden of St. Bartholomew's Church in the City of New
York. Mr. Bayles served with the Peace Corps in Kenya for three years
and is President of the Mid Manhattan Performing Arts Foundation.
Edith A. Cassidy, (47), Managing Director and Division Manager at
United States Trust Company of New York. Ms. Cassidy is responsible
for managing individual client assets and a division of portfolio
managers, administrators and support staff. Ms. Cassidy is a member of
the United States Trust Company of New York's Operating Committee and
Portfolio Policy Committee. Upon joining U.S. Trust in 1989, Ms.
Cassidy was appointed Director of the Equity Research Division. Prior
to joining U.S. Trust in 1989, Ms. Cassidy was an investment executive
at Piper, Jaffray & Hopwood in New York City. From 1976 through 1986,
she was with International Business Machines Corporation in New York,
where her last position was Marketing Manager. Ms. Cassidy is a member
of the New York Society of Security Analysts. She is a member of the
Board of Trustees of The Westmoreland Davis Foundation and Learning
Leaders. Ms. Cassidy received her B.A. in 1975 from Goucher College.
Katherine T. Ellis, (36), Senior Vice President and Senior
Portfolio Manager of United States Trust Company of New York. Ms.
Ellis is a Division Manager in the Wealth Management Group. She is a
member of the Portfolio Policy Committee and has been with United
States Trust Company of New York for 14 years. She earned her B.A. in
Political Science from Wellesley College and her M.B.A. with
Distinction in Finance from the Stern School where she was designated a
Stern Scholar as well as a member of the Beta Gamma Sigma Honor
Society. Ms. Ellis holds the designation of Chartered Financial
Analyst and is a member of the New York Society of Security Analysts
and the Association of Investment Management and Research.
William V. Ferdinand, (58), Managing Director and Senior
Investment Officer of U.S. Trust Company. Mr. Ferdinand is responsible
for managing the investment organization of U.S. Trust Company. With
eleven portfolio managers, this group actively manages over $2.6
billion of assets. In addition, Mr. Ferdinand is a member of the
Portfolio Policy Committee, headquartered at United States Trust
Company of New York. With over 30 years of investment management
experience, he comes to U.S. Trust Company from The Penn Mutual Life
Insurance Company, where he served as Executive Vice President and
Chief Investment Officer as well as President and Chief Executive
Officer of the investment management subsidiaries. His background
includes over 10 years of senior trust investment experience in
Connecticut and Pennsylvania. He is a member of the Board of Directors
of U.S. Trust Company. Mr. Ferdinand is a Chartered Financial Analyst
and received a B.S. degree from the University of Pennsylvania Wharton
School of Business. He earned his M.B.A. from New York University. He
is a member of the New York and International Society of Security
Analysts and the Association for Investment Management and Research.
Joseph A. Gallagher, (58), Senior Vice President of U.S. Trust
Company of New Jersey. Prior to joining U.S. Trust Company of New
Jersey, Mr. Gallagher was Managing Director of Delafield, Harvey,
Tabell, which was acquired by U.S. Trust in 1992. Previously, he held
the positions of Senior Portfolio Manager in the Private Banking and
Investment Division at Citibank, N.A. and Vice President-- Investments
at United Jersey Bank. Mr. Gallagher received his B.S. degree from
Georgetown University. He is a Chartered Financial Analyst and a
member of the New York Society of Security Analysts and the Association
for Investment Management and Research.
Timothy C. Pettee, (41), Managing Director of United States Trust
Company of New York. Mr. Pettee is currently the Director of Equity
Research at United States Trust Company of New York. He is responsible
for supporting over 100 portfolio managers with $40 billion plus in
equity assets under management with proprietary analysis from the
research department. Prior to joining United States Trust Company of
New York, Mr. Pettee worked for 8 years at Alliance Capital Management,
LP as an analyst in both the domestic and international research
departments. In addition, he managed the Alliance Global Leisure Fund,
the Alliance American Fund and co-managed funds run by the research
department. Prior to Alliance, Mr. Pettee was with Merrill Lynch and
Bear Stearns & Co. Mr. Pettee holds a B.A. from Boston University.
Rosemary Sagar, (40), Managing Director of United States Trust
Company of New York. Ms. Sagar is responsible for U.S. Trust
Company's Global Investment Division. She is responsible for
overseeing U.S. Trust's international investment activities,
including portfolio management, research and trading. Prior to
joining U.S. Trust, Ms. Sagar was senior vice president for
international equities for GE Investments in Stamford, Connecticut.
During her six years at GE, she was instrumental in growing the
international assets under management from $800 million to over $6
billion, of which about half was for external clients. She was also
Chairman of GE (UK) Common Investment Fund, GE Company's largest
pension fund outside North America, and a member of the board of the
GE Netherlands Pension Fund. From 1987 to 1990, Ms. Sagar was
associate director of research for Baring Securities. Previously, she
held positions as a vice president at Drexel Burnham Lambert and as
an analyst with Morgan Stanley. Ms. Sagar is a member of the Advisory
Board of the Paris Stock Exchange. She holds a Chartered Financial
Analyst designation. She received her M.B.A. from Columbia
University, her undergraduate degree from Boston University (summa
cum laude) and she also studied at the Sorbonne in Paris.
Harvey A. Seline, (61), is a Managing Director and Senior
Portfolio Manager of United States Trust Company of New York. Mr.
Seline is a Division Manager in the Personal Wealth Management Group.
He has been with United States Trust Company of New York since 1969.
Prior to joining U.S. Trust, he was a Trust Investment Officer at The
National Bank of Tulsa and a Trust Analyst at First City National Bank
in Houston. Mr. Seline received his B.A. from the University of
Colorado and his M.B.A. from the Columbia University Graduate School of
Business Administration. Mr. Seline is a Chartered Financial Analyst,
a member of the New York Society of Security Analysts and a member of
The Association for Investment Management and Research.
Jay B. Springer, (41), Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Springer is a
Division Manager in the Personal Wealth Management Group. Previously,
he worked as a Financial Analyst at Citibank. Mr. Springer earned his
B.B.A., magna cum laude, from Boston University and his M.B.A. from New
York University Graduate School of Business. He is currently a member
of The New York State Bankers Association Trust Investment Committee
and is a former director of Bank Fiduciary Funds. Mr. Springer serves
on the Board of Directors of Christmas-in-April-USA.
David A. Tillson, (51), Managing Director and Senior Portfolio
Manager of United States Trust Company of New York. Mr. Tillson is a
Division Manager in the Personal Wealth Management Group. Prior to
joining United States Trust Company of New York, he was the President
of TDA Capital Management Company, which he formed in 1990. From 1992
until he joined U.S. Trust, he was also a Senior Vice President at
Matrix Asset Advisers. Prior to founding TDA Capital management, he
was a Vice President, portfolio manager and director of research at
Management Asset Corporation. He also held positions at W.P. Carey &
Company and General Reinsurance Corporation. Mr. Tillson received his
B.A. in 1971 from Brown University and his M.B.A. in 1974 from New York
University. A Chartered Financial Analyst, Mr. Tillson is a member of
the New York Society of Security Analysts and the Association for
Investment Management Research.
Leigh H. Weiss, (45), Managing Director of United States Trust
Company of New York and Manager of Institutional Equity and Balanced
Portfolios. Mr. Weiss has been with the United States Trust Company of
New York since September of 1993. Prior to joining United States Trust
Company of New York, he worked for Goldman, Sachs & Co., where he had
been since 1981. Mr. Weiss received his B.S. degree in Economics from
the Wharton School of the University of Pennsylvania and he earned his
M.B.A. from the University of Chicago.
David J. Williams, (58), Managing Director and Senior Portfolio
Manager of United States Trust Company of New York, Mr. Williams is a
Portfolio Manager with over 20 years of investment experience. He is a
member of United States Trust Company of New York's Investment Policy
Committee and manages the Value and Restructuring Fund. Formerly, Mr.
Williams was a Senior Vice President and the Senior Investment Officer
of Horizon Trust Company in Morristown, New Jersey. He was also a
Portfolio Manager with T. Rowe Price Associates, Inc. in Baltimore,
Maryland. Mr. Williams received his B.A. from Yale University and his
M.B.A. from Harvard University. He is a Chartered Financial Analyst.
George C. Whiteley III, (60), Managing Director and Senior
Portfolio Manager of United States Trust Company of New York. Mr.
Whiteley is a Division Manager in the Personal Wealth Management
Group. He joined the United States Trust Company of New York in 1995.
Prior to joining United States Trust Company of New York, he worked for
Chase Manhattan Bank where he was Vice President and Chief Investment
Executive of U.S. Private Banking. Mr. Whiteley received his B.A.
degree from Harvard College and was awarded his J.D. from New York
University School of Law.
BOARD OF MANAGER COMPENSATION
Each member of the Board of Managers will receive $7,000 annually and
$2,000 per meeting attended. No member of the Board of Managers or officer
will receive aggregate compensation from the Company in excess of $15,000
for fiscal year 2000. Members of the Board of Managers are also entitled to
reimbursement of their actual out-of-pocket expenses incurred in connection
with their attendance at meetings of the Board of Managers. The Company
does not have a stock option plan, other long-term incentive plan,
retirement plan or other retirement benefits.
ESTIMATED COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON, COMPENSATION FROM BENEFITS ACCRUED AS BENEFITS UPON FROM COMPANY AND
POSITION THE COMPANY PART OF FUND EXPENSES RETIREMENT FUND COMPLEX1
<S> <C> <C> <C> <C>
John C. Hover, II*
Manager $15,000 0 0 $53,500 (4 Funds)
Gene M. Bernstein
Manager $15,000 0 0 $53,500 (4 Funds)
Stephen V. Murphy
Manager $15,000 0 0 $53,500 (4 Funds)
Victor F.
Imbimbo, Jr. $15,000 0 0 $49,000 (4 Funds)
Manager
</TABLE>
-------------------
1 The total compensation paid to such persons by the Company and Fund
Complex is estimated for the fiscal year ending October 31, 2000. The
parenthetical number represents the number of investment companies
(including the Company) from which such person receives compensation
that are considered part of the same Fund Complex as the Company.
* Interested person of the Company.
CONTROL PERSONS
Upon completion of the Offering, no person is expected to have voting
control over the Company.
CUSTODIAN AND TRANSFER AGENT
PFPC Trust Company ("PFPC Trust") will serve as the Company's
custodian in accordance with the provisions of the Investment Company Act
and the rules and regulations thereunder. As such, PFPC Trust will be
responsible for holding the Company's cash and portfolio securities. PFPC
Trust will also serve as the transfer agent and distribution paying agent
for the Company's Units. For its custodian, transfer agency and paying
agency services, PFPC Trust will receive customary fees from the Company.
PFPC's Trust address is: PFPC Trust, 8800 Tinicum Boulevard, 3rd Floor,
Suite 200, Philadelphia, Pennsylvania 19153.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Subject to policies established by the Board of Managers, the
Investment Adviser or Investment Sub-Adviser will arrange for the execution
of the Company's portfolio transactions and the allocation of brokerage. In
executing portfolio transactions, the Investment Adviser and Investment
Sub-Adviser will seek to obtain the most favorable execution of portfolio
transactions, that is the best combination of net price and prompt reliable
execution. In the Investment Adviser's and Investment Sub-Adviser's
opinion, it is not possible to determine in advance that any particular
broker will actually be able to effect the most favorable execution
because, in the context of a constantly changing market, order execution
involves judgments as to the price, volume, trend and breadth of the
market, possibility of a block transaction and the broker's activity in the
security as well as its general record for prompt, competent and reliable
service in all aspects of order processing, execution and settlement as
well as anticipated commission rates.
A portion of the securities in which the Company will invest may be
traded in the over-the-counter markets, and the Company intends to deal
directly with the dealers who make markets in the securities involved,
except in those circumstances where better prices and execution are
otherwise available. Under the Investment Company Act, persons affiliated
with the Company generally are prohibited from dealing with the Company as
principal in the purchase and sale of securities. Transactions in the
over-the-counter markets usually involve transactions with dealers acting
as principal for their own account. The Company will not deal with
affiliated persons as principal in such transactions; however, affiliated
persons of the Company may serve as its broker in over-the-counter markets
and other transactions conducted on an agency basis in accordance with the
Investment Company Act. If an affiliated person of the Company is a market
maker in the securities of a company, the affiliated person will not serve
as the Company's broker in the purchase of such securities.
The Investment Adviser and the Investment Sub-Adviser have no
obligation to deal with any broker or group of brokers in the execution of
transactions. With respect to certain securities, the Company's portfolio
transactions may be effected through affiliates of the Investment Adviser
or the Investment Sub-Adviser, provided it is consistent with the policy of
obtaining the most favorable execution. The Company's Board of Managers has
adopted procedures to ensure compliance with applicable regulations
relating to trading of portfolio securities.
In allocating brokerage among other brokers who are believed to be
capable of providing equally favorable execution, the Company may also take
into consideration the fact that a particular broker may, in addition to
execution capability, provide other services to the Company or the
Investment Adviser, the Investment Sub-Adviser and their affiliates, such
as research and statistical information. Research services so received are
in addition to and not in lieu of services required to be performed by the
Investment Adviser or Investment Sub-Adviser and do not reduce the
investment advisory fees payable by the Company. Such services may be
useful to the Investment Adviser or the Investment Sub-Adviser in serving
the Company and other clients and, conversely, research services obtained
by the placement of brokerage business of other clients may be useful to
the Investment Adviser or the Investment Sub-Adviser in carrying out their
obligations to the Company. The Investment Adviser or the Investment
Sub-Adviser might incur significant expense were they to purchase such
research services.
PORTFOLIO TURNOVER
Because the investments of the Company generally require relatively
long periods of time to reach maturity, it is expected that the Company's
portfolio turnover will be low. There is, however, no policy limitation on
the ability of the Company to sell an investment after a short period of
time. Any short-term securities in which the Company invests will have a
high rate of turnover.
Portfolio turnover will generally involve some expense to the
Company, including brokerage commissions or dealer mark-ups and other
transaction costs on the sale of securities and, where permitted,
reinvestment in other securities. The portfolio turnover rate will be
computed by dividing the lesser of the amount of the securities purchased
or securities sold during the year by the average monthly value of
securities owned during the year (excluding securities whose maturities at
acquisition were one year or less).
REGULATION
The Investment Advisers Act of 1940, as amended (the "Investment
Advisers Act"), generally prohibits an investment adviser from entering
into an investment advisory contract with an investment company that
provides for compensation to the investment adviser on the basis of a share
of capital gains upon or capital appreciation of the funds or any portion
of the funds of the investment company. In 1980, Congress enacted the Small
Business Investment Incentive Act of 1980 which added provisions to the
Investment Advisers Act which permit the payment of compensation to an
investment adviser to a BDC based on capital gains.
In addition, the Small Business Investment Incentive Act of 1980
modified the provisions of the Investment Company Act that are applicable
to BDCs. The BDC is considered to be a closed-end investment company as
those terms are defined in the Investment Company Act. The following is a
brief description of the Investment Company Act, as modified by the Small
Business Investment Incentive Act of 1980, and is qualified in its entirety
by reference to the full text of the Investment Company Act and the rules
thereunder.
Generally, to be eligible to elect BDC status, a company must engage
in the business of furnishing capital and offering significant managerial
assistance to companies that do not have ready access to capital through
conventional financial channels. A BDC must be operated for the purpose of
making investments in securities of the types required by the Investment
Company Act, which types include certain present and former "eligible
portfolio companies" and certain bankrupt or insolvent companies. A BDC
need not invest in all of the possible types of securities approved for
investment by BDCs. Business development companies must also make available
significant managerial assistance to portfolio companies. An eligible
portfolio company generally is a United States company that is not an
investment company (except for wholly-owned Small Business Investment
Companies licensed by the Small Business Administration) and that (i) does
not have a class of securities registered on a national securities exchange
or included in the Federal Reserve Board's over-the-counter margin list,
(ii) is actively controlled by the BDC either alone or as part of a group
acting together and an affiliate of the BDC is a member of the portfolio
company's board of directors, or (iii) meets such other criteria as may be
established by the Commission. Control, under the Investment Company Act,
is presumed to exist where the BDC owns 25% of the outstanding voting
securities of the portfolio company.
The Investment Company Act limits the type of assets that the Company
may acquire to "qualifying assets" and certain assets necessary for its
operations (such as office furniture, equipment, and facilities) unless, at
the time of the acquisition, at least 70% of the value of the Company's
investment assets consists of qualifying assets. Qualifying assets include:
(i) securities of companies that were eligible portfolio companies at the
time the Company acquired their securities; (ii) securities of bankrupt or
insolvent companies that are not otherwise eligible portfolio companies;
(iii) securities acquired as follow-on investments in companies that were
eligible at the time of the Company's initial acquisition of their
securities but are no longer eligible, provided that the Company has
maintained a substantial portion of its initial investment in those
companies; (iv) securities received in exchange for or distributed on or
with respect to any of the foregoing; and (v) cash items, government
securities, and high-quality, short-term debt. The Investment Company Act
also places restrictions on the nature of the transactions in which, and
the persons from whom, securities can be purchased in order for the
securities to be considered qualifying assets. In addition, certain
provisions of the federal banking laws, including the Bank Holding Company
Act of 1956, as amended, would prohibit or restrict investments by the
Company in securities of commercial banking organizations.
The Company is permitted by the Investment Company Act, under
specified conditions, to issue multiple classes of senior debt and a single
class of equity senior to the Units if its asset coverage, as defined in
the Investment Company Act, is at least 200% after the issuance of the debt
or equity. In addition, provision must be made to prohibit any distribution
to members or the repurchase of any Units unless the asset coverage ratio
is at least 200% at the time of the distribution or repurchase.
After this offering, the Company may sell its securities at a price
that is below the prevailing net asset value per Unit only upon the
approval by the holders of a majority of its voting securities.
Under the Investment Company Act as amended by the Small Business
Investment Incentive Act of 1980, certain of the transactions involving the
Company and its affiliates (as well as affiliates of those affiliates) that
would previously have been prohibited without the prior approval of the
Commission require the prior approval of a majority of the disinterested
members of the Board of Managers having no financial interest in the
transactions. Certain transactions involving certain closely affiliated
persons of the Company, including the Investment Adviser, the Investment
Sub-Adviser and their officers and employees, still require the prior
approval of the Commission. In general, (i) any person who owns, controls,
or holds with power to vote, more than 5% of the outstanding Units, (ii)
any director, executive officer, or general partner of that person, and
(iii) any person who directly or indirectly controls, is controlled by, or
is under common control with, that person, must obtain the prior approval
of a majority of the disinterested members of the Board of Managers and, in
some situations, the prior approval of the Commission, before engaging in
certain transactions involving the Company or any company controlled by the
Company. The Investment Company Act and applicable rules thereunder
generally do not restrict transactions between the Company and its
Portfolio Companies. In accordance with the Investment Company Act, a
majority of the members of the Board of Managers are not interested persons
of the Company as defined in the Investment Company Act. See "Management."
VALUATION OF PORTFOLIO SECURITIES
Under the supervision of and in accordance with procedures adopted by
the Board of Managers, the Investment Adviser or Investment Sub-Adviser
will value the securities in the Company's portfolio quarterly and at such
other times as, in the Board's view, circumstances warrant. In the event of
a sale by the Company of its Units, the Investment Adviser must determine
the net asset value (the "NAV") of a Unit as of a date within 48 hours
before such sale (excluding Sundays and holidays) to comply with the
requirement of the Investment Company Act that securities not be sold below
NAV without member approval.
In order to determine the NAV per Unit (i) the value of the assets of
the Company, including its portfolio securities, shall be determined by the
Investment Adviser or Investment Sub-Adviser under the supervision of the
Board of Managers, (ii) the Company's liabilities will be subtracted
therefrom and (iii) the difference will be divided by the number of
outstanding Units of the Company. For purposes of this calculation, any
amount of the Incentive Carried Interest, calculated as if all gains on
investments were realized gains, that the Investment Adviser would be
entitled to distribution of if the Company had cash available for
distribution will be treated as a liability of the Company.
Securities for which market quotations are readily available
generally will be valued at the last sale price on the date of valuation
or, if no sale occurred, at the mean of the latest bid and ask prices.
Securities for which market quotations are not readily available and other
assets will be valued at fair value as determined in good faith by the
Investment Adviser or Investment Sub-Adviser under the supervision of the
Board of Managers and pursuant to procedures established and periodically
reviewed by the Board of Managers. Securities having remaining maturities
of 60 days or less are valued at amortized cost.
The value for restricted stock investments for which no public market
exists is difficult to determine. Generally, such investments will be
valued on a "going concern" basis without giving effect to any disposition
costs. There is a range of values that is reasonable for such investments
at any particular time. In the early stages of development, venture capital
investments shall be valued based upon their original cost to the Company,
until developments positively or negatively affecting the Portfolio Company
provide a sufficient basis for use of a valuation other than cost (such as
changes in the Portfolio Company's prospectus or reliable private sales of
a Portfolio Company's securities at prices different from the value
initially used by management). Such developments may occur shortly after
the Company's original investment, or after a longer period. Upon the
occurrence of developments providing a sufficient basis for a change in
valuation, venture capital investments will be valued by the private market
or appraisal methods of valuation. The Company shall use reliable third
party transactions (actual or proposed) in Portfolio Company Securities as
a basis of valuation. This private market method shall only be used with
respect to actual transactions or actual firm offers by sophisticated,
independent investors. The appraisal method shall be based upon such
factors affecting the Portfolio Company as earnings, net worth, reliable
private sale prices of the Portfolio Company's securities, the market
prices for similar securities of comparable companies and an assessment of
the Portfolio Company's future prospects. In the case of unsuccessful
operations, the appraisal may be based upon liquidation value. The values
for the investments referred to in this paragraph will be estimated
regularly by the Investment Adviser or Investment Sub-Adviser and, in any
event, not less frequently than quarterly. However, there can be no
assurance that such value will represent the return that might ultimately
be realized by the Company from the investments.
The Company anticipates that it may invest in securities for which a
public market exists but which are "restricted securities" for purposes of
the Securities Act. In evaluating such securities, the Investment Adviser
will take into consideration various factors, including the price at which
the securities in question were acquired relative to the market price for
unrestricted shares of the same securities at the time of such acquisition,
modified as appropriate to reflect the nature of the market in which the
securities are traded, if any, the amount of the public float, the
existence and terms of any securities registration rights, the proportion
of the Portfolio Company's securities held by the Company, changes in the
financial condition and prospects of such Portfolio Company and other
factors which may affect their fair value, all in accordance with the
Investment Company Act. Restricted securities for which an established
trading market exists will typically be valued at a discount of 10% to 40%
from the public market price with the amount of the discount decreasing as
the restriction period decreases. If an established trading market does not
exist, valuations will be made consistent with the "going concern" method
described above. The Company's investments in Private Funds generally will
be valued based upon the Company's pro rata share of the value of the
assets of a Private Fund as determined by such Private Fund in accordance
with its by-laws, constitutional or other documents governing such
valuation, on the valuation date. If such valuation with respect to
investments in Private Funds is not available by reason of timing or other
event on the valuation date or are deemed to be unreliable by the
Investment Adviser or Investment Sub-Adviser, the Investment Adviser or
Investment Sub-Adviser, under supervision of the Board of Managers, will
determine such value based on the Investment Adviser's or Investment
Sub-Adviser's judgment of fair value on the appropriate date, less
applicable charges, if any.
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS
CAPITAL ACCOUNTS. The Company will establish a capital account for
each investor who becomes a member of the Company. Your capital
contributions and your share of items of income and gain will be credited
to your capital account, and your distributions and your share of items of
loss, deduction and expense will be debited from your capital account. The
Company will establish a capital account for the Investment Adviser to
which allocations in respect of the Incentive Carried Interest will be
made.
ALLOCATIONS. The income, gain, loss, deduction and expense of the
Company will be determined and allocated as of the end of each fiscal year
to reflect the economic interests of the members and the Investment
Adviser.
Allocations generally will be made in the following order:
o gains will be allocated to the Investment Adviser until the
cumulative amount of all gains that has been allocated to the
Investment Adviser from the commencement of operations equals
the Incentive Carried Interest calculated through the end of
the period for which the allocation is being made, and
o all remaining items of income, gain, loss, deduction and
expense will be allocated to the members pro rata in accordance
with their capital contributions.
For any given period, the Incentive Carried Interest will be an
amount equal to 20% of the excess, if any, of the cumulative amount of all
capital gains realized by the Company on Direct Investments from the
commencement of operations through the end of such period over the sum of:
o the cumulative amount of all capital losses realized by the
Company on all investments of any type from the commencement of
operations through the end of such period; and
o the amount of net unrealized capital depreciation on all
investments of any type all determined as of the close of such
period.
To the extent that the Company distributes property in kind, the
Company will be deemed to have realized gain or loss on such property based
on the value assigned to such property in accordance with the Company's
valuation procedures.
DISTRIBUTIONS. The Company will distribute all cash that the
Investment Adviser does not expect to use in the operation of the Company.
The Company will consider such distributions at least annually but, as
described below, does not expect to make distributions of cash or property
during the first several years of operations. Each year, the Investment
Adviser generally will be entitled to a distribution equal to the Incentive
Carried Interest. The members generally will be entitled to all amounts
remaining for distribution pro rata in accordance with their capital
contributions. Upon liquidation of the Company, any cash or other property
available for distribution will be distributed to the members and to the
Manager pro rata in accordance with their respective capital account
balances. The Investment Adviser's capital account balance generally will
reflect the allocations that have been made to the Investment Adviser in
respect of the Incentive Carried Interest that have not been previously
distributed to the Investment Adviser.
Due to the nature of the Company's investments, investors should not
expect distributions of cash or property during the first several years of
the Company's operations. The Company will not reinvest income from its
investments or the proceeds from the sale of its investments, in each case
other than in Short-Term Investments, except to make follow-on investments.
The Company may make distributions in kind of its property. The Company
does not intend to make any distribution if after making such distribution
the liabilities of the Company would exceed the fair value of the Company's
assets.
For more detailed information concerning the Company's capital
accounts, allocations and distributions, see the Statement of Information
under the caption "Capital Accounts, Allocations and Distributions" and the
Operating Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax
consequences to the initial members who are U.S. persons. The discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, judicial authorities, published positions of the IRS
and other applicable authorities, all as in effect on the date hereof and
all of which are subject to change or differing interpretations (possibly
with retroactive effect). The discussion does not address all of the tax
consequences that may be relevant to a particular member or to members
subject to special treatment under federal income tax laws (e.g., banks and
certain other financial institutions, insurance companies, tax-exempt
organizations and non-U.S. persons). This discussion is limited to members
who hold their Units as capital assets. No ruling has been or will be
sought from the IRS regarding any matter discussed herein. Except as
expressed in "Tax Status of the Company" below, counsel to the Company has
not rendered any legal opinion regarding any tax consequences relating to
the Company or an investment in the Company. No assurance can be given that
the IRS would not assert, or that a court would not sustain, a position
contrary to any of the tax aspects set forth below. PROSPECTIVE INVESTORS
MUST CONSULT THEIR OWN TAX ADVISERS AS TO THE FEDERAL INCOME TAX
CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF UNITS AS WELL AS THE
EFFECTS OF STATE, LOCAL AND NON-U.S. TAX LAWS.
TAX STATUS OF THE COMPANY. At the first subscription closing, the
Company will receive an opinion of its counsel, Skadden, Arps, Slate,
Meagher & Flom LLP, to the effect that, under current law and based on
certain assumptions and representations, the Company will be treated as a
partnership and not as a "publicly traded partnership" that is treated as a
corporation for federal income tax purposes. An opinion of counsel is not
binding on the IRS or any court.
A limited liability company (such as the Company) that has elected to
be treated as a business development company under the Investment Company
Act would be treated as a corporation for federal income tax purposes if it
were to become a publicly traded partnership. A publicly traded partnership
is a partnership (or limited liability company intended to be treated as a
partnership) the interests of which are either traded on an established
securities market or readily tradable on a secondary market (or the
substantial equivalent thereof). Each of the Investment Adviser, the
Investment Sub-Adviser and the Company has represented to counsel for the
Company that, among other things, neither it, nor any affiliate thereof,
will participate in the establishment of an established securities market
or secondary market (or the substantial equivalent thereof) for this
purpose.
In addition, the Operating Agreement imposes significant restrictions
on transfer of Units in order to address this point. By subscribing for
Units, each member agrees to indemnify and hold harmless the Company, the
Investment Adviser, the Investment Sub-Adviser, each other member and any
successor or assign any of the foregoing, from and against all losses,
claims, damages, liabilities, costs and expenses (including losses, claims,
damages, liabilities, costs and expenses of any judgments, fines and
amounts paid in settlement), joint or several, to which those persons may
become subject by reason of or arising from any transfer made by that
member in violation of the Operating Agreement or any misrepresentation
made by that member in connection with any purported transfer. A similar
indemnification is required to be made by a permitted transferee.
Ultimately, counsel's opinion as to the treatment of the Company as a
partnership for federal income tax purposes will be based on, among other
things, the maintenance of factual conditions (including those underlying
the representations of the Investment Adviser, the Investment Sub-Adviser
and the Company), the continuation of which cannot be assured. Company's
counsel will not render a Company tax status opinion or review such factual
environment after the first subscription closing.
If the Company were treated as a publicly traded partnership or
otherwise treated as a corporation for federal income tax purposes,
material adverse consequences for the members would result. The Company
would be subject to tax on its income at corporate tax rates without a
deduction for any distribution to the members, thereby materially reducing
the amount of any cash available for distribution to the members. In
addition, the members would be treated as shareholders for federal income
tax purposes. Thus, capital gains and losses and other income and
deductions of the Company would not be passed through to the members, and
all distributions by the Company to the members would be treated as
dividends, return of capital and/or gains.
The following discussion assumes that the Company will continue to be
treated as a partnership for federal income tax purposes.
TAXATION OF MEMBERS OF THE COMPANY. By reason of its treatment as a
partnership for federal income tax purposes, the Company will not itself be
subject to federal income tax. Rather, each member in computing its federal
income tax will include his, her or its allocable share of Company items of
income, gain, loss, deduction and expense for the taxable year of the
Company ending within or with the taxable year of the member.
Nonliquidating cash distributions made by the Company to a member generally
will not be taxable to the member, except to the extent that the amount of
such cash distributions exceeds the distributee's adjusted tax basis in
his, her or its Units. Nonliquidating distributions of property other than
cash are also generally not taxable. If both cash and other property are
distributed by the Company to a member, the member's adjusted tax basis in
his, her or its Units will be reduced first by the cash and then by the
Company's tax basis in the other property distributed. The member will have
a tax basis in non-liquidating, non-cash distributions of property equal to
the Company's tax basis in such property (but in no event in excess of the
member's adjusted tax basis in his, her or its Units reduced by the amount
of any cash distributed in the same transaction).
For federal income tax purposes, a member's allocable share of
Company tax items will be determined by the provisions of the Operating
Agreement if such allocations have or are deemed to have "substantial
economic effect" or are determined to be in accordance with the members'
interests in the Company. The allocations under the Operating Agreement are
intended to satisfy such requirements. If, however, the IRS successfully
challenged the Company's allocations of income, gain, loss, deduction and
expense, the redetermination of the allocations to a particular member for
federal income tax purposes may be less favorable than the allocations set
forth in the Operating Agreement.
The Company may derive taxable income from an investment that is not
matched by a corresponding receipt of cash. This could occur, for example,
if the Company makes an investment in certain non-U.S. corporations. See
"Phantom Income from Company Investments in non-U.S. Corporations" below.
This could also occur if the Company invests in an entity that is
classified as a partnership and such entity allocates income or gain to the
Company without making a corresponding distribution of cash. Moreover, the
Company is not required to make current distributions of its entire
earnings. In addition, a reduction of Company nonrecourse borrowings (as
defined for federal income tax purposes) would be treated as a constructive
distribution of cash to a member to the extent of his, her or its allocable
share of such reduction, even though an actual cash distribution is not
made. Accordingly, it is possible that a member's federal income tax
liability with respect to his, her or its allocable share of Company
earnings in a particular taxable year could exceed the cash distributions
to the member for the year, thus giving rise to an out-of-pocket payment by
the member.
TAX BASIS RULES. Company distributions generally will not be taxable
to a member to the extent of such member's adjusted tax basis in his, her
or its Units. In addition, a member is allowed to deduct his, her or its
allocable share of Company losses (if any) only to the extent of such
member's adjusted tax basis in his, her, or its Units at the end of the
taxable year in which the losses occur. A member's adjusted tax basis is
equal to the member's aggregate capital contributions to the Company as
adjusted by certain items. Basis is generally increased by the member's
allocable share of Company profits (and items of income and gain) and
Company nonrecourse borrowings (as defined for federal income tax
purposes). Basis is generally decreased by the member's allocable share of
Company losses (and items of loss, deduction and expense), the amount of
cash distributed by the Company to the member, the Company's tax basis of
property (other than cash) distributed by the Company to the member and any
reduction in the member's allocable share of Company nonrecourse borrowings
(as defined for federal income tax purposes).
To the extent that a member's allocable share of Company losses are
not allowed because the member has insufficient adjusted tax basis in his,
her or its Units, such disallowed losses may be carried over by the member
to subsequent taxable years and will be allowed if and to the extent of the
member's adjusted tax basis in subsequent years.
AT RISK RULES. Individuals and certain closely held C corporations
are allowed to deduct their allocable share of Company losses (if any) only
to the extent of each such member's "at risk" amount in the Company at the
end of the taxable year in which the losses occur. A member's at risk
amount generally is equal to the member's aggregate capital contributions
to the Company. To the extent that a member's allocable share of Company
losses are not allowed because the member has an insufficient amount at
risk in the Company, such disallowed losses may be carried over by the
member to subsequent taxable years and will be allowed if and to the extent
of the member's at risk amount in subsequent years.
PASSIVE ACTIVITY LOSS RULES. Individuals, estates, trusts, closely
held C corporations and personal service corporations are not allowed to
deduct "passive activity losses" (as defined for federal income tax
purposes) against certain other income, such as salary or other
compensation for personal services, interest, dividends, annuities or
royalties not derived in the ordinary course of a trade or business and
gain attributable to the disposition of property that either produces such
nonbusiness income or is held for investment. The Company's investment
activities generally will not constitute a passive activity for purposes of
the passive activity loss rules. Therefore, a member will not be allowed to
offset his, her or its allocable share of Company items of income or gain
with the member's passive activity losses from other sources.
INVESTMENT INTEREST LIMITATION. Individuals and other noncorporate
taxpayers are allowed to deduct interest paid or accrued by the Company on
its indebtedness (so-called investment interest) only to the extent of each
such member's net investment income for the taxable year. A member's net
investment income generally is the excess, if any, of the member's
investment income from all sources (which is gross income from property
held for investment) over investment expenses from all sources (which are
deductions allowed that are directly connected with the production of
investment income). Investment income excludes net capital gain
attributable to the disposition of property held for investment (and thus
would not include any Company gains on the sale of its investments), unless
the member elects to pay tax on such gain at ordinary income rates.
To the extent that a member's allocable share of Company investment
interest is not allowed because the member has insufficient net investment
income, such disallowed investment interest may be carried over by the
member to subsequent taxable years and will be allowed if and to the extent
of the member's net investment income in subsequent years. If a member
borrows to finance the purchase of Units, any interest paid or accrued on
the borrowing will be investment interest that is subject to these
limitations. Since the amount of a member's allocable share of Company
investment interest that is subject to this limitation will depend on the
member's aggregate investment interest and net investment income from all
sources for any taxable year, the extent, if any, to which Company
investment interest will be disallowed under this rule will depend on each
member's particular circumstances each year.
OTHER LIMITATIONS ON DEDUCTIONS AND SPECIAL CODE PROVISIONS.
Prospective investors should be aware that they could be subject to various
other limitations on their ability to deduct their allocable share of
Company losses (or items of loss and deduction thereof). An individual,
estate or trust may deduct so-called miscellaneous itemized deductions,
which include the management fee and certain other expenses of the Company
and of the Private Funds, only to the extent that such deductions exceed 2%
of the adjusted gross income of the taxpayer. Since the amount of a
member's allocable share of such expenses that is subject to this
disallowance rule will depend on the member's aggregate miscellaneous
itemized deductions from all sources and adjusted gross income for any
taxable year, the extent, if any, to which such expenses will be subject to
disallowance will depend on each member's particular circumstances each
year. Other limitations are imposed on itemized deductions of high-income
individuals.
For federal income tax purposes, if a member of a limited liability
company performs services for the company and there is a related direct or
indirect allocation and distribution by the company to such member, the
allocation and distribution may be recharacterized as a fee. It is intended
that the Investment Adviser's Incentive Carried Interest constitute an
allocable share of Company earnings and not a fee. No assurance can be
given, however, that the IRS could not successfully assert that the
Incentive Carried Interest be recharacterized as a fee under these rules.
If the Incentive Carried Interest were characterized as a fee, members
could be subject to the limitations on deductibility relating to
miscellaneous itemized deductions and certain other itemized deductions of
high-income individuals described in the preceding paragraph.
In addition, prospective investors should be aware that certain of
the Company's activities may be subject to various special provisions of
the Code that, among other things, defer or disallow the deductibility of
certain expenses. Organizational expenses of the Company are not currently
deductible, but may, at the election of the Company, be amortized ratably
over a period of not less than 60 months. Syndication expenses of the
Company (i.e., expenditures made in connection with the marketing and
issuance of Units, including placement fees) are neither deductible nor
amortizable.
NON-U.S. CURRENCY GAINS OR LOSSES. If the Company makes an investment
or obtains financing denominated in a currency other than the U.S. dollar,
then the Company may recognize gain or loss attributable to fluctuations in
such currency relative to the U.S. dollar. The Company may also recognize
gain or loss on such fluctuations occurring between the time it obtains and
disposes of non-U.S. currency, between the time it accrues and collects
income denominated in a non-U.S. currency, or between the time it accrues and
pays liabilities denominated in a non-U.S. currency. Such gains or losses
generally will be treated as ordinary income or loss.
PHANTOM INCOME FROM COMPANY INVESTMENTS IN NON-U.S. CORPORATIONS. It
is possible that the Company may invest in non-U.S. corporations that could
be classified as "passive foreign investment companies," "controlled
foreign corporations" and "foreign personal holding companies" (each as
defined for federal income tax purposes). For federal income tax purposes,
these investments may, among other things, cause a member to recognize
taxable income without a corresponding receipt of cash, to incur an
interest charge on taxable income that is deemed to have been deferred
and/or to recognize ordinary income that would have otherwise been treated
as capital gains.
NON-U.S. TAXES. Certain dividends and interest received by the
Company from sources outside of the U.S. may be subject to withholding
taxes imposed by other countries. The Company may also be subject to
capital gains taxes in certain other countries where it purchases and sells
stocks and securities. Tax treaties between the United States and other
countries may reduce or eliminate such taxes.
The Company will inform members as to their proportionate share of
non-U.S. taxes paid by the Company, and members will be required to include
such taxes in their income. 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
non-U.S. taxes in computing their federal income taxes.
SALE OF COMPANY INVESTMENTS. The Company will generally recognize
capital gain or loss on the sale of its investments.
LIMITATION ON DEDUCTIBILITY OF CAPITAL LOSSES. Capital losses are
deductible only to the extent of capital gains (subject to an exception for
individuals under which a limited amount of capital losses may be offset
against ordinary income).
SALE OF UNITS. Members will not be able or allowed to freely sell or
otherwise transfer their Units. In addition, none of the Company, the
Investment Adviser or the Investment Sub-Adviser (or any affiliate thereof)
will repurchase any Units, except that the Company will repurchase Units
upon its termination. By subscribing for Units, each member agrees to
indemnify and hold harmless the Company, the Investment Adviser, the
Investment Sub-Adviser, each other member, and any successor or assign of
any of the foregoing, from and against all losses, claims, damages,
liabilities, costs and expenses (including losses, claims, damages,
liabilities, costs and expenses of any judgments, fines and amounts paid in
settlement), joint or several, to which those persons may become subject by
reason of or arising from any transfer made by that member in violation of
the Operating Agreement or any misrepresentation made by that member in
connection with any purported transfer. A similar indemnification is
required to be made by a permitted transferee. See "Risk Factors - Risks
Related to the Company -No Public or Other Market for Units."
A member that is allowed to sell his, her, or its Units will
recognize gain or loss measured by the difference between the amount
realized on the sale and the member's adjusted tax basis in the Units sold
(as described in "Tax Basis Rules" above). Such gain or loss generally will
be long-term capital gain or loss if the member held the sold Units for
more than one year. The amount realized will include the member's allocable
share of Company nonrecourse borrowings (as defined for federal income tax
purposes), if any, as well as any proceeds from the sale. Thus, a tax
liability upon the sale of Units may exceed the member's cash proceeds from
the sale.
ALTERNATIVE MINIMUM TAX. In certain circumstances, individuals,
corporations and other taxpayers may be subject to an alternative minimum
tax in addition to regular tax. A member's potential alternative minimum
tax liability may be affected by reason of an investment in the Company.
The extent, if any, to which the alternative minimum tax applies will
depend on each member's particular circumstances for each taxable year.
TAX ELECTIONS. Under Section 754 of the Code, the Company may make a
generally irrevocable election to adjust the tax basis of its assets in the
event of a distribution of Company property to a member or in the event of
a transfer of Units (in which latter case basis will be adjusted with
respect to the transferee member only). The Company does not currently
intend to make a Section 754 election. The Board of Managers has sole and
absolute discretion to make all tax elections for the Company.
REPORTS TO MEMBERS. The Company has the calendar year as its taxable
year. The Company will furnish annually to each member a report containing
a Schedule K-1, which indicates each member's distributive share for each
calendar year of Company income, gain, loss, deduction and expense for use
in the preparation of the member's income tax return. The Company will
endeavor to deliver Schedules K-1 to members prior to April 15 of each
year, but may not be able to do so because, among other things, the Company
may not receive, prior to April 15, a Schedule K-1 from a Private Fund that
is classified as a partnership for federal income tax purposes in which the
Company has invested. Accordingly, members may be required to obtain
extensions for filing their federal, state and local income tax returns
each year. The Company will provide members with estimated annual federal
income tax information prior to April 15, assuming the Company is able to
obtain such information.
TAX AUDITS. Although not required to pay any federal income tax, the
Company must file a federal income tax information return each taxable
year. The IRS may audit Company returns in a unified entity proceeding at
the Company level. The Investment Adviser, who would represent the Company
at such an audit as the so-called tax matters partner, has considerable
authority to make decisions affecting the tax treatment and procedural
rights of the members. The Investment Adviser may also generally enter into
settlement agreements with the IRS that bind members and consent on behalf
of the Company to extend the statute of limitations for assessing a
deficiency with respect to a Company item. Successful adjustments by the
IRS of Company items of income, gain, loss, deduction or expense could
change a member's federal, state and local income tax liabilities.
BACKUP WITHHOLDING. The Company may be required to withhold federal
income tax at a rate of 31% on a member's allocable share of interest and
dividends if the member fails to provide the Company with his, her or its
taxpayer identification number or a certificate that he, she or it is
exempt from backup withholding, or the IRS notifies the Company that the
member is subject to backup withholding. The member may be entitled to a
federal income tax credit for the amount of any backup withholding if the
required information is furnished to the IRS.
CERTAIN CONSIDERATIONS FOR TAX-EXEMPT INVESTORS. The Company may from
time to time borrow funds for operating purposes in an amount up to 25% of
the value of its total assets (after giving effect to the borrowing) in
order to make additional investments in existing Portfolio Companies to
maintain various regulatory qualifications or to pay contingencies and
expenses. To the extent that the Company does so, an investment in the
Company will generate unrelated business taxable income ("UBTI") for
federal income tax purposes for pension funds, Keogh plans, individual
retirement accounts, tax-exempt institutions and other tax-exempt investors
(and may have other adverse tax consequences for certain tax-exempt
investors, e.g., the receipt of any UBTI by a charitable remainder trust
would cause all income from all sources to be taxable to such a trust).
Accordingly, such prospective investors are urged to consult their own tax
advisers concerning possible federal, state, local and non-U.S. tax
consequences from an investment in the Company.
CERTAIN CONSIDERATIONS FOR NON-U.S. INVESTORS. The discussion under
this heading applies to certain members who are not "U.S. persons" as
determined for U.S. federal income tax purposes ("non-U.S. members"). The
term "U.S. person" means:
o a citizen or individual resident of the United States;
o a corporation or partnership created or organized under the laws
of the United States or any political subdivision thereof or
therein;
o an estate the income of which is subject to U.S. federal income
taxation regardless of source; or
o a trust if (a) a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more
U.S. persons has the authority to control all substantial
decisions of the trust or (b) the trust was in existence on
August 20, 1996 and properly elected to continue to be treated as
a U.S. person.
Given the nature of the Company's investment activities, the Company
believes that a non-U.S. member generally should not be subject to regular
U.S. federal income taxation on his, her or its allocable share of Company
income where such member's nexus with the U.S. is solely as a result of an
investment in Units. No prohibition exists on the nature of investment
activities of Private Funds in which the Company invests, and thus no
assurances can be given in this regard. Company allocations of dividends
and certain interest income to non-U.S. members will be subject to U.S.
withholding tax of 30% (unless reduced or eliminated by an applicable
treaty).
If, contrary to the Company's expectations, the Company were treated as
being engaged in a U.S. trade or business, then each non-U.S. member
generally would be subject to regular U.S. federal income taxation on his,
her or its allocable share of Company income. In such case, each non-U.S.
member would be required to file a U.S. federal income tax return reporting
his, her or its allocable share of Company income and to pay U.S. federal
income tax at regular U.S. rates on that income. In addition, the Company
would be required to withhold and pay over to the IRS certain amounts with
respect to such income. Any amount so withheld would be creditable against
the non-U.S. member's ultimate U.S. federal income tax liability, and the
non-U.S. member would be entitled to a refund to the extent that the amount
withheld exceeded such member's U.S. federal income tax liability for the
taxable year. Finally, a corporate non-U.S. member's allocable share of
Company income may be subject to a 30% U.S. branch profits tax.
Different rules from those described above apply in the case of
non-U.S. members subject to special treatment under U.S. federal income tax
law, including a non-U.S. member:
o who has an office or fixed place of business in the U.S. or is
otherwise carrying on a U.S. trade or business;
o who is an individual present in the U.S. for 183 or more days or
has a "tax home" in the U.S. for U.S. federal income tax
purposes;
o who is a former citizen or resident of the U.S.; or
o that is a controlled foreign corporation, a foreign insurance
company that holds Units in connection with a U.S. trade or
business, a foreign personal holding company or a corporation
that accumulates earnings to avoid U.S. federal income tax.
NON-U.S. MEMBERS ARE URGED TO CONSULT THEIR U.S. TAX ADVISERS REGARDING
THE TAX CONSEQUENCES OF INVESTING IN THE COMPANY.
STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES. In addition to the
federal income tax consequences described above, the members, as well as
the Company itself and the entities in which the Company invests, may be
subject to various state, local and non-U.S. taxes. A member's allocable
share of Company income, gain, loss, deduction and expense may be required
to be included in determining such member's reportable income for state,
local and non-U.S. tax purposes. In addition, state, local and non-U.S.
taxation of Company tax items may differ from the treatment of such items
for federal income tax purposes.
The Investment Adviser has sole and absolute discretion to file or
not to file composite, group or similar state, local and non-U.S. tax
returns on behalf of the members (where and to the extent permissible under
applicable law). If the Investment Adviser decides to make any such
composite, group or similar filing, such a filing would eliminate a
member's filing requirement in such a jurisdiction arising by reason of an
investment in the Company. Each member will be required to execute any
relevant documents (including a power of attorney authorizing such a
filing), to furnish any relevant information and otherwise to do anything
necessary in order to facilitate any such composite, group or similar
filing. Any taxes paid by the Company in connection with any such
composite, group or similar filing will be treated as an advance to the
relevant members (with interest being charged thereon) and will be recouped
by the Company out of any distributions subsequently made to the relevant
members. Such advances may be funded by the Investment Adviser or an
affiliate thereof (with interest thereon). Both the deduction for interest
payable by the Company to the Investment Adviser (or an affiliate thereof)
with respect to such advances, and the corresponding income from interest
received by the Company from the relevant members, will be specially
allocated to such members, and such interest expense may be subject to
limitations on deductibility (see "Investment Interest Limitation" above).
Such taxes may be higher or lower than what a member's state, local or
non-U.S. tax liability would be in the absence of such a composite, group
or similar filing.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF ACQUIRING,
HOLDING AND DISPOSING OF UNITS.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code"), impose certain restrictions on (a) employee benefit
plans (as defined in Section 3(3) of ERISA) that are subject to Title I of
ERISA, (b) plans (as defined in Section 4975(e)(1) of the Code) that are
subject to Section 4975 of the Code, including individual retirement
accounts or Keogh plans, (c) any entities whose underlying assets include
plan assets by reason of a plan's investment in such entities (each of (a),
(b) and (c), a "Plan") and (d) persons who have certain specified
relationships to Plans ("Parties in Interest" under ERISA and "Disqualified
Persons" under the Code). Moreover, based on the reasoning of the United
States Supreme Court in John Hancock Life Ins. Co. v. Harris Trust and Sav.
Bank, 114 S. Ct. 517 (1993), an insurance company's general account may be
deemed to include assets of the Plans investing in the general account
(e.g., through the purchase of an annuity contract), and such insurance
company might be treated as a Party in Interest with respect to a Plan by
virtue of such investment. ERISA also imposes certain duties on persons who
are fiduciaries of Plans subject to ERISA, and ERISA and Section 4975 of
the Code prohibit certain transactions between a Plan and Parties in
Interest or Disqualified Persons with respect to such Plan. Violations of
these rules may result in the imposition of excise taxes and other
penalties and liabilities under ERISA and the Code.
The United States Department of Labor (the "DOL") has promulgated a
regulation, 29 C.F.R. ss.2510.3-101 (the "Plan Assets Regulation")
describing what constitutes the assets of a Plan with respect to the Plan's
investment in an entity for purposes of the fiduciary responsibility
provisions of Title I of ERISA and Section 4975 of the Code. Under the Plan
Assets Regulation, if a Plan invests in an "equity interest" of an entity
that is neither a "publicly offered security" nor a security issued by an
investment company registered under the 1940 Act, the Plan's assets are
deemed to include both the equity interest itself and an undivided interest
in each of the entity's underlying assets, unless it is established that
the entity is an "operating company" or that equity participation by
"benefit plan investors" is not "significant."
The Units will most likely be deemed "equity interests" in the
Company for purposes of the Plan Assets Regulation; the Company will not be
registered under the 1940 Act; and it is not likely that the Company will
qualify as an "operating company" for purposes of the Plan Assets
Regulation. Therefore, if equity participation in the Units by Benefit Plan
Investors (as defined below) is "significant" within the meaning of the
Plan Assets Regulation, the assets of the Company could be deemed to be the
assets of Plans investing in the Units. If the assets of the Company were
deemed to constitute the assets of an investing Plan, (i) transactions
involving the assets of the Company could be subject to the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section
4975 of the Code, (ii) the assets of the Company could be subject to
ERISA's reporting and disclosure requirements, and (iii) the fiduciary
causing the Plan to make an investment in the Units could be deemed to have
delegated its responsibility to manage the assets of the Plan.
Under the Plan Assets Regulation, equity participation in an entity
by Benefit Plan Investors is "significant" on any date if, immediately
after the most recent acquisition of any equity interest in the entity, 25%
or more of the value of any class of equity interest in the entity is held
by Benefit Plan Investors (the "25% Limitation"). The term "Benefit Plan
Investor" is defined to include any (i) "employee benefit plan" (as defined
in Section 3(3) of ERISA), whether or not subject to Title I of ERISA,
including without limitation governmental plans, foreign pension plans and
church plans, (ii) "plan" (as defined in Section 4975(e)(1) of the Code),
whether or not subject to Section 4975 of the Code, including without
limitation individual retirement accounts and Keogh plans, or (iii) entity
whose underlying assets include plan assets by reason of such an employee
benefit plan's or plan's investment in such entity, including without
limitation, as applicable, an insurance company general account. For
purposes of making determinations under the 25% Limitation, (i) the value
of any equity interests held by a person (other than a Benefit Plan
Investor) that has discretionary authority or control with respect to the
assets of the entity or that provides investment advice for a fee (direct
or indirect) with respect to such assets, or any affiliate of such a person
(each such person or affiliate, a "Controlling Person"), is disregarded,
and (ii) only the proportion of an insurance company general account's
equity investment in the entity that represents plan assets is taken into
account.
RESTRICTIONS ON PURCHASE FOR PURPOSES OF THE 25% LIMITATION
The Company intends to limit equity participation in the Company by
Benefit Plan Investors to less than 25% of the Units. In order to effect
this limitation, each prospective purchaser of the Units will be required
to make certain representations and agree to additional transfer
restrictions. No Units will be sold to prospective purchasers that have
represented that they are Benefit Plan Investors or Controlling Persons to
the extent that such sale would result in Benefit Plan Investors owning 25%
or more of the Units (excluding any Units held by Controlling Persons that
are not Benefit Plan Investors). In addition, as a condition to the
transfer of Units after the initial offering thereof, each prospective
transferee will be required to make a representation as to whether such
transferee is a Benefit Plan Investor or Controlling Person, and the
Company will not register the transfer of such Units to persons that have
represented that they are Benefit Plan Investors or Controlling Persons to
the extent such transfer would result in Benefit Plan Investors owning 25%
or more of the Units (excluding any Units held by Controlling Persons that
are not Benefit Plan Investors) and such transfer shall be null and void.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
Any purchaser that is an insurance company using the assets of an
insurance company general account should note that the Small Business Job
Protection Act of 1996 added new Section 401(c) of ERISA relating to the
status of the assets of insurance company general accounts under ERISA and
Section 4975 of the Code. Pursuant to Section 401(c), the Department of
Labor issued final regulations effective January 5, 2000 (the "General
Account Regulations"), with respect to insurance policies issued on or
before December 31, 1998, that are supported by an insurer's general
account. As a result of these regulations, assets of an insurance company
general account will not be treated as "plan assets" for purposes of the
fiduciary responsibility provisions of ERISA and Section 4975 of the Code
to the extent such assets relate to contracts issued to employee benefit
plans on or before December 31, 1998 and the insurer satisfies various
conditions. Section 401(c) also provides that, except in the case of
avoidance of the General Account Regulation and actions brought by the
Secretary of Labor relating to certain breaches of fiduciary duties that
also constitute breaches of state or federal criminal law, until the date
that is 18 months after the General Account Regulations become final, no
liability under the fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the Code may result on the basis of
a claim that the assets of the general account of an insurance company
constitute the "plan assets" of any such plan. The plan asset status of
insurance company separate accounts is unaffected by new Section 401(c) of
ERISA, and separate account assets continue to be treated as the plan
assets of any such plan invested in a separate account. Purchasers acting
on behalf of an insurance company general account should note that for
purposes of determining compliance with the 25% Limitation, unless
otherwise agreed to in writing by the Company, 100% of the Units held by or
on behalf of an insurance company general account will be deemed to be held
by a Benefit Plan Investor.
ADDITIONAL PLAN INVESTMENT CONSIDERATIONS
Prior to making an investment in the Units, prospective Plan
investors should consult with their legal advisors concerning the impact of
ERISA and the Code and the potential consequences of such investment with
respect to their specific circumstances. Moreover, each Plan fiduciary
should take into account, among other considerations, whether the fiduciary
has the authority to make the investment; whether the investment
constitutes a direct or indirect transaction with a Party in Interest or
Disqualified Person; the composition of the Plan's portfolio with respect
to diversification by type of asset; the Plan's funding objectives; the tax
effects of the investment; and whether under the general fiduciary
standards of investment prudence and diversification an investment in the
Units is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio. In this regard, potential Plan investors should take note of the
special forfeiture provisions that may be applicable in connection with
delinquent capital contributions.
Governmental plans, foreign pension plans and certain church plans
are not generally subject to the fiduciary responsibility provisions of
ERISA or the provisions of Section 4975 of the Code. However, such plans
are deemed to be "Benefit Plan Investors" within the meaning of the Plan
Assets Regulation and are subject to the 25% Limitation described herein.
The sale of any Units to a Plan is in no respect a representation by
the Company that such an investment meets all relevant legal requirements
with respect to investments by Plans generally or any particular Plan, or
that such an investment is appropriate for Plans generally or any
particular Plan.
DESCRIPTION OF UNITS
The Company has been formed as a Delaware limited liability company
and as such is governed by Delaware law and an operating agreement (the
"Operating Agreement") that defines many of the rights and responsibilities
of the Board of Managers and members. A copy of the Operating Agreement is
attached hereto as Appendix A. Investors will become members of the
Company, which will establish a capital account for each member. Your
capital contributions and your share of items of income and gain will be
credited to your capital account and your distributions and your share of
items of loss, deduction and expense will be debited from your capital
account. See "Capital Accounts, Allocations and Distributions."
SUMMARY OF LIMITED LIABILITY COMPANY OPERATING AGREEMENT
The Operating Agreement governs the relationships, rights, and
obligations of the investors in the Company. The following is intended only
as a summary of certain provisions of the Operating Agreement not discussed
elsewhere in this Prospectus. The Operating Agreement is subject to the
provisions of the Investment Company Act. The statements made herein do not
purport to be complete and are qualified by reference to the Operating
Agreement. Prospective investors should study the entire Operating
Agreement before signing the Subscription Agreement.
Fund Capital. Except as specifically provided in the Operating
Agreement, no investor is entitled to interest on any capital contribution
to the Company or on such investor's capital account. Except as otherwise
provided in the Operating Agreement, no investor has the right to withdraw,
or to receive any return of, such investor's capital contribution. No
investor is required to make any additional capital contributions to the
Company beyond the amount of the investor's subscription, which will be
payable in two equal installments. See "Limited Liability of Investors."
Voting Rights of Investors. Investors cannot participate in the
management or control of the Company. However, the Operating Agreement
provides that, subject to certain conditions described below, the investors
may vote on or approve certain Company matters. Upon notification to the
Company, investors may obtain a list of the names and addresses (if known)
of all of the investors for a purpose reasonably related to such investor's
interest as an investor in the Company.
Subject to the provisions described below, the investors may: (i)
approve and elect and for cause disapprove and remove the members of the
Board of Managers; (ii) approve or disapprove proposed changes in the
nature of the Company's business so as to cause the Company to cease to be,
or to withdraw its election as, a BDC under the Investment Company Act;
(iii) to the extent required by the Investment Company Act, approve or
disapprove any proposed investment advisory contract or disapprove and
terminate any such existing contract; provided, however, that such
contracts are also approved by a majority of the members of the Board of
Managers; (iv) to the extent required by the Investment Company Act, ratify
or reject the appointment of the independent accountants of the Company;
(v) to the extent required by the Investment Company Act, terminate the
Company's independent accountants; (vi) extend the time of termination and
dissolution of the Company; (vii) to the extent required by the Investment
Company Act, consent to the dissolution of the Company; (viii) select a
liquidator; (ix) approve certain amendments to the Operating Agreement; and
(x) approve any other matters related to the business of the Company that
the Investment Company Act requires to be approved by the investors so long
as the Company is a BDC subject to the provisions of the Investment Company
Act; provided, however, that, prior to the exercise of any such right of
approval, the Board of Managers amend the Operating Agreement to reflect
such additional voting right.
Transferability of Units. A member may transfer Units only by
operation of law pursuant to the death, bankruptcy, insolvency or
dissolution of the member or otherwise, or with the written consent of the
Company (which it may withhold in its sole and absolute discretion and will
grant, if at all, only in extenuating circumstances) or in connection with
a transfer to a family trust or another entity that does not result in a
change of beneficial ownership. Any permitted transferees will not,
however, be allowed to become substituted members in the Company without
the consent of the Company, which consent may be withheld in its sole and
absolute discretion. No member will have the right to require the Company
to redeem his, her or its Units. In addition, none of the Company, the
Investment Adviser or the Investment Sub-Adviser (or any of their
respective affiliates) will make offers to repurchase Units, and Units will
not be traded on any securities exchange or other market.
The issuance of Units is not subject to any preemptive rights,
redemption rights or sinking fund and Units are not convertible into any
other security of the Company.
OUTSTANDING SECURITIES
<TABLE>
<CAPTION>
(1) (2) (3) (4)
AMOUNT HELD BY AMOUNT OUTSTANDING
REGISTRANT EXCLUSIVE OF AMOUNT
TITLE OF CLASS AUTHORIZED OR FOR ITS ACCOUNT SHOWN UNDER (3)
-------------- --------- ------------------ ---------------
<S> <C> <C> <C>
Units of Membership Unlimited 0 1
Interest
</TABLE>
LIABILITY OF MEMBERS
You will not be liable for any obligations of the Company in excess
of your capital account balance, plus your share of undistributed profits,
except that you will be obligated to pay your full subscription amount.
However, if you receive a distribution from the Company and after such
distribution the liabilities of the Company exceed the fair value of the
Company's assets (and you had knowledge of this fact at the time of the
distribution) you may be required to return such distribution to the
Company. The Company has no intention of making such a distribution. You
will not have the right to a return of your capital contribution except in
accordance with the distribution provisions of the Operating Agreement.
DUTY OF CARE
The Operating Agreement provides that the members of the Board of
Managers shall not be personally liable to the Company for the debts,
obligations or liabilities of the Company; obligated to cure any deficit in
any capital account; required to return all or any portion of any capital
contribution; or required to lend any funds to the Company. The Operating
Agreement also provides that no member of the Board of Managers,
appropriate officer, member, investment adviser, distributor or selling
agent of or for the Units of the Company, or any of their respective
affiliates, shareholders, partners, officers, directors, members,
employees, agents and representatives shall have any liability,
responsibility, or accountability in damages or otherwise to any member or
the Company for any action or inaction on the part of the Company or
otherwise in connection with the business or affairs of the Company or any
portfolio company. The Operating Agreement contains provision for the
indemnification, to the extent permitted by law, of the Board of Managers,
appropriate officers, members, investment advisers, distributor or selling
agent and any of their respective affiliates, shareholders, partners,
officers, directors, members, employees, agents and representatives by the
Company, but not by the members individually, against any liability and
expense to which any of them may become liable which arises out of or in
connection with the performance of their activities on behalf of the
Company. The rights of indemnification and exculpation provided under the
Operating Agreement do not provide for indemnification against any
liability, to which the indemnified person would otherwise be subject to as
a result of their willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties under the Operating Agreement.
AMENDMENT OF THE OPERATING AGREEMENT
Subject to the requirements of the Investment Company Act, the Board
of Managers may adopt amendments without a vote of the members provided
such amendments do not impair the limited liability of the members,
adversely affect the tax status of the Company as a partnership or increase
the amounts distributed to the investment advisers while decreasing the
amounts distributed to other members (unless approved by a majority of the
disinterested directors and a majority of the Board of Managers).
Amendments to the Operating Agreement may be proposed by any Manager,
the Investment Adviser or by members owning in the aggregate, at least 10%
of the outstanding Units. The person or persons proposing such amendments
must submit to the Board of Managers (i) the text of the amendment, (ii)
the purpose of the amendment, and in the case of proposals by members, (iii)
an opinion of counsel reasonably acceptable to the Board of Managers that
the proposed amendment is permitted by the Investment Company Act, the
Delaware Limited Liability Company Act, applicable state and federal laws,
and that the proposed amendment will not impair the limited liability of
the members or adversely affect the classification of the Company as a
partnership for federal income tax purposes.
To the extent required by the Investment Company Act, the Board of
Managers shall submit all proposals validly presented to the Board of
Managers to the members for a vote. Proposals approved by the Board of
Managers will be adopted with the affirmative vote of a majority of the
members, proposals which do not have the approval of the Board of Managers
require the vote of more than 67% of the members for adoption.
POWER OF ATTORNEY
By purchasing an interest in the Company, each member will appoint
the Investment Adviser and each member of the Board of Managers his or her
attorney-in-fact for purposes of filing required certificates and documents
relating to the formation and continuation of the Company as a limited
liability company under Delaware law or signing instruments effecting
authorized changes in the Company or the Operating Agreement or conveyances
and other instruments deemed necessary to effect the dissolution or
termination of the Company.
The power-of-attorney is a special power-of-attorney coupled with an
interest in favor of the Investment Adviser and each member of the Board of
Managers and as such is irrevocable and continues in effect until expressly
withdrawn or the investor ceases to be a member subject to and in
accordance with the Operating Agreement.
TERM, DISSOLUTION AND LIQUIDATION
The Company will be dissolved:
o on the tenth anniversary of the Termination Date, provided that
the Board of Managers may extend termination for up to two
additional periods of up to two years each; provided further,
that termination may be extended to such later date with the
approval of members holding at least two-thirds of the total
number of votes eligible to be cast;
o upon the affirmative vote to dissolve the Company by both (1) the
Board of Managers and (2) members holding at least two-thirds of
the total number of votes eligible to be cast by all members;
o upon the failure of members to elect successor members of the
Board of Managers at any meeting called by the Company when no
members of the Board of Managers remain; or
o as required by operation of law.
Upon the occurrence of any event of dissolution, the Investment
Adviser, or a liquidator appointed by the Board of Managers, will be
charged with winding up the affairs of the Company and liquidating its
assets. Items of income, gain, loss, deduction and expense during the
fiscal period including the period of liquidation will be allocated as
described in the section titled "Capital Accounts, Allocations and
Distributions."
Upon the dissolution of the Company, its assets are to be distributed
(1) first to satisfy the debts, liabilities and obligations of the Company,
other than debts to members including actual or anticipated liquidation
expenses, (2) next to satisfy debts owing to members, and (3) finally to
members and the Investment Adviser proportionately in accordance with the
balances in their respective capital accounts. Assets may be distributed in
kind on a pro rata basis if the Investment Adviser or liquidator determines
that such a distribution would be in the interests of the members in
facilitating an orderly liquidation.
SELLING ARRANGEMENTS
DISTRIBUTOR
Units are offered for sale by Charles Schwab & Co., Inc. (the
"Distributor"), a registered broker-dealer and the Company's distributor.
Charles Schwab & Co., Inc. is a member of the Securities Investor Protector
Corporation and New York Stock Exchange. The Distributor is an indirect,
wholly owned subsidiary of The Charles Schwab Corporation, the parent
company of U.S. Trust Corporation and an affiliate of the Investment
Adviser and Investment Sub-Adviser. The Distributor has entered into a
Distribution Agreement with the Company pursuant to which the Distributor
has agreed to act as the principal distributor for the Units. This
agreement is an agency agreement only and places the Distributor under no
obligation to use its best efforts to sell the Units or otherwise solicit
or promote transactions in such Units. The Distributor will not at any time
purchase any Units for its own account and its sole function is to promote
the sale of the Company's Units. The Distributor is located at 101
Montgomery Street, San Francisco, California 94101.
The Investment Adviser or an affiliate will pay the Distributor from
its own assets an amount equal to 0.02% of the total of all subscriptions
received in this offering. Pursuant to the Distribution Agreement, the
Distributor may enter into agreements with one or more financial
intermediaries ("Selling Agents") relating to the purchase of Units through
such Selling Agents acting as brokers or agents for their customers. The
Investment Adviser or an affiliate will pay the Distributor an on-going fee
for the sale of Units and the provision of ongoing investor services in an
amount equal to the annual rate of 0.45% of the average quarterly net asset
value of all outstanding Units held by investors introduced to the Company
by the Distributor through the fifth anniversary of the final subscription
closing date and at the annual rate of 0.22% thereafter, subject to
elimination upon all such fees totaling 6.5% of the gross proceeds received
by the Company from this offering.
The Company has agreed to indemnify the Distributor and each Selling
Agent who enters into a Selling Agent Agreement against certain civil
liabilities, including liabilities under the federal securities laws.
However, such indemnification is subject to the provisions of Section 17(i)
of the Investment Company Act which provides, in part, that no agreement
shall contain a provision which protects or purports to protect any
principal underwriter against any liability to the Company or its security
holders to which such principal underwriter would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under such agreement.
LEGAL MATTERS
The validity of the Units offered hereby will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts.
INDEPENDENT AUDITORS
The Statement of Assets and Liabilities of the Company included in
this Prospectus has been audited by Ernst & Young, LLP, independent
certified public accountants, as stated in their report included herein,
and is included herein in reliance upon such report given on their
authority as experts in auditing and accounting. Ernst & Young, LLP is
located at 787 Seventh Avenue, New York, New York 10019.
AVAILABLE INFORMATION
The Company is required to file reports, including quarterly and
annual reports, with the Securities and Exchange Commission. Information
about the Company can be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Call 1-800-SEC-0330 for information on the
operation of the public reference room. This information is also available
on the SEC's Internet site at http://www.sec.gov and copies may be obtained
upon payment of a duplicating fee by writing the Public Reference Section
of the SEC, Washington, D.C. 20549-6009.
Investors should rely only on the information contained in this
prospectus. The Company has not authorized any other person to provide
investors with different information. If anyone provides you with different
or inconsistent information, you should not rely on it. Neither the
Company, the Distributor or any selling agent is making an offer to sell
these securities in any jurisdiction where the offer or sale is not
permitted. Investors should assume that the information appearing in this
prospectus is accurate as of the date on the front cover of this prospectus
only. The Company's business, financial condition, results of operations
and prospectus may have changed since that date.
REPORTS TO MEMBERS
The Company will furnish to its members annual reports containing
audited financial statements and such other periodic reports as it may
determine to furnish or as may be required by law. The Company does not
intend to hold annual meetings of its Unitholders.
FINANCIAL STATEMENTS
The following comprise the financial statements of the Company:
o Report of Independent Auditors;
o Statement of Assets and Liabilities; and
o Notes to Financial Statements.
REPORT OF INDEPENDENT AUDITORS
To the Members and Board of Directors
Excelsior Venture Partners III, LLC
We have audited the accompanying statement of assets and liabilities of
Excelsior Venture Partners III, LLC (the "Fund") as of July 28, 2000. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of Excelsior Venture
Partners III, LLC at July 28, 2000, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
New York, New York
July 31, 2000
===============================================================================
Excelsior Venture Partners III, LLC
Statement of Assets and Liabilities
===============================================================================
July 28, 2000
-------------------------------------------------------------------------------
ASSETS:
Cash ..............................................................$ 500
Deferred offering costs............................................ 1,356,200
-------------------------------------------------------------------------------
TOTAL ASSETS 1,356,700
==========
-------------------------------------------------------------------------------
LIABILITIES:
Offering costs payable............................................. 1,356,200
==========
-------------------------------------------------------------------------------
TOTAL LIABILITIES ........................................... 1,356,200
==========
-------------------------------------------------------------------------------
NET ASSETS...........................................................$ 500
==========
MEMBERSHIP INTERESTS OUTSTANDING..................................... 1
==========
NET ASSET VALUE PER UNIT ............................................$ 500
----------
===============================================================================
NET ASSETS CONSISTED OF THE FOLLOWING AT JULY 28, 2000:
Paid-in capital ...................................................$ 500
----------
NET ASSETS ...................................................$ 500
==========
===============================================================================
Notes to Financial Statements are an integral part of this Statement.
EXCELSIOR VENTURE PARTNERS III, LLC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Excelsior Venture Partners III, LLC (the "Company") is a
non-diversified, closed-end management investment company which has
elected to be treated as a business development company under the
Investment Company Act, and which has registered its securities for
sale under the Securities Act of 1933. The Company was established as
a Delaware limited liability company on February 18, 2000 and
maintains a fiscal year end of October 31. The Company is authorized
to offer an unlimited number of units of membership interests
("units") with no par value. The minimum subscription is $100,000.
Certain costs incurred and to be incurred in connection with the
initial offering of shares of the Company are estimated at
$1,356,200. Each member's share of these costs will be deducted from
his or her initial capital contribution on or shortly after the final
subscription closing. The Company has no operations to date, other
than the sale to David Fann, President and Co-CEO of the Company, of
one unit on July 7, 2000.
NOTE 2 - OFFERING COSTS
The Company estimates incurring offering expenses of $1,356,200,
comprised of $1,025,000 for legal and consulting, $30,000 for
printing, $50,000 for advertising and marketing, $231,200 in
registration, and $20,000 in other offering costs. In the event the
Company does not raise enough capital to pay the offering costs
incurred by the Company, U.S. Trust Company will assume payment of
all offering costs incurred by the Company.
NOTE 3 - CONTINGENT LIABILITIES
The Company has entered into an agreement with Charles Schwab & Co.,
Inc. ("Schwab" or the "Distributor") whereby Schwab will pay the
organization expenses of the Company if the Company receives less
than $300,000,000 in subscriptions from its initial public offering
of units. In the event the Company does receive subscriptions
totaling $300,000,000 or more, the Company will pay its own
organization expenses, and each member's share of these costs will be
deducted from his or her initial capital contribution on or shortly
after the final subscription closing. The Company estimates
organization expenses to be $50,000, comprised of $10,000 for audit
fees and $40,000 for legal and consulting fees.
NOTE 4 - AGREEMENTS
In return for its services and expenses which the Investment Adviser
assumes under the Investment Advisory Agreement, the Company will pay
the Investment Adviser, on a quarterly basis, a management fee at an
annual rate equal to 2.00% of the Company's average quarterly net
assets through the fifth anniversary of the final closing date and
1.00% of net assets thereafter. In addition to the management fee,
the Investment Adviser is entitled to allocations and distributions
equal to the Incentive Carried Interest. The Incentive Carried
Interest is an amount equal to 20% of the Company's cumulative
realized capital gains on all direct investments determined net of
cumulative realized and unrealized losses on all investments of any
type. The Incentive Carried Interest will be determined annually as
of the end of each calendar year.
Pursuant to an Administrative, Accounting and Investor Services
Agreement, the Company retains PFPC Inc. ("PFPC"), an indirect
wholly-owned subsidiary of PNC Bank N.A., as Administrator. In
addition, PFPC Trust Company serves as the Fund's custodian, and PFPC
serves as transfer agent.
The Investment Adviser or an affiliate will pay the Distributor from
its own assets an amount equal to 0.02% of the total of all
subscriptions received in this offering. Pursuant to the Distribution
Agreement, the Distributor may enter into agreements with one or more
financial intermediaries ("Selling Agents") relating to the purchase
of units through such Selling Agents acting as brokers or agents for
their customers. The Investment Adviser or an affiliate will pay the
Distributor an on-going fee for the sale of units and the provision
of ongoing investor services in an amount equal to the annual rate of
0.45% of the average quarterly net asset value of all outstanding
units held by investors introduced to the Company by the Distributor
through the fifth anniversary of the final subscription closing date
and at the annual rate of 0.22% thereafter, subject to elimination
upon all such fees totaling 6.5% of the gross proceeds received by
the Company from this offering.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
Page
Capital Accounts, Allocations and Distributions B-2
Frequently Asked Question B-3
Until ninety days after the effective date, all dealers effecting
transactions in the Units, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition
to the obligations of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
APPENDIX A
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
EXCELSIOR VENTURE PARTNERS III, LLC
This LIMITED LIABILITY COMPANY OPERATING AGREEMENT (the "Agreement")
of Excelsior Venture Partners III, LLC, a Delaware limited liability
company (the "Company"), is made as of the 26th day of May, 2000, by and
among the initial member and the other parties who shall hereafter be
admitted as members and whose names and addresses are listed from time to
time as members on Schedule A hereto, as members (each, a "Member" and
collectively, the "Members") and has been executed for the purpose of
providing for the operation of the Company pursuant to the provisions of
the Delaware Limited Liability Company Act.
Accordingly, in consideration of the mutual covenants contained
herein, the Members agree as follows:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following
mean ings and all such terms which relate to accounting matters shall be
interpreted in accordance with generally accepted accounting principles in
effect from time to time except as otherwise specifically provided herein:
"Act" means the Delaware Limited Liability Company Act, as at any
time now existing or in the future.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Member, the deficit balance, if any, in such Member's Capital Account as of
the end of the relevant Fiscal Period, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such
Member is obligated to restore or is deemed to be obli gated to
restore pursuant to Treasury Regulations under Section 704 of the
Code; and
(ii) Debit to such Capital Account the items de scribed
in Treasury Regulations Sections 1.704-l(b)(2)(ii)(d)(4), (5) and
(6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provisions of Treasury Regulations Section
1.704-l(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Affiliate" shall mean an affiliated person, as that term is defined
in the Investment Company Act, of a Special Member and any officer,
director, employee or member of an investment committee of such affiliated
person.
"Agreement" means this Limited Liability Company Operating Agreement
as originally executed and as amended, modified, supplemented or restated
from time to time.
"Applicable Rate" shall mean a rate per annum equal, at the time of
determi nation, to the sum of (i) the highest "prime rate" then published
in the "Money Rates" section of The Wall Street Journal or in such
successor publication as shall be acceptable to the Board of Managers, and
(ii) two percent (2%).
"Appropriate Officer" means an officer of the Company appointed in
accor dance with Section 4.7(d), who has not resigned, been removed, or
become Incapaci tated.
"Board of Managers" shall mean those natural persons who at any given
time are serving as Managers of the Company in accordance with this
Agreement.
"Capital Accounts" shall have the meaning specified in Section 7.2.
"Capital Commitment" shall mean, for any Member, the amount set forth
opposite his, her or its name on Schedule A hereto, as amended from time to
time (i) to take account of Capital Contributions made by Members, and (ii)
as otherwise provided in this Agreement.
"Capital Contribution" shall mean with respect to any Member, the
amount contributed by such Member to the capital of the Company pursuant to
this Agree ment.
"Capital Demand Date" shall have the meaning specified in Section
7.1(b).
"Capital Demand Notice" shall have the meaning specified in Section
7.1(b).
"Capital Investment" shall mean, with respect to any Member, the
Capital Contribution of such Member net of the return to such Member by the
Company of any portion thereof.
"Closing" shall have the meaning specified in Section 7.1(a).
"Closing Date" shall have the meaning specified in Section 7.1(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provision of succeeding law).
"Company" means Excelsior Venture Partners III, LLC, a Delaware
limited liability company .
"Company Expenses" means any expenses incurred by the Company during
a Fiscal Period including, but not limited to, fees and expenses of the
Board of Managers; fees and expenses of the Investment Adviser; expenses of
registering the Units for sale under federal and state securities laws and
other expenses in connec tion with the offering of the Units; interest;
taxes; fees and expenses of the Com pany's legal counsel and independent
accountants; fees and expenses of the Com pany's administrator, transfer
agent and custodian; expenses of printing and mailing Unit certificates (if
any), reports to Members, notices to Members, proxy statements; reports to
regulatory bodies; brokerage and other expenses in connection with the
execution, recording and settlement of portfolio security transactions;
expenses in connection with the acquisition and disposition of portfolio
securities or the registra tion of privately issued portfolio securities;
costs of third party evaluations or appraisals of the Company (or its
assets) or its investments; expenses of membership in investment company
and other trade associations; expenses of fidelity bonding and other
insurance premiums; expenses of Members' meetings; fees payable to the
National Association of Securities Dealers, Inc. (the "NASD"), if any, in
connection with the offering of its Units; indemnification costs and
expenses; and all of the Company's other business and operating expenses.
"Direct Investments" means investments in domestic companies in which
the equity is closely held by company founders, management and/or a limited
number of investors, negotiated private investments in public companies and
investments in foreign companies in which the equity is closely held by
company founders, manage ment and/or a limited number of investors.
"Disinterested Manager" shall mean any member of the Board of
Managers that is not an "interested person" of the Company as such term is
defined in the Investment Company Act, as the same may be amended from time
to time.
"Final Subscription Closing Date" shall mean the date of the final
closing of the offering of the Company's Units not later than December 31,
2000 or such later date as determined by the Board of Managers.
"Fiscal Period" means 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:
(i) December 31 of such period; and
(ii) any other day as determined in the sole and absolute discretion
of the Board of Managers.
"Fiscal Year" means the period commencing on February 18, 2000 and
ending on the first October 31st following the Closing Date, and thereafter
each period commencing on November 1st of each year and ending on October
31st of each year (or on the date of a final distribution pursuant to
Section 13.2), unless the Board of Managers shall designate another fiscal
year for the Company.
"40 Act Majority of Members" means the lesser of (a) the holders of
67% or more of the outstanding Units present at a meeting of Members at
which the holders of more than 50% of the outstanding Units are present in
person or by proxy or (b) more than 50% of the outstanding Units.
"Incentive Carried Interest" means, for any given Fiscal Period, an
amount equal to 20% of the excess, if any, of the cumulative amount of all
capital gains on Direct Investments realized by the Company from the
commencement of operations through the end of such Fiscal Period over the
sum of:
(i) the cumulative amount of all capital losses on all investments
of any type realized by the Company from the commencement of
operations through the end of such Fiscal Period; and
(ii) the excess, if any, of the aggregate amount of unrealized
capital depreciation on all Company investments of any type
over the aggre gate amount of all unrealized capital
appreciation on all Company investments of any type, each as
determined as of the close of such Fiscal Period.
"Indemnified Liabilities" shall have the meaning specified in Section
11.2(a).
"Indemnified Person" shall have the meaning specified in Section
11.2(a).
"Incapacity" shall mean as to any Person, the entry of an order for
relief in a bankruptcy proceeding ("bankruptcy"), entry of an order of
incompetence or insanity or the death, dissolution or termination (other
than by merger or consolidation), as the case may be, of such Person.
"Interest" shall mean a Member's rights and interest in the Company.
"Interested Manager" shall mean any member of the Board of Managers
that is an "interested person" of the Company as such term is defined in
the Investment Company Act, as the same may be amended from time to time.
"Investment Adviser" means any Person who is party to an Investment
Advisory Agreement with the Company.
"Investment Advisory Agreement" means any agreement between or among
the Company and any Person or Persons that provides for the provision of
invest ment advisory services by such Person to the Company and the payment
therefor as in effect from time to time.
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Investment Proceeds" shall have the meaning specified in Section
8.2.
"Majority in Interest of the Members" means Members who in the
aggregate own more than 50% of the outstanding Units.
"Manager" shall mean a member of the Board of Managers of the
Company. Each Manager shall be a manager within the meaning of the Act,
afforded the limitation of liability accorded to managers thereunder.
"Member" means any Person admitted to the Company as a member of the
Company pursuant to the provisions of this Agreement and named as a member
of the Company in the books and records of the Company, including any
Person admitted as a Substituted Member, in such Person's capacity as a
member of the Company. "Members" means two or more Persons acting in their
capacity as members of the Company.
"Net Loss" shall mean the net loss of the Company with respect to a
Fiscal Period, as determined for federal income tax purposes, provided that
such loss shall be decreased by the amount of all income during such period
that is exempt from federal income tax and increased by the amount of all
expenditures made by the Company during such period that are not deductible
for federal income tax purposes and that do not constitute capital
expenditures.
"Net Profit" shall mean the net income of the Company with respect to
a Fiscal Period, as determined for federal income tax purposes, provided
that such income shall be increased by the amount of all income during such
period that is exempt from federal income tax and decreased by the amount
of all expenditures made by the Company during such period that are not
deductible for federal income tax purposes and that do not constitute
capital expenditures.
"Nonrecourse Deductions" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(b)(1).
"Nonrecourse Liability" shall have the meaning set forth in Treasury
Regula tions Section 1.752-l(a)(2).
"Partner Nonrecourse Debt" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" shall have the meaning set
forth in Treasury Regulations Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(i).
"Partnership Minimum Gain" shall have the meaning set forth in
Treasury Regulations Section 1.704-2(b)(2).
"Pass-Through Member" shall have the meaning set forth in Section
10.5.
"Permitted Transfer" shall have the meaning specified in Section
9.2(a).
"Person" means any natural person, individual, corporation,
partnership, trust, estate, limited liability company, custodian,
unincorporated organization or associa tion or any other entity.
"Portfolio Companies" means any Person in which the Company makes an
investment, other than a Short-Term Investment.
"Portfolio Investments" means investments in Portfolio Companies and
Short-Term Investments.
"Prospectus" shall mean the prospectus of the Company as included in
the most recent effective registration statement of the Company under the
Securities Act of 1933, as amended, as such prospectus may be amended or
supplemented from time to time.
"Regulatory Allocations" shall have the meaning set forth in Section
7.4(e).
"Short-Term Investments" means liquid investments in interest-bearing
bank accounts, money market mutual funds, U.S. treasury securities and/or
certificates of deposit, commercial paper and other short-term securities.
"Special Member" shall mean a Member admitted pursuant to Section
6.1.
"Subscription Agreement" means a contract for the purchase of Units.
"Substituted Member" means any Person admitted to the Company as a
Member pursuant to the provisions of Section 9.5 and shown as a Member in
the books and records of the Company.
"Supermajority of Members" means Members who in the aggregate own
more than 67% of the outstanding Units.
"Tax Matters Member" shall have the meaning set forth in Section
10.5.
"Transfer" shall have the meaning specified in Section 9.2(a).
"Treasury Regulations" shall mean the income tax regulations,
including temporary regulations, promulgated under the Code, as the same
may be amended hereafter from time to time (including corresponding
provisions of succeeding income tax regulations).
"Unit" means the unlimited number of common equity interests of the
Company and are the increment by which Interests of Members other than the
Special Member are measured; and includes fractions of Units as well as
whole Units. Each Unit is divided into 1,000 shares.
"Unpaid Capital Obligation" shall mean an amount equal to the Capital
Commitment of a Member that has not at the time been contributed to the
Company.
ARTICLE II
GENERAL PROVISIONS
2.1 Formation. Excelsior Private Equity Fund III, LLC was
formed as a limited liability company under the laws of the State of
Delaware by the filing of the Certificate of Formation on the 18th day of
February, 2000 pursuant to the Act. The Company filed an Amended
Certificate on the 26th day of April, 2000 changing the name of the Company
to Excelsior Venture Partners III, LLC. Except as expressly provided herein
to the contrary, the rights and obligations of the Members and the
administration and termination of the Company shall be governed by the Act.
2.2 Name. The name of the Company is "Excelsior Venture
Partners III, LLC" The name of the Company may be changed from time to time
by the Board of Managers.
2.3 Purpose. The Company has been formed initially primarily
for the purpose of acting as a vehicle for collective investment, and may
engage in any legal activity whatsoever, without limitation. The Company is
authorized and empowered to elect to operate, and to operate, as a business
development company under the Investment Company Act.
2.4 Principal Place of Business. The Company shall maintain its
office and principal place of business at, and its business shall be
conducted from, 114 West 47th Street, New York, New York 10036, or such
place or places inside or outside the United States as the Board of
Managers may determine.
2.5 Registered Office and Registered Agent. The address of the
Company's registered office and registered agent for service of process in
the State of Delaware is The Corporation Trust Company, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The address of the Company's
registered office and registered agent for service of process in the State
of Delaware of the Company may be changed from time to time by the Board of
Managers.
2.6 Term. The Company will terminate and dissolve as set forth
herein on the earlier of the tenth anniversary of the Final Subscription
Closing Date. or the dissolution prior thereto pursuant to the provisions
hereof; provided, however, that the Board of Managers may twice extend the
time of termination and dissolution beyond the tenth anniversary of the
Final Subscription Closing Date, with each such extension being for a
period of not more than two years as determined by the Board of Managers
and, provided further, with the approval of the Board of Managers, Members,
by the vote of a Majority in Interest of the Members, may extend the time
of termination and dissolution of the Company to any date.
2.7 Title to Company Property. All property owned by the
Company, whether real or personal, tangible or intangible, shall be owned
by the Company as an entity, and no Member or Manager, individually, shall
have title to or any interest in such property.
2.8 No State Law Partnership. The Members intend that the
Company not be a partnership (including a limited partnership) or joint
venture and that no Member or Manager be a partner or joint venturer of any
other Member or Manager for any purposes other than applicable tax laws.
This Agreement may not be construed to suggest otherwise. Notwithstanding
the foregoing, the Members intend that the Company shall be treated as a
partnership for tax purposes.
2.9 No Liability of Members. All debts, obligations and
liabilities of the Company, whether arising in contract, tort or otherwise,
shall be solely the debts, obligations and liabilities of the Company, and
no Member or Manager shall be obligated personally for any such debt,
obligation or liability of the Com pany solely by reason of being a Member
or Manager.
ARTICLE III
MEMBERS; CAPITAL STRUCTURE; AND MEETINGS
3.1 Members. The name, address and Capital Commitment of each
initial Member is as set forth on Schedule A hereto. From time to time, the
books and records of the Company shall, and Schedule A hereto shall, be
amended to reflect the name, address and Capital Commitment of each Member
(including, as permitted by this Agreement, adding the name, address and
Capital Contribution of each additional Member who is admitted or becomes a
Substituted Member pursuant to the transfer of Interests and deleting the
name, address and Capital Commitment of Persons ceasing to be Members). The
Members shall have the management and voting rights set forth in this
Agreement and provided under the Act and the Invest ment Company Act and
shall have all rights to any allocations and to any distribu tions as may
be authorized and set forth under this Agreement and under the Act.
3.2 Capital Structure.
(a) Subject to the terms of this Agreement, the Company
is authorized to issue common equity interests in the Company designated as
"Units," which shall constitute an unlimited number of limited liability
company interests under the Act. Other than as set forth in this Agreement,
each Unit shall be identical in all respects with each other Unit. Each
Unit shall consist of 1,000 shares. The relative rights, powers,
preferences, duties, liabilities and obligations of Members shall be as set
forth herein.
(b) The Company is authorized to issue Units to any
Person at such prices per Unit as may be determined by the Board of
Managers or a duly authorized committee thereof and in exchange for either
capital contributions or the provision of property, services or otherwise,
as may be determined by the Board of Managers. The number of Units issued
to Members shall be listed in the member ship records of the Company, which
shall be amended from time to time by the Company as required to reflect
issuances of Units to new Members, changes in the number of Units held by
Members and to reflect the addition or cessation of Members. The number of
Units held by each Member shall not be affected by any (i) issuance by the
Company of Units to other Members or (ii) change in the Capital Account of
such Member (other than such changes to reflect additional Capital
Contributions from such Member in exchange for new Units). Subject to the
requirements of the Investment Company Act, the Company is authorized to
issue options or warrants to purchase Units, restricted Units, Unit
appreciation rights, phantom Units and other securities convertible,
exchangeable or exercisable for Units, on such terms as may be determined
by the Board of Managers or a duly authorized committee thereof.
(c) In the sole discretion of the Board of Managers, the
issued and outstanding Units may be represented by certificates. In
addition to any other legend required with respect to a particular class,
group or series of Units, each such certificate shall bear the following
legend:
"THE UNITS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY
NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, ENCUMBERED, HYPOTHECATED
OR OTHERWISE DISPOSED OF WITHOUT COMPLYING WITH THE PROVISIONS OF THE
LIMITED LIABILITY COMPANY OPERATING AGREEMENT BY AND AMONG THE
MEMBERS OF EXCELSIOR VENTURES PARTNERS III, LLC (THE "COM PANY"), AS
IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE WITH
THE COMPANY. IN ADDITION TO THE RESTRICTIONS ON TRANSFER SET FORTH
IN SUCH AGREEMENT, NO TRANSFER OF THE INTERESTS REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER (THE "1933 ACT"),
AND ALL APPLICABLE STATE SECURITIES LAWS OR ALL APPLICABLE NON-U.S.
SECURITIES LAWS OR (B) IF SUCH TRANSFER IS PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND PURSUANT TO
SUCH EXEMPTION UNDER APPLICABLE STATE OR NON-U.S. SECURITIES LAWS,
THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE,
AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF THE AFORESAID
AGREEMENT."
3.3 Changes to Capital Structure. Additional Persons may be
admitted as Members, and additional Units or other equity interests may be
created and issued from time to time; the terms of admission or issuance
may provide for the creation of different classes, groups or series of
membership interests having different rights, powers and duties, which
rights, powers and duties may be senior, pari passu or junior to the
rights, powers and duties of the Units, as determined by the Board of
Managers. Any creation of any new class, group or series of units or other
equity interests shall be reflected in a supplemental exhibit to this
Agreement indicating such rights, powers and duties.
3.4 No Management Responsibility. No Member, in such capacity,
shall participate in the management or control of the business of or
transact any business for the Company, but may exercise the voting rights
and powers of a Member set forth in this Agreement. All management
responsibility is vested in the Board of Managers. The Members hereby
consent to the taking of any action by the Board of Managers, Appropriate
Officers and the Special Member contemplated under this Agreement or
otherwise permitted under the Act.
3.5 No Authority to Act. No Member, in such capacity, shall
have the power to represent, act for, sign for, or to bind the Company,
except for the Special Member to the extent expressly set forth herein. All
authority to act on behalf of the Company is vested in the Board of
Managers, Appropriate Officers, and the Investment Adviser. The Members
consent to the exercise by the Board of Managers, Appropriate Officers and
the Investment Adviser of the powers conferred on them under this Agreement
or otherwise permitted under the Act.
3.6 No Preemptive Rights. Holders of Units will have no preemp
tive rights with respect to the issuance of any membership or other equity
interest in the Company or any other securities of the Company convertible
into, or carrying rights or options to purchase any such membership or
other equity interest.
3.7 Redemption or Repurchase Rights. Except as otherwise
provided in this Agreement, the Company shall not redeem or repurchase any
Member's Units and no Member shall have the right to withdraw from the
Company or to receive any return of any Capital Commitment.
3.8 Member Meetings. Unless required by the Act or other
applicable law, the Company is not required to hold annual or other regular
meetings of Members. Special meetings of the Members may be called to
consider any matter requiring the consent of all or any of the Members
pursuant to this Agreement and as otherwise determined by the Board of
Managers. Special meetings of the Members may be called by the Board of
Managers or by Members who are the holders of not less than 66 2/3 % of the
outstanding Units.
3.9 Place of Meetings. The Board of Managers may designate any
place, either within or outside of the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the
Managers. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive offices of
the Company. Members may participate in a meeting in person, by proxy or by
means of a conference telephone or similar communications equipment by
which all persons participating in the meeting can hear and speak to each
other at the same time, and any such participation in a meeting shall
constitute presence in person of such Member at such meeting.
3.10 Notice of Members' Meetings.
(a) Written notice stating the place, day, and hour of
the meeting and, in case of a special meeting, the purpose for which the
meeting is called shall be delivered not less than ten days nor more than
ninety days before the date of the meeting, either personally, by
facsimile, electronic mail or by postal mail, by or at the direction of the
Board of Managers or Members calling the meeting to each Member of record
entitled to vote at such meeting.
(b) Notice to Members, if mailed by post, shall be deemed
delivered as to any Member when deposited in the United States mail,
addressed to the Member, with postage prepaid, but, if two successive
letters mailed to the last- known address of any Member are returned as
undeliverable, no further notices to such Member shall be necessary until
another address for such Member is made known to the Company. Notice to
Members, if by facsimile or by electronic mail, shall be deemed delivered
upon receipt of a confirmation of transmission.
(c) At an adjourned meeting, the Company may transact any
business which might have been transacted at the original meeting without
additional notice.
3.11 Waiver of Notice.
(a) When any notice is required to be given to any Member
of the Company under the provisions of this Agreement, a waiver thereof in
writing signed by the Person entitled to such notice, whether before, at,
or after the time stated therein, shall be equivalent to the giving of such
notice.
(b) By attending a meeting, a Member:
(i) Waives objection to lack of notice or defective
notice of such meeting unless the Member, at the beginning of the
meeting, objects to the holding of the meeting or the transacting of
business at the meeting; and
(ii) Waives objection to consideration at such meeting of
a particular matter not within the purpose or purposes described in
the meeting notice unless the Member objects to considering the
matter when it is pre sented.
3.12 Record Dates. For the purpose of determining the Members
who are entitled to vote or act at any meeting or any adjournment thereof,
or who are entitled to participate in any distribution, or for the purpose
of any other action, the Managers may fix a date and time not more than
ninety (90) days prior to the date of any meeting of Members or other
action as the date and time of record for the determination of Members
entitled to vote at such meeting or any adjournment thereof or to be
treated as Members of record for purposes of such other action, and any
Member who was a Member at the date and time so fixed shall be entitled to
vote at such meeting or any adjournment thereof or to be treated as a
Member of record for purposes of such other action, even though he has
since that date and time disposed of his Units, and no Member becoming such
after that date and time shall be so entitled to vote at such meeting or
any adjournment thereof or to be treated as a Member of record for purposes
of such other action.
3.13 Voting Record. The Person having charge of the membership
records of the Company shall make, at least two days before such meeting of
Members, a complete record of the Members entitled to vote at each meeting
of Members or any adjournment thereof, with the address of each. The
record, for a period of two days prior to such meeting, shall be kept on
file at the principal executive offices of the Company, and shall be
subject to inspection by any Member for any proper purpose germane to the
meeting at any time during usual business hours; provided, however, that
such Member shall have made a demand to view such records not less than 5
business days after receipt of notice of such meeting, properly delivered
to the Company and setting forth in reasonable detail the purpose for which
such Member desires to view such information. The original membership
records shall be the prima facie evidence as to who are the Members
entitled to examine the record or transfer books or to vote at any meeting
of Members.
3.14 Voting; Quorum of Members; Vote Required. Except as
otherwise set forth herein, each Member shall be entitled to one vote per
Unit and a proportionate fractional vote for each fractional Unit upon all
matters upon which Members have the right to vote based upon the Units of
the Company as set forth in the membership records of the Company as of the
applicable record date. The presence, in person or by proxy, of Members
owning more than 50% of the Units at the applicable record date for the
action to be taken constitutes a quorum for the transaction of business. If
a quorum is present, the affirmative vote, in person or by proxy, of the
owners of more than 50% of the Units then outstanding and represented in
person or by proxy at the meeting and entitled to vote on the subject
matter shall be the act of the Members, unless the vote of a greater
proportion or number or voting by classes is required by the Act, the
Investment Company Act or this Agreement. If a quorum is not represented at
any meeting of the Members, such meeting may be adjourned by an Appropriate
Officer.
The Members shall have the following voting rights:
(a) to the extent required by the Investment Company Act
or as otherwise provided for herein, the right to elect Managers by the
affirmative vote of a plurality of votes cast;
(b) as provided herein, the right to remove Managers for
cause by the affirmative vote of a Supermajority of Members at a meeting of
Members duly called for such purpose;
(c) to the extent required by the Investment Company Act,
the right to approve proposed changes in the nature of the Company's
business so as to cause the Company to cease to be, or to withdraw its
election as, a business development company under the Investment Company
Act by the affirmative vote of a 40 Act Majority of Members;
(d) to the extent required by the Investment Company Act,
the right to approve any proposed investment advisory agreement or to
disapprove and terminate any such existing agreement by the affirmative
vote of a 40 Act Majority of Members; provided, however, in the case of
approval that such agree ment is also approved by a majority of Managers
who are not parties to such contract or "interested persons" of any such
party as such term is defined in the Investment Company Act, as the same
may be amended from time to time;
(e) to the extent required by the Investment Company Act,
the right to ratify the appointment of the independent accountants of the
Company by the affirmative vote of more than 50% of the Units then
outstanding and represented in person or by proxy at the meeting and
entitled to vote; provided, however, that such appointment is approved by a
majority of the Disinterested Managers;
(f) to the extent required by the Investment Company Act,
the right to terminate the Company's independent accountants by the
affirmative vote of a 40 Act Majority of Members;
(g) extension of the time of termination and dissolution
of the Company to the extent provided in Section 2.6 hereof by the
affirmative vote of a Majority in Interest of the Members;
(h) to the extent required by the Investment Company Act,
the right to consent to the dissolution of the Company pursuant to Section
13.1 by the affirmative vote of a 40 Act Majority of Members;
(i) to the extent required by Section 13.2, the selection
of a liquidator by the affirmative vote of a Majority of Interests of the
Members;
(j) to the extent required by Section 14.1 or 14.3, the
right to approve certain amendments to this Agreement by the affirmative
vote of a Majority of Interests of the Members; and
(k) so long as the Company is subject to the provisions
of the Investment Company Act, the right to approve any other matters that
the Invest ment Company Act requires to be approved by the Members by the
affirmative vote of Members as specified in the Investment Company Act.
3.15 No Consent Required. Notwithstanding the foregoing, no
vote, approvals, or other consent shall be required of the Members to amend
this Agreement in any of the following respects: (i) to reflect any change
in the amount or character of the Capital Contribution of any Member; (ii)
to admit an additional Member or a Substituted Member or withdraw a Member
in accordance with the terms of this Agreement; (iii) to correct any false
or erroneous statement, or to make a change in any statement in order that
such statement shall accurately represent the agreement among the Members
in this Agreement; (iv) a change that is necessary to qualify the Company
as a limited liability company under the laws of any state or that is
necessary or advisable in the opinion of the Board of Managers to assure
that the Company will not be treated as a publicly traded partnership or
otherwise treated as a corporation for federal income tax purposes; (v) to
reflect any change in the name or principal place of business of the
Company; (vi) to make any other change or amendment that does not require
the vote, approval or consent of Members under the Investment Company Act,
the Act or expressly hereunder, provided that such change or Amendment has
been approved by a majority of the Board of Managers and a majority of the
Disinterested Managers.
3.16 Limitations on Requirements for Consents. Notwithstanding
any other provisions of this Agreement, but subject to the requirements of
the Investment Company Act, in the event that counsel for the Company or
counsel designated by Members holding not less than 10% of the Units owned
by all Mem bers shall have delivered to the Company an opinion to the
effect that either the existence of a particular consent right or
particular consent rights or the exercise thereof will violate the
provisions of the Act or the laws of the other jurisdictions in which the
Company is then formed or qualified, will adversely affect the limited
liability of the Members, or will adversely affect the classification of
the Company as a partnership for federal or state income tax purposes, then
notwithstanding the other provisions of this agreement, the Members shall
no longer have such right, or shall not be entitled to exercise such right
in the instant case, as the case may be.
3.17 Informal Action by Members. Any action that may be taken
by Members at a meeting of Members may be taken without a meeting without
prior notice and without a vote if consent in writing setting forth the
action to be taken is signed by the Members holding not less than the
minimum percentage of Units that would be necessary to authorize or take
such action at a meeting at which all the Members were present and voted,
with prompt written notice thereof delivered to all Members. Written
consent by the Members has the same force and effect as a vote
of such Members held at a duly held meeting of the Members and may be
stated as such in any document.
3.18 Voting by Ballot. Voting on any question or in any
election may be by voice vote unless the presiding officer shall order or
any Member shall demand that voting be by ballot.
3.19 No Cumulative Voting. No Members shall be entitled to
cumulative voting in any circumstance.
3.20 Representations and Warranties of Members; Indemnification.
(a) Each Member hereby represents and warrants to the
Company and each other Member as follows:
(i) In each case to the extent applicable, such
Member is duly incorporated or organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation or organization and has full power and authority
to execute and deliver this Agreement and to perform its
obligations hereunder. All requisite actions necessary for the
due authorization, execution, delivery and performance of this
Agreement by such Member have been duly taken.
(ii)Such Member has duly executed and deliv ered
this Agreement. This Agreement constitutes a valid and binding
obligation of such Member enforceable against such Member in
accordance with its terms (except as may be lim ited by
bankruptcy, insolvency, or similar laws of general application
and by the effect of general principles of equity, regardless
of whether considered at law or in equity).
(iii) Such Member's authorization, execution, delivery
and performance of this Agreement does not and will not (i)
conflict with, or result in a breach, default or violation of
(A) to the extent applicable, the certificate or articles of
incorporation, by-laws or other organizational documents of
such Member, (B) any material contract or agreement to which
that Member is a party or is otherwise subject, or (C) any law,
order, judgment, decree, writ, injunction, or arbitration award
to which that Member is subject; or (ii) require any consent,
approval, or authorization from filing, or registration with,
or notice to, any governmental authority or other Person, other
than those that have already been obtained.
(iv)Such Member is familiar with the proposed
business, financial condition, properties, operations, and
prospects of the Company, and has asked such questions and
conducted such due diligence concerning such matters and
concerning its acquisition of any membership interests as it
has desired to ask and conduct, and all such questions have
been answered to its full satisfaction. Such Member has such
knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of an in
vestment in the Company. Such Member understands that owning
membership interests involves various risks, including the
restrictions on transferability set forth in this Agreement,
lack of any public market for such membership interests, the
risk of owning its membership interests for an indefinite pe
riod of time, and the risk of losing its entire investment in
the Company. Such Member is able to bear the economic risk of
such investment; is acquiring its membership interests for
investment and solely for its own beneficial account and not
with a view to or any present intention of directly or
indirectly selling, transferring, offering to sell or transfer,
participating in any distribution, or otherwise disposing of
all or a portion of its membership interests.
(b) Each Member hereby indemnifies the Company from and
against and agrees to hold the Company free and harmless from any and all
claims, losses, damages, liabilities, judgments, fines, settlements,
compromises, awards, costs, expenses or other amounts (including without
limitation any attorney fees, expert witness fees or related costs) arising
out of or otherwise related to a breach of any of the representations and
warranties of such Member as set forth in this Section 3.21.
(c) such Member shall not transfer, sell, or offer to
sell such Member's Units without compliance with the conditions and
provisions of this Agreement;
(d) if such Member assigns all or any part of such
Member's Units, then until such time as one or more assignees thereof are
admitted to the Company as a Substituted Member with respect to the entire
Interest so assigned, the matters to which any holder thereof would
covenant and agree if such holder were to execute this Agreement as a
Member shall be and remain true;
(e) such Member shall notify the Managers immediately if
any representations or warranties made herein or in any subscription
agreement should be or become untrue; and
(f) such Member shall not take any action that would have
the effect of causing the Company (i) to be treated as a publicly traded
partnership for purposes of Section 7704(b) of the Code or (ii) otherwise
to be treated as a corporation for federal income tax purposes.
ARTICLE IV
MANAGEMENT OF COMPANY
4.1 Board of Managers. The governing body of the Company shall
be the Board of Managers, which shall have the power to control the manage
ment and policies of the Company. The maximum number of managers shall
initially be set at four (4), and may be increased or decreased by action
of the Board of Managers provided that at no time shall the number of
Managers be set at less than three (3) nor more than ten (10). The Managers
shall be set forth in Schedule B hereto or in the official records of the
Company. The Managers shall hold office until their successors are approved
and elected, unless they are sooner removed pursuant to Section 4.4 or
sooner resign pursuant to Section 4.3 or sooner are incapacitated pursuant
to Section 4.5, as the case may be. Managers may succeed themselves in
office. No reduction in the number of Managers shall have the effect of
removing any Manager from office unless specially removed pursuant to
Section 4.4 at the time of such decrease. Subject to the requirements of
the Investment Company Act, the Board of Managers may designate successors
to fill vacancies created by an authorized increase in the number of
Managers, the resignation of a Manager pursuant to Section 4.3, the removal
of a member of the Board of Managers pursuant to Section 4.4 or the
incapacity of a Manager pursuant to Section 4.5. In the event that no
Managers remain, the Appropriate Officers shall continue the business of
the Company and shall perform all duties of the Managers under this
Agreement and shall as soon as practicable call a special meeting of
Members for the purpose of approving and electing Managers. When Managers
are subject to election by Members, Managers are elected by a plurality of
the Units voting at the meeting. Managers may, but need not be, admitted to
the Company as Members to act in their capacity as Managers.
4.2 Disinterested Managers. Subject to the requirements of the
Investment Company Act, at any time that the Company shall have in effect
an election to be treated as a business development company under the
Investment Company Act, then at least a majority of the members of the
Board of Managers shall be Disinterested Managers. If at any time the
number of Disinterested Manag ers is less than a majority, action shall be
taken pursuant to Section 4.1 or Section 4.4 to restore the number of
Disinterested Managers to at least a majority.
4.3 Resignation by a Manager. A Manager may voluntarily resign
from the Board of Managers upon the giving of notice thereof to the
Company, such resignation to take effect upon receipt of such notice by the
Company or such later date as set forth in such notice.
4.4 Removal of a Manager; Designation of a Successor Manager.
(a) Any Manager may be removed either: (i) for cause by
the action of at least two-thirds of the remaining Managers, including in
the case of a Disinterested Manager a majority of the remaining
Disinterested Managers; (ii) by failure to be re-elected by the Members at
a meeting of Members duly called by the Managers for such purpose; or (iii)
for cause by the affirmative vote of a Supermajority of Members. The
removal of a Manager shall in no way derogate from any rights or powers of
such Manager, or the exercise thereof, or the validity of any actions taken
pursuant thereto, prior to the date of such removal.
(b) Subject to Section 4.2, the remaining Managers shall
designate a successor Manager to fill any vacancy existing in the number of
Manag ers fixed pursuant to Section 4.2 resulting from removal of a
Manager. Any such successor Manager shall hold office until his or her
successor has been approved and elected.
(c) Any removal of a Manager shall not affect any rights
or liabilities of the removed Manager that matured prior to such removal.
4.5 Incapacity of a Manager.
(a) In the event of the Incapacity of a Manager, the
business of the Company shall be continued with the Company property by the
remaining Managers. The remaining Managers shall, within 90 days, call a
meeting of the Board of Managers for the purpose of designating a successor
Manager. Any such successor Manager shall hold such office until his or her
successor has been ap proved and elected. The Managers shall make such
amendments to the certificate of formation and execute and file for
recordation such amendments or other documents or instruments as are
necessary and required by the Act or this Agreement to reflect the fact
that such Incapacitated Manager has ceased to be a Manager, and the
appointment of such successor Manager.
(b) In the event of the Incapacity of all Managers, an
Appropriate Officer shall as promptly as practicable convene a meeting of
Members for the purpose of electing new Managers nominated by the Special
Member. Upon the Incapacity of a Manager, the Manager shall immediately
cease to be a Manager.
(c) Any such termination of a Manager shall not affect
any rights or liabilities of the Incapacitated Manager that matured prior
to such Incapac ity.
4.6 Continuation. In the event of the withdrawal, removal, or
retirement of a Manager, the Company shall not be dissolved and the
business of the Company shall be continued by the remaining Managers.
4.7 Board of Managers Powers. Subject to the terms hereof, the
Board of Managers shall have full and complete discretion in the management
and control of the affairs of the Company, shall make all decisions
affecting Company affairs and shall have all of the rights, powers, and
obligations of a managing member of a limited liability company under the
Act and otherwise as provided by law. The Board of Managers shall provide
overall guidance and supervision with respect to the operations of the
Company, shall perform all duties imposed on the directors of business
development companies by the Investment Company Act, and shall monitor the
activities of the Appropriate Officers, Investment Advisers and any
administrator to the Company and distributor of the Company's securities.
Except as otherwise expressly provided in this Agreement, the Board of
Managers is hereby granted the right, power, and authority to do on behalf
of the Company all things which, in its sole judgment, are necessary or
appropriate to manage the Company's affairs and fulfill the purposes of the
Company. Any determination as to what is in the interests of the Company
made by the Managers in good faith shall be conclu sive. In construing the
provisions of this Agreement, the presumption shall be in the favor of a
grant of power to the Managers. The powers of the Managers include, by way
of illustration and not by way of limitation, the power and authority from
time to time to do the following:
(a) invest the assets of the Company in such investments
as are consistent with the Company's purpose and employ one or more
Investment Advisers to do the same;
(b) incur all expenses permitted by this Agreement;
(c) to the extent that funds are available, cause to be
paid all expenses, debts, and obligations of the Company;
(d) appoint and dismiss such Persons to serve as officers
of the Company ("Appropriate Officers") with such powers and authority as
may be provided to such Persons by the Board of Managers or by this
Agreement;
(e) employ and dismiss from employment such agents,
employees, managers, accountants, attorneys, consultants, and other Persons
neces sary or appropriate to carry out the business and affairs of the
Company, whether or not any such Persons so employed are affiliated persons
of any Manager, and to pay such compensation to such Persons as is
competitive with the compensation paid to unaffiliated Persons in the area
for similar services;
(f) subject to the indemnification provisions in this
Agree ment, pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend, or settle, upon such terms it deems sufficient, any
obligation, suit, liability, cause of action, or claim, including tax
audits, either in favor of or against the Company;
(g) enter into any sales, distribution, agency, or dealer
agreements, and escrow agreements, with respect to the sale of Units and
provide for the distribution of such Units by the Company through one or
more Persons (which may be affiliated persons of a Manager or Managers), or
otherwise; borrow money and issue multiple classes of senior indebtedness
or a single class of Interests senior to the Units to the extent permitted
by the Investment Company Act and repay, in whole or in part, any such
borrowing or indebtedness and repurchase or retire, in whole or in part,
any such Interests senior to the Units; and in connection with such loans
or senior instruments to mortgage, pledge, assign, or otherwise encumber
any or all properties or assets owned by the Company, including any income
therefrom, to secure such borrowing or provide repayment thereof;
(h) establish and maintain accounts with financial
institu tions, including federal or state banks, brokerage firms, trust
companies, savings and loan institutions, or money market funds;
(i) make temporary investments of Company capital in
Short-Term Investments;
(j) to the extent permitted by the Investment Company
Act, form or cause to be formed one or more small business investment
companies under the Small Business Investment Fund Act of 1958, as amended;
(k) establish valuation principles and periodically apply
such principles to the Company's investment portfolio;
(l) to the extent permitted by the Investment Company
Act, designate and appoint one or more agents for the Company who shall
have such authority as may be conferred upon them by the Board of Managers
and who may perform any of the duties of, and exercise any of the powers
and authority conferred upon, the Board of Managers hereunder including,
but not limited to, designation of one or more agents as authorized
signatories on any bank accounts maintained by the Company;
(m) prosecute, protect, defend, or cause to be protected
and defended, or abandon, any patents, patent rights, copyrights, trade
names, trade marks, and service marks, and any applications with respect
thereto, that may be held by the Company;
(n) take all reasonable and necessary actions to protect
the secrecy of and the proprietary rights with respect to any know-how,
trade secrets, secret processes, or other proprietary information and to
prosecute and defend all rights of the Company in connection therewith;
(o) subject to the other provisions of this Agreement, to
enter into, make, and perform such contracts, agreements, and other
undertakings, and to do such other acts, as it may deem necessary or
advisable for, or as may be incidental to, the conduct of the business
contemplated by this Agreement, including, without in any manner limiting
the generality of the foregoing, contracts, agree ments, undertakings, and
transactions with any Member, Manager, Appropriate Officer or Investment
Adviser or with any other person, firm, or corporation having any business,
financial, or other relationship with any Member, Manager, Appropri ate
Officer or Investment Adviser, provided, however, such transactions with
such Persons and entities (i) shall only be entered into to the extent
permitted under the Investment Company Act and (ii) shall be on terms no
less favorable to the Company than are generally afforded to unrelated
third parties in comparable transactions;
(p) purchase, rent, or lease equipment for Company pur
poses;
(q) purchase and maintain, at the Company's expense,
liability and other insurance to protect the Company's assets from third
party claims; and cause the Company to purchase or bear the cost of any
insurance covering any potential liabilities of the Members, Managers,
Appropriate Officers, Investment Adviser or agents of the Company, or
officers, employees, directors, members or partners of the Investment
Adviser or any agent of the Company as well as the potential liabilities of
any Person serving at the request of the Investment Adviser as a director
of or adviser to a Portfolio Company;
(r) cause to be paid any and all taxes, charges, and
assess ments that may be levied, assessed or imposed upon any of the assets
of the Com pany;
(s) make or caused to be made any election on behalf of
the Company under the Code and other tax laws and supervise the preparation
and filing of all tax and information returns that the Company may be
required to file;
(t) take any action that may be necessary or appropriate
for the continuation of the Company's valid existence as a limited
liability company under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the limited
liability of the Members or to enable the Company to conduct the business
in which it is engaged;
(u) admit Members to the Company in accordance with
Section 7.1; admit an assignee of a Member's Interest to be a Substituted
Member in the Company, pursuant to and subject to the terms of Section 9.5,
without the consent of any Member; admit additional Persons as members by
creating and issuing Units or other equity interests from time to time with
terms of admission or issuance providing for the creation of different
classes, groups or series of member ship interests having different rights,
powers and duties, which rights, powers and duties may be senior, pari
passu or junior to the rights, powers and duties of the Units, as
determined by the Board of Managers without the consent of Members;
(v) value the assets of the Company from time to time
pursuant to and consistent with the policies of the Company with respect
thereto as in effect from time to time;
(w) borrow money or otherwise incur indebtedness to fund
loans and other investments subject to the provision of applicable law and
this Agreement; each Member expressly agrees that any such borrowing may be
secured by the assets of the Company and that its Capital Account may be
pledged by the Company to secure any such borrowing or indebtedness;
(x) delegate all or any portion of its rights, powers and
authority to any committee or subset of the Board of Managers, or to any
Investment Adviser, Appropriate Officer or agent of the Company, subject to
the control and supervision of the Managers; and
(y) perform all normal business functions, and otherwise
operate and manage the business and affairs of the Company, in accordance
with and as limited by this Agreement.
4.8 Annual and other Regular Meetings of the Board of Managers.
An annual meeting of the Board of Managers shall be held without notice
other than this provision. The Board of Managers may provide, by
resolution, the time and place, either within or without the State of
Delaware, for the holding of the annual meeting and any additional regular
meetings without notice other than such resolution.
4.9 Special Meetings of the Board of Managers. Special meetings
of the Board of Managers may be called by an Appropriate Officer or the
Chairman of the Board of Managers, or, if no such Chairman exists, at the
request of any two Managers. The person or persons authorized to call
special meetings of the Board of Managers may fix any place, either within
or without the State of Delaware, as the place for holding any special
meeting of the Board of Managers called by them.
4.10 Notice of Meetings of the Board of Managers. Written
notice of any special meeting of the Board of Managers shall be given as
follows:
(a) By mail to each Manager at the Manager's mailing
address at least five business days prior to the meeting; or
(b) By personal delivery, e-mail or facsimile
transmission at least three business days prior to the meeting to each
Manager.
If mailed by post, such notice shall be deemed to be
delivered when deposited in the United States mail, so addressed, with
postage thereon prepaid. If notice be given by e-mail or facsimile
transmission such notice shall be deemed to be delivered when the e-mail or
facsimile transmission is transmitted by the sender.
(c) Any Manager may waive notice of any meeting. The
attendance of a Manager at any meeting shall constitute a waiver of notice
of such meeting, except where a Manager attends a meeting for the express
purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of
Managers need be specified in the notice or waiver of notice of such
meeting.
4.11 Quorum for Board of Managers Meetings. A majority of the
number of Managers shall constitute a quorum for the transaction of
business at any meeting of the Board of Managers, but if less than such
majority is present at a meeting, a majority of the Managers present may
adjourn the meeting from time to time without further notice.
4.12 Manner of Acting for Board of Managers. Except as other
wise required by the Act, the Investment Company Act or this Agreement the
act of the majority of the Managers present at a meeting at which a quorum
is present shall be the act of the Board of Managers. Each Manager shall be
entitled to one vote upon all matters submitted to the Board of Managers.
4.13 Written Consent by Board of Managers. Unless otherwise
required by the Investment Company Act, any action required or permitted to
be taken at any meeting of the Board of Managers or by a committee thereof
may be taken without a meeting without prior notice and without a vote if
the members of the Board of Managers or such committee that would be
required to approve such action at a meeting consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of
the Board of Managers or such committee.
4.14 Participation by Electronic Means by Board of Managers.
Any Manager may participate in a meeting of the Board of Managers or any
commit tee thereof in person or by means of conference telephone or similar
communications equipment by which all persons participating in the meeting
can hear and speak to each other at the same time. Except for purposes of
the Investment Company Act, such participation shall constitute presence in
person at the meeting.
4.15 Committees of Managers. By resolution adopted by the Board
of Managers, the Board of Managers may designate two or more Managers to
constitute a committee, any of which shall have such authority in the
management of the Company as the Board of Managers shall designate.
4.16 Manager Presumption of Assent. A Manager of the Company
who is present at a meeting of the Board of Managers at which action on any
matter taken shall be presumed to have assented to the action taken unless
a dissent shall be entered in the minutes of the meeting or unless the
Manager files a written dissent to such action with the person acting as
the secretary of the meeting before the adjourn ment thereof or shall
forward such dissent by registered mail to the Secretary of the Company
immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a Manager who voted in favor of such action.
4.17 Manager Power to Bind Company. Unless the Board of
Managers consists of one Manager, no Manager (acting in his capacity as
such) shall have any authority to bind the Company to any third party with
respect to any matter except pursuant to a resolution expressly authorizing
such action which resolution is duly adopted by the Board of Managers by
the affirmative vote required for such matter pursuant to the terms of this
Agreement.
4.18 Liability of the Managers. No Manager shall be (i)
personally liable for the debts, obligations or liabilities of the Company,
including any such debts, obligations or liabilities arising under a
judgement decree or order of a court; (ii) obligated to cure any deficit in
any Capital Account; (iii) required to return all or any portion of any
Capital Contribution; or (iv) required to lend any funds to the Company.
4.19 Reliance by Third Parties. Persons dealing with the
Company are entitled to rely conclusively upon the power and authority of
the Board of Managers, the Appropriate Officers and the Special Member of
the Company herein set forth.
4.20 Appointment of Auditors. Subject to the approval or
ratifica tion of the Members and the Disinterested Managers if and to the
extent required under the Investment Company Act, the Board of Managers, in
the name and on behalf of the Company, is authorized to appoint independent
certified public accoun tants for the Company.
4.21 Contracts with Affiliates. The Board of Managers may, on
behalf of the Company subject to approval by a majority of the Managers who
do not have an interest in the contract and a majority of the Disinterested
Managers and to compliance with the Investment Company Act, enter into
contracts for goods or services with any affiliate of a Manager, Member,
Appropriate Officer, Investment Adviser or any other person, provided that
the charges for such goods or services do not exceed those charged by
unaffiliated Persons in the area for similar goods and services.
4.22 Obligations of the Managers. The Managers shall devote
such time and effort to the Company business as, in their judgment, may be
necessary or appropriate to oversee the affairs of the Company.
4.23 Other Business of Managers. Any Manager and any affiliate
of any Manager may engage in or possess any interest in other business
ventures of any kind, nature or description, independently or with others,
whether such ventures are competitive with the Company or otherwise.
Neither the Company nor any Member shall have any rights or obligations by
virtue of this Agreement or the company relationship created hereby in or
to such independent ventures or the income or profits or losses derived
therefrom, and the pursuit of such ventures, even if competitive with the
business of the Company, shall not be deemed wrongful or improper. Neither
the Managers nor any affiliate of any Manager shall be obligated to present
any investment opportunity to the Company.
4.24 Limitations on Board of Managers and Appropriate Officers.
(a) Notwithstanding anything expressed or implied to the
contrary in this Agreement (other than Section 7.1(f) and Article IX), the
Board of Managers and the Appropriate Officers shall not authorize or
otherwise cause or allow the Company to purchase all or any portion of any
Member's Interest (or any attributes thereof).
(b) Notwithstanding anything expressed or implied to the
contrary in this Agreement, the Board of Managers and the Appropriate
Officers shall not (i) participate in the establishment of a secondary
market (or the substantial equivalent thereof) with respect to the
Interests for purposes of Treasury Regulation ss. 1.7704-1(d)(1) or (ii)
take any action that would have the effect of causing the Company (A) to be
treated as a publicly traded partnership for purposes of Section 7704(b) of
the Code or (B) otherwise to be treated as a corporation for federal income
tax purposes.
ARTICLE V
OFFICERS
5.1 Appropriate Officers. The day-to-day management and
operation of the Company and its business shall be the responsibility of
the Appro priate Officers of the Company, subject to the supervision and
control of the Board of Managers. The Appropriate Officers shall, subject
to the supervision and control of the Board of Managers, exercise all
powers necessary and convenient for the purposes of the Company, on behalf
and in the name of the Company. Notwith standing anything to the contrary
contained herein, the acts of an Appropriate Officer in carrying on the
business of the Company as authorized herein shall bind the Company.
The Appropriate Officers of the Company shall be chosen by the
Board of Managers and shall include a President, a Secretary and a
Treasurer. The Board of Managers may also choose a Chairman of the Board of
Managers (who must be a Manager), and the following additional Appropriate
Officers: a Chief Executive Officer, a Chief Financial Officer, a Chief
Operating Officer, and one or more Vice Presidents (and, in the case of
each Vice President, with such descriptive title, if any, as the Board of
Managers shall determine), Assistant Secretaries, Assistant Treasurers and
other officers. Any number of offices may be held by the same person,
unless otherwise prohibited by law. The officers of the Company need not be
Members of the Company nor, except in the case of the Chairman of the
Board, need such officers be Managers of the Company.
5.2 Election of Officers. The Board of Managers shall elect the
officers of the Company who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined
from time to time by the Board of Managers; and all officers of the Company
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal. Any officer elected by the
Board of Managers may be removed at any time, with or without cause, by the
affirmative vote of the Board of Managers or upon the Incapacity of such
officer. Any vacancy occurring in any office of the Company shall be filled
by the Board of Managers. The salaries of all officers of the Company shall
be fixed by the Board of Managers. The Board of Managers may delegate such
duties to any such officers or other employees, agents and consultants of
the Company as the Board of Managers deems appropriate, including the
power, acting individually or jointly, to represent and bind the Company in
all matters, in accordance with the scope of their respective duties.
5.3 Voting Securities Owned by the Company. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Company may be executed in the name of
and on behalf of the Company by the President or any Vice President or any
other officer authorized to do so by the Board of Managers and any such
officer may, in the name of and on behalf of the Company, take all such
action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any entity in which the Company may
own securities and at any such meeting shall possess and may exercise any
and all rights and powers incident to the ownership of such securities and
which, as the owner thereof, the Company might have exercised and possessed
if present. The Board of Managers may, by resolution, from time to time
confer like powers upon any other person or persons.
5.4 Chairman of the Board of Managers. The Chairman of the
Board of Managers, if there be one, shall preside at all meetings of the
Members and of the Board of Managers. The Chairman of the Board of Managers
shall be selected from time to time by the Board of Managers. The Chairman
of the Board of Manag ers shall possess the same power as the President to
sign all contracts, certificates and other instruments of the Company which
may be authorized by the Board of Manag ers. During the absence or
disability of the President, the Chairman of the Board of Managers shall
exercise all the powers and discharge all the duties of the President. The
Chairman of the Board of Managers shall also perform such other duties and
may exercise such other powers as may from time to time be assigned by this
Agreement or by the Board of Managers.
5.5 President. The President shall, subject to the control of
the Board of Managers and, if there be one, the Chairman of the Board of
Managers, have general supervision of the business of the Company and shall
see that all orders and resolutions of the Board of Managers are carried
into effect. The President or, when authorized by this Agreement, the Board
of Managers or the President, the other officers of the Company shall
execute all bonds, mortgages, contracts, docu ments and other instruments
of the Company. In the absence or disability of the Chairman of the Board
of Managers, or if there be none, the President, shall preside at all
meetings of the Members and the Board of Managers. Unless the Board of
Managers shall otherwise designate, the President shall be the Chief
Executive Officer of the Company. The President shall also perform such
other duties and may exercise such other powers as may from time to time be
assigned to such officer by this Agreement or by the Board of Managers.
5.6 Vice Presidents. At the request of the President or in the
President's absence or in the event of the President's inability or refusal
to act (and if there be no Chairman of the Board of Managers), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Manag ers), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Each Vice President shall
perform such other duties and have such other powers and duties as the
Board of Managers, the Chairman of the Board of Managers or the President
from time to time may prescribe. The Vice President shall act under the
supervision of the President. If there be no Chairman of the Board of
Managers and no Vice President, the Board of Managers shall designate the
officer of the Company who, in the absence of the President or in the event
of the inability or refusal of the President to act, shall perform the
duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President.
5.7 Secretary. The Secretary shall attend all meetings of the
Board of Managers and all meetings of Members and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Managers when required. The Secretary shall give, or cause to be given,
notice of all meetings of the Members and special meetings of the Board of
Managers, and shall perform such other duties as may be prescribed by the
Board of Managers, the Chairman of the Board of Manag ers or the President,
under whose supervision the Secretary shall act. If the Secretary shall be
unable or shall refuse to cause to be given notice of all meetings of the
Members and special meetings of the Board of Managers, and if there be no
Assis tant Secretary, then either the Board of Managers or the President
may choose another officer to cause such notice to be given. The Secretary
shall have custody of the seal of the Company, if any, and the Secretary or
any Assistant Secretary, if there be one, shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested
by the signature of the Secretary or by the signature of any such Assistant
Secretary. The Secretary may give general authority to any other officer to
affix the seal of the Company and to attest to the affixing by such
officer's signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to
be kept or filed are properly kept or filed, as the case may be.
5.8 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Company in such depositories as may be designated by the Board of
Managers. The Treasurer shall disburse the funds of the Company as may be
ordered by the Board of Managers, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Managers,
at its regular meetings, or when the Board of Managers so requires, an
account of all transactions as Treasurer and of the financial condition of
the Company. If required by the Board of Managers, the Treasurer shall give
the Company a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Managers for the faithful performance of the
duties of the office of the Treasurer and for the restoration to the
Company, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other
property of whatever kind in the Treasurer's possession or under the
Treasurer's control belonging to the Company.
5.9 Assistant Secretaries. Assistant Secretaries, if there be
any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Managers, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act,
shall perform the duties of the Secretary, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the
Secretary.
5.10 Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Managers, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act,
shall perform the duties of the Treasurer, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the
Treasurer. If required by the Board of Managers, an Assistant Treasurer
shall give the Company a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Managers for the faithful
performance of the duties of the office of Assistant Treasurer and for the
restoration to the Company, in case of the Assistant Treasurer's death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the Assistant
Treasurer's possession or under the Assistant Treasurer's control belonging
to the Company.
5.11 Other Officers. Such other officers as the Board of
Managers may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Managers, the Chairman
of the Board of Managers or the President. The Board of Managers may
delegate to any other officer of the Company the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE VI
INVESTMENT ADVISERS
6.1 Investment Advisers.
(a) The Investment Advisers, subject to the control and
supervision of the Board of Managers and the terms and conditions of the
Investment Advisory Agreement, are hereby granted the power and authority
from time to time to do the following: manage and control the investments
of the Company, including, but not limited to, the power to make all
investment decisions regarding the Com pany's investment portfolio and,
among other things, to find, evaluate, structure, monitor, sell, and
liquidate, upon dissolution or otherwise, such investments, to assist the
Appropriate Officers of the Company in the provision of managerial
assistance to Portfolio Companies and in connection therewith to enter
into, execute, amend, supplement, acknowledge, and deliver any and all
contracts, agreements, or other instruments for the performance of such
functions, including the investment and reinvestment of all or part of the
Company's assets, execution of portfolio transac tions, and any or all
related administrative functions. The grant of power and authority to the
Investment Adviser under this Section 6.1 in no way limits the rights,
powers, or authority of the Board of Managers under this Agreement, the
Act, or as otherwise provided by law.
(b) The Board of Managers may admit any Investment
Adviser as a Member of the Company with the rights, powers and obligations
of a Special Member as set forth herein. A Special Member shall not make a
Capital Contribution to the Company in its capacity as Special Member and
shall not be issued any Units representing its interest as a Special
Member.
6.2 Portfolio Investments
(a) Subject to the disclosure and reporting requirements
contained in Article X or elsewhere in this Agreement, except as any Member
may be entitled to under applicable law, the Investment Adviser may keep
confidential from the Members any information known by the Investment
Adviser relating to investments made or being considered by the Company.
(b) Any and all rights, including voting rights,
pertaining to any Portfolio Investments shall be vested exclusively in the
Company and may be exercised only by the Investment Adviser acting in
accordance with the terms of this Agreement and the Investment Advisory
Agreement or by the Company pursuant to the act of an Appropriate Officer
or the Board of Managers.
6.3 Withdrawal by a Special Member.
(a) Subject to clause (b) below, a Special Member may
voluntarily withdraw from the Company, at any time upon notice to the
Company. Such withdrawal shall not affect the Special Member's status as
Investment Adviser under the Investment Advisory Agreement.
(b) A Special Member shall not voluntarily withdraw from
the Company if such withdrawal would cause material adverse tax
consequences to the Company and its Members as determined by the Board of
Managers in its sole and absolute discretion.
6.4 Removal of a Special Member.
(a) Subject to clause (b) below, in the event of
termination without renewal of an Investment Advisory Agreement with
respect to a Special Member, the Special Member shall be removed and
terminated as a Member.
(b) In the event of the removal of the Special Member and
continuation of the Company, the investments held by the Company at the
time of removal shall be appraised by two independent appraisers, one
selected by the Special Member and one by the Disinterested Managers. In
the event that such two appraisers are unable to agree on the value of the
Company's investment portfolio, they shall jointly appoint a third
independent appraiser whose determina tion shall be final and binding. The
cost of the appraisal conducted by the appraiser selected by the Special
Member shall be borne by the Special Member, and the cost of the appraisal
conducted by the appraiser selected by the Disinterested Managers shall be
borne by the Company. The cost of the appraisal conducted by a third
appraiser shall be borne equally by the Company and by the Special Member.
The Special Member shall receive a final allocation of Net Profit or Net
Loss pursuant to Article VII as if all unrealized capital gains and losses
of the Company as of the date of removal determined on the basis of such
approval were realized at such time and the Fiscal Period ended at such
time. If the Capital Account of the Special Member has a positive balance
after such allocation, the Company shall within 30 days of determination
distribute such amount in cash to the Special Member or deliver a
promissory note of the Company to the Special Member, the principal amount
of which shall be equal to the amount, if any, by which the positive amount
of the Special Member's Capital Account exceeds the amount so distributed
in cash and which bears interest at a rate per annum equal to 100% of the
prime rate in effect at a major national bank selected by a majority of the
Disinterested Members at the time of removal, with interest payable
annually and principal payable, if at all, only from 20% of any available
cash before any distributions thereof are made to the Members pursuant to
Article VIII. In the event that any of the foregoing requires an exemptive
order from the Securities and Exchange Commission or its staff that is not
granted, the Special Member shall not be removed as a Member of the Company
until such time as all Direct Investments held by the Company at the time
of the proposed removal have been liquidated and allocations of Net Profit
and Net Loss resulting therefrom have been made pursuant to Article VII. In
such event, the Investment Adviser upon removal shall be entitled to
payments in respect of its Capital Account as set forth in Section 9.1(b).
6.5 Covenants of Special Member. Each Special Member covenants,
warrants, and agrees with the Company and each of the other Members that
the Special Member will not:
(a) purchase all or any portion of any Member's Interest (or
any attributes thereof);
(b) participate in the establishment of a secondary
market (or the substantial equivalent thereof) with respect to the
Interests for purposes of Treasury Regulation ss. 1.7704-1(d)(1); or
(c) take any action that would have the effect of causing
the Company (i) to be treated as a publicly traded partnership for purposes
of Section 7704(b) of the Code or (ii) otherwise to be treated as a
corporation for federal income tax purposes.
ARTICLE VII
CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS AND ALLOCATIONS
7.1 Capital Contributions.
(a) The initial Member or Members are as set forth on
Schedule A hereto. Additional Persons making Capital Commitments shall be
admitted as Members and added to Schedule A at one or more closings (each
a"Closing"), each such Closing to be held on such date as may be determined
by the Appropriate Officers (the date of the first such Closing being
referred to as the "Closing Date"). Each Member making a Capital Commitment
shall make an initial contribution to the Company in an amount equal to
one-half of such Member's total Capital Commitment at the first Closing
following such Member's making a Capital Commitment. Members not making
Capital Commitments may be admitted to the Company at any time by the act
of the Managers.
(b) On the Capital Demand Date, each Member making a
Capital Commitment shall further contribute to the Company an amount equal
to one-half of such Member's total Capital Commitment, such amount
representing the Unpaid Capital Obligation. For purposes of this Agreement,
(i) the "Capital Demand Date" shall mean the date set forth in the
Prospectus or otherwise specified by an Appropriate Officer on which
Members are required to contribute their Unpaid Capital Obligation to the
Company, which, if not the date set forth in the Prospectus, shall be (A)
specified by or on behalf of the Company in a Capital Demand Notice sent by
the Company to each of the Members or their representatives and (B) no less
than seven (7) days from the date such Capital Demand Notice is sent by the
Com pany and (ii) a "Capital Demand Notice" shall mean a written notice
requiring the contribution of capital to the Company, which notice shall
(A) be by or on behalf of the Company to each Member and (B) call for
contribution to the Company of the Unpaid Capital Obligation of each
Member.
(c) Upon any failure by any Member to pay in full when
due its Unpaid Capital Obligation, interest shall accrue on the outstanding
unpaid balance, from and including the date such payment was due until the
earlier of the date of payment to the Company of the Unpaid Capital
Obligation (together with accrued interest thereon) or such time, if any,
as such Member forfeits his, her or its Interest as provided in Section
7.1(f) or is otherwise withdrawn from the Company as provided in Section
9.1, at the lesser of (x) the Applicable Rate and (y) the maximum rate
permitted by applicable law.
(d) Capital Contributions by the Members shall be made in
dollars by wire transfer of federal funds to an account or accounts of the
Company as specified by the Company or in such other manner as the Company
may direct. No Member shall be entitled to any interest or compensation by
reason of his, her or its Capital Contributions or by reason of being a
Member. No Member shall be required to lend any funds to the Company.
(e) At each Closing and on the Capital Demand Date,
Schedule A hereto shall be amended appropriately to reflect the Capital
Commit ments of the Members, and the Appropriate Officers shall take any
appropriate action in connection therewith. Further, the Appropriate
Officers shall cause Schedule A hereto to be amended from time to time to
reflect the transfer of a Member's Inter ests, the admission and withdrawal
of Members and changes in Capital Commit ments, which are accomplished in
accordance with the provisions hereof.
(f) In the event of any failure by any Member to pay in
full when due its Unpaid Capital Obligation, such Member shall be subject
to all rights and remedies of the Company under this Agreement and
applicable law, including the specific penalties for and consequences of
such failure set forth below. Without in any way limiting the foregoing, a
Member who fails to pay in full when due its Unpaid Capital Obligation
shall, in the sole and absolute discretion of the Managers, be subject to
any or all of the following penalties and consequences: reducing or
eliminating such Member's proportionate Interest in the Company; requiring
such Member to sell all or any part of his, her or its Interest in the
Company to another person that has agreed to pay the full amount of the
Member's Unpaid Capital Obligation associated therewith; forfeiture of all
or any portion of such Member's Interest in the Company; and requiring the
withdrawal of such Member pursuant to Section 9.1(a)(ii) and the repurchase
of all or any part of such Member's Interest in the Company pursuant to
Section 9.1(b)(ii) at a price set by the Managers by appraisal, formula or
otherwise as determined pursuant to Section 4.7(v).
(g) Negative Capital Accounts. Except as may be required
by law, no Member shall be required to reimburse the Company for any
negative balance in such Member's Capital Account; provided, however, that
each Member shall remain fully liable to make contributions of capital to
the extent of such Member's Unpaid Capital Obligation.
7.2 Capital Accounts. A capital account ("Capital Account")
shall be established and maintained on the Company's books with respect to
each Member, in accordance with the provisions of Treasury Regulations
Section 1.704-1(b), including the following:
(a) Each Member's Capital Account shall be increased by:
(i) the amount of that Member's Capital Contributions; (ii) the amount of
Net Profit (or items thereof) allocated to that Member; and (iii) any other
increases required by the Treasury Regulations.
(b) Each Member's Capital Account shall be decreased by:
(i) the amount of Net Loss (or items thereof) allocated to that Member;
(ii) all cash amounts distributed to that Member pursuant to this
Agreement, other than any amount required to be treated as a payment for
property or services for federal income tax purposes; (iii) the fair market
value of any property distributed in kind to that Member (net of any
liabilities secured by such distributed property that such Member is
considered to assume or take subject to for federal income tax purposes);
and (iv) any other decreases required by the Treasury Regulations.
(c) All provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with the Code and
Treasury Regulations thereunder and shall be interpreted and applied in a
manner consistent with such law. The Managers shall make any necessary
modifications to this Section 7.2 in the event unanticipated events occur
that might otherwise cause this Agreement not to comply with such law or
any changes thereto.
(d) A Manager, in its capacity as a Manager, shall not be
entitled to any distributions.
7.3 Interest. No interest shall be paid or credited to the
Members with respect to their Capital Contributions, their Capital Accounts
or upon any undistributed funds left on deposit with the Company.
7.4 Allocations to Capital Accounts.
(a) Special Member Allocations. Except as provided in this
Agreement, the capital gains realized by the Company in a Fiscal Period
shall be allocated first to the Special Member in an amount equal to the
excess, if any, of the Incentive Carried Interest as calculated for such
Fiscal Period over the cumulative amount of all capital gains allocated to
the Special Member pursuant to this Section 7.4(a) for all prior Fiscal
Periods. This allocation of capital gain shall be made out of long-term
capital gain and short-term capital gain in proportion to the amount of
such gains realized in such Fiscal Period.
(b) Member Allocations. Except as provided in this
Agreement, all Net Profit (and items thereof) and all Net Loss (and items
thereof) remaining after the allocation set forth in Section 7.4(a) has
been made to the Special Member shall be allocated to the Members (other
than the Special Member) in proportion to their Capital Investments.
(c) RESERVED
(d) Additional Rule. In furtherance and not in limitation
of Section 7.4(a) and (b), and except as otherwise provided in this
Agreement, the Board of Managers may, in its sole and absolute discretion,
allocate Net Profit (and items thereof) and Net Loss (and items thereof)
for any Fiscal Period in a manner that the Board of Managers deems
necessary or appropriate in order to effectuate the intended economic
sharing arrangement of the Members as reflected in Article VIII.
(e) Regulatory and Related Allocations. Notwithstanding
anything expressed or implied to the contrary in this Agreement, the following
special allocations shall be made in the following order:
(i) Minimum Gain Chargeback. Except as otherwise provided
in Treasury Regulations Section 1.704-2, if there is a net decrease
in Partnership Minimum Gain during any Fiscal Period, each Member
shall be specially allocated items of Company income and gain for
such Fiscal Period (and, if necessary, subsequent Fiscal Periods) in
an amount equal to such Member's share of the net decrease in such
Partnership Minimum Gain, as determined in accordance with Treasury
Regulations Section 1.704-2(g). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts
required to be allocated to the Members pursuant thereto. The items
to be so allocated shall be determined in accordance with Treasury
Regulations Section 1.704-2. This Section 7.4(e)(i) is intended to
comply with the minimum gain chargeback requirements in such Treasury
Regulations and shall be interpreted consistently therewith.
(ii) Partner Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulations Section 1.704-2, if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to
Partner Nonrecourse Debt during any Fiscal Period, each Member shall
be specially allocated items of Company income and gain for such
Fiscal Period (and, if necessary, subsequent Fiscal Periods) in an
amount equal to such Member's share, if any, of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Member's
Partner Nonrecourse Debt, as determined in accordance with Treasury
Regulations Section 1.704-2(i). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items
to be so allocated shall be determined in accordance with Treasury
Regulations Section 1.704-2. This Section 7.4(e)(ii) is intended to
comply with the minimum gain chargeback requirements in such Treasury
Regulations and shall be interpreted consistently therewith.
(iii)Qualified Income Offset. In the event any Member
unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
(5) or (6) with respect to such Member's Capital Account, items of
Company income and gain shall be specially allocated to each such
Member in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such Member as quickly as possible; provided, however,
that an allocation pursuant to this Section 7.4(e)(iii) shall be made
only if and to the extent that such Member would have an Adjusted
Capital Account Deficit after all other allocations provided for in
this Section 7.4 have been tentatively made as if this Section
7.4(e)(iii) were not in this Agreement. This Section 7.4(e)(iii) is
intended to constitute a "qualified income offset" within the meaning
of Treasury Regulations Section 1.704- 1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
(iv) Gross Income Allocation. In the event any
Member has an Adjusted Capital Account Deficit, items of Company
income and gain shall be specially allocated to such Member in an
amount and manner sufficient to eliminate such Member's Adjusted
Capital Account Deficit as quickly as possible; provided, however,
that an allocation pursuant to this Section 7.4(e)(iv) shall be made
only if and to the extent that such Member would have an Adjusted
Capital Account Deficit after all other allocations provided for in
this Section 7.4 (other than Section 7.4(e)(iii)) have been
tentatively made as if this Section 7.4(e)(iv) were not in this
Agreement.
(v) Nonrecourse Deductions. Any Nonrecourse
Deductions for any Fiscal Period shall be allocated to the Members in
proportion to their respective Capital Contributions.
(vi) Partner Nonrecourse Deductions. Any Partner
Nonrecourse Deductions for any Fiscal Period shall be allocated to
the Member who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury Regulations Section
1.704-2.
(vii)Loss Allocation Limitation. No allocation of Net
Loss (or items thereof) shall be made to any Member to the extent
that such allocation would create or increase an Adjusted Capital
Account Deficit with respect to such Member.
(f) Curative Allocations. The allocations set forth in
Section 7.4(e) (the "Regulatory Allocations") are intended to comply with
certain requirements of Treasury Regulations under Section 704 of the Code.
Notwithstanding any other provision of this Article VII (other than the
Regulatory Allocations), the Regulatory Allocations shall be taken into
account in allocating other Company items of income, gain, loss, deduction
and expense among the Members so that, to the extent possible, the net
amount of such allocations of other Company items and the Regulatory
Allocations shall be equal to the net amount that would have been allocated
to the Members pursuant to this Section 7.4 if the Regulatory Allocations
had not occurred.
(g) Section 754 Adjustments. Pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(m), to the extent an adjustment to
the adjusted tax basis of any Company asset under Section 734(b) or Section
743(b) of the Code is required to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss shall be specially allocated to the Members in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Treasury Regulations.
(h) Transfer of or Change in Interests. The Managers are
authorized to adopt any convention or combination of conventions likely to
be upheld for federal income tax purposes regarding the allocation and/or
special allocation of items of Company income, gain, loss, deduction and
expense with respect to a newly issued Interest, a transferred Interest and
a redeemed Interest. Upon admission as a Substituted Member, a transferee
of an Interest shall succeed to the Capital Account of the transferor
Member to the extent it relates to the transferred Interest.
(i) Certain Expenses. Syndication and organization
expenses, as defined in Section 709 of the Code (and, to the extent
necessary as determined in the sole and absolute discretion of the
Managers, any other items) shall be allocated to the Capital Accounts of
the Members so that, as nearly as possible, the cumulative amount of such
syndication and organization expenses (and other items, if relevant)
allocated with respect to each dollar of Capital Commitment for each Member
is the same amount; provided, however, that expenses related to the
registration and public offering of Units shall be allocated solely to
those Members who acquired their Interests in such public offering of
Interests. The determination of the amount of Company expenses that are
related to the registration and public offering of the Units shall be made
in the sole and absolute discretion of the Managers, which determination
shall be final and conclusive as to all Members.
(j) Allocation Periods and Unrealized Items. Subject to
applicable Treasury Regulations and other applicable law and
notwithstanding anything expressed or implied to the contrary in this
Agreement, the Managers may, in their sole and absolute discretion,
determine allocations to Capital Accounts based on an annual, quarterly or
other period and/or on realized and unrealized net increases or net
decreases (as the case may be) in the fair market value of Company
property.
7.5 Tax Allocations.
(a) Items of Company income, gain, loss, deduction and
expense shall be allocated, for federal, state and local income tax
purposes, among the Members in the same manner as the Net Profit (and items
thereof) and Net Loss (and items thereof) of which such items are
components were allocated pursuant to Section 7.4; provided, however, that
tax allocations shall be made in accordance with Section 704(c) of the Code
and the Treasury Regulations promulgated thereunder, to the extent so
required thereby.
(b) Allocations pursuant to this Section 7.5 are solely
for federal, state and local income tax purposes and shall not affect, or
in any way be taken into account in computing, any Member's Capital Account
or share of Net Profit (and items thereof) or Net Loss (and items thereof).
(c) The Members are aware of the tax consequences of the
allocations made by this Section 7.5 and hereby agree to be bound by the
provisions of this Section 7.5 in reporting their shares of items of
Company income, gain, loss, deduction and expense.
7.6 Determinations by Managers. All matters concerning the
computation of Capital Accounts, the allocation of Net Profit (and items
thereof) and Net Loss (and items thereof), the allocation of items of
Company income, gain, loss, deduction and expense for tax purposes and the
adoption of any accounting procedures not expressly provided for by the
terms of this Agreement shall be determined by the Managers in their sole
and absolute discretion. Such determination shall be final and conclusive
as to all the Members. Notwithstanding anything expressed or implied to the
contrary in this Agreement, in the event the Managers shall determine, in
their sole and absolute discretion, that it is prudent to modify the manner
in which the Capital Accounts, or any debits or credits thereto, are
computed in order to effectuate the intended economic sharing arrangement
of the Members as reflected in Article VIII, the Managers may make such
modification in their sole and absolute discretion without the approval of
Members.
ARTICLE VIII
WITHDRAWALS AND DISTRIBUTIONS OF CAPITAL
8.1 Withdrawals and Distributions in General. No Member shall
be entitled to withdraw any amount from any Capital Account other than as
provided in this Agreement.
8.2 Distributions. After provision for Company Expenses and
establishment of working capital and other reserves as the Appropriate
Officers shall deem appropriate, the Managers may cause all cash and other
property received by the Company in respect of its investments in any
Fiscal Period (collectively, "Investment Proceeds") to be distributed as
follows:
(a) First, to the Special Member in an amount equal to
the excess, if any, of the Incentive Carried Interest as calculated for
such Fiscal Period over the cumulative amount of all distributions made to
the Special Member pursuant to this Section 8.2(a) for all prior Fiscal
Periods; and
(b) Second, the balance, if any, to the Members (other
than the Special Member) of record on the record date set by the Managers
with respect to such distribution, in proportion to such Member's
respective Capital Investment.
8.3 Restrictions on Distributions. Notwithstanding anything
expressed or implied to the contrary in this Agreement, no distribution
shall be made if, as determined in the sole and absolute discretion of the
Managers, (i) such distribution would violate any contract or agreement to
which the Company is then a party or any law, rule, regulation, order or
directive of any governmental authority then applicable to the Company or
(ii) the amount to be distributed pursuant to this Article VIII is
immaterial.
8.4 Deemed Sale of Assets. For all purposes of this Agreement,
(i) any property (other than United States dollars) that is distributed in
kind to one or more Members with respect to a Fiscal Period (including,
without limitation, any such in kind property that is distributed upon the
dissolution and winding up of the Company) shall be deemed to have been
sold for cash equal to its fair market value, (ii) the unrealized gain or
loss inherent in such property shall be treated as recognized gain or loss
for purposes of determining the Net Profit and Net Loss, (iii) such gain
or loss shall be allocated pursuant to Section 7.4 for such Fiscal Period
and (iv) such in-kind distribution shall be made after giving effect to
such allocation.
8.5 Withholding. Notwithstanding anything expressed or implied
to the contrary in this Agreement, the Appropriate Officers are authorized
to take any action that they determine to be necessary or appropriate to
cause the Company to comply with any non-United States or United States
federal, state or local withholding requirement with respect to any
allocation, payment or distribution by the Company to any Member or other
Person. All amounts so withheld, and, in the manner determined by the
Appropriate Officers, amounts withheld with respect to any allocation,
payment or distribution by any Person to the Company, shall be treated as
distributions to the applicable Members under the applicable provision of
this Agreement. If any such withholding requirement with respect to any
Member exceeds the amount distributable to such Member under this
Agreement, or if any such withholding requirement was not satisfied with
respect to any amount previously allocated, paid or distributed to such
Member, such Member or any successor or assignee with respect to such
Member's Interest hereby indemnifies and agrees to hold harmless the other
Members and the Company for such excess amount or such withholding
requirement, as the case may be (including any interest, additions and
penalties).
ARTICLE IX
WITHDRAWAL OF MEMBERS; TRANSFER OF INTERESTS; ADMISSION OF
SUBSTITUTED MEMBERS; EFFECT OF DEATH, ETC.
9.1 Withdrawal of Members
(a) The Managers may (but shall not be required to)
terminate the Interest of any Member and cause that Member to withdraw from
the Company at any time upon at least five days' prior written notice (120
days' prior written notice in the case of clause (i) of this sentence) upon
(i) the request of such Member; (ii) the failure of such Member to make the
contribution of its Unpaid Capital Obligation when due; or (iii) a
determination by the Managers that the continued participation of that
Member in the Company might adversely affect the Company by jeopardizing
the treatment of the Company as a partnership for federal income tax
purposes, involve the Company in any litigation arising out of or relating
to the participation of that Member in the Company or subject the Company
to restrictions or other adverse consequences as a result of applicable laws
or regulations. In the event that the Managers terminate a Member's
Interest, that Member shall immediately withdraw from the Company and cease
to be a Member of the Company. Such withdrawal shall occur automatically
upon termination without the necessity of any further act by the Member or
any other Person. The date of termination shall be the effective date of
withdrawal of the terminated Member.
(b) (i) Except in the case of a termination pursuant to
Section 9.1(a)(ii), the Company shall pay to the terminated Member 90% of
the amount of the terminated Member's Capital Account balance (determined
in accordance with the next sentence) within 90 days of termination or as
soon thereafter as the Company shall have sufficient funds available and
shall pay the remainder upon completion of that year's audit. The amount of
the terminated Member's Capital Account shall be determined not more than
ten days prior to the date of termination in the case of a termination
pursuant to Section 9.1(a)(i) and not more than three days prior to the
date of termination in the case of a termination pursuant to Section
9.1(a)(ii) or (a)(iii). Such amounts paid to a terminated Member shall not
be entitled to interest for any period after the date of termination. (ii)
In the case of a termination pursuant to Section 9.1(a)(ii), the Company
may, but shall not be required to, make any payment whatsoever to the
terminated Member, provided that in no event shall the Company make a
payment to such a terminated Member in excess of the amounts provided for
in clause (b)(i) above.
(c) From and after the effective date of withdrawal of a
Member, such withdrawn Member shall cease to be a Member of the Company for
all purposes and the Units of a withdrawn Member shall not be included in
calculating the Units of the Members required to take any action under this
Agreement.
9.2 General Provisions Relating to Transfers of Interests.
(a) Transfers. A Member may not transfer, assign, sell,
pledge, hypothecate or otherwise dispose of any of the attributes of his,
her or its Interest (collectively, a "Transfer"), in whole or in part, to
any Person except as follows (a "Permitted Transfer"):
(i) as permitted by the operation of law pursuant to
the death, bankruptcy, insolvency or dissolution of the Member or
otherwise;
(ii) in connection with the transfer to a family trust or
another entity that does not result in a change in beneficial
ownership;
(iii)a Transfer meeting the conditions in Section
9.2(b); or
(iv) an assignment described in Section 9.2 (d).
Any attempted transfer of Interests, other than in strict accordance
with this Article IX, shall be null and void and of no force or effect
whatsoever, and the purported transferee shall have no rights as a Member.
(b) Conditions to Transfers. A Member shall be entitled
to make a Transfer of all or any portion of its Interests pursuant to
Section 9.2(a)(iii) only upon the Managers' determination, which
determination the Managers shall make in their sole and absolute
discretion, that the Transfer meets each of the following conditions:
(i) such Transfer, itself or together with any other
Transfers, would not result in the Company being treated as a
publicly traded partnership within the meaning of Section 7704(b) of
the Code or otherwise being treated as a corporation for federal
income tax purposes;
(ii) such Transfer does not require the registration or
qualification of such Interests pursuant to any applicable federal or
state securities or "blue sky" laws;
(iii)such Transfer does not result in a violation of
other laws ordinarily applicably to such transactions;
(iv) the transferor and purported transferee each shall
have represented to the Manager in writing that such Transfer was not
effected through a broker-dealer or matching agent that makes a
market in Interests or that provides a readily available, regular and
ongoing opportunity to Members to sell or exchange their Interests;
(v) the transferor shall reaffirm, and the purported
transferee shall affirm, in writing his, her or its agreement to
indemnify as described in Section 9.4;
(vi) such Transfer would not result in employee benefit
plans (as defined in Section 3(3) of ERISA or Code Section 4975(e))
and other benefit plan investors (as defined in Section 2510.3-101(f)
of the Department of Labor Regulations under ERISA), directly or
indirectly owning, in the aggregate, 25% or more of the Interests (as
determined in accordance with such regulations);
(vii)no facts are known to the Managers that cause the
Managers to conclude that such transfer will have a material adverse
effect on the Company; and
(viiithe transferee has agreed in writing to become a
Member to and subject to all of the terms, obligations and
limitations of this Agreement.
(c) The Managers may reasonably interpret, and are hereby
authorized to take such action as they deem necessary or desirable to
effect, the provisions of this Section 9.2. The Managers may, in their sole
and absolute discretion, amend the provisions of this Section 9.2 in such
manner as may be necessary or desirable (or eliminate or amend such
provisions to the extent they are no longer necessary or desirable) to
preserve the status of the Company as a partnership for federal income tax
purposes.
(d) Notwithstanding the restrictions on transfers
provided for in this Section 9.2, a Special Member may assign the economic
attributes of its Interest, in whole or in part, to any Affiliate of such
Special Member, and any such Affiliate may further assign such economic
attributes, in whole or in part, to any other Affiliate of such Special
Member, in each case without such assignee Affiliate becoming admitted to
the Company as a substituted Member pursuant to Section 9.5.
9.3 Effect of Transfers. Upon any Permitted Transfer, the
transferee of the transferred Interest shall be entitled to receive the
distributions and allocations to which the transferring Member would be
entitled with respect to such transferred Interest, but shall not be
entitled to exercise any of the other rights of a Member with respect to
such transferred Interest, including, without limitation, the
right to vote, unless and until such transferee is admitted to the Company
as a Substituted Member pursuant to Section 9.5.
9.4 Transfer Indemnity. Each Member hereby agrees to indemnify
and hold harmless the Company, the Special Member, the Managers, each
Appropriate Officer and each other Member (and any successor or assign of
any of the foregoing) from and against all costs, claims, damages,
liabilities, losses and expenses (including losses, claims, damages,
liabilities, costs and expenses of any judgments, fines and amounts paid in
settlement), joint or several, to which those persons may become subject by
reason of or arising from any Transfer made in contravention of the
provisions of this Agreement or any misrepresentation made by such Member
in connection with any purported Transfer.
9.5 Substituted Members. No transferee of a transferred Interest
shall be admitted as a Member ("Substituted Member") until each of the
following conditions has been satisfied:
(a) the written consent of the Managers, which may be
withheld or granted in the sole and absolute discretion of the Managers;
(b) the execution and delivery to the Company of a
counterpart of this Agreement by the Substituted Member or its agent or
attorney-in-fact;
(c) receipt by the Company of other written instruments
that are in form and substance satisfactory to the Managers (as determined
in their sole and absolute discretion);
(d) payment by the Substituted Member to the Company of
an amount determined by the Managers to be equal to the costs and expenses
incurred in connection with such assignment, including, without limitation,
costs incurred in preparing and filing such amendments to this Agreement as
may be required;
(e) the updating of the books and records of the Company
and Schedule A hereto to reflect the Person's admission as a Substituted
Member;
(f) if required by the Managers in their sole and absolute
discretion, execution and affirmation to an instrument by the terms of which
such Person acknowledges that the relevant transfer of Interests have not
been registered under the Securities Act of 1933, as amended, or any
applicable state securities laws, and covenants, represents and warrants
that such Person acquired the relevant Interests for investment only and
not with a view to the resale or distribution thereof; and
(g) any other similar information or documentation as the
Managers may request.
9.6 Effect of Death, Etc. The death, retirement, withdrawal,
expulsion, disability, incapacity, incompetency, bankruptcy, insolvency or
dissolution of a Member, or the occurrence of any other event under the Act
that terminates the continued membership of a Member as a member of the
Company, shall not cause the Company to be dissolved and its affairs to be
wound up so long as the Company has at least one Member at all times. Upon
the occurrence of any such event, the business of the Company shall be
continued without dissolution. The legal representatives, if any, of a
Member shall succeed as assignee to the Member's Interest upon death,
incapacity, incompetency, bankruptcy, insolvency or dissolution of a
Member, but shall not be admitted as a Substituted Member except under the
provisions of Section 9.5 of this Agreement and with the written consent of
the Managers, which written consent the Managers may withhold in their sole
and absolute discretion. The Units held by such legal representative of a
Member shall not be included in calculating the Units of the Members
required to take any action under this Agreement.
ARTICLE X
BOOKS AND RECORDS; REPORTS TO MEMBERS; TAX MATTERS
10.1 Books and Records. In compliance with Section 31 of the
Investment Company Act, the books and records of the Company, and a list of
the names and residence, business or mailing addresses and Interests of all
Members, shall be maintained at the principal executive offices of the
Company or such other location as the Managers' may approve. The Company
shall not be required to provide any documentation or other information to
Members except that which it is required to provide under the Investment
Company Act, the Act or other applicable law. Each Member shall have the
right to obtain from the Company from time to time upon reasonable demand
for any proper purpose reasonably related to the Member's interest as a
Member of the Company, and upon paying the costs of collection, duplication
and mailing, the documents and other information which the Company is
required to provide under the Investment Company Act, the Act or other
applicable law. Any demand by a Member pursuant to this section shall be in
writing and shall state the purpose of such demand. The Company may
maintain such other books and records and may provide such financial or
other statements as the Managers or the Appropriate Officers in their
discretion deem advisable.
10.2 Annual Reports to Current Members. Within 60 days after
the end of each Fiscal Year or as soon thereafter as practicable, the
Company shall have prepared and distributed to the Members, at the expense
of the Company, an annual report containing a summary of the year's
activity and such financial statements and schedules as may be required by
law or as the Managers may otherwise determine.
10.3 Accounting; Tax Year.
(a) The books and records of the Company shall be kept on
the cash basis or the accrual basis, as determined by the Managers in their
sole and absolute discretion. The Company shall report its operations for
tax purposes on the cash method or the accrual method, as determined by the
Managers in their sole and absolute discretion. The taxable year of the
Company shall be the calendar year, unless the Managers shall designate
another taxable year for the Company that is a permissible taxable year
under the Code.
(b) The books and records of the Company shall be audited
by the Company's independent accountants as of the end of each Fiscal Year,
commencing with the first partial Fiscal Year, of the Company.
10.4 Filing of Tax Returns. The Appropriate Officers shall
prepare and file, or cause the Company's accountants to prepare and file, a
federal information tax return and any required state and local income tax
and information returns for each taxable year of the Company. The Managers
have sole and absolute discretion as to whether or not to prepare and file
(or cause its accountants to prepare and file) composite, group or similar
state, local and foreign tax returns on behalf of the Members where and to
the extent permissible under applicable law. Each Member hereby agrees to
execute any relevant documents (including a power of attorney authorizing
such a filing), to furnish any relevant information and otherwise to do
anything necessary in order to facilitate any such composite, group or
similar filing. Any taxes paid by the Company in connection with any such
composite, group or similar filing shall be treated as an advance to the
relevant Members (with interest being charged thereon) and shall be
recouped by the Company out of any distributions subsequently made to such
relevant Members. Such advances may be funded by Company borrowing. Both
the deduction for interest payable by the Company with respect to any such
borrowing, and the corresponding income from interest received by the
Company from the relevant Members, shall be specifically allocated to such
Members.
10.5 Tax Matters Member. The Special Member shall be designated
as the tax matters member of the Company (the "Tax Matters Member") as
provided in Section 6231(a)(7) of the Code. Each Person (for purposes of
this provision, a "Pass-Through Member") that holds or controls an Interest
on behalf of, or for the benefit of another Person or Persons, or which
Pass-Through Member is beneficially owned (directly or indirectly) by
another Person or Persons shall, within 30 days following receipt from the
Tax Matters Member of a notice or document, convey such notice or other
document in writing to all holders of beneficial interests in the Company
holding such Interest through such Pass-Through Member. In the event the
Company becomes 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 Member shall be authorized to act for, and its
decision shall be final and binding upon, the Company and each Member. The
Company shall bear all expenses incurred in connection with any such audit,
investigation, settlement or review.
10.6 Tax Information for Current and Former Members. Within 90
days after the end of each taxable year of the Company or as soon
thereafter as practicable, the Company shall prepare and distribute to each
Member (and, to the extent necessary, to each former Member (or such
Member's legal representatives)), at the expense of the Company, a report
setting forth in sufficient detail such information as shall enable such
Member or former Member (or such Member's legal representatives) to prepare
its respective federal, state and local income tax returns in accordance
with the laws, rules and regulations then prevailing. The Company shall
also provide Schedules K-1 to Members as soon as practicable after the end
of each taxable year of the Company.
ARTICLE XI
LIABILITY AND INDEMNIFICATION
11.1 Liability of the Members. Except for the obligations
hereunder and under the Subscription Agreements, including the obligations
to make Capital Contributions pursuant to Section 7.1, the liability of the
Members shall be limited to the maximum extent permitted by the Act. In no
event shall the Members be obligated to make Capital Contributions in
excess of their respective Capital Commitments. If a Member is required
under the Act to return to the Company or pay, for the benefit of creditors
of the Company, amounts previously distributed to such Member, the
obligation of such Member to return or pay any such amount to the Company
shall be the obligation of such Member and not the obligation of the
Managers. The liability of the Managers shall be limited to the maximum extent
permitted by the Act.
11.2 Indemnification.
(a) No Manager, Appropriate Officer, Member, Investment
Adviser to the Company, distributor or selling agent of or for the Units or
any of their respective affiliates, shareholders, partners, officers,
directors, members, employees, agents and representatives (each an
"Indemnified Person") shall have any liability, responsibility or
accountability in damages or otherwise to any Member or the Company for,
and the Company agrees, to the fullest extent permitted by law, to
indemnify, pay, protect and hold harmless each Indemnified Person from and
against, any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, proceedings, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, all
reasonable costs and expenses of attorneys, defense, appeal and settlement
of any and all suits, actions or proceedings instituted or threatened
against the Indemnified Persons or the Company) and all costs of
investigation in connection therewith which may be imposed on, incurred by,
or asserted against the Indemnified Persons or the Company in any way
relating to or arising out of, or alleged to relate to or arise out of, any
action or inaction on the part of the Company, on the part of the
Indemnified Persons when acting on behalf of the Company or otherwise in
connection with the business or affairs of the Company or any Portfolio
Investment, or on the part of any brokers or agents when acting on behalf
of the Company or any Portfolio Investment (collectively, the "Indemnified
Liabilities"); provided that the Company shall not be liable to any
Indemnified Person for any portion of any Indemnified Liabilities which
results from such Indemnified Person's willful misfeasance, bad faith or
gross negligence in the performance of his, her or its duties or by reason
of his, her or its reckless disregard of his, her or its obligations and
duties. The indemnification rights provided for in this Section 11.2(a)
shall survive the termination of the Company or this Agreement. Any
indemnification rights provided for in this Section 11.2(a) shall be
retained by any removed, resigned or withdrawn Manager, Member, Appropriate
Officer, Investment Adviser, distributor or selling agent and its
constituent Indemnified Persons. Any indemnification rights provided for in
this Section 11.2(a) shall also be retained by any Person who has acted in
the capacity of officer, director, partner, employee, agent, stockholder or
affiliate of an Indemnified Person after such Persons shall have ceased to
hold such positions.
(b) The right of any Indemnified Person to the
indemnification provided herein shall be cumulative of, and in addition to,
any and all rights to which such Indemnified Person may otherwise be
entitled by contract or as a matter of law or equity and shall extend to
such Indemnified Person's successors, assigns and legal representatives.
(c) The provision of advances from Company funds to an
Indemnified Person for legal expenses and other costs incurred as a result
of any legal action or proceeding is permissible if (i) such suit, action
or proceeding relates to or arises out of, or is alleged to relate to or
arise out of, any action or inaction on the part of the Indemnified Person
in the performance of its duties or provision of its services on behalf of
the Company or otherwise in connection with the business or affairs of the
Company or any Portfolio Investment; and (ii) the Indemnified Person
undertakes to repay any funds advanced pursuant to this Section 11.2(c) in
any case in which such Indemnified Person would not be entitled to
indemnification under Section 11.2 (a). If advances are permissible under
this Section 11.2(c), the Indemnified Person shall furnish the Company with
an undertaking as set forth in clause (ii) of this paragraph and shall
thereafter have the right to bill the Company for, or otherwise request the
Company to pay, at any time and from time to time after such Indemnified
Person shall become obligated to make payment therefor, any and all amounts
for which such Indemnified Person believes in good faith that such
Indemnified Person is entitled to indemnification under Section 11.2(a)
with the approval of the Managers who are not seeking such indemnification,
or if all Managers are seeking such indemnification, the Special Member,
which approval shall not be unreasonably withheld. The person granting such
approval may, but shall not be required unless otherwise provided by
applicable law, prior to approval require an opinion of counsel to be in
effect that such Indemnified Person is likely to be entitled to
indemnification. The Company shall pay any and all such bills and
honor any and all such requests for payment within sixty (60) days after
such bill or request is received by the Company, and the Company's rights
to repayment of such amounts shall be secured by the Indemnified Person's
Interest in the Company, if any, or by such other security as the Managers,
or if all Managers are seeking indemnification, the Special Member may
require. In the event that a final judicial (or binding arbitration)
determination is made that the Company is not so obligated in respect of
any amount paid by it to a particular Indemnified Person, such Indemnified
Person will refund such amount within sixty (60) days of such final
determination, and in the event that a final determination is made that the
Company is so obligated in respect to any amount not paid by the Company to
a particular Indemnified Person, the Company will pay such amount to such
Indemnified Person within sixty (60) days of such final determination, in
either case together with in terest (at the lesser of (x) the Applicable
Rate and (y) the maximum rate permitted by applicable law) from the date
paid by the Company until repaid by the Indemnified Person or the date it
was obligated to be paid by the Company until the date actually paid by the
Company to the Indemnified Person.
(d) With respect to the liabilities of the Company, all such
liabilities:
(1) shall be liabilities of the Company as an
entity, and shall be paid or otherwise satisfied from the Company's
assets; and
(2) except to the extent otherwise required by law,
shall not in any event be payable in whole or in part by any Member,
Manager, Appropriate Officer, Investment Adviser, distributor or
selling agent, or by any director, officer, trustee, employee, agent,
shareholder, beneficiary, member or partner of any of them.
(e) The Managers may cause the Company, at the Company's
expense, to purchase insurance to insure the Indemnified Persons against
liability hereunder (including liability arising in connection with the
operation of the Company), including, without limitation, for a breach or
an alleged breach of their responsibilities hereunder.
ARTICLE XII
COMPENSATION AND REIMBURSEMENT
12.1 Investment Adviser.
(a) Reimbursement for Company Expenses. The Company shall
reimburse any Investment Adviser for Company Expenses incurred by such
Investment Adviser and its affiliates in connection with the organization
of the Company, the Company's offer and sale of Units and the ongoing
operations of the Company, subject to the terms and conditions of the
Investment Advisory Agreement between the Company and such Investment
Adviser.
(b) Advisory Fee. The Company may pay any Investment
Adviser an investment advisory fee as set forth in, and subject to the
terms and conditions of, the Investment Advisory Agreement with such
Investment Adviser. The approval of any contract or agreement pursuant to
which a Person serves as an Investment Adviser to the Company shall be
subject to the applicable requirements of the Investment Company Act.
12.2 Board of Managers. As compensation for services rendered
to the Company, the Company may pay each Manager who is not an officer,
director or employee of any Investment Adviser or its affiliates such
amounts as may be determined from time to time by the Disinterested
Managers. Subject to compliance with the Investment Company Act, the Board
of Managers may establish pensions, profit sharing, Unit purchase and other
retirement, incentive or benefit plans for Managers.
12.3 Distributor, Selling Agents, Administrator, Custodian and
Other Persons. As compensation for services rendered to the Company or its
Members, the Company may pay each distributor, selling agent,
administrator, transfer agent, custodian, accountant, attorney and other
agent or independent contractor duly engaged by or on behalf of the Company
to provide such services. The approval of any contract or agreement
pursuant to which a Person serves as a principal underwriter to the Company
shall be subject to the applicable requirements of the Investment Company
Act.
ARTICLE XIII
DISSOLUTION AND TERMINATION
13.1 Dissolution. The Company shall be dissolved upon the
occurence of any of the following:
(a) the expiration of its term, except to the extent
extended pursuant to Section 2.6;
(b) the election by the Managers to dissolve the Company
prior to the expiration of its terms, subject, to the extent required by
the Investment Company Act, to the consent of the Members;
(c) voluntary bankruptcy, liquidation or other dissolution
of the Company;
(d) the sale or other disposition at any one time of all or
substantially all of the assets of the Company; and
(e) dissolution required by operation of law.
Except as otherwise determined by the Managers in their sole discretion,
the Company shall not be subject to dissolution at the election of Members.
Dissolution of the Company shall be effective on the day on which the event
occurs giving rise to the dissolution, but the Company shall not terminate
until the assets of the Company have been distributed as provided in
Section 13.2 and the certificate of formation of the Company has been
canceled.
13.2 Liquidation. On dissolution of the Company, a liquidator
(who shall be selected by the Board of Managers, if still constituted, and
otherwise shall be a Person proposed and approved by a Majority in Interest
of the Members) and who may be any Investment Adviser or any of its
affiliates, shall cause to be prepared a statement setting forth the assets
and liabilities of the Company as of the date of dissolution, and such
statement shall be furnished to all of the Members. Then, those Company
assets that the liquidator determines should be liquidated shall be
liquidated as promptly as possible, but in an orderly and business-like
manner to maximize proceeds. Assets that the liquidator determines to
distribute in kind shall be so distributed in a manner consistent with
applicable law. If the liquidator determines that an immediate sale at the
time of liquidation of all or part of the Company assets would be unduly
disadvantageous to the Members, the liquidator may, either defer
liquidation and retain the assets for a reasonable time, or distribute the
assets to the Members in kind. The liquidator shall then wind up the
affairs of the Company and distribute the proceeds of the Company by the
end of the calendar year of the liquidation (or, if later, within 90 days
after the date of such liquidation) in the following order or priority:
(a) to the payment of the expenses of liquidation and to
creditors (including Members who are creditors, to the extent permitted by
law) in satisfaction of liabilities of the Company other than liabilities
for distributions to Members, in the order of priority as provided by law;
(b) to the setting up of any reserves that the liquidator
may deem necessary or appropriate for any anticipated obligations or
contingencies of the Company or of the liquidator arising out of or in
connection with the operation or business of the Company. Such reserves may
be paid over by the liquidator to an escrow agent or trustee proposed and
approved by the liquidator to be disbursed by such escrow agent or trustee
in payment of any of the aforementioned obligations or contingencies and,
if any balance remains at the expiration of such period as the liquidator
shall deem advisable, to be distributed by such escrow agent or trustee in
the manner hereinafter provided;
(c) to the Special Member in an amount equal to the
excess, if any, of the Incentive Carried Interest as calculated for the
Fiscal Period ending on the date of distribution over the cumulative amount
of all distributions made to the Special Member pursuant to Section 8.2 and
this Section 13.2(c) for all prior Fiscal Periods; then
(d) to the Members or their legal representatives in
accordance with the positive balances in their respective Capital Accounts,
as determined after taking into account all adjustments to Capital Accounts
for all periods.
13.3 Termination. The liquidator shall comply with any
requirements of the Act or other applicable law pertaining to the winding
up of a limited liability company, at which time the Company shall stand
terminated.
ARTICLE XIV
AMENDMENTS
14.1 Proposal of Amendments. Except as otherwise specified in
this Agreement, any amendment to this Agreement may be proposed by any
Manager, by the Investment Adviser or by Members who, in aggregate, own not
less than 10% of the Units owned by all such Members. The Person or Persons
proposing such amendment shall submit to the Board of Managers: (i) the
text of such amendment; (ii) a statement of the purpose of such amendment;
and (iii) in the case of an amendment so proposed by the Members (other
than an Investment Adviser), an opinion of counsel reasonably acceptable to
the Managers obtained by the Members proposing such amendment to the effect
that such amendment is permitted by the Investment Company Act, the Act and
the laws of any other jurisdiction where the Company is qualified to do
business, will not impair the limited liability of the Managers or Members,
and will not adversely affect the classification of the Company as a
partnership for federal and state income tax purposes. To the extent
required by the Investment Company Act, the Board of Managers shall, within
40 days after receipt from Members of a proposal under clause (iii) of this
Section 14.1 and the required opinion, give notification to all Members of
such proposed amendment, of such statement of purpose, and of such opinion
of counsel, together with the views, if any, of the Board of Managers and
each Investment Adviser with respect to such proposed amendment. All
amendments validly proposed by Members pursuant to clause (iii) of this
Section 14.1 or proposed by Managers or the Investment Adviser but
requiring the approval of Members shall be submitted to the Members for a
vote no less than 10 days nor more than 90 days after the date of mailing
of notice of the proposed amendment and will be adopted if approved (i) in
the case of an amendment the adoption of which is recommended by the Board
of Managers, an affirmative vote of a Majority in Interest of the Members,
or (ii) in the case of an amendment the adoption of which has not been
recommended by the Board of Managers, an affirmative vote of a
Supermajority of Members, in each case subject to the approval of any
greater number of Members as may be required by this Agreement or
applicable law.
14.2 Amendments to Be Adopted Solely by the Board of Managers.
Subject to Section 14.3, the Board of Managers may, without the consent of
any Member, amend any provision of this Agreement as set forth in Section
3.15, and execute whatever documents may be required in connection
therewith.
14.3 Amendments Not Allowable.
(a) Unless approved by a Majority in Interest of the
Members affected thereby, no amendment to this Agreement shall be permitted
if the effect of such amendment would be to:
(i) impair the limited liability of Members provided
for in Section 11.1; or
(ii) adversely affect in any way the federal income tax
status of the Company as a partnership.
(b) Subject to Section 3.15(iii), unless approved by a 40
Act Majority of Members and a Majority of the Disinterested Managers, no
amendment shall be permitted if the effect of such amendment would be to
increase the amounts distributable to the Special Member and decrease the
amounts distributable to the other Members.
ARTICLE XV
POWER OF ATTORNEY
15.1 Power of Attorney. Each Member hereby irrevocably
constitutes and appoints each Manager and each Appropriate Officer, and
their respective designees, as such Member's true and lawful agents and
attorneys-in-fact, with full power and authority in such Member's name,
place, and stead, to make, execute, acknowledge, deliver, swear to, file
and record the following documents and instruments in accordance with the
other provisions of this Agreement;
(a) this Agreement and a certificate of formation, a
certificate of doing business under fictitious name and any other
instrument or filing which the Board of Managers or the Appropriate
Officers of the Company consider necessary or desirable to carry out the
purposes of this Agreement or the business of the Company or that may be
required under the laws of any state or local government, or of any other
jurisdiction;
(b) any and all amendments, restatements, cancellations, or
modifications of the instruments described in Section 15.1(a);
(c) any and all instruments related to the admission,
removal, or withdrawal of any Member; and
(d) all documents and instruments that may be necessary
or appropriate to effect the dissolution and termination of the Company,
pursuant to the terms hereof.
15.2 Irrevocability. The foregoing power of attorney is coupled
with an interest and such grant shall be irrevocable. Such power of
attorney shall survive the subsequent Incapacity of any such Member or the
transfer of any or all of such Member's Units.
15.3 Priority of Agreement. In the event of any conflict
between provisions of this Agreement or any amendment hereto and any
documents executed, acknowledged, sworn to, or filed by any Manager or
Appropriate Officer under this power of attorney, this Agreement and its
amendments shall govern.
15.4 Exercise of Power. This power of attorney may be exercised
by any of Members either by signing separately as attorney-in-fact for each
such Member or by a single signature of any Manager or Appropriate Officer
acting as attorney-in-fact for all Members.
ARTICLE XVI
MISCELLANEOUS
16.1 Certificate of Formation. On each subsequent change in the
Company specified in the Act, the Managers shall to the extent required by
the Act cause to be executed and acknowledged an amended certificate of
formation pursuant to the provisions of the Act, which will be duly filed
as prescribed by Delaware law.
16.2 Delaware Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and construed
and interpreted according to, the laws of Delaware subject to the
provisions of the Investment Company Act.
16.3 Counterparts. This Agreement may be executed in
counterparts, and all counterparts so executed shall constitute one
agreement that shall be binding on all the parties hereto. Any counterpart
of this Agreement that has attached to it separate signature pages which
altogether contain the signatures of all Members or their attorneys-in-fact
shall for all purposes be deemed a fully executed instrument.
16.4 Binding upon Successors and Assigns. Subject to and unless
otherwise provided in this Agreement, each and all of the covenants, terms,
provisions, and agreements herein contained shall be binding upon and inure
to the benefit of the successors, successors-in-title, heirs and assigns of
the respective parties hereto.
16.5 Notices. Any notice, offer, consent, or demand permitted
or required to be made under this Agreement to any party hereto shall be
given in writing signed by the Person giving such notice either by (i)
personal delivery or (ii) by registered or certified mail, postage prepaid,
addressed to that party at the respective address shown on the Company's
books and records, or to such other address as that party shall indicate by
proper notice to the Board of Managers, in the same manner as provided
above. All notices shall be deemed effective upon receipt or five days
after the date of mailing in accordance with the above provisions.
16.6 Severability. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be effected thereby,
but shall be enforced to the maximum extent possible under applicable law.
16.7 Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the
subject hereof and supersedes all prior agreements or understandings,
written or oral, between the parties with respect thereto.
16.8 Headings, Etc. The headings in this Agreement are inserted
for convenience of reference only and shall not affect interpretation of
this Agreement. Wherever from the context it appears appropriate, each term
stated in either the singular or the plural shall include the singular and
the plural, and pronouns stated in either the masculine or the neuter
genders shall include the masculine, the feminine and the neuter.
16.9 Legends. If certificates are issued evidencing a Member's
Units, each such certificate shall bear such legends as may be required by
applicable federal and state laws, or as may be deemed necessary or
appropriate by the Board of Managers to reflect restrictions upon transfer
contemplated herein.
16.10 Waiver of Partition. Except as may otherwise be provided
by law in connection with the winding up, liquidation and dissolution of
the Company, each Member hereby irrevocably waives any and all rights that
it may have to maintain an action for partition of any of the Company's
property.
16.11 Survival of Certain Provisions. All indemnities and
reimbursement obligations made pursuant to this Agreement shall survive
dissolution and liquidation of the Company until the expiration of the
longest applicable statute of limitations (including extensions and
waivers) with respect to the matter for which a party would be entitled to
be indemnified or reimbursed, as the case may be.
EXECUTED ______________ at _________
---------------------------------
Initial Member
SPECIAL MEMBER
By: _____________________________
President and Chief Executive Officer
MEMBERS
(All Members now and hereafter admitted as
Members of the Company pursuant to powers
of attorney now and hereafter executed in
favor of, and delivered to, the Managers or
Appropriate Officers)
By: _____________________________
Attorney-in-Fact
SCHEDULE A
EXCELSIOR VENTURE PARTNERS III, LLC
Schedule of Members
As of May 26, 2000
Name
David I. Fann
SCHEDULE B
EXCELSIOR VENTURE PARTNERS III, LLC
Schedule of Managers
As of May 26, 2000
Name
John C. Hover, II
Gene M. Bernstein
Stephen V. Murphy
Victor F. Imbimbo, Jr.
APPENDIX B
EXCELSIOR VENTURE
PARTNERS III, LLC
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SUBSCRIPTION
BOOKLET
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EXCELSIOR VENTURE PARTNERS III, LLC
SUBSCRIPTION INSTRUCTIONS
This booklet contains documents which must be executed and returned if you
wish to invest in Excelsior Venture Partners III, LLC (the "Company"). You
should consult with an attorney, accountant, investment advisor or other
advisor regarding an investment in the Company and its suitability for you.
All Subscription Documents must be completed correctly and thoroughly or
they will not be accepted. If you wish to invest, please complete, sign and
return this Subscription Booklet and retain the Company's prospectus.
If you have any questions concerning these Subscription Documents or would
like assis tance completing them, please call your investment advisor.
INSTRUCTIONS FOR INDIVIDUALS (SUBSCRIPTIONS THROUGH A RETIREMENT PLAN,
INCLUDING IRAS AND 401KS, MUST BE MADE PURSUANT TO THE "INSTRUCTIONS FOR
ENTITIES OTHER THAN INDIVIDUALS," BELOW)
1. Fill out and sign page 13.
NOTE: By executing page 13, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).
2. Return this booklet to Schwab at the address listed on the next page.
3. Follow the instructions listed on the next page under the heading
PAYMENT OF CAPITAL CONTRIBUTION.
INSTRUCTIONS FOR ENTITIES OTHER THAN INDIVIDUALS (TRUSTS, CORPORATIONS,
CUSTODIANS, IRAS, ETC.)
1. Direct the appropriate personnel to answer the Questionnaire found on
page 11 by initialing in the spaces provided.
2. Appropriate personnel should fill out and sign page 13.
NOTE: By executing page 13, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).
3. IF THE INVESTOR IS A PARTNERSHIP, please complete Exhibit A and attach
to it a copy of the Investor's partnership agreement or other
governing instruments; IF THE INVESTOR IS A CUSTODIAN, TRUSTEE OR
AGENT, please complete Exhibit B and attach to it a copy of the
Investor's trust declaration or other governing instrument; IF THE
INVESTOR IS A CORPORATION, please complete Exhibit C and attach to it
a copy of the Investor's Articles of Incorporation and By-laws or
other governing instru ments; IF THE INVESTOR IS A LIMITED LIABILITY
COMPANY, please complete Exhibit D and attach to it a copy of the
Investor's operating agreement or other governing instruments.
4. Return this booklet to Schwab at the address listed below.
5. Follow the instructions listed below under the heading PAYMENT OF
CAPITAL CONTRIBUTION.
PAYMENT OF CAPITAL CONTRIBUTION
Payments will be deducted from your Schwab account designated on the
Execution Page, 50% of your Total Commitment upon closing of the Company
and the remaining 50% upon the first anniversary thereof. If your Schwab
account does not have sufficient funds for the amount of either payment
your Investment Manager will contact you to provide the appropriate amount
due prior to the closing of the Fund.
RETURN DOCUMENTS TO:
Charles Schwab & Co., Inc.
Structured Products Group
345 California Street 6th Floor
San Francisco, California 94104
THE COMPANY IS NOT AVAILABLE FOR INVESTMENT TO RESIDENTS OF ALABAMA,
ARKANSAS, KANSAS, MAINE, MARYLAND, MASSACHUSETTS, MISSISSIPPI, MISSOURI,
OKLAHOMA, VER MONT AND TEXAS.
SCHEDULE A CONTAINS ADDITIONAL INFORMATION AND REQUIREMENTS FOR RESIDENTS
IN CERTAIN OTHER STATES.
SUBSCRIPTION AGREEMENT
Excelsior Venture Partners III, LLC
c/o United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Ladies and Gentlemen:
Reference is made to the Prospectus dated ___________, 2000
(the "Prospectus") with respect to the offering of units of membership
interest ("Units") in Excelsior Venture Partners III, LLC (the "Company").
Capitalized terms used but not defined herein shall have the respective
meanings given them in the Prospectus.
The undersigned subscribing investor (the "Investor") hereby
agrees as follows:
1. Subscription for the Units.
(a) The Investor agrees to become a Member of the Company and
agrees to make capital contributions to the Company in the aggregate amount
set forth on the Execution Page of this Subscription Agreement under the
heading "Total Commitment," with one half of such amount to be delivered on
or before the closing of the Company on the date set forth therefor in the
Prospectus and the remaining one half being due at such time as described
in the Operating Agreement of the Company (the "Operating Agree ment"), and
otherwise on the terms and conditions described herein and in the
Prospectus.
(b) The Investor acknowledges and agrees that it is not
entitled to cancel, terminate or revoke this subscription or any agreements
or power of attorney of the Investor hereunder, except as otherwise set
forth in this Section 1(b), the Prospectus or applicable law, and such
subscription and agreements and power of attorney shall survive (i) changes
in the transaction, documents and instruments described in the Prospectus
which in the aggregate are not material or which are contemplated by the
Prospectus and (ii) the death or disability of the Investor; provided,
however, that if the Company shall not have accepted this subscription on
or before December 31, 2000 (the date of any such acceptance of this
subscription the "Closing Date"), this subscription, all agreements of the
Investor hereunder and the power of attorney granted hereby shall be
cancelled and this Subscription Agreement will be returned to the Investor.
(c) The Investor hereby irrevocably constitutes and appoints
each member of the Company's Board of Managers and the appropriate officers
of the Company (and any designee of, substitute for or successor to any of
them) as the Investor's true and lawful attorney in the Investor's name,
place and stead, (i) to receive and pay over to the Company on behalf of
the Investor, to the extent set forth in this Subscription Agreement, all
funds received hereunder, (ii) to execute, complete or correct, on behalf
of the Investor, all documents to be executed by the Investor in connection
with the Investor's subscription for Units, including, without limitation,
filling in or amending amounts, dates, and other pertinent information and
(iii) to make, execute, acknowledge, deliver, swear to, file and record:
(A) this Agreement and a certificate of formation, a certificate of doing
business under fictitious name and any other instrument or filing which the
Board of Managers or the appropriate officers of the Company consider
necessary or desirable to carry out the purposes of this Subscription
Agreement, the Operating Agreement or the business of the Company or that
may be required under the laws of any state or local government or of any
other jurisdiction; (B) any and all amendments, restatements,
cancellations, or modifications of the instruments described in (A) above;
(C) any and all instruments related to the admission, removal, or
withdrawal of any Member; and; (D) all documents and instruments that may
be necessary or appropriate to effect the dissolution and termination of
the Company. This power of attorney shall be deemed coupled with an
interest, shall be irrevocable and shall survive any transfer of some or
all of the Investor's Units.
2. Certain Acknowledgments and Agreements of the Investor.
The Investor understands and acknowledges that the subscription
for the Units contained herein may be accepted or rejected, in whole or in
part, by the Company in its sole and absolute discretion. No subscription
shall be deemed accepted until the subscription has actually been accepted
and, if necessary, any subsequent acts have been taken which shall be
deemed an acceptance of this Agreement by the Company for all purposes. The
Investor understands that Skadden, Arps, Slate, Meagher & Flom LLP acts as
counsel only to the Company, the Investment Adviser and Investment
Sub-Adviser and no attorney-client relationship exists between Skadden,
Arps, Slate, Meagher & Flom LLP and any other person solely by reason of
such person making an investment in the Company. The Investor understands
that failure to make delivery of the second half of the Investor's capital
contribution when due in accordance with the provisions of the Operat ing
Agreement may result in substantial penalties including, without
limitation, forfeiture of the Investor's Units and the loss of all amounts
contributed to the Company by the Investor.
3. Representations and Warranties of the Investor.
The Investor, for the Investor and for the Investor's heirs,
personal representatives, successors and assigns, makes the following
representations, declarations and warranties with the intent that the same
may be relied upon in determining the suitability of the undersigned as an
investor in the Company. The following representa tions, warranties and
agreements shall survive the Closing Date and will be deemed to be
reaffirmed by the Investor at any time the Investor makes an additional
capital contribution to the Company. The act of making such capital
contributions will be evidence of such reaffirmation.
(a) The Investor and his, her or its investment manager has
received, read carefully and understands the Prospectus and all exhibits
thereto and has consulted the Investor's own attorney, accountant or
investment adviser with respect to the investment contemplated hereby and
its suitability for the Investor. Any special acknowledgment set forth
below with respect to any statement contained in the Memorandum shall not
be deemed to limit the generality of this representation and warranty.
Charles Schwab & Co., Inc. (the "Distributor") is acting solely as an agent
of the Company and is not making any recommendation concerning the Units
with respect to any of its client accounts. As such, the Distributor is not
responsible for determining the suitability of an investment in the Units
for the Investor. The suitability of an investment in the Units is the
responsibil ity of the Investor and his, her or its investment manager and
the Investor understands that the Company and the Distributor are relying
on the Investor and his or her investment manager to make such
determination.
(b) The Investor understands and acknowledges that (i) the
Investor must bear the economic risk of the Investor's investment in the
Units until the termination of the Company; (ii) the Investor has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge to such person or anyone else any of the Units which the
Investor hereby subscribes to purchase or any part thereof, and the
Investor has no present plans to enter into any such contract, undertaking,
agreement or arrangement; (iii) the Units cannot be sold or transferred
without the prior written consent of the Company, which shall be granted or
may be withheld in accordance with the terms of the Operating Agreement and
will be withheld if transfer would subject the Company to adverse tax
consequences; (iv) following any sale, transfer or disposition of Units,
less than 25% of the value of the class of Units may be held by "benefit
plan investors" within the meaning of DOL Regulation 2510.3-101, 29 C.F.R.
Section 2510.3-101; (v) there will be no public market for the Units; and
(vi) any disposition of the Units may result in unfavorable tax
consequences to the Investor.
(c) The Investor is aware and acknowledges that (i) the Company
has no operating history; (ii) the Units involve a substantial degree of
risk of loss of the Investor's entire investment and there is no assurance
of any income from such investment; (iii) any federal and/or state income
tax benefits which may be available to the Investor may be lost through the
adoption of new laws or regulations or changes to existing laws and regula
tions or changes in the interpretation of existing laws and regulations;
(iv) the Investor, in making its investment, is relying solely upon the
advice of the Investor's personal tax advisor with respect to the tax
aspects of an investment in the Company; and (v) because there are
substantial restrictions on the transferability of the Units it may not be
possible for the undersigned to liquidate its investment readily in any
event, including in case of an emergency.
(d) If the Investor is a corporation, limited liability
company, trust, partnership or other entity, the statements made by the
Investor in Paragraph 7 hereto are true, correct and complete in all
material respects.
(e) If the Investor is a natural person, the Investor is at
least 21 years of age and the Investor has adequate means of providing for
all its current and foreseeable needs and personal contingencies and has no
need for liquidity in this investment, and if the Investor is an
unincorporated association, all of its members who are U.S. Persons (as
defined in subsection (l) of this Section 3) are at least 21 years of age.
(f) The Investor and his, her or its investment manager have
evaluated the risks of investing in the Units, and has determined that the
Units are a suitable investment for the Investor. The Investor can bear the
economic risk of this investment and can afford a complete loss of its
investment. In evaluating the suitability of an investment in the Units,
the Investor has not relied upon any advice, representations or other
information (whether oral or written) other than as set forth in the
Prospectus and exhibits thereto, and independent investigations made by the
Investor or representative(s) of the Investor and his, her or its
investment manager that are not affiliated with the Company. The Investor
has reviewed the eligibility requirements of Schedule A, attached to this
Agreement, and to the extent applicable, meets all suitability and
eligibility requirements described therein.
(g) The Investor and his, her or its investment manager are
knowledge able and experienced in evaluating investments and experienced in
financial and business matters and is capable of evaluating the merits and
risks of investing in the Units. The aggregate amount of the investments of
the Investor in, and the Investor's commitments to, all similar investments
that are illiquid is reasonable in relation to the Investor's net worth.
(h) The Investor maintains its domicile, and is not merely a
transient or temporary resident, at the residence address shown on the
signature page of this Subscrip tion Agreement.
(i) The representations, warranties, agreements, undertakings
and acknowledgments made by the Investor in this Subscription Agreement are
made with the intent that they be relied upon by the Company, the
Distributor and any selling agent in determining its suitability as a
purchaser of the Units, and shall survive its purchase. In addition, the
Investor undertakes to notify the Company immediately of any change in any
representation, warranty or other information relating to the Investor set
forth herein.
(j) The Investor, if it is a corporation, limited liability
company, trust, partnership or other entity, is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and the execution, delivery and performance by it of this
Subscription Agreement and the Operating Agreement are within its powers,
have been duly authorized by all necessary corporate or other action on its
behalf, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as disclosed in writing to
the Company), and do not and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of its certificate
of incorporation, By-laws or other comparable organizational documents or
any agree ment, judgment, injunction, order, decree or other instrument to
which the Investor is a party or by which the Investor or any of the
Investor's property is bound. This Agreement constitutes, and the Operating
Agreement, when executed and delivered, will constitute, a valid and
binding agreement of the Investor, enforceable against the Investor in
accor dance with its terms.
(k) If the Investor is a natural person, the execution,
delivery and performance by the Investor of this Subscription Agreement and
the Operating Agreement are within the Investor's legal right, power and
capacity, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as disclosed in
writing to the Company), and do not and will not contravene, or constitute
a default under, any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree or other instrument to which
the Investor is party or by which the Investor or any of his or her
property is bound. This Subscription Agreement constitutes, and the
Operating Agreement, when executed and delivered, will constitute, a valid
and binding agreement of the Investor, enforceable against the Investor in
accordance with its terms.
(l) The Investor is a United States citizen if an individual,
and if an entity is organized under the laws of the United States or a
state thereof or is otherwise a U.S. Person1 as defined below or as
otherwise defined in Rule 902 under the U.S. Securities Act of 1933, as
amended.
(m) By purchase of Units, the Investor represents to the
Investment Adviser, the Investment Sub-Adviser, the Board of Managers, the
Distributor and the Company that the Investor has neither acquired nor will
transfer, assign or market any Units the Investor purchases (or any
interest therein) on or through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the
meaning of section 7704(b) of the Internal Revenue Code of 1986, as
amended, including, without limitation, an over-the-counter-market or an
interdealer quotation system that regularly disseminates firm buy or sell
quotations. Further, the Investor agrees that, if it determines to transfer
or assign any of its Units or any interest therein pursuant to the
provisions of the Operating Agreement, it will cause its proposed trans
feree to agree to the transfer restrictions set forth herein and to make
the representations set forth above.
(n) The Investor and his, her or its investment manager has
evaluated the Prospectus and has determined that the Investor is and will
be in a financial position appropriate to enable the Investor to realize to
a significant extent the benefits described in the Prospectus.
4. Indemnification. The Investor recognizes that the offer of
the Units was made in reliance upon the Investor's representations and
warranties set forth in Paragraph 3 above and the acknowledgments and
agreements set forth in Paragraph 2 above. The Investor agrees to provide,
if requested, any additional information that may reasonably be required to
determine the eligibility of the Investor to purchase the Units. The
Investor hereby agrees to indemnify the Company, each member of the Board
of
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1 For purposes of this representation, a U.S. Person is (i) a natural
person who is a citizen of or resident in the United States; (ii) a
partnership or corporation organized or incorporated under the laws of
the United States; (iii) an estate of which any executor or
administrator is a U.S. person; (iv) a trust of which any trustee is a
U.S. person; (v) an agency or branch of a foreign entity located in the
United States; (vi) a non- discretionary account or similar account
(other than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person; (vii) a discretionary account
or similar account (other than an estate or trust) held by a dealer or
other fiduciary organized, incorporated, or (if an individual) resident
in the United States; and (viii) a partnership or corporation if (A)
organized or incorporated under the laws of any foreign jurisdiction;
and (B) formed by one or more of the above and/or one or more natural
persons resident in the U.S. principally for the purpose of investing in
securities not registered under the Securities Act, unless it is
organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a)) who are not natural persons, estates or trusts;
provided, however, that the term "U.S. Person" shall not include any
person or entity that is not treated as a U.S. Person for purposes of
the Internal Revenue Code of 1986, as amended.
Managers of the Company, the Investment Adviser, the Investment
Sub-Adviser, the Distributor and any of their affiliates and controlling
persons and each other member and any successor or assign of the foregoing,
and to hold each of them harmless from and against any loss, damage or
liability (including attorney's fees) due to or arising out of a breach of
any representation, warranty, acknowledgment or agreement of the Investor
contained in this Subscription Agreement or in any other document provided
by the Investor to the Company in connection with the Investor's investment
in the Units. Notwithstanding any provision of this Agreement, the Investor
does not waive any rights granted to it under applicable securities laws.
5. General. This Agreement (i) shall be binding upon the
Investor and the heirs, personal representatives, successors and assigns of
the Investor, (ii) shall be governed, construed and enforced in accordance
with the laws of the State of Delaware, without reference to any principles
of conflicts of law (except insofar as affected by the state securities or
"blue sky" laws of the jurisdiction in which the offering described herein
has been made to the Investor), (iii) shall survive the admission of the
Investor to the Company as a Member, and (iv) shall, if the Investor
consists of more than one person, be the joint and several obligation of
all such persons.
6. Assignment. The Investor agrees that neither this Subscription
Agreement nor any rights which may accrue to the Investor hereunder may be
transferred or assigned.
7. Suitability. If the Investor is a corporation, limited
liability company, trust, partnership or other entity, the truth,
correctness and completeness of the informa tion supplied by the Investor
in the attached Investor Questionnaire for Entities is warrantied pursuant
to Paragraph 3(d) hereof.
8. Arbitration. ANY CLAIM, CONTROVERSY, DISPUTE OR DEADLOCK
ARISING UNDER THIS AGREEMENT (COLLECTIVELY, A "DIS PUTE") SHALL BE SETTLED
BY ARBITRATION ADMINISTERED UNDER THE RULES OF THE AMERICAN ARBITRATION
ASSOCIATION ("AAA") IN CALIFOR NIA. ANY ARBITRATION AND AWARD OF THE
ARBITRATORS, OR A MAJOR ITY OF THEM, SHALL BE FINAL AND THE JUDGMENT UPON
THE AWARD RENDERED MAY BE ENTERED IN ANY STATE OR FEDERAL COURT HAVING
JURISDICTION. NO PUNITIVE DAMAGES ARE TO BE AWARDED.
Schedule A
RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS SET FORTH BELOW
ARIZONA
Arizona residents must have one of the following: (a) an annual gross
income of at least seventy-five thousand dollars and a net worth of at
least seventy-five thousand dollars exclusive of home, car and home
furnishings; (b) a net worth of at least two hundred twenty-five thousand
dollars exclusive of home, car and home furnishings; or (c) in the case of
sales to qualified pension or profit sharing plans or trusts, Keogh plans
or individual retirement accounts, that the net worth and income
requirements set forth in items (a) or (b) of this paragraph are met by the
fiduciary account or by the donor who directly or indirectly supplies the
monies for the purchase of the securities.
MINNESOTA
To invest in Units of the Company, Minnesota residents must qualify
as an accredited investor as that term is defined under Rule 501 of the
Securities Act of 1933, as amended by meeting any of the following
requirements:
a. The investor is:
i. a bank, or any savings and loan association or other institu
tion acting in its individual or fiduciary capacity; a broker
or dealer; an insurance company; an investment company or a
business development company under the Investment Com
pany Act of 1940, as amended; a Small Business Investment
Company licensed by the U.S. Small Business Administra
tion; a plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of
a state or its political subdivisions, for the benefit
of its employees if the plan has total assets in excess
of $5 million; an employee benefit plan whose
investment decision is being made by a plan fiduciary,
which is either a bank, savings and loan association,
insurance company or registered investment adviser, or
an employee benefit plan whose total assets are in
excess of $5,000,000 or a self-directed employee
benefit plan whose investment decisions are made solely
by persons that are "accredited investors;" or
ii. a private business development company under the Invest
ment Advisers Act of 1940;
iii. any corporation, partnership, limited liability company,
Massachusetts or similar business trust or organization
de scribed in Section 501(c)(3) of the Internal Revenue
Code that has total assets in excess of $5,000,000, and
was not formed for the specific purpose of acquiring the
Units;
iv. any trust, not formed for the specific purpose of acquiring
the securities offered, with total assets in excess of
$5,000,000 and whose purchase is directed by a
sophisticated person;
v. any director, executive officer, or general partner of the
Company; or
vi. any natural person with:
(1) a net worth, (including residence, personal
property and other assets in excess of total
liabilities) taken together with the net worth of
the Investor's spouse, exceeds $1,000,000;
(2) individual gross income in excess of $200,000 (or
joint income with spouse in excess of $300,000) in
each of the two previous years and a reasonable
expectation of gross individual income in excess of
$200,000 (or joint income with spouse in excess of
$300,000) this year; or
vii. any entity in which all of the equity holders are accredited
investors.
NEBRASKA
To invest in Units of the Company, Nebraska residents must meet one
of the following: (a) individual annual taxable income of at least $200,000
in each of the two most recent years or joint income with spouse in excess
of $300,000 in two each of the two most recent years and a reasonable
expectation of reaching the same income level in the current year; or (b)
individual or joint net worth with spouse of at least one million dollars.
NEW HAMPSHIRE
To invest in Units of the Company, New Hampshire residents must meet
one of the following: (a) annual taxable income of at least fifty thousand
dollars and a net worth of at least one hundred and twenty-five thousand
dollars; or (b) a net worth of at least two hundred and fifty thousand
dollars.
INVESTOR QUESTIONNAIRE FOR ENTITIES
EXAMPLES OF ENTITIES INCLUDE, BUT ARE NOT LIMITED TO, TRUSTS, CORPORATIONS,
LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES.
ENTITIES (NON-INDIVIDUALS): PLEASE COMPLETE THIS QUESTIONNAIRE.
1. Legal form of entity (corporation, partnership, trust, etc.):
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Investor entity was organized under the laws of the state of:
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2. The fiscal year-end of the Investor is .
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(Month/Day)
3. ERISA. (i) The Investor, and each account on behalf of which it is
acquiring the Units IS _____ / IS NOT _____ (check one): using funds
to acquire Units that constitute assets of any of the following:
(a) an "employee benefit plan" as defined in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not it is subject to Title I of ERISA
(including but not limited to governmental plans);
(b) a plan (including IRAs) described in section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code");
(c) an entity whose underlying assets include (or are deemed to
include) plan assets by reason of a plan's investment in such entity
(including but not limited to an insurance company general account,
an insurance company separate account, and a collective investment
fund); or
(d) an entity that otherwise constitutes a "benefit plan investor"
within the meaning of the Department of Labor Regulation, 29 C.F.R.
Section 2510.3-101 (the "Plan Assets Regulation") (the plans and
entities described in clauses (a), (b),(c) and (d) above being
referred to as "Benefit Plan Investors").
(ii) The Investor, and each account on behalf of which it is acquiring
the Units, IS _____ / IS NOT _____ (check one) a Controlling Person. A
Controlling Person is defined as a person (other than Benefit Plan
Investors) that has discretionary authority or control with respect to
the assets of an entity or that provides investment advice for a fee
(direct or indirect) with respect to such assets, or any affiliate of
such a person.
(iii) The Investor acknowledges that the Company will not register the
sale, transfer or disposition of the Units unless, following such sale,
transfer or disposition, less than twenty-five percent (25%) of the
value of the class of Units is held by Benefit Plan Investors. It
further acknowledges that for purposes of determining whether Benefit
Plan Investors hold less than twenty-five percent (25%) of the value of
the Units, (a) the value of any Units held by Controlling Persons that
are not Benefit Plan Investors will be disregarded, and (b) unless
specific disclosure is made by the Investor to the Issuer to the
contrary, an insurance company general account will be treated as if
100% of the assets of such general account constituted assets of a
Benefit Plan Investor.
The representations to be made pursuant to this paragraph (iii) shall be
deemed made on each day from the date the Investor makes such
representations through and including the date on which such Investor
disposes of its interests in the Units. The Investor understands and
agrees that the information supplied above will be utilized to determine
whether Benefit Plan Investors own less than 25% of the Units, both upon
the original issuance of Units and upon any subsequent transfer of any
equity interest in the Company for any reason.
In evaluating the suitability of an investment in the Units, the
Investor has not relied upon any advice, representations or other
information (whether oral or written) other than as set forth in the
Prospectus and exhibits thereto, and independent investigations made by
the Investor and his, her or its investment manager that are not
affiliated with the Company.
4. Please indicate whether or not the Investor is a U.S. pension trust or
governmental plan qualified under section 401(a) of the Code or a U.S.
tax-exempt organization qualified under section 501(c)(3) of the Code.
Yes No
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EXCELSIOR VENTURE PARTNERS III, LLC
EXECUTION PAGE
IN WITNESS WHEREOF, THE UNDERSIGNED INVESTOR HAS EXECUTED THIS SUBSCRIPTION
AGREEMENT.
Mr., Mrs. Jr., Sr., II, III, IV, Esq., CPA
Ms., Dr.
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(Investor/Contact Name)
RESIDENCE
Address: Telephone: ( )
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Fax: ( )
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City: State: E-Mail: ( )
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MAILING ADDRESS (IF OTHER THAN RESIDENCE)
Title: Telephone: ( )
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Company Name: Fax: ( )
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Address: E-Mail: ( )
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City: State: Zip:
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Investor Name:
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Schwab Account Number:
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Investment Manager Firm Name:
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Investment Manager Master Account Number:
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<TABLE>
<S> <C> <C> <C>
Investor Type
[ ] Individual Joint: [ ] Rights of Survivorship [ ] Trust [ ] Partnership
[ ] Tenants in Common [ ] Corporation [ ] L.L.C.
</TABLE>
[ ] Other:
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Social Security/Tax ID No: Signature:
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Print Name and Title (if applicable):
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<TABLE>
<S> <C>
State in which this Agreement was signed: Date of Execution: , 2000
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</TABLE>
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TOTAL COMMITMENT: $ (Must be a multiple of $1,000 greater than $100,000.)
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The Total Commitment amount will be deducted from your Schwab account in
two equal installments. On the date of the Fund's closing, 50% of your
Total Commitment will be deducted and the final 50% will be deducted on the
first anniversary of such closing date.
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EXHIBIT A
CERTIFICATE OF PARTNERSHIP INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE PARTNERSHIPS.
CERTIFICATE OF (the "Partnership")
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(Name of Partnership)
The undersigned, constituting all of the partners of the Partnership who
must consent to the proposed investment by the Partnership hereby certify
as follows:
1. That the Partnership commenced business on and was established
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pursuant to a Partnership Agreement dated (the "Agreement").
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2. That, as the partners of the Partnership, we have the authority to
determine, and have determined, (i) that the investment in, and the
purchase of an interest in Excelsior Venture Partners III, LLC is of
benefit to the Partnership and (ii) to make such investment on behalf of
the Partnership.
3. That is authorized to execute all necessary
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documents in connection with our investment in Excelsior Venture Partners
III, LLC.
IN WITNESS WHEREOF, we have executed this certificate as the partners
of the Partnership this day of , , and declare that it is truthful and
correct.
(Name of Partnership)
By:
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Partner
By:
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Partner
By:
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Partner
(Attach extra signature pages if necessary)
EXHIBIT B
CERTIFICATE OF TRUST INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE TRUSTS.
CERTIFICATE OF (the "Trust")
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(Name of Trust)
The undersigned, constituting all of the Trustees of the Trust. hereby
certify as follows:
1. That the Trust was established pursuant to a Trust Agreement
dated (the "Agreement").
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2. That, as the Trustee(s) of the Trust, we have determined that the
investment in, and the purchase of, an interest in Excelsior Venture
Partners III, LLC is of benefit to the Trust and have determined to make
such investment on behalf of the Trust.
3. That is authorized to execute, on
------------------------------------
behalf of the Trust, any and all documents in connection with the Trust's
investment in Excelsior Venture Partners III, LLC.
IN WITNESS WHEREOF, we have executed this certificate as the
Trustee(s) of the Trust this day of , , and declare that it is truthful and
correct.
(Name of Trust)
By:
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Trustee
By:
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Trustee
By:
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Trustee
(Attach extra signature pages if necessary)
EXHIBIT C
CERTIFICATE OF CORPORATE INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE CORPORATIONS.
CERTIFICATE OF (the "Corporation")
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(Name of Corporation)
The undersigned. being the duly elected and acting Secretary or Assistant
Secretary of the Corporation. hereby certifies as follows:
1. That the Corporation commenced business on and was
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incorporated under the laws of the State of on .
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2. That the Board of Directors of the Corporation has determined, or
appropriate officers under authority of the Board of Directors have
determined, that the investment in, and purchase of, Units in Excelsior
Venture Partners III, LLC is of benefit to the Corporation and has
determined to make such investment on behalf of the Corporation. Attached
hereto is a true, correct and complete copy of resolutions of the Board of
Directors (or an appropriate committee thereof) of the Corporation duly
authorizing this investment, and said resolutions have not been revoked,
rescinded or modified and remain in full force and effect.
3. That the following named individuals are duly elected officers of the
Corporation, who hold the offices set opposite their respective names and
who are duly authorized to execute any and all documents in connection with
the Corporation's investment in Excelsior Venture Partners III, LLC, and
that the signatures written opposite their names and titles are their
correct and genuine signatures.
Name Title Signature
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---------------------- ---------------------- ---------------------
(Attach extra pages if necessary)
IN WITNESS WHEREOF, I have executed this certificate and
affixed the seal of this Corporation this day of , , and declare that it is
truthful and correct.
(Name of Corporation)
By:
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Name:
Title:
EXHIBIT D
CERTIFICATE OF LIMITED LIABILITY COMPANY INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE LIMITED LIABILITY COMPANIES.
CERTIFICATE OF (the "Limited
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(Name of Limited Liability Company)
Liability Company")
The undersigned, being a duly elected and acting Manager of the Limited
Liability Company, hereby certifies as follows:
1. That the Limited Liability Company commenced business on and
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was organized under the laws of the State of on .
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2. That the Managers of the Limited Liability Company have determined that
the investment in, and purchase of, Units in Excelsior Venture Partners
III, LLC is of benefit to the Limited Liability Company and has determined
to make such investment on behalf of the Limited Liability Company.
Attached hereto is a true, correct and complete copy of resolutions of the
Managers (or an appropriate committee thereof) of the Limited Liability
Company duly authorizing this investment, and said resolutions have not
been revoked, rescinded or modified and remain in full force and effect.
3. That the following named individuals are duly elected managers of the
Limited Liability Company, who hold the offices set opposite their
respective names and who are duly authorized to execute any and all
documents in connection with the Limited Liability Company's investment in
Excelsior Venture Partners III, LLC, and that the signatures written
opposite their names and titles are their correct and genuine signatures.
Name Title Signature
------------------- -------------------- ---------------------
------------------- -------------------- ---------------------
(Attach extra pages if necessary)
IN WITNESS WHEREOF, I have executed this certificate and
affixed the seal of this Limited Liability Company this day of , , and
declare that it is truthful and correct.
(Name of Limited Liability Company)
By:
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Name:
Title:
APPENDIX C
EXCELSIOR VENTURE
PARTNERS III, LLC
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SUBSCRIPTION
BOOKLET
--------------------------
EXCELSIOR VENTURE PARTNERS III, LLC
SUBSCRIPTION INSTRUCTIONS
This booklet contains documents which must be executed and returned if you
wish to invest in Excelsior Venture Partners III, LLC (the "Company"). You
should consult with an attorney, accountant, investment advisor or other
advisor regarding an investment in the Company and its suitability for you.
All Subscription Documents must be completed correctly and thoroughly or
they will not be accepted. If you wish to invest, please complete, sign and
return this Subscription Booklet and retain the Company's prospectus.
If you have any questions concerning these Subscription Documents or would
like assis tance completing them, please contact your investment advisor.
INSTRUCTIONS FOR INDIVIDUALS (SUBSCRIPTIONS THROUGH A RETIREMENT PLAN,
INCLUDING IRAS AND 401KS, MUST BE MADE PURSUANT TO THE "INSTRUCTIONS FOR
ENTITIES OTHER THAN INDIVIDUALS," BELOW)
1. Fill out and sign page 15.
NOTE: By executing page 15, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).
2. Return this booklet to your U.S. Trust contact or directly to the
Company at the address listed on the next page under the heading
COMPANY ADDRESS.
3. Follow the instructions listed on the next page under the heading
PAYMENT OF CAPITAL CONTRIBUTION.
INSTRUCTIONS FOR ENTITIES OTHER THAN INDIVIDUALS (TRUSTS, CORPORATIONS,
CUSTODIANS, IRAS ETC.)
1. Direct the appropriate personnel to answer the Questionnaire found on
page 13 by initialing in the spaces provided.
2. Appropriate personnel should fill out and sign page 15.
NOTE: By executing page 15, the investor thereby grants the Power of
Attorney contained in the Subscription Agreement under Section 1(c).
3. IF THE INVESTOR IS A PARTNERSHIP, please complete Exhibit A and
attach to it a copy of the Investor's partnership agreement or other
governing instruments; IF THE INVESTOR IS A CUSTODIAN, TRUSTEE OR
AGENT, please complete Exhibit B and attach to it a copy of the
Investor's trust declaration or other governing instrument; IF THE
INVESTOR IS A CORPORATION, please complete Exhibit C and attach to it
a copy of the Investor's Articles of Incorporation and By-laws or
other governing instru ments; IF THE INVESTOR IS A LIMITED LIABILITY
COMPANY, please complete Exhibit D and attach to it a copy of the
Investor's operating agreement or other governing instruments.
4. Return this booklet to your U.S. Trust contact or directly to the
Company at the address listed below under the heading COMPANY
ADDRESS.
5. Follow the instructions listed below under the heading PAYMENT OF
CAPITAL CONTRIBUTION.
COMPANY ADDRESS:
Excelsior Venture Partners III, LLC
114 West 47th Street
New York, NY 10036
Attention: Katherine Hunsley
PAYMENT OF CAPITAL CONTRIBUTION
If you maintain an account with U.S. Trust, payments will be deducted from
your U.S. Trust account designated on the Execution Page, 50% of your Total
Commitment upon closing of the Company and the remaining 50% upon the first
anniversary thereof. If you do not maintain a U.S. Trust account, an
initial payment equal to 50% of your Total Commitment must be made by wire
or check on or before the date of the closing of the Company. A second
payment equal to the remaining 50% of your Total Commitment must be made on
the first anniversary of such date. Please carefully follow the
instructions listed below to insure proper payment.
To Pay By Check:
Make payable to: Excelsior Venture Partners III, LLC
Send to: PFPC Inc.
c/o Excelsior Venture Management LLC
400 Bellevue Parkway
Wilmington, DE 19809
Attention: Neal J. Andrews
To Pay By Wire:
IT IS IMPERATIVE THAT YOU INCLUDE YOUR NAME (OR, IF YOU ARE WIRING MONEY ON
BEHALF OF AN ENTITY, THE NAME OF THE ENTITY) IN THE REFERENCE LINE OF THE
WIRE INSTRUCTIONS.
Wire to: PNC Bank Delaware
ABA #: 031100089
FBO: Excelsior Venture Partners III, LLC
Account #: 56-0401-4748
See next page for tear-out prepared instructions to deliver to your
bank/financial institu tion.
THE COMPANY IS NOT AVAILABLE FOR INVESTMENT TO RESIDENTS OF ALABAMA,
ARKANSAS, KANSAS, MAINE, MARYLAND, MASSACHUSETTS, MISSISSIPPI, MISSOURI,
OKLAHOMA, VER MONT AND TEXAS.
SCHEDULE A CONTAINS ADDITIONAL INFORMATION AND REQUIREMENTS FOR RESIDENTS
IN CERTAIN OTHER STATES.
WIRING INSTRUCTIONS
___________________________ Insert your
___________________________ Bank/Financial
___________________________ Institution name
___________________________ and address here.
Dear Sir/Madam:
Please wire _________________ (insert your dollar amount) from
my account number __________________ (insert your account number) and send
the proceeds to:
PNC Bank Delaware
ABA #: 031100089
FBO: Excelsior Venture Partners III, LLC
Account #: 56-0401-4748
Sincerely,
Investor Signature _________________________
Print name _________________________
Address _________________________
_________________________
Daytime Telephone # _________________________
SUBSCRIPTION AGREEMENT
Excelsior Venture Partners III, LLC
c/o United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Ladies and Gentlemen:
Reference is made to the Prospectus dated ___________, 2000
(the "Prospectus") with respect to the offering of units of membership
interest ("Units") in Excelsior Venture Partners III, LLC (the "Company").
Capitalized terms used but not defined herein shall have the respec tive
meanings given them in the Prospectus.
The undersigned subscribing investor (the "Investor") hereby
agrees as follows:
1. Subscription for the Units.
(a) The Investor agrees to become a Member of the Company and
agrees to make capital contributions to the Company in the aggregate amount
set forth on the Execution Page of this Subscription Agreement under the
heading "Total Commitment," with one half of such amount to be delivered on
or before the closing of the Company on the date set forth therefor in the
Prospectus and the remaining one half being due at such time as described
in the Operating Agreement of the Company (the "Operating Agreement"), and
otherwise on the terms and conditions described herein and in the
Prospectus.
(b) The Investor acknowledges and agrees that it is not
entitled to cancel, terminate or revoke this subscription or any agreements
or power of attorney of the Investor hereunder, except as otherwise set
forth in this Section 1(b), the Prospectus or applicable law, and such
subscription and agreements and power of attorney shall survive (i) changes
in the transac tion, documents and instruments described in the Prospectus
which in the aggregate are not material or which are contemplated by the
Prospectus and (ii) the death or disability of the Investor; provided,
however, that if the Company shall not have accepted this subscription on
or before December 31, 2000 (the date of any such acceptance of this
subscription the "Closing Date"), this subscription, all agreements of the
Investor hereunder and the power of attorney granted hereby shall be
cancelled and this Subscription Agreement will be returned to the Investor.
(c) The Investor hereby irrevocably constitutes and appoints
each member of the Company's Board of Managers and the appropriate officers
of the Company (and any designee of, substitute for or successor to any of
them) as the Investor's true and lawful attorney in the Investor's name,
place and stead, (i) to receive and pay over to the Company on behalf of
the Investor, to the extent set forth in this Subscription Agreement, all
funds received hereunder, (ii) to execute, complete or correct, on behalf
of the Investor, all documents to be executed by the Investor in connection
with the Investor's subscription for Units, including, without limitation,
filling in or amending amounts, dates, and other pertinent information and
(iii) to make, execute, acknowledge, deliver, swear to, file and record:
(A) this Agreement and a certificate of formation, a certificate of doing
business under fictitious name and any other instrument or filing which the
Board of Managers or the appropriate officers of the Company consider
necessary or desirable to carry out the purposes of this Subscription
Agreement, the Operating Agreement or the business of the Company or that
may be required under the laws of any state or local government or of any
other jurisdiction; (B) any and all amendments, restatements,
cancellations, or modifications of the instruments described in (A) above;
(C) any and all instruments related to the admission, removal, or
withdrawal of any Member; and; (D) all documents and instruments that may
be necessary or appropriate to effect the dissolution and termination of
the Company. This power of attorney shall be deemed coupled with an
interest, shall be irrevocable and shall survive any transfer of some or
all of the Investor's Units.
2. Certain Acknowledgments and Agreements of the Investor.
The Investor understands and acknowledges that the subscription
for the Units contained herein may be accepted or rejected, in whole or in
part, by the Company in its sole and absolute discretion. No subscription
shall be deemed accepted until the subscription has actually been accepted
and, if necessary, any subsequent acts have been taken which shall be
deemed an acceptance of this Agreement by the Company for all purposes. The
Investor understands that Skadden, Arps, Slate, Meagher & Flom LLP acts as
counsel only to the Company, the Investment Adviser and Investment
Sub-Adviser and no attorney-client relationship exists between Skadden,
Arps, Slate, Meagher & Flom LLP and any other person solely by reason of
such person making an investment in the Company. The Investor understands
that failure to make delivery of the second half of the Investor's capital
contribution when due in accordance with the provisions of the Operating
Agreement may result in substantial penalties including, without
limitation, forfeiture of the Investor's Units and the loss of all amounts
contributed to the Company by the Investor.
3. Representations and Warranties of the Investor.
The Investor, for the Investor and for the Investor's heirs,
personal representa tives, successors and assigns, makes the following
representations, declarations and warranties with the intent that the same
may be relied upon in determining the suitability of the undersigned as an
investor in the Company. The following representations, warranties and
agreements shall survive the Closing Date and will be deemed to be
reaffirmed by the Investor at any time the Investor makes an additional
capital contribution to the Company. The act of making such capital
contributions will be evidence of such reaffirmation.
(a) The Investor has received, read carefully and understands
the Prospectus and all exhibits thereto and has consulted the Investor's
own attorney, accountant or investment advisor with respect to the
investment contemplated hereby and its suitability for the Investor.
Any special acknowledgment set forth below with respect to any statement
contained in the Memorandum shall not be deemed to limit the generality of
this representation and warranty.
(b) The Investor understands and acknowledges that (i) the
Investor must bear the economic risk of the Investor's investment in the
Units until the termination of the Company; (ii) the Investor has no
contract, undertaking, agreement or arrangement with any person to sell,
transfer or pledge to such person or anyone else any of the Units which the
Investor hereby subscribes to purchase or any part thereof, and the
Investor has no present plans to enter into any such contract, undertaking,
agreement or arrangement; (iii) the Units cannot be sold or transferred
without the prior written consent of the Company, which shall be granted or
may be withheld in accordance with the terms of the Operating Agreement and
will be withheld if transfer would subject the Company to adverse tax
consequences; (iv) following any sale, transfer or disposition of Units,
less than 25% of the value of the class of Units may be held by "benefit
plan investors" within the meaning of DOL Regulation 2510.3-101, 29 C.F.R.
Section 2510.3-101; (v) there will be no public market for the Units; and
(vi) any disposition of the Units may result in unfavorable tax
consequences to the Investor.
(c) The Investor is aware and acknowledges that (i) the Company
has no operating history; (ii) the Units involve a substantial degree of
risk of loss of the Investor's entire investment and there is no assurance
of any income from such investment; (iii) any federal and/or state income
tax benefits which may be available to the Investor may be lost through the
adoption of new laws or regulations or changes to existing laws and
regulations or changes in the interpreta tion of existing laws and
regulations; (iv) the Investor, in making its investment, is relying solely
upon the advice of the Investor's personal tax advisor with respect to the
tax aspects of an investment in the Company; and (v) because there are
substantial restrictions on the transferability of the Units it may not be
possible for the undersigned to liquidate its investment readily in any
event, including in case of an emergency.
(d) If the Investor is a corporation, limited liability
company, trust, partnership or other entity, the statements made by the
Investor in Paragraph 7 hereto are true, correct and complete in all
material respects.
(e) If the Investor is a natural person, the Investor is at
least 21 years of age and the Investor has adequate means of providing for
all its current and foreseeable needs and personal contingencies and has no
need for liquidity in this investment, and if the Investor is an unincorpo
rated association, all of its members who are U.S. Persons (as defined in
subsection (l) of this Section 3) are at least 21 years of age.
(f) The Investor has evaluated the risks of investing in the
Units, and has determined that the Units are a suitable investment for the
Investor. The Investor can bear the economic risk of this investment and
can afford a complete loss of its investment. In evaluating the suitability
of an investment in the Units, the Investor has not relied upon any advice,
represen tations or other information (whether oral or written) other than
as set forth in the Prospectus and exhibits thereto, and independent
investigations made by the Investor or representative(s) of the
Investor that are not affiliated with the Company. The Investor has
reviewed the eligibility requirements of Schedule A, attached to this
Agreement, and to the extent applicable, meets all suitability and
eligibility requirements described therein.
(g) The Investor is knowledgeable and experienced in evaluating
investments and experienced in financial and business matters and is
capable of evaluating the merits and risks of investing in the Units. The
aggregate amount of the investments of the Investor in, and the Investor's
commitments to, all similar investments that are illiquid is reasonable in
relation to the Investor's net worth.
(h) The Investor maintains its domicile, and is not merely a
transient or temporary resident, at the residence address shown on the
signature page of this Subscription Agreement.
(i) The representations, warranties, agreements, undertakings
and acknowledg ments made by the Investor in this Subscription Agreement
are made with the intent that they be relied upon by the Company, Charles
Schwab & Co., Inc. (the "Distributor") and any selling agent in determining
its suitability as a purchaser of the Units, and shall survive its
purchase. In addition, the Investor undertakes to notify the Company
immediately of any change in any representation, warranty or other
information relating to the Investor set forth herein.
(j) The Investor, if it is a corporation, limited liability
company, trust, partnership or other entity, is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and the execution, delivery and performance by it of this
Subscription Agreement and the Operating Agreement are within its powers,
have been duly authorized by all necessary corporate or other action on its
behalf, require no action by or in respect of, or filing with, any
governmental body, agency or official (except as disclosed in writing to
the Company), and do not and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of its certificate
of incorporation, By-laws or other comparable organizational documents or
any agreement, judgment, injunction, order, decree or other instrument to
which the Investor is a party or by which the Investor or any of the
Investor's property is bound. This Agreement constitutes, and the Operating
Agreement, when executed and delivered, will constitute, a valid and
binding agreement of the Investor, enforceable against the Investor in
accordance with its terms.
(k) If the Investor is a natural person, the execution,
delivery and performance by the Investor of this Subscription Agreement and
the Operating Agreement are within the Investor's legal right, power and
capacity, require no action by or in respect of, or filing with, any govern
mental body, agency or official (except as disclosed in writing to the
Company), and do not and will not contravene, or constitute a default
under, any provision of applicable law or regulation or of any agreement,
judgment, injunction, order, decree or other instrument to which the
Investor is party or by which the Investor or any of his or her property is
bound. This Subscription Agreement constitutes, and the Operating
Agreement, when executed and delivered, will constitute, a valid and
binding agreement of the Investor, enforceable against the Investor in
accordance with its terms.
(l) The Investor is a United States citizen if an individual,
and if an entity is organized under the laws of the United States or a
state thereof or is otherwise a U.S. Person1 as defined below or as
otherwise defined in Rule 902 under the U.S. Securities Act of 1933, as
amended.
(m) By purchase of Units, the Investor represents to the
Investment Adviser, the Investment Sub-Adviser, the Board of Managers, the
Distributor and the Company that the Investor has neither acquired nor will
transfer, assign or market any Units the Investor purchases (or any
interest therein) on or through an "established securities market" or a
"secondary market (or the substantial equivalent thereof)" within the
meaning of section 7704(b) of the Internal Revenue Code of 1986, as
amended, including, without limitation, an over-the-counter-market or an
interdealer quotation system that regularly disseminates firm buy or sell
quotations. Further, the Investor agrees that, if it determines to transfer
or assign any of its Units or any interest therein pursuant to the
provisions of the Operating Agreement, it will cause its proposed
transferee to agree to the transfer restrictions set forth herein and to
make the representations set forth above.
(n) The Investor has evaluated the Prospectus and has
determined that the Investor is and will be in a financial position
appropriate to enable the Investor to realize to a significant extent the
benefits described in the Prospectus.
4. Indemnification. The Investor recognizes that the offer of
the Units was made in reliance upon the Investor's representations and
warranties set forth in Paragraph 3 above and the acknowledgments and
agreements set forth in Paragraph 2 above. The Investor agrees to provide,
if requested, any additional information that may reasonably be required to
determine the eligibility of the Investor to purchase the Units. The
Investor hereby agrees to indemnify the Company, each member of the Board
of Managers of the Company, the Investment Adviser, the Investment
Sub-Adviser, the Distributor and any of their affiliates and controlling
persons and each other member and any successor or assign of the foregoing
and to hold each of them harmless from and against any loss, damage or
liability (including attorney's fees) due to or arising out of a breach of
any representation, warranty, acknowledgment or agreement of the Investor
contained in this Subscription Agreement or in any other document provided
by the Investor to the Company in connection with the Investor's investment
in the Units. Notwithstand ing any provision of this Agreement, the
Investor does not waive any rights granted to it under applicable
securities laws.
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1 For purposes of this representation, a U.S. Person is (i) a natural
person who is a citizen of or resident in the United States; (ii) a
partnership or corporation organized or incorporated under the laws of
the United States; (iii) an estate of which any executor or
administrator is a U.S. person; (iv) a trust of which any trustee is a
U.S. person; (v) an agency or branch of a foreign entity located in the
United States; (vi) a non- discretionary account or similar account
(other than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person; (vii) a discretionary account
or similar account (other than an estate or trust) held by a dealer or
other fiduciary organized, incorporated, or (if an individual) resident
in the United States; and (viii) a partnership or corporation if (A)
organized or incorporated under the laws of any foreign jurisdiction;
and (B) formed by one or more of the above and/or one or more natural
persons resident in the U.S. principally for the purpose of investing in
securities not registered under the Securities Act, unless it is
organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a)) who are not natural persons, estates or trusts;
provided, however, that the term "U.S. Person" shall not include any
person or entity that is not treated as a U.S. Person for purposes of
the Internal Revenue Code of 1986, as amended.
5. General. This Agreement (i) shall be binding upon the
Investor and the heirs, personal representatives, successors and assigns of
the Investor, (ii) shall be governed, construed and enforced in accordance
with the laws of the State of Delaware, without reference to any principles
of conflicts of law (except insofar as affected by the state securities or
"blue sky" laws of the jurisdiction in which the offering described herein
has been made to the Investor), (iii) shall survive the admission of the
Investor to the Company as a Member, and (iv) shall, if the Investor
consists of more than one person, be the joint and several obligation of
all such persons.
6. Assignment. The Investor agrees that neither this
Subscription Agreement nor any rights which may accrue to the Investor
hereunder may be transferred or assigned.
7. Suitability. If the Investor is a corporation, limited
liability company, trust, partnership or other entity, the truth,
correctness and completeness of the information supplied by the Investor in
the attached Investor Questionnaire for Entities is warrantied pursuant to
Paragraph 3(d) hereof.
8. Arbitration. ANY CLAIM, CONTROVERSY, DISPUTE OR DEADLOCK
ARISING UNDER THIS AGREEMENT (COLLECTIVELY, A "DISPUTE") SHALL BE SETTLED
BY ARBITRATION ADMINISTERED UNDER THE RULES OF THE AMERICAN ARBITRATION
ASSOCIATION ("AAA") IN CALIFORNIA. ANY ARBITRATION AND AWARD OF THE
ARBITRATORS, OR A MAJORITY OF THEM, SHALL BE FINAL AND THE JUDGMENT UPON
THE AWARD RENDERED MAY BE ENTERED IN ANY STATE OR FEDERAL COURT HAVING
JURISDICTION. NO PUNITIVE DAMAGES ARE TO BE AWARDED.
Schedule A
RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS SET FORTH BELOW
ARIZONA
Arizona residents must have one of the following: (a) an annual gross
income of at least seventy-five thousand dollars and a net worth of at
least seventy-five thousand dollars exclusive of home, car and home
furnishings; (b) a net worth of at least two hundred twenty-five thousand
dollars exclusive of home, car and home furnishings; or (c) in the case of
sales to qualified pension or profit sharing plans or trusts, Keogh plans
or individual retirement accounts, that the net worth and income
requirements set forth in items (a) or (b) of this paragraph are met by the
fiduciary account or by the donor who directly or indirectly supplies the
monies for the purchase of the securities.
MINNESOTA
To invest in Units of the Company, Minnesota residents must qualify
as an accredited investor as that term is defined under Rule 501 of the
Securities Act of 1933, as amended by meeting any of the following
requirements:
a. The investor is:
i. a bank, or any savings and loan association or other
institution acting in its individual or fiduciary
capacity; a broker or dealer; an insurance company; an
investment company or a business develop ment company
under the Investment Company Act of 1940, as amended; a
Small Business Investment Company licensed by the U.S.
Small Business Administration; a plan established and
main tained by a state, its political subdivisions, or
any agency or instru mentality of a state or its
political subdivisions, for the benefit of its employees
if the plan has total assets in excess of $5 million; an
employee benefit plan whose investment decision is being
made by a plan fiduciary, which is either a bank, savings
and loan association, insurance company or registered
investment adviser, or an employee benefit plan whose
total assets are in excess of $5,000,000 or a
self-directed employee benefit plan whose investment
decisions are made solely by persons that are "accredited
investors;" or
ii. a private business development company under the
Investment Advisers Act of 1940;
iii. any corporation, partnership, limited liability company,
Massachu setts or similar business trust or organization
described in Section 501(c)(3) of the Internal Revenue
Code that has total assets in excess of $5,000,000, and
was not formed for the specific purpose of acquir ing the
Units;
iv. any trust, not formed for the specific purpose of
acquiring the securi ties offered, with total assets in
excess of $5,000,000 and whose purchase is directed by a
sophisticated person;
v. any director, executive officer, or general partner of
the Company; or
vi. any natural person with:
(1) a net worth, (including residence, personal
property and other assets in excess of total
liabilities) taken together with the net worth of
the Investor's spouse, exceeds $1,000,000;
(2) individual gross income in excess of $200,000 (or
joint in come with spouse in excess of $300,000) in
each of the two previous years and a reasonable
expectation of gross individ ual income in excess
of $200,000 (or joint income with spouse in excess
of $300,000) this year; or
vii. any entity in which all of the equity holders are
accredited investors.
NEBRASKA
To invest in Units of the Company, Nebraska residents must meet one
of the following: (a) individual annual taxable income of at least $200,000
in each of the two most recent years or joint income with spouse in excess
of $300,000 in two each of the two most recent years and a reasonable
expectation of reaching the same income level in the current year; or (b)
individual or joint net worth with spouse of at least one million dollars.
NEW HAMPSHIRE
To invest in Units of the Company, New Hampshire residents must meet
one of the following: (a) annual taxable income of at least fifty thousand
dollars and a net worth of at least one hundred and twenty-five thousand
dollars; or (b) a net worth of at least two hundred and fifty thousand
dollars.
INVESTOR QUESTIONNAIRE FOR ENTITIES
EXAMPLES OF ENTITIES INCLUDE, BUT ARE NOT LIMITED TO, TRUSTS, CORPORATIONS,
LIMITED PARTNERSHIPS AND LIMITED LIABILITY COMPANIES.
ENTITIES (NON-INDIVIDUALS): PLEASE COMPLETE THIS QUESTIONNAIRE.
1. Legal form of entity (corporation, partnership, trust, etc.):
______________________________________________________________
Investor entity was organized under the laws of the state of_______________
2. The fiscal year-end of the Investor is ______________.
(Month/Day)
3. ERISA. (i) The Investor, and each account on behalf of which it is
acquiring the Units IS _____ / IS NOT _____ (check one): using funds to
acquire Units that constitute assets of any of the following:
(a) an "employee benefit plan" as defined in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), whether or not it is subject to Title I of ERISA
(including but not limited to governmental plans);
(b) a plan (including IRAs) described in section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code");
(c) an entity whose underlying assets include (or are deemed to
include) plan assets by reason of a plan's investment in such
entity (including but not limited to an insurance company general
account, an insurance company separate account, and a collective
investment fund); or
(d) an entity that otherwise constitutes a "benefit plan investor"
within the meaning of the Department of Labor Regulation, 29
C.F.R. Section 2510.3-101 (the "Plan Assets Regulation") (the
plans and entities described in clauses (a), (b),(c) and (d) above
being referred to as "Benefit Plan Investors").
(ii) The Investor, and each account on behalf of which it is acquiring
the Units, IS _____ / IS NOT _____ (check one) a Controlling Person. A
Controlling Person is defined as a person (other than Benefit Plan
Investors) that has discretionary authority or control with respect to
the assets of an entity or that provides investment advice for a fee
(direct or indirect) with respect to such assets, or any affiliate of
such a person.
(iii) The Investor acknowledges that the Company will not register the
sale, transfer or disposition of the Units unless, following such sale,
transfer or disposition, less than twenty-five percent (25%) of the
value of the class of Units is held by Benefit Plan Investors. It
further acknowledges that for purposes of determining whether Benefit
Plan Investors hold less than twenty-five percent (25%) of the value of
the Units, (a) the value of any Units held by Controlling Persons that
are not Benefit Plan Investors will be disregarded, and (b) unless
specific disclosure is made by the Investor to the Issuer to the
contrary, an insurance company general account will be treated as if
100% of the assets of such general account constituted assets of a
Benefit Plan Investor.
The representations to be made pursuant to this paragraph (iii) shall be
deemed made on each day from the date the Investor makes such
representations through and including the date on which such Investor
disposes of its interests in the Units. The Investor understands and
agrees that the information supplied above will be utilized to determine
whether Benefit Plan Investors own less than 25% of the Units, both upon
the original issuance of Units and upon any subsequent transfer of any
equity interest in the Company for any reason.
In evaluating the suitability of an investment in the Units, the
Investor has not relied upon any advice, representations or other
information (whether oral or written) other than as set forth in the
Prospectus and exhibits thereto, and independent investigations made by
the Investors or representatives of the Investor that are not affiliated
with the Company.
4. Please indicate whether or not the Investor is a U.S. pension trust or
governmental plan qualified under section 401(a) of the Code or a U.S.
tax-exempt organization qualified under section 501(c)(3) of the Code.
____ Yes ____ No
EXCELSIOR VENTURE PARTNERS III, LLC
EXECUTION PAGE
IN WITNESS WHEREOF, THE UNDERSIGNED INVESTOR HAS EXECUTED THIS SUBSCRIPTION
AGREEMENT.
Mr., Mrs. Jr., Sr., II, III, IV, Esq., CPA
Ms., Dr. ____________________________________
(Investor/Contact Name)
RESIDENCE
Address: _________________________________ Telephone: ( ) _______________
Fax: ( )______________________
City:______________ State:____ Zip:________ E-Mail: ( )___________________
MAILING ADDRESS (IF OTHER THAN RESIDENCE)
Title:____________________________________ Telephone: ( )________________
Company Name:_____________________________ Fax: ( )______________________
Address:__________________________________ E-Mail: ( )___________________
City:______________ State:____ Zip:________ E-Mail: ( )___________________
-------------------------------------------------------------------------------
Investor Name:__________________________________________________
U.S. Trust Account Number:______________________________________
Investor Type
|_| Individual Joint: |_| Rights of Survivorship |_| Trust |_| Partnership
|_| Tenants in Common |_| Corporation |_| L.L.C.
|_| Other:______________________________________________________
Social Security/Tax ID No:______________ Signature:__________________________
Print Name and Title (if pplicable):
____________________________________
State in which this Agreement Date of Execution: ___________, 2000
was signed: ____________________________
------------------------------------------------------------------------------
------------------------------------------------------------------------------
TOTAL COMMITMENT: $__________ (Must be a multiple of $1,000 greater than
$100,000.)
Method of Payment: |_| Wire |_| Check
The Total Commitment amount must be paid in two equal installments. If you
maintain a U.S. Trust account, 50% of the Total Commitment will be deducted
from your U.S. Trust account on the date of the Fund's closing, and the
final 50% will be deducted on the first anniversary of such closing date.
Otherwise, an initial payment of 50% of your Total Commitment must be made
on or before the date of the Fund's closing and the final 50% of your Total
Commitment must be paid on the first anniversary of the Fund's closing.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
WIRE PAYMENT INFORMATION FOR INVESTOR (FOR COMPANY DISTRIBUTIONS). IF
DISTRIBUTIONS ARE TO BE WIRED TO THE U.S. TRUST ACCOUNT NUMBER LISTED
ABOVE, CIRCLE "YES" BELOW AND LEAVE THE REMAINDER BLANK.
U.S. Trust Account: Yes or No
Bank Name:______________________________ Bank Officer:________________________
Address:________________________________ Telephone: __________________________
Investor Account Number:________________ ABA Number:__________________________
-------------------------------------------------------------------------------
EXHIBIT A
CERTIFICATE OF PARTNERSHIP INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE PARTNERSHIPS.
CERTIFICATE OF __________________________________________ (the "Partnership")
(Name of Partnership)
The undersigned, constituting all of the partners of the Partnership who
must consent to the proposed investment by the Partnership hereby certify
as follows:
1. That the Partnership commenced business on ______________________ and was
established pursuant to a Partnership Agreement dated __________________
(the "Agreement").
2. That a true and correct copy of the Agreement is attached hereto and
that, as of the date hereof, the Agreement has not been amended (except as
to any attached amendments) or revoked and is still in full force and
effect.
3. That, as the partners of the Partnership, we have the authority to
determine, and have determined, (i) that the investment in, and the
purchase of an interest in Excelsior Venture Partners III, LLC is of
benefit to the Partnership and (ii) to make such investment on behalf of
the Partnership.
4. That ----------------------------------------------- is authorized to
execute all necessary documents in connection with our investment
in Excelsior Venture Partners III, LLC.
IN WITNESS WHEREOF, we have executed this certificate as the partners
of the Partnership this day of , , and declare that it is truthful and
correct.
(Name of Partnership)
By:
-------------------------------------------
Partner
By:
-------------------------------------------
Partner
By:
-------------------------------------------
Partner
(Attach extra signature pages if necessary)
EXHIBIT B
CERTIFICATE OF TRUST INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE TRUSTS.
CERTIFICATE OF _______________________________________________ (the "Trust")
(Name of Trust)
The undersigned, constituting all of the Trustees of the Trust. hereby
certify as follows:
1. That the Trust was established pursuant to a Trust Agreement dated
______________________ (the "Agreement").
2. That a true and correct copy of the Agreement is attached hereto and
that as of the date hereof, the Agreement has not been amended (except as
to any attached amendments) or revoked and is still in full force and
effect.
3. That, as the Trustee(s) of the Trust, we have determined that the
investment in, and the purchase of, an interest in Excelsior Venture
Partners III, LLC is of benefit to the Trust and have determined to make
such investment on behalf of the Trust.
4. That ____________________________________ is authorized to execute, on
behalf of the Trust, any and all documents in connection with the Trust's
investment in Excelsior Venture Partners III, LLC.
IN WITNESS WHEREOF, we have executed this certificate as the
Trustee(s) of the Trust this ____ day of ___________, ____, and declare that
it is truthful and correct.
(Name of Trust)
By:
--------------------------------------------
Trustee
By:
--------------------------------------------
Trustee
By:
--------------------------------------------
Trustee
(Attach extra signature pages if necessary)
EXHIBIT C
CERTIFICATE OF CORPORATE INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE CORPORATIONS.
CERTIFICATE OF _________________________________________ (the "Corporation")
(Name of Corporation)
The undersigned, being the duly elected and acting Secretary or Assistant
Secretary of the Corporation. hereby certifies as follows:
1. That the Corporation commenced business on ________________________________
and was incorporated under the laws of the State of ________________________
on ______________________________.
2. That a true and correct copy of the Articles of Incorporation and By
Laws of the Corporation is attached hereto and that, as of the date hereof,
the Articles of Incorporation and By Laws have not been amended (except as
to any attached amendments) or revoked and are still in full force and
effect.
3. That the Board of Directors of the Corporation has determined, or
appropriate officers under authority of the Board of Directors have
determined, that the investment in, and purchase of, Units in Excelsior
Venture Partners III, LLC is of benefit to the Corporation and has
determined to make such investment on behalf of the Corporation. Attached
hereto is a true, correct and complete copy of resolutions of the Board of
Directors (or an appropriate committee thereof) of the Corporation duly
authorizing this investment, and said resolutions have not been revoked,
rescinded or modified and remain in full force and effect.
4. That the following named individuals are duly elected officers of the
Corporation, who hold the offices set opposite their respective names and
who are duly authorized to execute any and all documents in connection with
the Corporation's investment in Excelsior Venture Partners III, LLC, and
that the signatures written opposite their names and titles are their
correct and genuine signatures.
Name Title Signature
_____________________ ______________________ ____________________________
_____________________ ______________________ ____________________________
(Attach extra pages if necessary)
IN WITNESS WHEREOF, I have executed this certificate and
affixed the seal of this Corporation this ____ day of _____________, ____,
and declare that it is truthful and correct.
(Name of Corporation)
By:_________________________________
Name:
Title:
EXHIBIT D
CERTIFICATE OF LIMITED LIABILITY COMPANY INVESTOR
TO BE COMPLETED BY INVESTORS WHO ARE LIMITED LIABILITY COMPANIES.
CERTIFICATE OF _____________________________ (the "Limited Liability Company")
(Name of Limited Liability Company)
The undersigned, being a duly elected and acting Manager of the Limited
Liability Company, hereby certifies as follows:
1. That the Limited Liability Company commenced business on __________________
and was organized under the laws of the State of _____________________________
on _________________________.
2. That a true and correct copy of the Limited Liability Company Agreement
is attached hereto and that, as of the date hereof, the Limited Liability
Company Agreement has not been amended (except as to any attached
amendments) or revoked and is still in full force and effect.
3. That the Managers of the Limited Liability Company have determined that
the investment in, and purchase of, Units in Excelsior Venture Partners
III, LLC is of benefit to the Limited Liability Company and has determined
to make such investment on behalf of the Limited Liability Company.
Attached hereto is a true, correct and complete copy of resolutions of the
Managers (or an appropriate committee thereof) of the Limited Liability
Company duly authorizing this investment, and said resolutions have not
been revoked, rescinded or modified and remain in full force and effect.
4. That the following named individuals are duly elected managers of the
Limited Liability Company, who hold the offices set opposite their
respective names and who are duly authorized to execute any and all
documents in connection with the Limited Liability Company's investment in
Excelsior Venture Partners III, LLC, and that the signatures written
opposite their names and titles are their correct and genuine signatures.
Name Title Signature
_____________________ ______________________ ____________________________
_____________________ ______________________ ____________________________
(Attach extra pages if necessary)
IN WITNESS WHEREOF, I have executed this certificate and
affixed the seal of this Limited Liability Company this ____ day of __________,
____, and declare that it is truthful and correct.
(Name of Limited Liability Company)
By:__________________________________
Name:
Title:
APPENDIX D
----------
RESIDENTS OF THE FOLLOWING STATES MUST MEET THE
SUITABILITY STANDARDS AS SET FORTH BELOW
ARIZONA
Arizona residents must represent in writing that their investment in
Units of the Company does not represent more than ten percent of their net
worth less the value of their investments in limited partnership interests
and must have one of the following: (a) an annual gross income of at least
seventy-five thousand dollars and a net worth of at least seventy-five
thousand dollars exclusive of home, car and home furnishings; (b) a net
worth of at least two hundred twenty-five thousand dollars exclusive of
home, car and home furnishings; or (c) in the case of sales to qualified
pension or profit sharing plans or trusts, Keogh plans or individual
retirement accounts, that the net worth and income requirements set forth
in items (a) or (b) of this paragraph are met by the fiduciary account or
by the donor who directly or indirectly supplies the monies for the
purchase of the securities.
MINNESOTA
To invest in Units of the Company, Minnesota residents must qualify
as an accredited investor as that term is defined pursuant to Regulation D
of Rule 501 of the Securities Act of 1933, as amended.
NEBRASKA
To invest in Units of the Company, Nebraska residents must meet one
of the following: (a) individual annual taxable income of at least $200,000
in each of the two most recent years or joint income with spouse in excess
of $300,000 in two each of the two most recent years and a reasonable
expectation of reaching the same income level in the current year; or (b)
individual or joint net worth with spouse of at least one million dollars.
NEW HAMPSHIRE
To invest in Units of the Company, New Hampshire residents must meet
one of the following: (a) annual taxable income of at least fifty thousand
dollars and a net worth of at least one hundred and twenty-five thousand
dollars; or (b) a net worth of at least two hundred and fifty thousand
dollars.
The information in this statement of additional information is not complete
and may be changed. No person may sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This statement of additional information is not an offer to sell
these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 9, 2000
EXCELSIOR VENTURE PARTNERS III, LLC
STATEMENT OF ADDITIONAL INFORMATION
Excelsior Venture Partners III, LLC (the "Company") is a newly
organized, closed-end, non-diversified management investment company that
has elected to be treated as a business development company under the
Investment Company Act. This statement of additional information relating
to Units of membership interest of the Company does not constitute a
prospectus, but should be read in conjunction with the prospectus relating
hereto dated August 9, 2000. This statement of additional information does
not include all information that a prospective investor should consider
before purchasing Units, and investors should obtain and read the
prospectus prior to purchasing such Units. A free copy of the prospectus
may be obtained by calling the Company at (212) 852-3125. You may also
obtain a copy of the prospectus on the Securities and Exchange Commission's
web site (http://www.sec.gov). Capitalized terms used but not defined in
this statement of additional information have the meanings ascribed to them
in the prospectus.
TABLE OF CONTENTS
Page
Capital Accounts, Allocations and Distributions B-2
Frequently Asked Questions B-3
This statement of additional information is dated August 9, 2000.
CAPITAL ACCOUNTS, ALLOCATIONS AND DISTRIBUTIONS
CAPITAL ACCOUNTS. The Company will establish a capital account for
each investor who becomes a member of the Company. Your capital
contributions and your share of items of income and gain will be credited
to your capital account, and your distributions and your share of items of
loss, deduction and expense will be debited from your capital account. The
Company will establish a capital account for the Investment Adviser to
which allocations in respect of the Incentive Carried Interest will be
made.
ALLOCATIONS. The income, gain, loss, deduction and expense of the
Company will be determined and allocated as of the end of each fiscal year
to reflect the economic interests of the members and the Investment
Adviser.
Allocations generally will be made in the following order:
o gains will be allocated to the Investment Adviser until the
cumulative amount of all gains that has been allocated to the
Investment Adviser from the commencement of operations equals
the Incentive Carried Interest calculated through the end of
the period for which the allocation is being made, and
o all remaining items of income, gain, loss, deduction and
expense will be allocated to the members pro rata in accordance
with their capital contributions.
For any given period, the allocation of gain to the Investment
Adviser described above will be made out of long-term capital gain and
short-term capital gain in proportion to the amount of such gains available
for allocation.
For any given period, the Incentive Carried Interest will be an
amount equal to 20% of the excess, if any, of the cumulative amount of all
capital gains realized by the Company on Direct Investments from the
commencement of operations through the end of such period over the sum of:
o the cumulative amount of all capital losses realized by the
Company on all investments of any type from the commencement of
operations through the end of such period; and
o the amount of net unrealized capital depreciation on all
investments of any type all determined as of the close of such
period.
To the extent that the Company distributes property in kind, the
Company will be deemed to have realized gain or loss on such property based
on the value assigned to such property in accordance with the Company's
valuation procedures. In the event of the resignation or removal of the
Investment Adviser or other termination without reinstatement of the
Investment Advisory Agreement with the Investment Adviser or an affiliate,
the assets of the Company will be valued in accordance with the Operating
Agreement as of the date of resignation, removal or termination, and the
Company will be deemed to have realized gain or loss on such assets based
on the valuations so assigned.
Notwithstanding the foregoing, the Company may, in its sole and
absolute discretion, make special allocations of items of Company income,
gain, loss, deduction and expense in order to cause the capital account
balances of the members and the Investment Adviser to reflect the economic
arrangement set forth in the following paragraph.
DISTRIBUTIONS. The Company will distribute all cash that the
Investment Adviser does not expect to use in the operation of the Company
and that is available after the payment of all expenses then due and the
creation of any reserves. The Company will consider such distributions at
least annually but, as described below, does not expect to make
distributions of cash or property during the first several years of
operations. Each year, the Investment Adviser generally will be entitled to
a distribution equal to the Incentive Carried Interest. The members
generally will be entitled to all amounts remaining for distribution pro
rata in accordance with their capital contributions. Upon liquidation of
the Company, any cash or other property available for distribution will be
distributed to the members and to the Manager pro rata in accordance with
their respective capital account balances. The Investment Adviser's capital
account balance generally will reflect the allocations that have been made
to the Investment Adviser in respect of the Incentive Carried Interest but
that have not been previously distributed to the Investment Adviser.
Due to the nature of the Company's investments, investors should not
expect distributions of cash or property during the first several years of
the Company's operations. The Company will not reinvest income from its
investments or the proceeds from the sale of its investments, in each case
other than in Short-Term Investments, except to make follow-on investments.
The Company may make distributions in kind of its property, which generally
would be treated for purposes of the Company's distribution policies as
distributions of cash in an amount equal to the current market value or
fair value of such property determined in accordance with the Company's
valuation procedures. The Company does not intend to make any distribution
if after making such distribution the liabilities of the Company would
exceed the fair value of the Company's assets.
FREQUENTLY ASKED QUESTIONS
Q. HOW MANY INVESTMENTS AND WHAT TYPES OF INVESTMENTS DO YOU ANTICIPATE
MAKING IN THIS FUND? The Company plans to make roughly 20 to 40 investments
directly in companies and 5 to 15 investments in third- party private
equity funds. The Company intends to invest primarily in a diverse
portfolio of companies that the Investment Adviser or Investment
Sub-Adviser believe are or will be rapidly growing companies that will
participate in the transformation of the economy. The Company will also
invest in third-party venture capital funds whose investment managers the
Investment Adviser or Investment Sub-Adviser believe have the ability to
achieve superior returns, as well as in select opportunities in
international venture capital and private placements in public companies.
Q. HOW DO YOU FIND/SOURCE INVESTMENT OPPORTUNITIES?
Investment opportunities are received from two general sources: referral
and direct. Deal referrals result primarily from the reputation and
experience of the Investment Adviser's and Investment Sub-Adviser's
management team (the "Team "), which has over 40 years of combined
experience in venture capital investing. Through their extensive
experience, the Team has developed a rich network of contacts that includes
other venture capitalists, entrepreneurs, investment banks, law firms,
accounting firms and consulting firms. This network provides access and
referrals to a large number of private companies requiring venture capital
financing. Direct deal sources are investment opportunities that the
Company receives by contacting attractive companies directly or by
companies seeking venture capital contacting the Company directly. Direct
deals are a function of the Investment Adviser's and Investment
Sub-Adviser's efforts to target particular sectors, the Company's presence
within the venture capital community and basic marketing efforts.
Q. HOW MANY DEALS DO YOU SEE IN A GIVEN YEAR AND, OF THESE, HOW MANY WILL
YOU LIKELY INVEST IN? The Company may be presented with as many as 2,000 to
3,000 investment opportunities per year. After a thorough screening,
evaluation and due diligence process, the Company will generally make 10 to
20 investments a year until it is fully invested.
Q. HOW DO YOU INITIALLY SCREEN DEAL FLOW?
The Investment Adviser and Investment Sub-Adviser have an effective and
efficient screening process. The objectives of the screening process are to
efficiently focus the resources of the Investment Adviser and Investment
Sub-Adviser and quickly identify attractive investment opportunities.
During the initial screening process the investment opportunity is routed
to a Team member with experience and expertise in the sector in which the
investment opportunity operates. That person makes an evaluation of whether
the opportunity has certain characteristics that would make it an
attractive potential investment. If the opportunity is deemed initially
attractive, the Investment Adviser or Investment Sub-Adviser will allocate
resources to evaluate the merits of the deal relative to our investment
criteria.
The initial screening process includes the examination and evaluation of
the opportunity's quality, its fit with our investment strategy and the
potential for the company's business model. The initial screening process
includes speaking with company management, reviewing the business plan
and/or web site, understanding the business model, identifying the major
risk issues, evaluating management and developing a due diligence plan.
Q. WHAT CHARACTERISTICS DO YOU LOOK FOR IN POTENTIAL INVESTMENTS?
The Company is looking for rapidly growing companies that will participate
in the transformation of the economy. In order for an emerging company to
succeed, we believe it must possess superior management, a substantial
market opportunity, a differentiated product or service, a defensible
market position and a business model that provides operating leverage and
the potential for significant value creation.
Q. DESCRIBE YOUR INVESTMENT PROCESS.
The Company has a disciplined and thorough investment process that adheres
to its investment strategy and has the potential to generate significant
capital gains. The investment process is segmented into five areas; deal
flow generation, investment evaluation, negotiation of price and terms,
value creation and exiting. Deal flow generation is the process of
attracting quality investment opportunities and maximizing the number of
deals seen. Investment evaluation is the process of focusing the Investment
Adviser's and Investment Sub-Adviser's resources on assessing the risk and
return potential of a potential investment to identify attractive
investment opportunities. Once an attractive opportunity is identified, the
Investment Adviser and Investment Sub-Adviser use their experience to
negotiate the best price and terms for that investment. Post investment,
the Investment Adviser and Investment Sub- Adviser proactively work with
the portfolio companies to enhance an investment's value. Throughout the
life of an investment, the Investment Adviser and Investment Sub-Adviser
evaluate the options to exit an investment and realize a return for the
Company. These options include an initial public offering and/or a sale of
the company.
Q. DESCRIBE YOUR LEVEL OF INVOLVEMENT WITH YOUR PORTFOLIO COMPANIES AFTER
AN INVESTMENT HAS BEEN MADE. The Company will be an active investor in its
portfolio companies. Accordingly, the Investment Adviser and Investment
Sub-Adviser do more than identify promising investment opportunities. The
Company will often appoint a director to the board of directors of
portfolio companies. The Investment Adviser and Investment Sub- Adviser
leverage their substantial experience with young, rapidly growing companies
to assist them with strategic and financial planning and oversight,
identifying strategic investors, recruiting executives, attracting
customers and value realization.
Q. HOW DO YOU EXIT YOUR INVESTMENTS?
There are two primary ways the Company will be exiting its investments. The
first is through the sale of a portfolio company to a strategic or
financial buyer and the second is taking the company public through an
initial public offering and effectively selling and/or distributing shares
over time in the aftermarket. In evaluating the options for exiting an
investment, the Company's goal is to maximize the return to our investors.
Q. HOW OFTEN WILL YOU BE REVIEWING THE HOLDINGS IN THE PORTFOLIO - WHAT
CRITERIA WILL YOU BE USING TO VALUE THE HOLDINGS? While portfolio companies
will be reviewed continuously, the Company and its underlying investments
will be marked to market at the end of each fiscal quarter. In general,
portfolio companies will be valued initially at the cost of the investment.
The valuation will be changed when company developments or market factors
justify a revised valuation. This may occur for a variety of reasons,
including one or more of the following.
o A third party financing takes place in which the third party
establishes a new price for the company's shares.
o A liquidity event occurs in which the company's shares are
acquired at a certain price or the company's shares become
tradable on a public market.
o Material adverse changes in the company's operating status
provide reason for a reduction in the valuation of the company.
o There is a material change in the prospects for the sector or
industry in which the Company operates or in the valuations for
Companies in such sector or industry.
Public portfolio companies with constraints on liquidity (i.e.
underwriter's lock-up, Rule 144) will be valued at an appropriate discount
to the public market price of the company's stock.
Funds in the portfolio generally will be valued based on an assessment of
the most recent information available.
Q. WHAT ARE THE INVESTMENT ADVISER'S AND INVESTMENT SUB-ADVISER'S RECORD AS
VENTURE CAPITAL INVESTORS? To date, the Team has managed two funds:
Excelsior Private Equity Fund II, Inc., a $196 million fund capitalized in
1997, and UST Private Equity Investors Fund, Inc., a $40 million fund
capitalized in 1995. These funds have similar investment objectives and
policies to those of the Company, but there are also important differences.
The following is a summary of the aggregate performance characteristics of
these two funds through July 31, 2000:
DIRECT INVESTMENTS FUND INVESTMENTS TOTAL INVESTMENTS
Invested Capital $147.4 $51.0 $198.4
Unrealized Gain 87.6 46.4 134.0
Realized Gain 49.2 12.0 61.1
Total Value of Invested $284.1 $109.4 $393.5
Capital
Multiple of Invested 1.93x 2.14x 1.98x
Capital
Dollar-Weighted Avg. 1.6 years
Holding Period
*All figures are from the period starting in December 1995 through July 31,
2000 and are unaudited.
SEC STANDARDIZED PERFORMANCE CALCULATION BY FUND
1-Year 3-Year Since Inception
UST Private Equity Investors Fund, Inc. 41.3% 3.36% 6.71%
Excelsior Private Equity Fund II, Inc. 47.16% N/A 24.94%
For more information, including important qualifications and disclosures,
see the Prospectus under the caption "Management." Past performance is not
an indication of future results.
Q. WHAT ARE YOUR COMPETITIVE ADVANTAGES IN THE MARKETPLACE?
The Investment Adviser and Investment Sub-Adviser are able to compete
successfully in the venture capital markets due to the Team's experience,
its proven ability to work together over the past five years and the
presence of an effective investment strategy and investment process. In
addition, the Investment Adviser and Investment Sub-Adviser benefit from
their network of professionals and technology experts at portfolio
companies, at other organizations serving the venture capital industry and
at U.S. Trust. These professionals are a source of investment
opportunities, as well as expertise on the market and new technologies.
Q. WHAT TYPE OF DISTRIBUTIONS WILL BE MADE AND HOW OFTEN WILL THESE
DISTRIBUTIONS BE MADE? Distributions made from the Company will take two
forms: cash and stock. Cash distributions will be considered no less than
annually and will consist of capital gain and/or interest earned as well as
the return of capital associated with any realized portfolio events. Stock,
or in kind, distributions will be made at the discretion of the Company as
circumstances permit. There will be no particular timing governing in kind
distributions and investors will receive notification and details of such
distributions as they occur. Given the nature of the Company's investments,
you should not expect any significant distributions during the first
several years of the Company's operations.
Q. HOW AND WHEN WILL THE FUND BE LIQUIDATED/TERMINATED ("WOUND DOWN")?
The Company is "self-liquidating," meaning that proceeds and marketable
securities recognized from realization events (i.e. acquisitions, initial
public offerings, etc.) remaining after paying or reserving for Company
expenses generally will be distributed shortly after such events occur and
typically will not be reinvested in new portfolio companies. The cost basis
of the Company will be adjusted as distributions are made to reflect the
portion of the distribution representing a return of investor capital. The
chart below is an example using annual cash distributions to illustrate the
mechanics of how a self-liquidating fund works. The example assumes a
$1,000 investment.
Year Proceeds to Capital Return of Cumulative Resulting Cost
Investor Gain/Loss Capital Proceeds Basis
1 $ 60 $ 50 $ 10 $ 60 $ 990
2 150 125 25 210 965
3 - (125) - 210 965
4 400 300 100 610 865
5 - (200) - 6100 865
6 1,000 600 400 1,610 465
7 - (200) - 1,610 465
8 200 50 150 1,810 315
9 - (25) - 1,785 315
10 315 - 315 2,100 -
The above chart is for illustrative purposes only.
Q. HOW TRANSFERABLE ARE THE SHARES IN THE FUND?
The Units of the Company, in nearly all cases, are not transferable. There
are provisions that allow for the transfer of Units, at the Company's
discretion, in the following instances that do not involve a change in
beneficial ownership:
o death, bankruptcy, insolvency or dissolution of the investor
holding the Units; or
o transfers to family trusts or other entities which do not involve
a change in beneficial ownership.
If, as an investor, you would like to enact a transfer that does not fall
into one of the above categories, it is your responsibility to contact the
Company to obtain approval for such a transfer. Other than certain
transfers by operations of law (e.g., upon death) such transfers can only
occur if the consent of the Company is obtained.
Q. WHAT IS THE INTENDED CAPITAL CALL SCHEDULE FOR THE FUND?
Your subscription amount is required to be paid in two installments;
one-half as an initial capital contribution payable on or before the final
subscription closing date and one-half as a second capital contribution
payable on the first anniversary of the final subscription closing. Funds
transmitted to the Company by investors prior to the closing date will be
deposited in an interest-bearing bank escrow account with PFPC Inc. pending
closing. If you maintain an account with U.S. Trust or Schwab, your
subscription amount may be deducted directly from your designated account.
Q. HOW HAVE THESE TYPES OF FUNDS PERFORMED IN THE PAST?
Historically, private equity and, more specifically, venture capital funds
as a group have tended to outperform most other asset classes. These
investments also involve much greater risk than most other asset classes,
and returns can be very volatile and differ dramatically between funds. The
table below shows the composite returns generated by venture capital and
private equity over various time periods compared to the total return
generated by the S&P 500 over the same holding periods.
PRIVATE EQUITY/VENTURE CAPITAL RETURNS (%)
1 YR. 3 YR. 5 YR. 10 YR.
VENTURE CAPITAL 146.2 53.8 46.4 25.2
All Private Equity 61.1 31.4 28.5 20.3
S&P 500 Total Return 21.0 27.6 28.5 18.2
Russell 2000 Total Return 21.3 13.1 16.7 13.4
Source: Venture Economics (SDC)/NVCA, Bloomberg
Venture Economics' Private Equity Performance Index is calculated quarterly
from Venture Economics' Private Equity Performance Database (PEPD). The
PEPD tracks the performance of over 1,200 US venture capital and buyout
funds formed since 1969 and over 425 European private equity funds formed
since 1980. Returns are net to investors after fees and carried interest.
Private Equity/Venture Capital return figures represent pooled internal
rates of return, net of fees, as of December 31, 1999.
S&P 500 return figures represent annualized total returns through December
31, 1999.
Russell 2000 return figures represent annualized total returns through
December 31, 1999.
Q. WHAT ARE THIRD PARTY PRIVATE EQUITY AND VENTURE CAPITAL FUNDS?
Third party private equity and/or venture capital funds are typically
limited partnerships or limited liability companies managed by investment
firms, other than the Investment Adviser or Investment Sub-Adviser. The
Company invests in third party funds to provide it with additional
diversification, as well an attractive source of potential deal flow.
Q. WHAT IS A BUSINESS DEVELOPMENT COMPANY?
A Business Development Company, or BDC, is a closed-end, SEC-regulated
investment company that is operated for the purpose of investing directly
in various types of companies, and makes available "significant managerial
assistance" to the companies in which it invests. The SEC requires that 70%
of a BDC's assets be invested in "eligible securities," which include
securities of private companies, securities of certain public companies as
well as short-term fixed income instruments, but not private funds.
Q. WHO CAN INVEST IN THE EXCELSIOR VENTURE PARTNERS III?
Investor suitability requirements applicable only to residents of certain
states are set forth in the Prospectus. Otherwise, there are no specific
requirements for investment in Excelsior Venture Partners III, but
investors will need to demonstrate that they meet general suitability
guidelines for an investment of this type. Specifically, investors should
be able to tolerate the risk and illiquidity that come with venture capital
investing.
Q. WHY DID THE FUND CHOOSE TO BE A CLOSED-END FUND INSTEAD OF AN OPEN-END FUND?
The Company has been structured as a closed-end investment company to
accommodate its decision to invest in private companies and funds. An
open-end fund would be unable to invest broadly in venture capital
opportunities, as it would require a high level of liquidity not afforded
by private investments to accommodate investor redemption requests.
Q. WHY IS THE FUND NOT TRADING ON AN EXCHANGE?
The principal reason that the Company will not trade on an exchange has to
do with the manner in which the Company has been structured for U.S.
federal income tax purposes. The Company has been structured as a Limited
Liability Company to provide investors with the favorable pass-through tax
treatment available under the conventional limited partnership structure,
while not imposing various portfolio limitations applicable to regulated
investment companies or RICs under the U.S. federal income tax code. One of
the conditions that must be met for the Company and its investors to
maintain this treatment is the absence of any market for its shares. If the
Company were to be structured as or become a "publicly-traded partnership,"
the Company would be taxable at the fund level as a corporation, and again
at the investor level.
Q. IS AN INVESTMENT IN THE COMPANY LIQUID?
No, an investment in the Company is illiquid throughout the entire 10-14
year life of the Company. This is a very important consideration for
potential investors and they should understand that an investment in the
Company is non-redeemable with significant limitations on transferability
and is entirely illiquid.
Q. HOW ARE YOU ABLE TO OFFER A VENTURE CAPITAL FUND TO NON-ACCREDITED
INVESTORS? As a publicly offered Business Development Company, the Company
has similar attributes to a closed-end investment company. Unlike the
conventional limited partnership/private placement structure, which
requires funds to limit investors to a limited number of "accredited"
investors, a registered offering of a BDC places no constraints on the
number of investors and does not impose any mandatory minimum investor
wealth and liquidity criteria.
Q. WHAT IS THE TIME HORIZON FOR THE COMPANY TO BE FULLY INVESTED?
In the venture capital industry, "fully invested" is considered to be the
point at which no new companies and funds will enter the portfolio. We
expect the Company to be fully invested in two to four years, depending
upon market conditions and our ability to identify attractive investments
for the Company.
Q. HOW WILL THE COMPANY MANAGE THE CAPITAL NOT YET INVESTED IN PORTFOLIO
COMPANIES? Funds drawn down from investors that have not yet been invested
will be actively managed in a portfolio comprised of cash and short-term
fixed income instruments. These funds will be managed conservatively to
ensure preservation of investor principal with modest income generation as
well as ample liquidity to meet the Company's investment needs.
Q. WHAT IS THE MANAGEMENT FEE AND CARRIED INTEREST (INCENTIVE COMPENSATION)?
The asset-based management fee for the Company will accrue on a quarterly
basis and will be 2.0% of net assets for years one through five and 1.0% of
net assets for all years thereafter. The incentive carried interest will be
20% of net realized gains net of net unrealized losses (if any) on direct
investments calculated on a cumulative basis. This amount will be accrued
on a quarterly basis and will paid to the Investment Adviser as appropriate
concurrent with any distributions of cash or stock made by the Company.
Both the asset-based management fee and the incentive carried interest are
in line with venture capital industry practices.
Q. HOW WILL PERFORMANCE BE MEASURED?
Performance for a vehicle such as this can be measured in several ways. The
SEC requires that performance be measured according to SEC standardized
return methodologies. The Investment Adviser and Investment Sub- Adviser
will monitor their own performance using Internal Rate of Return and
Multiple of Invested Capital to determine the time and asset-weighted
returns only on that capital which has been invested. Investors, however,
may wish to measure performance as they do with investments in other
assets, by adjusting the current value of the asset (NAV) for any
dividends/distributions received to come up with a "total return" figure.
We will provide investors with a complete performance profile by using
these and other metrics and offering explanations of the methodologies used
for calculating the various performance metrics.
Q. WHAT TAX CONSEQUENCES WILL INVESTORS BEAR BY INVESTING IN THIS FUND?
The Company has been structured as a Limited Liability Company and will be
treated as a partnership for U.S. federal income tax purposes. As a result
of this structure, investors will rely on IRS Schedule K-1 tax reporting to
determine their share of allocated income and gains.
Q. HOW WILL I BE ABLE TO MONITOR MY INVESTMENT?
It is the goal of the Investment Adviser to provide the necessary periodic
communications to enable investors to keep abreast of the Company's
developments and investment performance. The Company will provide quarterly
and annual reports. Any questions that are not addressed in these
communications can be directed to the Company, the Investment Adviser or
the Investment Sub-Adviser through the investors' investment
representative.
Q. WHEN IS THE NEXT FUND OF THIS KIND LIKELY TO COME OUT FROM U.S. TRUST?
The Investment Adviser is committed to fully investing this fund before it
raises the next fund. In the past, they have raised funds about every two
to three years. However, the actual pace of investing will differ based on
circumstances including the market environment and the quality of the
opportunities reviewed.
Q. HOW WILL DISTRIBUTIONS BE PAID OUT TO INVESTORS WHEN A COMPANY GOES
PUBLIC, IS ACQUIRED BY ANOTHER COMPANY OR IS SOLD? In instances in which a
portfolio company experiences a liquidity event (i.e. acquisition, IPO),
investors generally will receive either a cash or securities distribution
once the event has been "realized." In the case of securities
distributions, the Company will distribute securities so long as the
securities are not limited by any restrictions and the Company believes it
could do so without adversely impacting the Company or its investment. Cash
distributions may be made annually and will comprise all proceeds from
acquisitions and sales of public securities that are not needed to pay
expenses, establish reserves or fund the operations of the Company.
Distributions of stock will occur at the discretion of the Company.
Q. WHAT TAX REPORTS WILL INVESTORS RECEIVE AND WHEN WILL THEY RECEIVE THEM?
Because the Company is treated as a partnership for U.S. federal income tax
purposes, investors will receive IRS Schedules K-1. Investors in the
Company should anticipate that they will not receive IRS Schedules K-1
until after April 15 and those reliant on IRS Schedules K-1 for tax filing
should anticipate that they will need to file an extension. All investors
in the Company and their investment representatives will receive an IRS
Schedule K-1 typically in May or June of the following calendar year. As an
example, investors will receive their IRS Schedules K-1 governing calendar
and tax year 2000 in May or June 2001. The delay in preparation of the IRS
Schedules K-1 is attributable to the Company's role as a limited partner in
other venture capital funds. As a limited partner, the Fund will not
receive its IRS Schedules K-1 from these funds until the end of March and
will need this information to prepare IRS Schedules K-1 for its investors.
Q. WHAT TYPES OF COMMUNICATIONS FROM THE COMPANY WILL INVESTORS RECEIVE?
Investors in the Company will receive the following types of communications
from the Company:
o Annual Reports including a letter to shareholders and financials;
o Quarterly Reports with qualitative and quantitative Fund
information; and
o Notification and details of cash and/or stock distributions as
appropriate.
Over time, the Company may add to this list portfolio updates and other
correspondence throughout the year addressing the investment activity and
performance of the Company. Investment representatives will receive copies
of all client correspondence and may receive additional scheduled updates
to provide their clients with the most current information about the
Company.
Q. WHAT FORMS DO INVESTORS NEED TO COMPLETE BEFORE INVESTING?
Investors will be sent, and must execute, a comprehensive subscription
agreement that will attest to the suitability of the investment and provide
PFPC with the necessary Investor records to properly serve the Investor on
behalf of the Company. In addition to the subscription agreement, the
Investor may need to complete a non-standard asset agreement or additional
agreements required by the Distributor or the Selling Agent. After all
necessary agreements have been completed, the Investors's proposed
investment will be reviewed and the Investor will be accepted or rejected
accordingly.
Q. WHAT TYPES OF ACCOUNTS ARE ALLOWED FOR THESE INVESTMENTS?
The following is a summary list of the account types that will be permitted
to participate in Excelsior Venture Partners III, LLC:
o Individual accounts
o Joint accounts
o Corporations
o Limited Partnerships
o Limited Liability Companies
o Charitable Organizations/Foundations
The participation of any investors that are not included in the above list
can be reviewed by the relevant Selling Agent, and with consent of the
Company, can be approved for participation in the Company.
Q. MAY CERTAIN BENEFIT PLAN (ERISA) INVESTORS INVEST IN THE COMPANY?
Yes, subject to certain limitations. Investments by benefit plan investors
must be held to less than 25% of the outstanding Units (not including Units
held by the manager of the Company or its affiliates). This limitation is
being imposed so that no assets of the Company will be deemed to be "plan
assets" subject to ERISA or Section 4975 of the Code under regulations
issued by the Department of Labor. This limitation will apply to all
benefit plan investors including individual retirement accounts, employee
benefit plans that are not subject to ERISA or Section 4975 of the Code and
entities whose assets are treated as plan assets for purposes of
regulations issued by the Department of Labor. Benefits plan investors will
also be required to represent and warrant that the purchase of the Units
will not result in a non-exempt prohibited transaction under ERISA or the
Code. See "ERISA Considerations" in the Prospectus.
PART C - OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
1. Financial Statements:
Part A Report of Independent Auditors
Statement of Assets and Liabilities
Notes to Financial Statements
Part B Not applicable.
2. Exhibits:
(a) (1) Certificate of Formation of Limited Liability Company
filed February 18, 2000.*
(2) Certificate of Amendment filed April 26, 2000.**
(3) Form of Limited Liability Company Operating Agreement.
(b) Not applicable.
(c) Not applicable.
(d) Specimen Certificate of the Company's Units, the rights
of holders of which are defined in Exhibit (a)(3).
(e) Not applicable.
(f) Not applicable.
(g) (1) Form of Investment Advisory Agreement between the
Company and U.S. Trust Company.
(2) Form of Investment Sub-Advisory Agreement among the
Company, U. S. Trust Company and United States Trust
Company of New York.
(h) (1) Form of Distribution Agreement between the Company and
Charles Schwab & Co., Inc.
(2) Form of Selling Agent Agreement among the Company,
Charles Schwab & Co., Inc. and the selling agents.
(i) Not applicable.
(j) (1) Form of Custodian Agreement between the Company and PFPC
Trust Company.
(2) Form of Administration, Accounting and Investor Services
Agreement between
the Company and PFPC Inc.
(3) Form of Escrow Agreement between the Company and
PFPC Inc.
(k) Not applicable.
(l) Opinion and consent of Skadden, Arps, Slate, Meagher and
Flom LLP.
(m) Not applicable.
(n) (1) Form of opinion and consent of Skadden, Arps, Slate,
Meagher and Flom LLP as to certain tax matters.
(2) Consent of Ernst & Young, LLP independent auditors.
(o) Not applicable.
(p) (1) Form of Subscription Agreement for investment in units
of the Company.
(2) Form of Subscription Agreement with Charles Schwab &
Co., Inc. for investment in Units of the Company.
(3) Agreement with respect to Seed Capital.
(q) Not applicable.
(r) (1) Code of Ethics of the Company.
(2) Code of Ethics of the Investment Adviser and Investment
Sub-Adviser.
(3) Code of Ethics of the Distributor.
(s) (1) Power of Attorney.*
* Incorporated by reference to the Company's Registration Statement on
From N-2 (File No. 333-30986), filed on February 22, 2000.
** Incorporated by Reference to the Company's Amended Registration Statement
on Form N-2A (File No. 333-30986), filed on April 27, 2000.
Item 25. MARKETING ARRANGEMENTS
See the Form of Distribution Agreement and Form of Selling Agent
Agreement to be filed as Exhibits 2(h) (1) and (2) as well as the Company's
Prospectus under the captions "The Offering" and "Selling Arrangements."
Item 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expense, payable by the
Company in connection with the issuance and distribution of the securities
covered by this Registration Statement.
Securities and Exchange Commission fees. $211,200
Blue Sky fees and expenses.............. $20,000
Printing................................ $30,000
Legal fees and expenses................. $1,025,000
Miscellaneous........................... $70,000
Total................. $1,356,200
==========
Item 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Upon conclusion of the public offering of the Company's units of
membership interest, it is anticipated that no person will be controlled by
or under common control with the Company.
Item 28. NUMBER OF HOLDERS OF SECURITIES AS OF AUGUST 9, 2000
Title of Class Number of Record Holders
-------------- ------------------------
Units of Membership Interest, without par value 1
Item 29. INDEMNIFICATION
The Investment Advisory Agreement and Investment Sub-Advisory
Agreement provide for indemnification by the Company of U.S. Trust Company
and United States Trust Company of New York, the Investment Adviser and
Investment Sub-Adviser, from any and all losses, claims, damages,
liabilities or expenses (including reasonable counsel fees and expenses)
not resulting from willful misfeasance, bad faith or gross negligence in
the performance by the Investment Adviser or Investment Sub-Adviser of
their duties or the reckless disregard of their obligations and duties
under the Investment Advisory Agreement and Investment Sub-Advisory
Agreement, respectively.
By subscribing for Units, each member agrees to indemnify and hold
harmless the Company, the Special Member (as that term is defined in the
Operating Agreement), the members of the Board of Managers, each
appropriate officer and each other member and any successor or assign of
any of the foregoing, from and against all losses, claims, damages,
liabilities, costs and expenses (including losses, claims, damages,
liabilities, costs and expenses of any judgments, fines, awards and amounts
paid in settlement or compromise), joint or several, to which those persons
may become subject by reason of or arising from any transfer made by that
member in violation of the Operating Agreement or any misrepresentation
made by that member in connection with any purported transfer. A similar
indemnification is required to be made by a permitted transferee. The
Operating Agreement provides that the members of the Board of Managers
shall not be personally liable to the Company for the debts, obligations or
liabilities of the Company; obligated to cure any deficit in any capital
account; required to return all or any portion of any capital contribution;
or required to lend any funds to the Company. The Operating Agreement also
provides that no member of the Board of Managers, appropriate officer,
member, investment adviser, distributor or selling agent of or for the
Units of the Company, or any of their respective affiliates, shareholders,
partners, officers, directors, members, employees, agents and
representatives shall have any liability, responsibility, or accountability
in damages or otherwise to any member or the Company for any action or
inaction on the part of the Company or otherwise in connection with the
business or affairs of the Company or any portfolio company. The Operating
Agreement contains provision for the indemnification, to the extent
permitted by law, of the Board of Managers, appropriate officers, members,
investment advisers, distributor or selling agent and any of their
respective affiliates, shareholders, partners, officers, directors,
members, employees, agents and representatives by the Company, but not by
the members individually, against any liability and expense to which any of
them may become liable which arises out of or in connection with the
performance of their activities on behalf of the Company. The rights of
indemnification and exculpation provided under the Operating Agreement do
not provide for indemnification against any liability, to which the
indemnified person would otherwise be subject to as a result of their
willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties under the Operating Agreement.
Pursuant to the Distribution Agreement and the Selling Agent
Agreement, the Company agrees to indemnify the Distributor and Selling
Agent against certain civil liabilities, including liabilities under the
federal securities laws.
Item 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
U.S. Trust Company and United States Trust Company of New York, the
Investment Adviser and Investment Sub-Adviser to the Company provide asset
management, investment, private banking and fiduciary services. For the
names and principal businesses of the directors and certain senior
executive officers of the Investment Adviser and Investment Sub-Adviser,
including those who are engaged in any other business, profession, vocation
or employment of a substantial nature, see the Company's Prospectus under
the caption "Management."
Item 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of the Company will be maintained at the
office of PFPC Inc., 400 Bellevue Parkway, Wilmington, Delaware 19809.
Item 32. MANAGEMENT SERVICES
Except as described in the Prospectus under the caption "Management,"
the Company is not a party to any management service related contract.
Item 33. UNDERTAKINGS
The Company undertakes to suspend the offering of its Units of
membership interest until it amends its Prospectus if (1) subsequent to the
effective date of its Registration Statement, the net asset value declines
more than 10 percent from its net asset value as of the effective date of
the Registration Statement or (2) the net asset value increases to an
amount greater than its net proceeds as stated in the Prospectus.
The Company additionally undertakes, pursuant to Rule 415 under the
Securities Act, as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(b) To reflect in the Prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and
(c) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post- effective amendment shall be deemed to be a
new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The Company undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional
Information.
SIGNATURES
Pursuant to the requirements of the Securities Act, the 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, State
of New York, on the 9th day of August, 2000.
EXCELSIOR VENTURE PARTNERS III, LLC
By: /s/ David I. Fann
------------------------------------------
David I. Fann, Co-Chief Executive Officer
and President
(principal executive officer)
Each person whose signature appears below hereby appoints David I.
Fann his true and lawful attorney-in- fact, with full power of such
attorney-in-fact to sign on his behalf, individually and in each capacity
stated below, any and all amendments (including post-effective amendments)
to the Registration Statement of Excelsior Venture Partners III, LLC and to
file the same, with all exhibits thereto, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ David I. Fann
------------------------- Co-Chief Executive Officer and President August 9, 2000
David I. Fann (principal executive officer)
/s/ Douglas A. Lindgren* Co-Chief Executive Officer and August 9, 2000
------------------------- Chief Investment Officer
Douglas A. Lindgren (principal executive officer)
/s/ Brian Schmidt
------------------------- Chief Financial Officer August 9, 2000
Brian Schmidt (principal financial and accounting officer)
/s/ Gene M. Bernstein* Manager August 9, 2000
-------------------------
Gene M. Bernstein
/s/ John C. Hover II* Manager August 9, 2000
-------------------------
John C. Hover II
/s/ Victor F. Imbimbo, Jr.* Manager August 9, 2000
---------------------------
Victor F. Imbimbo, Jr.
/s/ Stephen V. Murphy* Manager August 9, 2000
---------------------------
Stephen V. Murphy
*By: /s/ David I. Fann
------------------------
David I. Fann
Attorney-in-Fact
</TABLE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
EXHIBITS
TO
FORM N-2A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 |X|
Pre-Effective Amendment 2 |X|
Post-Effective Amendment|_|.
EXCELSIOR VENTURE PARTNERS III, LLC
(Exact Name of Registrant as Specified in Charter)
===============================================================================
EXHIBIT INDEX
Exhibit No. Exhibit Page
----------- ------- ----
(a) (1) Certificate of Formation of Limited Liability Company
filed February 18, 2000.*
(2) Certificate of Amendment filed April 26, 2000.*
(3) Form of Limited Liability Company Operating Agreement.
(b) Not applicable.
(c) Not applicable.
(d) Specimen Certificate of the Company's Units.
(e) Not applicable.
(f) Not applicable.
(g) (1) Form of Investment Advisory Agreement between the Company
and U.S. Trust Company.
(2) Form of Investment Sub-Advisory Agreement among the Company,
U.S. Trust Company and United States Trust Company of
New York.
(h) (1) Form of Distribution Agreement between the Company and Charles
Schwab & Co., Inc.
(2) Form of Selling Agent Agreement among the Company, Charles
Schwab & Co., Inc. and
the selling agents.
(i) Not applicable.
(j) (1) Form of Custodian Agreement between the Company and PFPC
Trust Company.
(2) Form of Administration, Accounting and Investor Services
Agreement between the Company and PFPC Inc.
(3) Form of Escrow Agreement between the Company and PFPC Inc.
(k) Not applicable.
(l) Opinion and consent of Skadden, Arps, Slate, Meagher and Flom LLP.
(m) Not applicable.
(n) (1) Form of opinion and consent of Skadden, Arps, Slate, Meagher
and Flom LLP as to certain tax matters.
(2) Consent of Ernst & Young, LLP independent auditors.
(o) Not applicable.
(p) (1) Form of Subscription Agreement for investment in Units of the
Company.
(2) Form of Subscription Agreement with Charles Schwab & Co., Inc.
for investment in Units of the Company.
(3) Agreement with respect to Seed Capital.
(q) Not applicable.
(r) (1) Code of Ethics.
(2) Code of Ethics of Investment Adviser and Investment
Sub-Adviser.
(3) Code of Ethics of Distributor.
(s) (1) Power of Attorney.*
* Incorporated by reference.
