As filed with the U.S. Securities and Exchange Commission on
February 29, 2000
Investment Company Act File No. 811-_____
-----------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940
| | Amendment No. __
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PW WILLOW FUND, L.L.C.
(Exact name of Registrant as specified in Charter)
1285 Avenue of the Americas
New York, New York 10019-6028
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code:
(212) 713-2000
-------------------------
MARK D. GOLDSTEIN, ESQ.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019-6028
(Name and address of agent for service)
Copy to:
STUART H. COLEMAN, ESQ.
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
-------------------------
<PAGE>
This Registration Statement has been filed by Registrant pursuant to Section
8(b) of the Investment Company Act of 1940, as amended. However, interests in
the Registrant are not being registered under the Securities Act of 1933, as
amended (the "1933 Act"), since such interests will be issued solely in private
placement transactions which do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Registrant may be
made only by individuals or entities which are "accredited investors" within the
meaning of Regulation D under the 1933 Act. This Registration Statement does not
constitute an offer to sell, or the solicitation of an offer to buy, any
interests in the Registrant.
<PAGE>
MEMORANDUM NO:
PW WILLOW FUND, L.L.C.
PAINEWEBBER
<PAGE>
THE INTERESTS IN PW WILLOW FUND, L.L.C. (THE "FUND") WHICH ARE DESCRIBED IN THIS
CONFIDENTIAL MEMORANDUM ("MEMORANDUM") HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("1933 ACT"), OR THE SECURITIES
LAWS OF ANY OF THE STATES OF THE UNITED STATES. THE OFFERING CONTEMPLATED BY
THIS MEMORANDUM WILL BE MADE IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE 1933 ACT FOR OFFERS AND SALES OF SECURITIES WHICH DO NOT
INVOLVE ANY PUBLIC OFFERING, AND ANALOGOUS EXEMPTIONS UNDER STATE SECURITIES
LAWS.
THIS MEMORANDUM SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF INTERESTS IN THE FUND IN ANY
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT AUTHORIZED OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE. NO
PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS CONCERNING THE FUND THAT
ARE INCONSISTENT WITH THOSE CONTAINED IN THIS MEMORANDUM. PROSPECTIVE INVESTORS
SHOULD NOT RELY ON ANY INFORMATION NOT CONTAINED IN THIS MEMORANDUM OR THE
APPENDIX HERETO.
THIS MEMORANDUM IS INTENDED SOLELY FOR THE USE OF THE PERSON TO WHOM IT HAS BEEN
DELIVERED FOR THE PURPOSE OF EVALUATING A POSSIBLE INVESTMENT BY THE RECIPIENT
IN THE INTERESTS IN THE FUND DESCRIBED HEREIN, AND IS NOT TO BE REPRODUCED OR
DISTRIBUTED TO ANY OTHER PERSONS (OTHER THAN PROFESSIONAL ADVISERS OF THE
PROSPECTIVE INVESTOR RECEIVING THIS DOCUMENT).
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS
LEGAL, TAX OR FINANCIAL ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS OR
HER OWN PROFESSIONAL ADVISERS AS TO THE LEGAL, TAX, FINANCIAL OR OTHER MATTERS
RELEVANT TO THE SUITABILITY OF AN INVESTMENT IN THE FUND FOR SUCH INVESTOR.
THESE SECURITIES ARE SUBJECT TO SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
LIMITED LIABILITY COMPANY AGREEMENT OF THE FUND, THE 1933 ACT AND APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION
OF THE FUND AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE FUND'S INTERESTS OR PASSED
UPON THE ADEQUACY OF THE DISCLOSURE IN THIS MEMORANDUM. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
FEBRUARY 2000
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY OF TERMS..............................................................1
THE FUND.....................................................................12
STRUCTURE....................................................................12
INVESTMENT PROGRAM...........................................................12
TYPES OF INVESTMENTS AND RELATED RISK FACTORS................................16
ADDITIONAL RISK FACTORS......................................................25
THE DIRECTORS................................................................26
THE MANAGER, PWFA AND BOND STREET............................................28
VOTING.......................................................................30
CONFLICTS OF INTEREST........................................................30
BROKERAGE....................................................................33
FEES AND EXPENSES............................................................34
CAPITAL ACCOUNTS AND ALLOCATIONS.............................................37
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND
OTHER EXPENDITURES.....................................................39
APPLICATION FOR INTERESTS....................................................41
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS..........................42
TAX ASPECTS..................................................................46
ERISA CONSIDERATIONS.........................................................60
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY COMPANY AGREEMENT....62
APPENDIX A -- LIMITED LIABILITY COMPANY AGREEMENT...........................A-1
<PAGE>
SUMMARY OF TERMS
The following summary is qualified entirely by the detailed information
appearing elsewhere in this Memorandum and by the terms and conditions of the
Fund's Limited Liability Company Agreement (the "LLC Agreement"), each of which
should be read carefully and retained for future reference.
THE FUND: PW Willow Fund, L.L.C. (the "Fund") is a
newly formed Delaware limited liability
company, registered under the Investment
Company Act of 1940, as amended (the "1940
Act"), as a closed-end, non-diversified,
management investment company.
The Fund is a specialized investment vehicle
that may be referred to as a registered
private investment fund. The Fund is similar
to an unregistered private investment fund in
that (i) the Fund's portfolio may be more
aggressively managed than other investment
companies, (ii) interests in the Fund will be
sold in large minimum denominations in
private placements solely to high net worth
individual and institutional investors
("Investors"), and will be restricted as to
transfer, and (iii) the Investors' capital
accounts in the Fund will be subject to both
an asset-based fee and an incentive-based
allocation.
INVESTMENT PROGRAM: The Fund's investment objective is to
maximize total return. It will seek to
achieve its investment objective by investing
primarily in debt and other obligations and,
to a lesser extent, equity securities, of
U.S.companies that are experiencing
significant financial or business
difficulties (collectively, "Distressed
Obligations"). These companies may include
companies that are in bankruptcy or are
likely to become subject to the provisions of
bankruptcy law, and companies that are
engaging, or recently have engaged, in a debt
restructuring or other capital transaction of
a similar nature. These companies also may
include companies that PW Willow Management,
L.L.C. (the "Manager") believes have been
misidentified by others as likely to become
subject to the provisions of bankruptcy law
or to undergo a debt restructuring or other
transaction of a similar nature. In addition,
the Fund may invest in companies that are
engaging, or recently have engaged, in an
extraordinary transaction, such as a rights
offering, liquidation outside of bankruptcy,
recapitalization, leveraged buyout or "going
private" transaction.
The debt securities in which the Fund may
invest sometimes are referred to as "junk
bonds" and include, but are not limited to,
corporate bonds, debentures, notes, municipal
bonds, equipment lease certificates,
equipment trust certificates and loans
collateralized by real estate. The Fund may
invest in privately held obligations, such as
loans, commercial paper, loan participations,
leases, executory contracts, tort claims,
trade claims and accounts and notes
receivable held by trade or other creditors,
as well as equity and other types of debt
securities. These obligations may or may not
be collateralized and generally sell at a
discount from their face value.
The Fund may invest in Distressed Obligations
of foreign issues denominated in U.S.
dollars. The Fund will not invest for the
purpose of seeking control or participating
in the management of any company; however, in
appropriate circumstances, it may seek
representation on creditors' committees or
equity holders' committees if the Manager
determines such representation is in the best
interests of the Fund.
The Fund may sell securities short that the
Manager believes are relatively overvalued or
if the Manager has identified a company that
it believes is about to become financially
troubled.
The Fund may use various investment
techniques to hedge a portion of its
investment portfolio against certain risks or
to pursue its investment objective. In this
regard, the Fund may use leverage, sell
securities short and purchase and sell
options on securities and stock indexes and
other derivatives, subject to certain
limitations described elsewhere in this
Memorandum. The use of some of these
investment techniques and instruments will be
an integral part of the Fund's investment
program, and involves certain risks. See
"TYPES OF INVESTMENTS AND RELATED RISK
FACTORS."
RISK FACTORS: THE FUND'S INVESTMENT PROGRAM IS SPECULATIVE
AND ENTAILS SUBSTANTIAL RISKS. An investment
in the Fund should be viewed only as part of
an overall investment program. No assurance
can be given that the Fund's investment
objective will be achieved.
The Fund's investments in Distressed
Obligations involve substantial risks. The
value of some of the Fund's portfolio
investments should be expected to fluctuate,
possibly significantly and unpredictably. The
value of the Fund's portfolio investments
generally will be affected by
company-specific events and, thus, should
have a lower correlation to broad market
movements. The Fund's portfolio may include a
number of investments for which no market
exists and which have substantial
restrictions on transferability. These
investments may be difficult to value and the
Fund may be able to dispose of these
investments only at substantial discounts or
losses. The Fund's use of leverage is likely
to cause its net assets to appreciate or
depreciate at a greater rate than if leverage
were not used. Any one or all of the
companies in which the Fund may invest may be
unsuccessful or not show any return for a
considerable period of time. In any
reorganization or liquidation proceeding
relating to a portfolio company, the Fund may
lose its entire investment or may be required
to accept cash or securities with a value
less than the Fund's original investment.
Under these circumstances, the returns
generated from the Fund's investments may not
compensate Investors adequately for the risks
assumed. See "TYPES OF INVESTMENTS AND
RELATED RISK FACTORS--High Risk Investments."
The Fund may invest a portion of its assets
in Distressed Obligations of foreign issuers.
See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Foreign Securities."
The Fund's limited diversification, use of
leverage, short sales and derivative
transactions, in certain circumstances, can
result in significant losses to the Fund.
Investments in illiquid securities and
foreign securities also involve certain
risks. See "TYPES OF INVESTMENTS AND RELATED
RISK FACTORS."
As a non-diversified investment company,
there are no percentage limitations on the
portion of the Fund's assets that may be
invested in the securities of any one issuer.
As a result, the Fund's investment portfolio
may be subject to greater risk and volatility
than if investments had been made in the
securities of a broader range of issuers.
The Manager will receive an incentive-based
allocation. The incentive-based allocation
that may be credited to the capital account
of the Manager may create an incentive for
the Manager to cause the Fund to make
investments that are riskier or more
speculative than those that might have been
made in the absence of the incentive-based
allocation. In addition, because the
incentive-based allocation is calculated on a
basis that includes unrealized appreciation
of the Fund's assets, the allocation may be
greater than if it were based solely on
realized gains. See "SUMMARY OF TERMS--Fees
and Expenses" and "--Incentive Allocation."
An investment in the Fund entails special tax
risks. See "SUMMARY OF TERMS--Summary of
Taxation."
The Fund and the Manager are newly formed
entities and have no operating histories upon
which investors can evaluate the performance
of the Fund. However, the personnel of the
Manager who are responsible for managing the
Fund's investment portfolio have substantial
experience in managing, with others, private
investment funds and individually managed
client accounts that have investment programs
that are substantially similar to the Fund's
investment program.
Interests in the Fund will not be traded on
any securities exchange or other market and
are subject to substantial restrictions on
transfer. Although the Fund may offer to
repurchase interests from time to time, an
Investor may not be able to liquidate its
interest in the Fund for up to two years. The
Manager expects that generally, beginning in
2001, it will recommend to the Directors (as
hereinafter defined) that the Fund offer to
repurchase interests from Investors twice
that year, in June and December, and then
once each year thereafter, near year-end. See
"SUMMARY OF TERMS--Transfer Restrictions" and
"--Repurchases of Interests by the Fund."
MANAGEMENT: The Fund's Board of Directors (the "Board"
and its members, the "Directors") has overall
responsibility to manage and control the
business affairs of the Fund, including the
exclusive authority to oversee and to
establish policies regarding the management,
conduct and operation of the Fund's business.
See "THE DIRECTORS."
The Board has engaged the Manager to provide
investment advice to, and day-to-day
management of, the Fund. The Manager is a
joint venture between PW Fund Advisor, L.L.C.
("PWFA") and Bond Street Capital, L.L.C.
("Bond Street"). Investment professionals
employed by Bond Street will manage the
Fund's investment portfolio on behalf of the
Manager under the supervision of PWFA's
personnel.
PWFA is an indirect, wholly-owned subsidiary
of Paine Webber Group Inc. ("PW Group"), and
is registered as an investment adviser under
the Investment Advisers Act of 1940, as
amended (the "Advisers Act"). PWFA and its
affiliates provide investment advisory
services to registered investment companies,
private investment funds and individual
accounts, and, as of December 31, 1999, have
approximately $423 billion of client assets
and approximately $68 billion of assets under
management. Bond Street, which will be a
registered investment adviser under the
Advisers Act before the commencement of the
Fund's operations, is controlled by Sam S.
Kim, its managing member.
PLACEMENT AGENT: PaineWebber Incorporated acts as the
placement agent for the Fund, without special
compensation from the Fund, and will bear its
own costs associated with its activities as
placement agent. PWFA and PaineWebber
Incorporated intend to compensate PaineWebber
Incorporated's or its affiliates' financial
advisors and others for their ongoing
servicing of clients with whom they have
placed interests in the Fund. See "CONFLICTS
OF INTEREST--PWFA."
CONFLICTS OF INTEREST: The investment activities of the Manager and
its affiliates for their own accounts and the
other accounts they manage may give rise to
conflicts of interest which may disadvantage
the Fund. The Fund's operations may give rise
to other conflicts of interest. See
"CONFLICTS OF INTEREST."
FEES AND EXPENSES: PWFA provides certain management and
administrative services to the Fund,
including, among other things, providing
office space and other support services to
the Fund. In consideration for such services,
the Fund will pay PWFA a management fee
generally on a monthly basis at the
annual rate of 1.25% of the Fund's net
assets for the month, excluding assets
attributable to the Manager's capital account
(the "Fee"). The Fee will be paid to PWFA out
of the Fund's assets, and debited against the
Investors' capital accounts. A portion of the
Fee will be paid by PWFA to Bond Street.
PFPC Inc. (the "Administrator") performs
certain administration, accounting and
investor services for the Fund and other
investment funds sponsored or advised by PW
Group or its affiliates. In consideration for
these services, the Fund and the other
investment funds will pay the Administrator
an annual fee calculated based upon their
aggregate average net assets, subject to a
minimum monthly fee, and will reimburse the
Administrator for certain of the
Administrator's expenses.
The Fund will bear all expenses incurred in
the business of the Fund, including, but not
limited to, the following: all costs and
expenses related to portfolio transactions
and positions for the Fund's account; legal
fees; accounting fees; costs of computing the
Fund's net asset value, including valuation
services provided by third parties; costs of
insurance; organizational and registration
expenses; certain offering costs; and
expenses of meetings of the Board and
Investors. See "FEES AND EXPENSES."
PLACEMENT FEE: Investors purchasing interests in the Fund
may be charged a sales commission of up to 2%
of the Investor's capital contribution. The
placement fee will not constitute assets of
the Fund. See "FEES AND EXPENSES--Placement
Fee."
ALLOCATION OF PROFIT The net profits or net losses of the Fund
AND LOSS: (including, without limitation, net realized
gain or loss and the net change in unrealized
appreciation or depreciation of securities
positions) will be credited to or debited
against the capital accounts of the Investors
at the end of each fiscal period in
accordance with their respective Fund
percentages for such period. Each Investor's
Fund percentage will be determined by
dividing as of the start of a fiscal period
the balance of the Investor's capital account
by the sum of the balances of the capital
accounts of all Investors of the Fund. See
"CAPITAL ACCOUNTS AND ALLOCATIONS--Allocation
of Net Profits and Net Losses."
INCENTIVE ALLOCATION: Generally, at the end of the 12-month period
following the admission of an Investor to the
Fund, and at the end of each fiscal year
thereafter, an amount equal to 20% of the net
profits, if any, that would otherwise be
credited to the Investor's account for such
period will instead be credited to the
account of the Manager. This allocation (the
"Incentive Allocation") will be made only
with respect to net profits that exceed any
net losses previously debited to the account
of such Investor which have not been offset
by any net profits subsequently credited to
the account of the Investor. See "CAPITAL
ACCOUNTS AND ALLOCATIONS--Incentive
Allocation."
APPLICATION FOR INTERESTS: Both initial and additional applications for
interests by eligible investors may be
accepted at such times as the Fund may
determine, subject to the receipt of cleared
funds on or before the acceptance date set by
the Fund. After the initial closing, initial
applications and additional capital
contributions will generally be accepted
monthly. The Fund reserves the right to
reject any application for interests in the
Fund. Generally, the minimum initial
investment in the Fund is $250,000. For
employees or directors of the Manager and its
affiliates, and members of their immediate
families, and, in the sole discretion of the
Board, attorneys or other professional
advisors engaged on behalf of the Fund, and
members of their immediate families, the
minimum initial investment is $25,000. The
Fund may vary the investment minimums from
time to time. The Fund, in its discretion,
may suspend applications for interests at any
time. See "APPLICATION FOR
INTERESTS--Eligible Investors."
INITIAL CLOSING DATE: The initial closing date for applications of
interests in the Fund is April 1, 2000. The
Fund, in its sole discretion, may accelerate
or postpone the closing date.
TRANSFER RESTRICTIONS: Interests in the Fund may be transferred only
(i) by operation of law pursuant to the
death, bankruptcy, insolvency or dissolution
of an Investor or (ii) with the written
consent of the Manager, which may be withheld
in its sole and absolute discretion and is
expected to be granted, if at all, only under
extenuating circumstances, in connection with
a transfer to an entity that does not result
in a change of beneficial ownership. The
foregoing permitted transferees will not be
allowed to become substituted Investors
without the consent of the Manager, which may
be withheld in its sole and absolute
discretion. See "REDEMPTIONS, REPURCHASES OF
INTERESTS AND TRANSFERS--Transfers of
Interests."
REPURCHASES OF INTERESTS No Investor will have the right to require
BY THE FUND: the Fund to redeem the Investor's interest in
the Fund. The Fund from time to time may
offer to repurchase interests pursuant to
written tenders by Investors. These
repurchases will be made at such times and on
such terms as may be determined by the Board,
in its complete and exclusive discretion. The
Manager expects that generally, beginning in
2001, it will recommend to the Board that the
Fund offer to repurchase interests from
Investors twice that year, in June and
December, and then once each year thereafter,
near year-end. In addition, the Fund may
repurchase an interest in the Fund or portion
thereof of an Investor or any person
acquiring an interest or portion thereof from
or through an Investor if, among other
reasons, the Manager determines that it would
be in the best interests of the Fund for the
Fund to repurchase such an interest or
portion thereof. See "REDEMPTIONS,
REPURCHASES OF INTERESTS AND TRANSFERS--No
Right of Redemption" and "--Repurchases of
Interests."
The LLC Agreement provides that the Fund
shall be dissolved if the interest of any
Investor that has submitted a written
request, in accordance with the terms of the
LLC Agreement, to tender its entire interest
for repurchase by the Fund has not been
repurchased within a period of two years of
such request.
SUMMARY OF TAXATION: Counsel to the Fund has rendered an opinion
that the Fund will be treated as a
partnership and not as an association taxable
as a corporation for Federal income tax
purposes. Counsel to the Fund has rendered
its opinion that, under a "facts and
circumstances" test set forth in regulations
adopted by the U.S. Treasury Department, the
Fund will not be treated as a "publicly
traded partnership" taxable as a corporation.
Accordingly, the Fund should not be subject
to Federal income tax, and each Investor will
be required to report on its own annual tax
return its distributive share of the Fund's
taxable income or loss.
If it were determined that the Fund should be
treated as an association or a publicly
traded partnership taxable as a corporation,
as a result of a successful challenge to the
opinions rendered by counsel to the Fund or
otherwise, the taxable income of the Fund
would be subject to corporate income tax and
any distributions of profits from the Fund
would be treated as dividends.
ERISA PLANS AND OTHER Investors subject to the Employee Retirement
TAX-EXEMPT ENTITIES: Income Security Act of 1974, as amended
("ERISA"), and other tax-exempt entities,
including employee benefit plans, Individual
Retirement Accounts and 401(k) and Keogh
Plans (each a "tax-exempt" entity), may
purchase interests in the Fund. The Fund's
assets should not be considered to be "plan
assets" for purposes of ERISA's fiduciary
responsibility and prohibited transaction
rules or similar provisions of the Internal
Revenue Code of 1986, as amended (the
"Code"). The Fund may use leverage in
connection with its trading activities.
Therefore, a tax-exempt Investor may incur
income tax liability with respect to its
share of the net profits from such leveraged
transactions to the extent they are treated
as giving rise to "unrelated business taxable
income" ("UBTI"). In addition, an Investor
that is a charitable remainder trust will not
be exempt from Federal tax for any year in
which it has UBTI. The Fund will provide to
tax-exempt Investors such accounting
information as such Investors require to
report their UBTI for income tax purposes.
See "TAX ASPECTS" and "ERISA CONSIDERATIONS."
Investment in the Fund by tax-exempt entities
requires special consideration. Trustees or
administrators of such entities are urged to
review carefully the matters discussed in
this Memorandum.
TERM: The Fund's term is perpetual unless it is
otherwise dissolved under the terms of the
LLC Agreement. See "ADDITIONAL INFORMATION
AND SUMMARY OF LIMITED LIABILITY COMPANY
AGREEMENT--Term, Dissolution and
Liquidation."
REPORTS TO INVESTORS: The Fund will furnish to Investors as soon as
practicable after the end of each taxable
year such information as is necessary for
Investors to complete Federal and state
income tax or information returns, along with
any other tax information required by law.
The Fund also will send to Investors a
semi-annual and an audited annual report
generally within 60 days after the close of
the period for which the report is being
made, or as otherwise required by the 1940
Act. Quarterly reports from the Manager
regarding the Fund's operations during each
quarter also will be sent to Investors.
<PAGE>
THE FUND
The Fund is registered under the 1940 Act as a closed-end, non-diversified,
management investment company. The Fund was formed as a limited liability
company under the laws of Delaware on February 1, 2000 and has no operating
history. The Fund's principal office is located at 1285 Avenue of the Americas,
New York, New York 10019, and its telephone number is (800) 486-2608. Investment
advisory services are provided to the Fund by the Manager.
STRUCTURE
The Fund is a specialized investment vehicle that combines many of the features
of a private investment fund with those of a closed-end investment company.
Private investment funds are unregistered, commingled asset pools that may be
leveraged, managed aggressively and offered in large minimum denominations,
often over $1 million, through private placements to a limited number of high
net worth individual and institutional investors. The general partners or
managing members of these entities typically are compensated through asset-based
fees and incentive-based allocations. Closed-end investment companies are 1940
Act registered pools typically organized as corporations or business trusts that
usually are managed more conservatively than most private investment funds,
subject to relatively modest minimum investment requirements (often less than
$2,000), and publicly offered to a broad range of investors. The advisers to
these companies typically are compensated through asset-based, but not
incentive-based, fees.
The Fund is similar to private investment funds in that its investment portfolio
may be actively managed and Fund interests will be sold in comparatively large
minimum denominations in private placements solely to high net worth individual
and institutional investors, whose capital accounts will be subject to both an
asset-based fee and an incentive-based allocation.
INVESTMENT PROGRAM
INVESTMENT OBJECTIVE, INVESTMENTS AND INVESTMENT TECHNIQUES. The Fund's
investment objective is to maximize total return. It will seek to achieve its
investment objective by investing primarily in Distressed Obligations. These
companies may include companies that are in bankruptcy or are likely to become
subject to the provisions of bankruptcy law, and companies that are engaging, or
recently have engaged, in a debt restructuring or other capital transaction of a
similar nature. These companies also may include companies that the Manager
believes have been misidentified by others as likely to become subject to the
provisions of bankruptcy law or to undergo a debt restructuring or other
transaction of a similar nature. The Fund may invest in companies that are
engaging, or recently have engaged, in an extraordinary transaction, such as a
rights offering, liquidation outside of bankruptcy, recapitalization, leveraged
buyout or "going private" transaction. The Fund also may invest in the
securities of companies experiencing poor operating results as a result of
unfavorable operating conditions, catastrophic events, extraordinary write-offs
or special competitive or product obsolescence problems.
The debt securities in which the Fund may invest sometimes are referred to as
"junk bonds" and include, but are not limited to, corporate bonds, debentures,
notes, municipal bonds, equipment lease certificates, equipment trust
certificates and loans collateralized by real estate. The Fund may invest in
privately held obligations, such as loans, commercial paper, loan
participations, leases, executory contracts, tort claims, trade claims and
accounts and notes receivable held by trade or other creditors, as well as
equity and other types of debt securities. These obligations may or may not be
collateralized and generally sell at a discount from their face value.
The Fund may acquire loans from banks, insurance companies, financial
institutions, other lenders and other market participants, as well as claims
held by trade or other creditors. These loans and claims, which may or may not
be collateralized, generally sell at a discount from their face value and may
afford the Fund a risk-adjusted return superior to that available through the
purchase of publicly traded securities of the same obligor. As a consequence of
its purchase of private claims, the Fund may be required to perform certain
traditional, but limited lending functions, such as funding issued but unfunded
letters of credit in the course of the restructuring of a troubled company or
providing debtor-in-possession financing to the company if it seeks relief under
Federal bankruptcy law.
The Fund also may acquire nonperforming and subperforming commercial real estate
loans and portfolios from financial institutions, government agencies and other
sellers of troubled real estate. Investments may be in the form of single asset
loans, participations in syndicated real estate loans, or bonds secured by
single or multiple real estate assets. The Fund also may acquire portfolios and
participations in portfolios that hold real estate or financial instruments
backed by real estate.
In addition to nonperforming and subperforming commercial real estate assets,
the Fund may invest in nonperforming and subperforming residential real estate
mortgages, consumer loans, and other forms of pooled receivables.
The Fund may invest in Distressed Obligations of foreign issuers denominated in
U.S. dollars. The Fund will not invest for the purpose of seeking control or
participating in the management of any company; however, in appropriate
circumstances, it may seek representation on creditors' committees or equity
holders' committees if the Manager determines such representation is in the best
interests of the Fund.
The Fund may sell securities short that the Manager believes are relatively
overvalued or if the Manager has identified a company that it believes is about
to become financially troubled.
The Fund may use various investment techniques to hedge a portion of its
investment portfolio against certain risks or to pursue its investment
objective. In this regard, the Fund may use leverage, sell securities short and
purchase and sell options on securities and stock indexes and other derivatives,
subject to certain limitations. See "TYPES OF INVESTMENTS AND RELATED RISK
FACTORS--Leverage," "--Short Sales" and "--Special Investment Techniques." The
use of some of these investment techniques and instruments will be an integral
part of the Fund's investment program, and involves certain risks. The Fund will
comply with applicable regulatory requirements, including the asset coverage
requirements under the 1940 Act, in connection with the use of these strategies.
The Fund may invest, for defensive purposes or otherwise, some or all of its
assets in high quality fixed-income securities, money market instruments, and
money market mutual funds, or hold cash or cash equivalents in such amounts as
the Manager deems appropriate under the circumstances. The Fund also may invest
in these instruments pending allocation of the offering proceeds. Money market
instruments include U.S. Government securities, commercial paper, certificates
of deposit and bankers' acceptances, and repurchase agreements.
INVESTMENT OPPORTUNITIES. The Fund will seek profit opportunities arising from
inefficiencies in the market for Distressed Obligations. These inefficiencies
result from, among other factors, the considerable analysis required to evaluate
Distressed Obligations, the difficulty of applying conventional financial
valuation parameters (such as meaningful price/earnings or price/book value
relationships) to Distressed Obligations, and the lack of or limited
institutional research coverage of, and market making activities with respect
to, many troubled companies. Certain institutional investors may be required by
statute or by their organizational documents to divest themselves of Distressed
Obligations. Other investors may be intimidated by bankruptcy (whether actual or
pending) and the complexity of the bankruptcy process. Because of these factors,
the supply of Distressed Obligations often exceeds demand, thereby causing
market inefficiencies such that a differential or "spread" may exist between (i)
the values of these securities under a liquidation or reorganization analysis of
the issuer and (ii) their current market prices. Given the complexities of the
situation, these market inefficiencies may persist for a considerable length of
time during the debt restructuring or bankruptcy process.
Attractive opportunities to acquire Distressed Obligations often arise as
companies experiencing financial and/or business difficulties attempt to
restructure or reorganize their operations outside of a bankruptcy proceeding.
These opportunities may arise with respect to a company's public and private
long and short term debt obligations, its equity securities or the short-term
claims held by general creditors. Typically, a restructuring or reorganization
is preceded by a negative event or events, such as a default on the company's
obligations, downgrading of the company's credit rating, a revised earnings
forecast or a major economic setback such as the loss of a key customer or loss
of a significant lawsuit. The negative event increases the pressure on many
equity holders and creditors to dispose of their Distressed Obligations. As a
consequence of this pressure and the subsequent announcement of a plan to
address the problem, a severe market imbalance often is created as some holders
attempt to sell their positions at a time when few investors are willing to
purchase the securities. This market inefficiency increases the downward
pressure on the price of the Distressed Obligations of the company. This market
imbalance creates opportunities to buy Distressed Obligations at prices below
the value of such securities under a reorganization or liquidation analysis of
the issuer.
Similar opportunities to acquire Distressed Obligations often arise in
connection with the reorganization or liquidation of a troubled company under
Federal bankruptcy law. The added complexity of the Federal bankruptcy process
and the potential for lengthy delays increase the pressure to sell on holders of
securities and other obligations of companies in a Chapter 11 proceeding. As
described above, a supply/demand imbalance can result, producing market
inefficiencies which create opportunities to acquire equity securities,
long-term public and private debt obligations or private claims at prices below
the value of these securities or obligations under a reorganization or
liquidation analysis of the issuer.
When a company emerges from a bankruptcy proceeding, it may do so by issuing new
classes of debt and equity securities or a combination of new and existing
classes of debt and equity securities. These "packages" often offer attractive
returns because the prospects of the company are unclear and there is little
institutional or individual interest in the securities issued.
METHODOLOGY. The investment process begins with a screening of companies that
appear to be on the road to default or bankruptcy. Financial distress for most
companies is a gradual process, with substantial media coverage and trade
discussion. Newspapers and industry publications give broad coverage to
deteriorating financial conditions, actual and suspected. Additionally, clues to
possible investment opportunities can be detected by monitoring the price of
debt securities in the public markets. The Manager will seek to capitalize on
its extensive network of relationships in the Distressed Obligations
marketplace.
The Manager will invest in individual, event-driven securities and claims
following a research intensive investment methodology that analyzes the value
and viability of the UNDERLYING ASSETS, the CONTRACTED CLAIMS relating to those
assets and the likely EVENT DYNAMICS.
ASSETS. The heart of the investment analysis is finding good businesses and/or
assets to invest in. Analysis may include visiting or contacting a company and
its management or other market participants, a review of SEC filings, industry
reports, court records, press releases, and "street" research. The Manager will
develop computer models in an attempt to assess going concern and liquidation
values and will contact former company managers, competitors, suppliers,
creditors and lawyers, and financial advisers for creditor committees of the
debtor. The Manager will seek to invest in companies that have strong franchises
that are not easily duplicated. The Manager will seek to understand a company's
long-term ability to generate cash flow and its competitive position in its
industry and identify other valuable assets. The Manager puts a great deal of
importance on positive cash flow, in that positive cash flow results in steadily
increasing asset value, as well as potentially providing a bankrupt company the
opportunity to fund itself through a reorganization.
CONTRACT RIGHTS. An integral part of evaluating the risk-reward profile of an
investment is the analysis of protective debt covenants, collateral protection,
seniority and other contractual rights, and how these rights will be classified
in the restructuring process.
EVENT DYNAMICS/TIMING. The Manager will seek to make accurate judgments about
the outcome and timing of legal and regulatory issues relating to a troubled
company. The Fund's success will depend, in part, on the Manager's ability to
handicap the likely structure of a reorganization plan, including assessments of
the relative positions of interested parties, including creditor groups, equity
holders, regulatory agencies, employees and management.
Additional information about the types of investments that are expected to be
made by the Fund, its investment practices and related risk factors is provided
below. Except as otherwise indicated, the Fund's investment policies and
restrictions are not fundamental and may be changed without a vote of Investors.
See "TYPES OF INVESTMENTS AND RELATED RISK FACTORS--Investment Restrictions."
THE FUND'S INVESTMENT PROGRAM IS SPECULATIVE AND ENTAILS SUBSTANTIAL RISKS.
THERE CAN BE NO ASSURANCE THAT THE FUND'S INVESTMENT OBJECTIVE WILL BE ACHIEVED
OR THAT ITS INVESTMENT PROGRAM WILL BE SUCCESSFUL. IN PARTICULAR, THE FUND'S USE
OF LEVERAGE, SHORT SALES AND DERIVATIVE TRANSACTIONS, ITS LIMITED
DIVERSIFICATION, THE LIMITED LIQUIDITY OF MANY OF ITS PORTFOLIO SECURITIES AND
DIFFICULTIES IN VALUING CERTAIN PORTFOLIO SECURITIES CAN, IN CERTAIN
CIRCUMSTANCES, RESULT IN OR CONTRIBUTE TO SIGNIFICANT LOSSES TO THE FUND.
INVESTORS SHOULD CONSIDER THE FUND AS A SUPPLEMENT TO AN OVERALL INVESTMENT
PROGRAM AND SHOULD INVEST ONLY IF THEY ARE WILLING TO UNDERTAKE THE RISKS
INVOLVED. INVESTORS COULD LOSE SOME OR ALL OF THEIR INVESTMENT.
TYPES OF INVESTMENTS AND RELATED RISK FACTORS
GENERAL
Since the Fund will invest primarily in Distressed Obligations, the risk of an
investment in the Fund is substantial. The market value of some of the Fund's
portfolio investments should be expected to fluctuate, possibly significantly
and unpredictably. The value of the Fund's portfolio investments generally will
be affected by company-specific events and, thus, should have a lower
correlation to broad market movements. The Fund's portfolio may include a number
of investments for which no market exists and which have substantial
restrictions on transferability. These investments may be difficult to value and
the Fund may be able to dispose of these investments only at substantial
discounts or losses. The Fund's use of leverage is likely to cause its net
assets to appreciate or depreciate at a greater rate than if leverage were not
used.
HIGH RISK INVESTMENTS
The Fund's investments in Distressed Obligations involve substantial risks. Any
one or all of the companies in which the Fund may invest may be unsuccessful or
not show any return for a considerable period of time. In any reorganization or
liquidation proceeding relating to a portfolio company, the Fund may lose its
entire investment or may be required to accept cash or securities with a value
less than the Fund's original investment. Under these circumstances, the returns
generated from the Fund's investments may not compensate Investors adequately
for the risks assumed.
The Fund's investments in junk bonds are considered to be predominantly
speculative with respect to the company's capacity to pay interest and repay
principal. These securities may involve a substantial risk of default or may be
in default. Adverse changes in economic conditions or developments regarding the
individual company are more likely to cause price volatility and weaken the
capacity of issuers of junk bonds to make principal and interest payments than
is the case for higher grade securities. In addition, the market for these
securities may be thinner and less liquid than for higher grade securities.
The Fund may acquire privately held loans from banks, insurance companies,
financial institutions, other lenders and other market participants, as well as
claims held by trade or other creditors. These investments are subject to both
interest rate risk and credit risk. These investments also are subject to the
risk of non-payment of scheduled interest or principal. Non-payment would result
in a reduction of income to the Fund and a reduction in the value of the
investments experiencing non-payment. Although these investments generally will
be secured by specific collateral, no assurance can be given that the
liquidation of this collateral would satisfy the company's obligation in the
event of default or that the collateral could be readily liquidated. In
addition, because these investments are not registered and no public market for
them exists, they typically are less liquid than publicly traded securities.
Investments in securities or claims related to commercial or residential real
estate may involve risk relating to the credit of the underlying obligor,
uncertainties related to the cash flows derived from the underlying properties,
and susceptibility to economic conditions generally and those related to
specific locations.
Funding a plan of reorganization involves additional risks, including risks
associated with equity ownership in the reorganized entity. The equity
securities of distressed companies may be highly illiquid and hard to value.
Equity securities hold the most junior position in a distressed company's
capital structure and are not secured by any specific collateral.
Some of the Fund's portfolio investments may be difficult to value from time to
time because market quotations are not available. In these circumstances,
investments will be valued based on procedures designed to ascertain their fair
value. These determinations may not reflect the actual value of the investments.
Although the Fund expects to pay all repurchases of interests in cash, there can
be no assurance that this will be the case. If significant repurchases are
requested, the Fund may not be able to liquidate its investments at the time the
repurchases are to be made or may be able to do so only at prices which the
Manager believes do not reflect the true value of the Fund's investments and
which would adversely affect the Fund's total returns. Under these
circumstances, the Fund may make distributions in-kind of the Fund's portfolio
securities or obligations, some or all of which may not be readily marketable
and may have to be held by Investors for an indefinite period of time.
In addition to the risks discussed above associated with the Fund's investments
in Distressed Obligations, the Fund also may be subject to the following risks:
SHORT SALES
To effect a short sale, the Fund will borrow a security from a brokerage firm,
or other permissible financial intermediary, to make delivery to the buyer. The
Fund then is obligated to replace the borrowed security by purchasing it at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund, which would
result in a loss or gain, respectively. The Fund may not always be able to
borrow a security it wants to sell short and thus will lose the opportunity to
benefit from its strategy. The Fund also may be unable to close out a short
position at any particular time or at an acceptable price. If the Fund is
required to replace the borrowed security at a time when other short sellers of
the same security also are required to replace it, a "short squeeze" can occur,
wherein the Fund might be compelled, at a disadvantageous time, to replace the
borrowed security, possibly at prices significantly in excess of the proceeds
received from the short sale. Although the Fund's gain on a short sale is
limited to the amount at which it sold the security short, its potential loss
can increase rapidly and is limited only by the maximum attainable price of the
security less the price at which the security was sold. Short selling is a
speculative investment technique and, in certain circumstances, can
substantially increase the impact of adverse price movements on the Fund's
portfolio.
LEVERAGE
The Fund may borrow money from brokers and banks for investment purposes.
Borrowing for investment purposes, which is known as "leverage," is a
speculative investment technique and involves certain risks.
Although leverage will increase investment return if the Fund earns a greater
return on the investments purchased with borrowed funds than it pays for the use
of such funds, using leverage will decrease investment return if the Fund fails
to earn as much on such investments as it pays for the use of such funds. Using
leverage, therefore, will magnify the volatility of the value of the Fund's
investment portfolio. If the Fund's equity or debt instruments decline in value,
the Fund could be required to deposit additional collateral with the lender or
suffer mandatory liquidation of the pledged securities to compensate for the
decline in value. In the event of a sudden, precipitous drop in value of the
Fund's assets, whether resulting from changes in market value or from
redemptions, the Fund might not be able to liquidate assets quickly enough to
pay off its borrowing. Money borrowed for leveraging will be subject to interest
costs that may or may not be recovered by return on the securities purchased.
The Fund also may be required to maintain minimum average balances in connection
with its borrowings or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate.
The 1940 Act limits the amount an investment company can borrow by imposing an
asset coverage requirement of 300% of its indebtedness, including amounts
borrowed, measured at the time the investment company incurs the indebtedness
(the "Asset Coverage Requirement"). This means that the value of the Fund's
total indebtedness may not exceed one-third the value of its total assets,
including such indebtedness, measured at the time the Fund incurs the
indebtedness.
To obtain "leveraged" market exposure in certain investments and to increase the
overall return to the Fund of various investments, the Fund may purchase options
and other instruments that do not constitute "indebtedness" for purposes of the
Asset Coverage Requirement. These instruments nevertheless may involve
significant economic leverage and therefore, in some cases, may involve
significant risks of loss.
FOREIGN SECURITIES
The Fund may invest in Distressed Obligations of foreign issuers and, to a
lesser extent, in depositary receipts, such as American Depositary Receipts
("ADRs"), that represent indirect interests in securities of foreign issuers.
Foreign securities in which the Fund may invest may be listed on foreign
securities exchanges or traded in foreign over-the-counter markets. Investments
in foreign securities are affected by risk factors generally not thought to be
present in the U.S. These factors include: varying custody, brokerage and
settlement practices; difficulty in pricing; less public information about
issuers of foreign securities; less governmental regulation and supervision over
the issuance and trading of securities than in the U.S.; the unavailability of
financial information regarding the foreign issuer or the difficulty of
interpreting financial information prepared under foreign accounting standards;
less liquidity and more volatility in foreign securities markets; the
possibility of expropriation or nationalization; the imposition of withholding
and other taxes; adverse political, social or diplomatic developments;
limitations on the movement of funds or other assets of the Fund between
different countries; difficulties in invoking legal process abroad and enforcing
contractual obligations; and the difficulty of assessing economic trends in
foreign countries. Moreover, governmental issuers of foreign securities may be
unwilling to repay principal and interest due, and may require that the
conditions for payment be renegotiated. Investment in foreign countries also
involves higher brokerage and custodian expenses than does investment in
domestic securities.
SPECIAL INVESTMENT TECHNIQUES
The Fund may use a variety of special investment techniques to hedge a portion
of its investment portfolio against various risks or other factors that
generally affect the values of securities and for non-hedging purposes to pursue
the Fund's investment objective. These techniques may involve the use of
derivative transactions. The techniques the Fund may employ may change over time
as new instruments and techniques are introduced or as a result of regulatory
developments. Certain of the special investment techniques that the Fund may use
are speculative and involve a high degree of risk, particularly when used for
non-hedging purposes. It is possible that any hedging transaction may not
perform as anticipated and that the Fund may suffer losses as a result of its
hedging activities.
DERIVATIVES. The Fund may purchase derivatives or enter into derivative
transactions ("Derivatives"). These are financial instruments which derive their
performance, at least in part, from the performance of an underlying asset,
index or interest rate. Derivatives can be volatile and involve various types
and degrees of risk, depending upon the characteristics of the particular
Derivative and the portfolio as a whole. Derivatives permit the Fund to increase
or decrease the level of risk, or change the character of the risk, to which its
portfolio is exposed in much the same way as the Fund can increase or decrease
the level of risk, or change the character of the risk, of its portfolio by
making investments in specific securities.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a large
potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its Derivatives were poorly
correlated with its other investments, or if the Fund were unable to liquidate
its position because of an illiquid secondary market. The market for many
Derivatives is, or suddenly can become, illiquid. Changes in liquidity may
result in significant, rapid and unpredictable changes in the prices for
Derivatives.
OPTIONS. The Fund may engage in options transactions. The Fund also may invest
in so-called "synthetic" options or other derivative instruments written by
broker-dealers or other permissible financial intermediaries. Options
transactions may be effected on securities exchanges or in the over-the-counter
market. When options are purchased over-the-counter, the Fund bears the risk
that the counterparty that wrote the option will be unable or unwilling to
perform its obligations under the option contract. These options also may be
illiquid and, in such cases, the Fund may have difficulty closing out its
position. Over-the-counter options purchased and sold by the Fund also may
include options on baskets of specific securities.
The Fund may purchase and sell call and put options in respect of specific
securities, and may write and sell covered or uncovered call and put options.
A covered call option, which is a call option with respect to which the Fund
owns the underlying security, that is sold by the Fund exposes the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or to possible continued holding
of a security that might otherwise have been sold to protect against
depreciation in the market price of the security. A covered put option, which is
a put option with respect to which the Fund has segregated cash or liquid
securities to fulfill the obligation undertaken, that is sold by the Fund
exposes the Fund during the term of the option to a decline in price of the
underlying security while depriving the Fund of the opportunity to invest the
segregated assets.
The Fund may close out a position when writing options by purchasing an option
on the same security with the same exercise price and expiration date as the
option that it has previously written on such security. The Fund will realize a
profit or loss if the amount paid to purchase an option is less or more, as the
case may be, than the amount received from the sale thereof. To close out a
position as a purchaser of an option, the Fund would ordinarily make a similar
"closing sale transaction," which involves liquidating the Fund's position by
selling the option previously purchased, although the Fund would be entitled to
exercise the option should it deem it advantageous to do so.
WARRANTS. Warrants are derivative instruments that permit, but do not obligate,
the holder to subscribe for other securities. Warrants do not carry with them
the right to dividends or voting rights with respect to the securities that they
entitle the holder to purchase, and they do not represent any rights in the
assets of the issuer. As a result, warrants may be considered more speculative
than certain other types of investments. In addition, the value of a warrant
does not necessarily change with the value of the underlying securities or
commodities, and a warrant ceases to have value if it is not exercised prior to
its expiration date.
CALL AND PUT OPTIONS ON SECURITIES INDEXES. The Fund may purchase and sell call
and put options on stock indexes, such as the Standard & Poor's 500 Composite
Stock Price Index or the Standard & Poor's 100 Index, listed on national
securities exchanges or traded in the over-the-counter market for hedging
purposes and to pursue its investment objective. A stock index fluctuates with
changes in the market values of the stocks that comprise the index. Accordingly,
successful use by the Fund of options on stock indexes will be subject to the
Manager's ability to predict correctly movements in the direction of the stock
market generally or segments thereof. This requires different skills and
techniques than forecasting changes in the price of individual stocks.
LENDING PORTFOLIO SECURITIES
The Fund may lend securities from its portfolio to brokers, dealers and other
financial institutions needing to borrow securities to complete certain
transactions. The Fund continues to be entitled to payments in amounts equal to
the interest, dividends or other distributions payable on the loaned securities
which affords the Fund an opportunity to earn interest on the amount of the loan
and on the loaned securities' collateral. Loans of portfolio securities may not
exceed 33-1/3% of the value of the Fund's total assets, and, in respect of such
transactions, the Fund will receive collateral consisting of cash, U.S.
Government Securities or irrevocable letters of credit which will be maintained
at all times in an amount equal to at least 100% of the current market value of
the loaned securities. The Fund might experience risk of loss if the institution
with which it has engaged in a portfolio loan transaction breaches its agreement
with the Fund.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES
To reduce the risk of changes in securities prices and interest rates, the Fund
may purchase securities on a forward commitment, when-issued or delayed delivery
basis, which means delivery and payment take place a number of days after the
date of the commitment to purchase. The payment obligation and the interest rate
receivable with respect to such purchases are fixed when the Fund enters into
the commitment, but the Fund does not make payment until it receives delivery
from the counterparty. The Fund will commit to purchase such securities only
with the intention of actually acquiring the securities, but the Fund may sell
these securities before the settlement date if it is deemed advisable.
Securities purchased on a forward commitment or when-issued or delayed delivery
basis are subject to changes in value, generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise, based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities so
purchased may expose the Fund to risks because they may experience such
fluctuations prior to their actual delivery. Purchasing securities on a
when-issued or delayed delivery basis can involve the additional risk that the
yield available in the market when the delivery takes place actually may be
higher than that obtained in the transaction itself. Purchasing securities on a
forward commitment, when-issued or delayed delivery basis when the Fund is fully
or almost fully invested may result in greater potential fluctuation in the
value of the Fund's net assets. In addition, there is a risk that securities
purchased on a when-issued or delayed delivery basis may not be delivered and
that the purchaser of securities sold by the Fund on a forward basis will not
honor its purchase obligation. In such cases, the Fund may incur a loss.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements involve the sale of a security to a bank or
securities dealer and the simultaneous agreement to repurchase the security for
a fixed price, reflecting a market rate of interest, on a specific date. These
transactions involve a risk that the other party to a reverse repurchase
agreement will be unable or unwilling to complete the transaction as scheduled,
which may result in losses to the Fund. Reverse repurchase agreements are a form
of leverage which also may increase the volatility of the Fund's investment
portfolio.
ILLIQUID INVESTMENTS AND RESTRICTED SECURITIES
The Fund may invest a substantial portion of its total assets in investments
which are illiquid, such as certain loans and loan participations. While,
frequently, an institutional trading market exists for loan participations, the
market may become less liquid based on factors affecting individual credits or
the entire market.
The Fund also may purchase restricted securities. Restricted securities are
securities that may not be sold to the public without an effective registration
statement under the 1933 Act or, if they are unregistered, may be sold only in a
privately negotiated transaction or pursuant to an exemption from registration
under the 1933 Act.
Where registration is required to sell a security, the Fund may be obligated to
pay all or part of the registration expenses, and a considerable period may
elapse between the decision to sell and the time the Fund may be permitted to
sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than the prevailing price when it decided to sell. Restricted
securities for which no market exists and other illiquid investments are valued
at fair value as determined in accordance with procedures approved and
periodically reviewed by the Directors.
The Fund may be unable to sell illiquid and restricted securities at the most
opportune times or at prices approximating the value at which the Fund purchased
such securities.
NON-DIVERSIFIED STATUS
The classification of the Fund as a "non-diversified" investment company means
that the percentage of the Fund's assets that may be invested in the securities
of a single issuer is not limited by the 1940 Act. A "diversified" investment
company is required by the 1940 Act generally, with respect to 75% of its total
assets, to invest not more than 5% of such assets in the securities of a single
issuer. Since a relatively high percentage of the Fund's assets may be invested
in the securities of a limited number of issuers, some of which may be within
the same industry, the Fund's portfolio securities may be more sensitive to
changes in the market value of a single issuer and to events affecting a
particular industry or market segment.
Generally, the Fund intends to invest no more than 10% of the value of its total
assets in the securities of any one issuer. However, while seeking desirable
investments, the Fund may exceed this limitation and U.S. Government Securities
are not subject to this limitation.
The Fund does not intend to make investments for the purpose of exercising
control or management over a portfolio company; however, in appropriate
circumstances, it may seek representation on creditors' committees or equity
holders' committees if the Manager determines such representation is in the best
interests of the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental
policies, which cannot be changed without approval by holders of a majority (as
defined in the 1940 Act) of the Fund's outstanding voting securities. The Fund
may not:
o Issue senior securities, except that, to the extent permitted by the 1940
Act, the Fund may borrow money (a) to finance portfolio transactions and
engage in other transactions involving the issuance by the Fund of "senior
securities" representing indebtedness, and (b) for temporary or emergency
purposes or in connection with repurchases of, or tenders for, the Fund's
interests.
o Underwrite securities of other issuers, except insofar as the Fund may be
deemed an underwriter under the 1933 Act in connection with the disposition
of its portfolio securities.
o Make loans, except by or as a consequence of (a) the acquisition of loan
interests (which may include, among other things, participations or
assignments in debtor-in-possession loans), debt securities, and other
obligations in which the Fund is authorized to invest in accordance with
its investment objective and policies, (b) lending portfolio securities,
and (c) entering into repurchase agreements in a manner consistent with the
Fund's investment policies or as otherwise permitted under the 1940 Act.
o Purchase, hold or deal in real estate, except that the Fund may invest in
securities or other instruments that are secured by real estate, or
securities of companies that invest or deal in real estate or interests in
real estate or are engaged in the real estate business.
o Invest in commodities or commodity contracts, except that the Fund may
purchase and sell options, including those related to indexes.
o Invest in the securities of any one industry (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities), if
as a result 25% or more of the Fund's total assets would be invested in the
securities of such industry.
Under the 1940 Act, the vote of a majority of the outstanding voting securities
of an investment company, such as the Fund, means the vote, at the annual or a
special meeting of the security holders of such company duly called, (A) of 67%
or more of the voting securities present at such meeting, if the holders of more
than 50% of the outstanding voting securities of such company are present or
represented by proxy; or (B) of more than 50% of the outstanding voting
securities of such company, whichever is less.
With respect to these investment restrictions, and other policies described in
this Memorandum, if a percentage restriction is adhered to at the time of an
investment or transaction, a later change in percentage resulting from a change
in the values of investments or the value of the Fund's total assets, unless
otherwise stated, will not constitute a violation of such restriction or policy.
The Fund's investment objective is fundamental and may not be changed without
the vote of a majority (as defined by the 1940 Act) of the Fund's outstanding
voting securities.
ADDITIONAL RISK FACTORS
INCENTIVE ALLOCATION
The Incentive Allocation of 20% of net profits to the capital account of the
Manager may create an incentive for the Manager to make investments that are
riskier or more speculative than those that might have been made in the absence
of the Incentive Allocation. In addition, because the allocation is calculated
on a basis that includes unrealized appreciation of the Fund's assets, the
Incentive Allocation may be greater than if it were based solely on realized
gains. See "CAPITAL ACCOUNTS AND ALLOCATIONS--Incentive Allocation."
TAX RISKS
Counsel to the Fund has rendered an opinion that the Fund will be treated as a
partnership and not as an association taxable as a corporation for Federal
income tax purposes. Counsel to the Fund has rendered its opinion that, under a
"facts and circumstances" test set forth in regulations adopted by the U.S.
Treasury Department, the Fund will not be treated as a "publicly traded
partnership" taxable as a corporation. If it were determined that the Fund
should be treated as an association or publicly traded partnership taxable as a
corporation, as a result of a successful challenge to the opinions rendered by
counsel to the Fund or otherwise, the taxable income of the Fund would be
subject to corporate income tax and distributions of profits from the Fund would
be treated as dividends. See "TAX ASPECTS--Tax Treatment of Fund
Operations--Classification of the Fund."
In many circumstances, the Fund will invest in debt securities that were issued
with original issue discount ("OID"). In general, because OID is includible in
income as ordinary income as it accrues under a constant-yield method, the Fund,
and consequently the Investors, may have to recognize taxable income prior to
the receipt of cash associated with that income. Similarly, the Fund may acquire
debt securities that have market discount (each, a "Market Discount
Obligation"). Accrued market discount is includible in income to the Fund, and
consequently to the Investors, as ordinary income currently, but limited to the
extent principal payments are made with respect to the debt security. Any gain
upon the Fund's sale or disposition of a Market Discount Obligation will be
treated as ordinary income to the extent of any accrued and previously untaxed
market discount. The Fund may be required to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase or
carry a Market Discount Obligation.
The Fund's short sales and transactions in Derivatives will be subject to
special tax rules, the effect of which may be to accelerate income to the Fund,
defer losses to the Fund, cause adjustments in the holding period of the Fund's
securities and convert short-term capital losses into long-term capital losses.
Such transactions may result in the Fund realizing more short-term capital gains
and ordinary income subject to tax at ordinary income tax rates than it would if
it did not engage in such transactions.
To the extent a modification of a debt security held by the Fund results in a
deemed taxable exchange of the debt security, or there is a taxable exchange of
a debt security held by the Fund in connection with the reorganization of the
issuer of the security, the Fund will not have any cash receipts associated with
any gain recognized by the Fund upon such deemed or actual exchange. Each
Investor will be required to pay all applicable Federal and state income taxes
with respect to its share of all such gains even though, as described below, the
Fund does not intend to make periodic distributions of its net income or gains,
if any, to Investors for such purpose.
LACK OF OPERATING HISTORY
The Fund and the Manager are newly formed entities and have no operating
histories upon which investors can evaluate the performance of the Fund.
However, as discussed below, the personnel of the Manager who are responsible
for managing the Fund's investment portfolio have substantial experience in
managing, with others, private investment funds and individually managed client
accounts that have investment programs that are substantially similar to the
Fund's investment program. See "THE MANAGER, PWFA AND BOND STREET" and
"CONFLICTS OF INTEREST--Participation in Investment Opportunities."
LIQUIDITY RISKS
Interests in the Fund will not be traded on any securities exchange or other
market and are subject to substantial restrictions on transfer. Although the
Fund may offer to repurchase Investor interests from time to time, an Investor
may not be able to liquidate its interest in the Fund for up to two years. The
Manager expects that generally, beginning in 2001, it will recommend to the
Board that the Fund offer to repurchase interests from Investors twice that
year, in June and December, and then once each year thereafter, near year-end.
See "REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS."
DISTRIBUTIONS TO INVESTORS AND PAYMENT OF TAX LIABILITY
The Fund does not intend to make periodic distributions of its net income or
gains, if any, to Investors. Whether or not distributions are made, Investors
will be required each year to pay applicable Federal and state income taxes on
their respective shares of the Fund's taxable income, and will have to pay such
applicable taxes from sources other than Fund distributions. The amount and
times of any distributions will be determined in the sole discretion of the
Board.
THE DIRECTORS
The Board has overall responsibility to manage and control the business affairs
of the Fund, including the complete and exclusive authority to oversee and to
establish policies regarding the management, conduct and operation of the Fund's
business. The Board exercises the same powers, authority and responsibilities on
behalf of the Fund as are customarily exercised by the board of directors of a
registered investment company organized as a corporation.
The Directors are not required to contribute to the capital of the Fund or hold
interests in the Fund. A majority of the Directors are not "interested persons"
(as defined in the 1940 Act) of the Fund (collectively, the "Independent
Directors") and perform the same functions for the Fund as are customarily
exercised by the non-interested directors of a registered investment company
organized as a corporation.
The identity of the Directors and brief biographical information regarding each
Director is set forth below. Each Director who is deemed to be an "interested
person" of the Fund, as defined in the 1940 Act, is indicated by an asterisk.
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE DURING PAST FIVE YEARS
*E. Garrett Bewkes, Jr. Mr. Bewkes is a director of, and prior to
c/o PaineWebber Incorporated December 1995 was a consultant to, PW
1285 Avenue of the Americas Group. Prior to 1988, he was Chairman of
New York, New York 10019 the Board, President and Chief Executive
Age 73 Officer of American Bakeries Company. Mr.
Bewkes is a director of Interstate
Bakeries Corporation. Mr. Bewkes also is a
director or trustee of 37 other investment
companies for which PaineWebber
Incorporated or its affiliates serves as
investment adviser.
Meyer Feldberg Mr. Feldberg is Dean and Professor of
c/o Columbia University Management of the Graduate School of
101 Uris Hall Business, Columbia University. Prior to
New York, New York 10027 1989, he was President of the Illinois
Age 57 Institute of Technology. Dean Feldberg
is a director of Primedia, Inc.
(publishing), Federated Department Stores
Inc. (operator of department stores) and
Revlon, Inc (cosmetics). Dean Feldberg
also is a director or trustee of 35 other
investment companies for which PaineWebber
Incorporated or its affiliates serves as
investment adviser.
George W. Gowen Mr. Gowen is a partner in the law firm of
666 Third Avenue Dunnington, Bartholow & Miller. Prior to
New York, New York 10017 May 1994, he was a partner in the law firm
Age 70 of Fryer, Ross & Gowen. Mr. Gowen also is
a director or trustee of 35 other
investment companies for which PaineWebber
Incorporated or its affiliates serves as
investment adviser.
The Directors serve on the Board for terms of indefinite duration. A Director's
position in that capacity will terminate if such Director is removed, resigns or
is subject to various disabling events such as death or incapacity. A Director
may resign upon 90 days' prior written notice to the other Directors, subject to
waiver of notice, and may be removed either by vote of two-thirds of the
Directors not subject to the removal vote or vote of the Investors holding not
less than two-thirds of the total number of votes eligible to be cast by all
Investors. In the event of any vacancy in the position of a Director, the
remaining Directors may appoint an individual to serve as a Director, so long as
immediately after such appointment at least two-thirds of the Directors then
serving would have been elected by the Investors. The Directors may call a
meeting of Investors to fill any vacancy in the position of a Director, and must
do so within 60 days after any date on which Directors who were elected by the
Investors cease to constitute a majority of the Directors then serving. If no
Director remains to manage the business of the Fund, the Manager may manage and
control the Fund, but must convene a meeting of Investors within 60 days for the
purpose of either electing new Directors or dissolving the Fund.
The Independent Directors are each paid an annual retainer of $5,000 and per
meeting fees of $500, or $250 in the case of telephonic meetings by the Fund.
The other Directors receive no annual or other fees from the Fund. All Directors
are reimbursed by the Fund for their reasonable out-of-pocket expenses. It is
estimated that the aggregate annual compensation paid by the Fund to each
Independent Director will be $7,000 during the coming year, and that, together
with compensation paid to them by other registered investment companies advised
by affiliates of the Manager, Messrs. Feldberg and Gowen each will receive
aggregate annual compensation from all such companies of approximately $150,000
for such year. The Directors do not receive any pension or retirement benefits
from the Fund.
THE MANAGER, PWFA AND BOND STREET
The Directors have engaged the Manager to provide investment advice to, and the
day-to-day management of, the Fund, in each case under the ultimate supervision
of and subject to any policies established by the Board. The Manager was formed
as a Delaware limited liability company on February 1, 2000 and will be
registered as an investment adviser under the Advisers Act before the
commencement of the Fund's operations. The offices of the Manager are located at
1285 Avenue of the Americas, New York, New York 10019, and its telephone number
is (800) 486-2608. Before the commencement of the Fund's operations, the Manager
owned 99% of the outstanding interests in the Fund (thereby controlling the
Fund) and was the only person to own of record or beneficially 5% or more of the
outstanding interests in the Fund. The Manager or its designee maintains the
Fund's accounts, books and other documents required to be maintained under the
1940 Act at 1285 Avenue of the Americas, New York, New York 10019, or at such
other place as designated by the Manager.
The Manager is a joint venture between PWFA and Bond Street. PWFA is the
managing member of the Manager and oversees the Manager's provision of
investment advice and day-to-day management to the Fund. Bond Street provides
the Manager with use of and access to such of its personnel, research and
facilities as the Manager requires to manage the Fund's investment portfolio,
and these individuals have the sole responsibility, subject only to the
supervision of the Manager and the Board, for the investment advisory services
provided to the Fund. As a result of its ownership of the Manager, PWFA will
have a financial interest in other investment management activities in which
Bond Street and its affiliates may engage.
PWFA is an indirect, wholly-owned subsidiary of PW Group and is registered as an
investment adviser under the Advisers Act. PWFA and its affiliates provide
investment advisory services to registered investment companies, private
investment funds and individual accounts, and, as of December 31, 1999, have
approximately $423 billion of client assets and approximately $68 billion of
assets under management. PaineWebber Incorporated, a wholly-owned subsidiary of
PW Group, is registered as a broker-dealer under the Securities Exchange Act of
1934, as amended, and is a member of the New York Stock Exchange, Inc. and other
principal securities exchanges.
Bond Street, organized as a New Jersey limited liability company in 1999, will
be registered as an investment adviser under the Advisers Act before the
commencement of the Fund's operations. Sam S. Kim is the managing member of Bond
Street. He is the person who will be primarily responsible for the day-to-day
management of the Fund's investment portfolio.
From June 1995 until June 1999, Mr. Kim was a Senior Partner in Contrarian
Capital Management, L.L.C., an investment manager specializing in distressed
securities. From August 1988 to May 1995, Mr. Kim worked in various capacities
for Oppenheimer & Co., Inc. ("Oppenheimer"). From January 1992 to May 1995, Mr.
Kim was a Senior Vice President of Oppenheimer where he was one of three
professionals responsible for managing distressed investing partnerships and
from August 1989 to December 1991, served as an Analyst. Mr. Kim received a B.A.
in Economics from Columbia University in 1988.
The authority of the Manager to serve or act as investment adviser, and be
responsible for the day-to-day management, of the Fund (collectively, "Advice
and Management"), and the incentive allocation arrangement between the Fund and
the Manager, as the foregoing are set forth in the LLC Agreement, was initially
approved by the Board, including each Independent Director, and by vote of
Investors holding interests in the Fund on February 11, 2000. The authority of
the Manager to provide Advice and Management will terminate under the following
circumstances:
(1) if revoked by (A) vote of a majority (as defined in the 1940 Act) of
the outstanding voting securities of the Fund or (B) the Board, in
either case with 60 days' prior written notice to the Manager;
(2) at the election of the Manager, with 60 days' prior written notice to
the Board;
(3) if, after February 11, 2001, any period of 12 consecutive months shall
conclude without the approval of the continuation of such authority by
(A) the vote of a majority (as defined in the 1940 Act) of the
outstanding voting securities of the Fund or (B) the Board and, in
either case, approved by a majority of the Independent Directors by
vote cast at a meeting called for such purpose; or
(4) to the extent required by the 1940 Act, upon the occurrence of any
event in connection with the Manager, its provision of Advice and
Management, the LLC Agreement or otherwise constituting an
"assignment" within the meaning of the 1940 Act.
VOTING
Each Investor will have the right to cast a number of votes based on the value
of such Investor's respective capital account at any meeting of Investors called
by the Directors or Investors holding at least a majority of the total number of
votes eligible to be cast by all Investors. Investors will be entitled to vote
on any matter on which shareholders of a registered investment company organized
as a corporation would be entitled to vote, including selection of Directors,
approval of the authority of the Manager to provide Advice and Management to the
Fund and approval of the Fund's auditors. Except for the exercise of their
voting privileges, Investors will not be entitled to participate in the
management or control of the Fund's business, and may not act for or bind the
Fund.
CONFLICTS OF INTEREST
PWFA
PWFA and its affiliates manage the assets of registered investment companies,
private investment funds and individual accounts (collectively, "PWFA Clients").
The Fund has no interest in these activities. PWFA and its officers or employees
who assist PWFA in its oversight of the Manager will be engaged in substantial
activities other than on behalf of the Manager and may have conflicts of
interest in allocating their time and activity between the Manager and PWFA
Clients. PWFA and its officers and employees will devote so much of their time
to the affairs of the Manager as in their judgment is necessary and appropriate.
PaineWebber Incorporated acts as the placement agent for the Fund, without
special compensation from the Fund, and will bear its own costs associated with
its activities as placement agent. PWFA and PaineWebber Incorporated intend to
compensate PaineWebber Incorporated's or its affiliates' financial advisors, as
well as third-party securities dealers and other industry professionals, for
their ongoing servicing of clients with whom they have placed interests in the
Fund and such compensation will be based upon a formula that takes into account
the amount of client assets being serviced as well as the investment results
attributable to the clients' assets in the Fund. Additionally these entities, at
their discretion, may charge Investors sales commissions of up to 2% of the
purchase price of Fund interests being purchased. See "FEES AND EXPENSES" and
"CAPITAL ACCOUNTS AND ALLOCATIONS--Incentive Allocation."
PaineWebber Incorporated or its affiliates may provide advisory, consulting or
investment banking services to one or more of the Fund's portfolio companies or
to a client that may enter or has entered into a transaction with one or more of
the Fund's portfolio companies. While the PaineWebber employees providing these
services will be different from those associated with the Manager, these
services or the transactions resulting therefrom could conflict with or have an
adverse impact on the Fund's portfolio investments.
PWFA and its affiliates may engage in certain activities through which the
Manager may acquire confidential or material non-public information with respect
to certain companies. As a result, the Manager may be restricted from engaging
in transactions on behalf of the Fund involving the Distressed Obligations of
these companies.
PaineWebber Incorporated or its affiliates may provide brokerage and other
services from time to time to one or more accounts or entities managed by Bond
Street or one of its affiliates.
BOND STREET AND SAM S. KIM
Bond Street or Mr. Kim may provide investment advisory and other services to
other clients or accounts (the "Bond Street Accounts"). Bond Street and certain
of the investment professionals who are principals of or employed by Bond Street
(collectively with Bond Street, the "Bond Street Managers") also may carry on
substantial investment activities for their own accounts, for the accounts of
family members and for other Bond Street Accounts. The Fund will have no
interest in these activities. As a result of the foregoing, Bond Street and the
investment professionals who, on behalf of the Manager, will manage the Fund's
investment portfolio may be engaged in substantial activities other than on
behalf of the Manager and may have conflicts of interest in allocating their
time and activity between the Fund and the Bond Street Accounts. Such persons
will devote only so much time to the affairs of the Manager as in their judgment
is necessary and appropriate.
Bond Street and its affiliates may engage in certain activities through which
the Manager may acquire confidential or material non-public information with
respect to certain companies. As a result, the Manager may be restricted from
engaging in transactions on behalf of the Fund involving the Distressed
Obligations of these companies.
PWFA, its affiliates or PWFA Clients may have an interest in the Bond Street
Accounts on terms different than an interest in the Fund. PWFA or its affiliates
may receive compensation in connection with the services provided by Bond Street
or Mr. Kim to the Bond Street Accounts. In addition, the Bond Street Managers
may receive research products and services in connection with the brokerage
services that PWFA and its affiliates may provide from time to time to one or
more Bond Street Accounts or to the Fund.
PARTICIPATION IN INVESTMENT OPPORTUNITIES
The Manager expects to employ an investment program for the Fund that is
substantially similar to the investment program that will be employed by the
Bond Street Managers for the Bond Street Accounts. Accordingly, as a general
matter, the Manager will consider participation by the Fund in all appropriate
investment opportunities that will be under consideration for investment by the
Bond Street Managers for the Bond Street Accounts. There may be, however,
circumstances under which the Bond Street Managers will cause one or more Bond
Street Accounts to commit a larger percentage of their respective assets to an
investment opportunity than to which the Manager will commit the Fund's assets.
There also may be circumstances under which the Bond Street Managers will
consider participation by the Bond Street Accounts in investment opportunities
in which the Manager does not intend to invest on behalf of the Fund, or vice
versa.
The Manager will evaluate for the Fund, and it is anticipated that the Bond
Street Managers will evaluate for each Bond Street Account, a variety of factors
that may be relevant in determining whether a particular investment opportunity
or strategy is appropriate and feasible for the Fund or a Bond Street Account at
a particular time, including, but not limited to, the following: (1) the nature
of the investment opportunity taken in the context of the other investments at
the time; (2) the liquidity of the investment relative to the needs of the
particular entity or account; (3) the availability of the opportunity (i.e.,
size of obtainable position); (4) the transaction costs involved; and (5) the
investment or regulatory limitations applicable to the particular entity or
account. Because these considerations may differ for the Fund and the Bond
Street Accounts in the context of any particular investment opportunity, the
investment activities of the Fund and the Bond Street Accounts may differ
considerably from time to time. In addition, the fees and expenses of the Fund
may differ from those of the Bond Street Accounts. Accordingly, prospective
Investors should note that the future performance of the Fund and the Bond
Street Accounts will vary.
When the Manager and the Bond Street Managers determine that it would be
appropriate for the Fund and one or more Bond Street Accounts to participate in
an investment opportunity at the same time, they will attempt to aggregate,
place and allocate orders on a basis that the Manager believes to be fair and
equitable, consistent with its responsibilities under applicable law. Decisions
in this regard are necessarily subjective and there is no requirement that the
Fund participate, or participate to the same extent as the Bond Street Accounts,
in all trades. However, no participating entity or account will receive
preferential treatment over any other and the Bond Street Managers will take
steps to ensure that no participating entity or account will be systematically
disadvantaged by the aggregation, placement and allocation of orders.
Situations may occur, however, where the Fund could be disadvantaged because of
the investment activities conducted by the Bond Street Managers for the Bond
Street Accounts. Such situations may be based on, among other things, the
following: (1) legal restrictions on the combined size of positions that may be
taken for the Fund and the Bond Street Accounts, thereby limiting the size of
the Fund's position; (2) the difficulty of liquidating an investment for the
Fund and the Bond Street Accounts where the market cannot absorb the sale of the
combined positions; and (3) the determination that a particular investment is
warranted only if hedged with an option or other instrument and there is a
limited availability of such options or other instruments. In particular, the
Fund may be legally restricted from entering into a "joint transaction" (as
defined in the 1940 Act) with the Bond Street Accounts with respect to the
securities of an issuer without first obtaining exemptive relief from the SEC.
See "CONFLICTS OF INTEREST--Other Matters."
The Manager and members of the Manager, and their members, directors, officers,
employees and affiliates, may buy and sell securities or other investments for
their own accounts and may have actual or potential conflicts of interest with
respect to investments made on behalf of the Fund. As a result of differing
trading and investment strategies or constraints, positions may be taken by the
Manager, members, directors, officers, employees and affiliates of PWFA or Bond
Street, or by the Bond Street Managers for the Bond Street Accounts, that are
the same, different or made at a different time than positions taken for the
Fund.
The Manager expects to serve as investment adviser for clients other than the
Fund. As a result, it may have conflicts of interests similar to those described
above with respect to PWFA, Bond Street and Sam S. Kim.
OTHER MATTERS
Except in accordance with applicable law, the Manager and its members are not
permitted to buy securities or other property from, or sell securities or other
property to, the Fund. However, the Fund may effect certain principal
transactions in securities with one or more Bond Street Accounts, except for
accounts in which Bond Street or any affiliate thereof serves as a general
partner or in which it has a financial interest, other than an interest that
results solely from Bond Street's or any affiliate's appointment as an
investment adviser to the account. Such transactions would be made in
circumstances where the Manager has determined it would be appropriate for the
Fund to purchase and a Bond Street Account to sell, or the Fund to sell and a
Bond Street Account to purchase, the same security or instrument on the same
day.
Future investment activities of PWFA or Bond Street, or their affiliates, and
the principals, partners, directors, officers or employees of the foregoing, may
give rise to additional conflicts of interest.
BROKERAGE
The Manager is responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. Transactions on U.S. stock
exchanges and on some foreign stock exchanges involve the payment of negotiated
brokerage commissions. On the great majority of foreign stock exchanges,
commissions are fixed. No stated commission is generally applicable to
securities traded in over-the-counter markets, but the prices of those
securities include undisclosed commissions or mark-ups.
In executing transactions on behalf of the Fund, the Manager seeks to obtain the
best price and execution for the Fund, taking into account factors such as
price, size of order, difficulty of execution and operational facilities of a
brokerage firm, and in the case of transactions effected by the Fund with
unaffiliated brokers, the firm's risk in positioning a block of securities.
Although the Manager generally will seek reasonably competitive commission
rates, the Fund will not necessarily pay the lowest commission available on each
transaction. The Fund will have no obligation to deal with any broker or group
or brokers in executing transactions in portfolio securities. The Fund may
execute portfolio brokerage transactions through PaineWebber Incorporated or its
affiliates, subject to compliance with the 1940 Act.
Following the principle of seeking best price and execution, the Manager may
place brokerage business on behalf of the Fund with brokers that provide the
Manager and its affiliates, including the Bond Street Managers, with
supplemental research, market and statistical information, including advice as
to the value of securities, the advisability of investing in, purchasing or
selling securities, and the availability of securities or purchasers or sellers
of securities, and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and the
performance of accounts. The expenses of the Manager are not necessarily reduced
as a result of the receipt of this supplemental information, which may be useful
to the Manager and its affiliates in providing services to clients other than
the Fund. In addition, not all of the supplemental information is used by the
Manager in connection with the Fund. Conversely, the information provided to the
Manager by brokers and dealers through which other clients of the Manager and
its affiliates effect securities transactions may be useful to the Manager in
providing services to the Fund.
Although the Fund cannot accurately predict its portfolio turnover, the Fund
expects that its annual portfolio turnover rate generally may exceed 100%. A
turnover rate of 100% is equivalent to the Fund buying and selling all of the
securities in its portfolio once in the course of a year. Higher portfolio
turnover rates usually generate additional brokerage commissions and transaction
costs and the short-term gains realized from these transactions are taxable to
Investors at ordinary income tax rates.
FEES AND EXPENSES
PWFA provides certain management and administrative services to the Fund,
including, among other things, providing office space and other support services
to the Fund. In consideration for such services, the Fund will pay PWFA a
management fee generally on a monthly basis at the annual rate of 1.25% of the
Fund's net assets for the month, excluding assets attributable to the Manager's
capital account (the "Fee"). Net assets means the total value of all assets of
the Fund, less an amount equal to all accrued debts, liabilities and obligations
of the Fund, calculated before giving effect to any repurchases of interests.
The Fee will be computed as of the start of business on the first business day
of the period to which the Fee relates, after adjustment for any capital
contributions effective on such date, and will be payable in arrears. The Fee
will be charged in each period to the capital accounts of all Investors in
proportion to their capital accounts at the beginning of such period. A portion
of the Fee will be paid by PWFA to Bond Street.
The Administrator performs certain administration, accounting and investor
services for the Fund and other investment funds sponsored or advised by PW
Group or its affiliates. In consideration for these services, the Fund and such
other funds will pay the Administrator an annual fee based on: (i) the average
net assets of the Fund, subject to a minimum monthly fee, and (ii) the aggregate
net assets of such other funds, subject to a minimum monthly fee, and will
reimburse the Administrator for out-of-pocket expenses.
In addition, the capital accounts of Investors may be subject to an Incentive
Allocation depending upon the investment performance of the Fund. See "CAPITAL
ACCOUNTS AND ALLOCATIONS--Incentive Allocation."
The Fund will bear all expenses incurred in the business of the Fund other than
those specifically required to be borne by PWFA. Expenses to be borne by the
Fund include, but are not limited to, the following:
o all costs and expenses directly related to portfolio transactions and
positions for the Fund's account, including, but not limited to,
brokerage commissions, research fees, interest and commitment fees on
loans and debit balances, borrowing charges on securities sold short,
dividends on securities sold short but not yet purchased, custodial
fees, margin fees, transfer taxes and premiums and taxes withheld on
foreign dividends;
o all costs and expenses associated with the organization and
registration of the Fund, certain offering costs and the costs of
compliance with any applicable Federal or state laws;
o the costs and expenses of holding any meetings of any Investors that
are regularly scheduled, permitted or required to be held under the
terms of the LLC Agreement, the 1940 Act or other applicable law;
o fees and disbursements of any attorneys, accountants, auditors and
other consultants and professionals engaged on behalf of the Fund,
including, without limitation, in connection with the Manager's
serving on creditors' and equity holders' committees and otherwise
seeking to preserve or protect the Fund's rights in portfolio
securities;
o the fees of custodians and other persons providing administrative
services to the Fund;
o the costs of a fidelity bond and any liability insurance obtained on
behalf of the Fund, the Manager or the Directors;
o all costs and expenses of preparing, setting in type, printing and
distributing reports and other communications to Investors;
o all expenses of computing the Fund's net asset value, including any
equipment or services obtained for the purpose of valuing the Fund's
investment portfolio, including valuation services provided by third
parties;
o all charges for equipment or services used for communications between
the Fund and any custodian, or other agent engaged by the Fund; and
o such other types of expenses as may be approved from time to time by
the Board.
The Manager will be reimbursed by the Fund for any of the above expenses that it
pays on behalf of the Fund.
The Fund's organizational and offering expenses are estimated at $250,000.
Before a recent change to the guidelines followed by the American Institute of
Certified Public Accountants applicable to the Fund, the Fund would have been
able to amortize the organizational expenses over a 60-month period. Because of
that change, however, the organizational expenses now must be expensed as
incurred. To achieve a more equitable distribution of the impact of those
expenses among the Investors, an amount equal to the organizational expenses
incurred by the Fund will be allocated among and credited to or debited against
the capital accounts of all Investors based on the percentage that an Investor's
contributed capital to the Fund bears to the total capital contributed to the
Fund by all Investors as of the relevant allocation date. An initial allocation
of organizational costs will be made as of the first date on which capital
contributions of Investors are made. These allocations will thereafter be
adjusted as of each date, through and including December 31, 2000, on which
additional capital is contributed to the Fund by Investors. The Fund also will
bear certain ongoing offering costs associated with any periodic offers of Fund
interests. Offering costs cannot be deducted by the Fund or the Investors.
PLACEMENT FEE
In connection with initial and additional purchases of Fund interests, Investors
may be charged by PaineWebber Incorporated and its Financial Advisors, as well
as third party securities dealers and other industry professionals, sales
commissions of up to 2% of the Investor's capital contribution, in their sole
discretion. The placement fee will be added to the purchase price and will not
constitute assets of the Fund. See "APPLICATION FOR INTERESTS--Application
Terms."
CAPITAL ACCOUNTS AND ALLOCATIONS
CAPITAL ACCOUNTS
The Fund will maintain a separate capital account for each Investor, which will
have an opening balance equal to such Investor's initial contribution to the
capital of the Fund. Each Investor's capital account will be increased by the
sum of the amount of cash and the value of any securities constituting
additional contributions by such Investor to the capital of the Fund, plus any
amounts credited to such Investor's capital account as described below.
Similarly, each Investor's capital account will be reduced by the sum of the
amount of any repurchase by the Fund of the interest or portion of the interest
of such Investor, plus the amount of any distributions to such Investor which
are not reinvested, plus any amounts debited against such Investor's capital
account as described below. To the extent that any debit would reduce the
balance of the capital account of any Investor below zero, that portion of any
such debit will instead be allocated to the capital account of the Manager; any
subsequent credits that would otherwise be allocable to the capital account of
any such Investor will instead be allocated to the capital account of the
Manager in such amounts as are necessary to offset all previous debits
attributable to such Investor.
Capital accounts of Investors are adjusted as of the close of business on the
last day of each fiscal period. Fiscal periods begin on the day after the last
day of the preceding fiscal period and end at the close of business on the first
to occur of (1) the last day of the fiscal year of the Fund, (2) the day
preceding the date as of which a contribution to the capital of the Fund is
made, (3) the day as of which the Fund repurchases any interest or portion of an
interest of any Investor, (4) the day as of which the Fund admits a substituted
Investor to whom an interest or portion of an interest of an Investor has been
transferred (unless there is no change in beneficial ownership) or (5) the day
as of which any amount is credited to or debited from the capital account of any
Investor other than an amount to be credited to or debited from the capital
accounts of all Investors in accordance with their respective Fund percentages.
A Fund percentage will be determined for each Investor as of the start of each
fiscal period by dividing the balance of such Investor's capital account as of
the commencement of such period by the sum of the balances of all capital
accounts of all Investors as of such date.
ALLOCATION OF NET PROFITS AND NET LOSSES
Net profits or net losses of the Fund for each fiscal period will be allocated
among and credited to or debited against the capital accounts of all Investors
as of the last day of each fiscal period in accordance with Investors'
respective Fund percentages for such fiscal period. Net profits or net losses
will be measured as the net change in the value of the net assets of the Fund,
including any net change in unrealized appreciation or depreciation of
investments and realized income and gains or losses and expenses during a fiscal
period, before giving effect to any repurchases by the Fund of interests or
portions of interests, and adjusted to exclude the amount of any "key man"
insurance premiums or proceeds to be allocated among the capital accounts of the
Investors and any items to be allocated among the capital accounts of the
Investors other than in accordance with the Investors' respective Fund
percentages.
Allocations for Federal income tax purposes generally will be made among the
Investors so as to reflect equitably amounts credited or debited to each
Investor's capital account for the current and prior fiscal years.
INCENTIVE ALLOCATION
So long as the Manager provides Advice and Management to the Fund, the Manager
will be entitled to an incentive-based allocation (the "Incentive Allocation"),
charged to the capital account of each Investor as of the last day of each
"allocation period," of 20% of the amount by which any "allocated gain" during
an "allocation period" exceeds the positive balance in the Investor's "loss
recovery account." The Incentive Allocation will be credited to the capital
account of the Manager.
For purposes of calculating the Incentive Allocation, "allocated gain" means the
excess of the balance of the Investor's capital account at the end of an
"allocation period," after giving effect to allocations other than the Incentive
Allocation, but before giving effect to any distributions and repurchases of
interests by the Fund or debits to such capital account to reflect any item
(other than management fees) not chargeable ratably to all Investors, over the
balance of the Investor's capital account at the start of such "allocation
period." Consequently, any Incentive Allocation to be credited to the Manager
will be increased by a portion of the amount of any net unrealized appreciation,
as well as net realized gains, allocable to an Investor.
An Incentive Allocation will be charged only with respect to any "allocated
gain" in excess of the positive balance of a "loss recovery account" maintained
for each Investor. A "loss recovery account" is a memorandum account maintained
by the Fund for each Investor, which has an initial balance of zero and is (1)
increased after the close of each "allocation period" by the amount of any
negative performance for such Investor during such "allocation period," and (2)
decreased (but not below zero) after the close of each "allocation period" by
the amount of any allocated gain for such Investor during such "allocation
period." Any positive balance in an Investor's "loss recovery account" would be
reduced as the result of a repurchase or certain transfers with respect to the
Investor's interest in the Fund in proportion to the reduction of the Investor's
capital account attributable to the repurchase or transfer.
An "allocation period" as to each Investor is a period commencing on the
admission of such Investor to the Fund and ending at the close of business on
the first to occur of (1) the last day of the twelfth complete calendar month
since the admission of such Investor to the Fund, (2) the last day of a fiscal
year subsequent to an Investor having been admitted to the Fund for 12 complete
calendar months, and the last day of each fiscal year thereafter, (3) the day as
of which the Fund repurchases any interest or portion of an interest of such
Investor, (4) the day as of which the Fund admits as a substitute Investor a
person to whom the interest or portion of the interest of such Investor has been
transferred, (5) the day as of which the authority of the Manager to provide
Advice and Management is terminated, (6) the day preceding any day as of which
such Investor becomes a Special Investor (as defined below), or (7) the day on
which such Investor ceases to be a Special Investor. The measurement of any
Incentive Allocation for an "allocation period" must take into account any
negative performance from a prior allocation period to the extent reflected in
the "loss recovery account." Therefore, the Incentive Allocation for any
allocation period after the initial 12-month period in effect is a reflection of
the extent to which cumulative performance achieved with respect to an
Investor's account since such Investor's admission to the Fund exceeds the
highest previous level of performance achieved through the close of any prior
allocation period.
Within 30 days after the close of each allocation period with respect to each
Investor, and subject to certain limitations, the Manager may withdraw up to
100% of the Incentive Allocation, computed on the basis of unaudited data, that
was credited to the Manager's capital account and debited from the Investor's
capital account with respect to such allocation period. The Fund will pay any
balance, subject to audit adjustments, within 30 days after the completion of
the audit of the Fund's books.
The Manager, in its sole discretion, may reduce the Incentive Allocation for any
Investor whose Invested Capital (as the term is defined in the LLC Agreement)
equals or exceeds $10,000,000 to a percentage agreed upon between the Manager
and the Investor, and may reduce or waive the Incentive Allocation for Investors
who are key employees or directors of the Manager and its affiliates, and
members of their immediate families, and attorneys or other professional
advisors engaged on behalf of the Fund, and members of their immediate families
(collectively, "Special Investors").
ALLOCATION OF SPECIAL ITEMS--CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES
Withholding taxes or other tax obligations incurred by the Fund which are
attributable to any Investor will be debited against the capital account of such
Investor as of the close of the fiscal period during which the Fund paid such
obligation, and any amounts then or thereafter distributable to such Investor
will be reduced by the amount of such taxes. If the amount of such taxes is
greater than any such distributable amounts, the Investor and any successor to
the Investor's interest is required to pay to the Fund, upon demand of the Fund,
the amount of such excess.
RESERVES
Appropriate reserves may be created, accrued and charged against net assets for
contingent liabilities as of the date any such contingent liabilities become
known to the Manager or the Board. Reserves will be in such amounts, subject to
increase or reduction, which the Board or the Manager may deem necessary or
appropriate. The amount of any reserve, or any increase or decrease therein,
will be proportionately charged or credited, as appropriate, to the capital
accounts of those investors who are Investors at the time when such reserve is
created, increased or decreased, as the case may be; provided, however, that if
any such reserve, or any increase or decrease therein, exceeds the lesser of
$500,000 or 1% of the aggregate value of the capital accounts of all such
Investors, the amount of such reserve, increase, or decrease shall instead be
charged or credited to those investors who, as determined by the Board, were
Investors at the time of the act or omission giving rise to the contingent
liability for which the reserve was established, increased or decreased in
proportion to their capital accounts at that time.
NET ASSET VALUATION
Net asset value of the Fund will be determined by or at the direction of the
Manager as of the close of business at the end of any fiscal period in
accordance with the valuation principles set forth below or as may be determined
from time to time pursuant to policies established by the Directors.
Securities for which market quotations are not readily available, which may be a
substantial portion of the portfolio, will be valued at fair value as determined
in good faith by, or under the supervision of, the Directors. Domestic exchange
traded securities and securities included in the Nasdaq National Market System
will be valued at their last composite sale prices as reported on the exchanges
where such securities are traded. If no sales of such securities are reported on
a particular day, the securities will be valued based upon their composite bid
prices for securities held long, or their composite ask prices for securities
held short, as reported by such exchanges. Securities traded on a foreign
securities exchange will be valued at their last sale prices on the exchange
where such securities are primarily traded, or in the absence of a reported sale
on a particular day, at their bid prices, in the case of securities held long,
or ask prices, in the case of securities held short, as reported by such
exchange. Listed options will be valued using last sales prices as reported by
the exchange with the highest reported daily volume for such options or, in the
absence of any sales on a particular day, at their bid prices as reported by the
exchange with the highest volume on the last day a trade was reported. Other
securities for which market quotations are readily available will be valued at
their bid prices, or ask prices in the case of securities held short, as
obtained from one or more dealers making markets for such securities.
Debt securities will be valued in accordance with the procedures described
above, which with respect to such securities may include the use of valuations
furnished by a pricing service which employs a matrix to determine valuations
for normal institutional size trading units. The Directors will monitor
periodically the reasonableness of valuations provided by any such pricing
service. Debt securities with remaining maturities of 60 days or less, absent
unusual circumstances, will be valued at amortized cost, so long as such
valuation is determined by the Directors to represent fair value.
All assets and liabilities initially expressed in foreign currencies will be
converted into U.S. dollars using foreign exchange rates provided by a pricing
service compiled as of 4:00 p.m. London time. Trading in foreign securities
generally is completed, and the values of such securities are determined, prior
to the close of securities markets in the U.S. Foreign exchange rates are also
determined prior to such close. On occasion, the values of securities and
exchange rates may be affected by events occurring between the time as of which
determination of such values or exchange rates are made and the time as of which
the net asset value of the Fund is determined. When such events materially
affect the values of securities held by the Fund or its liabilities, such
securities and liabilities may be valued at fair value as determined in good
faith by, or under the supervision of, the Directors.
Prospective investors should be aware that situations involving uncertainties as
to the valuation of portfolio positions could have an adverse effect on the
Fund's net assets if the Directors' judgments regarding appropriate valuations
should prove incorrect.
APPLICATION FOR INTERESTS
APPLICATION TERMS
Both initial and additional applications for interests in the Fund may be
accepted from eligible investors (as described below) at such times as the
Manager may determine on the terms set forth below. The Fund may, in its
discretion, suspend the offering of interests at any time or permit applications
on a more frequent basis. The Fund reserves the right to reject any application
for interests in the Fund. After the initial closing, initial applications and
additional capital contributions will generally be accepted monthly. Generally,
the minimum required initial contribution to the capital of the Fund from each
investor is $250,000. For employees or directors of the Manager and its
affiliates, and members of their immediate families, and, in the sole discretion
of the Manager, attorneys or other professional advisors engaged on behalf of
the Fund, and members of their immediate families, the minimum required initial
contribution to the capital of the Fund is $25,000. The Fund may vary the
investment minimums from time to time. Investors may be charged a placement fee.
See "FEES AND EXPENSES--Placement Fee." The initial closing date for
applications for interests in the Fund is April 1, 2000. The Fund, in its sole
discretion, may accelerate or postpone the closing date. In addition, because
the Fund may generate UBTI, charitable remainder trusts may not want to purchase
interests in the Fund because a charitable remainder trust will not be exempt
from Federal income tax under Section 664(c) of the Code for any year in which
it has UBTI. Prospective investors that are charitable remainder trusts will be
required to make certain representations contained in a supplemental certificate
to be provided. See "TAX ASPECTS--Unrelated Business Taxable Income."
Except as otherwise permitted by the Fund, initial and any additional
contributions to the capital of the Fund by any Investor will be payable in
cash, and all contributions must be transmitted by such time and in such manner
as is specified in the application of the Fund. Initial and any additional
contributions to the capital of the Fund will be payable in one installment and
will be due before the proposed acceptance of the contribution, although the
Fund may accept, in its discretion, an application before its receipt of cleared
funds.
Each new Investor will be obligated to agree to be bound by all of the terms of
the LLC Agreement. Each potential investor also will be obligated to represent
and warrant in the application, among other things, that such investor is
purchasing an interest for its own account, and not with a view to the
distribution, assignment, transfer or other disposition of such interest.
If and when the Fund determines to accept securities as a contribution to the
capital of the Fund, the Fund will charge each Investor making such contribution
an amount determined by the Directors and not exceeding 2% of the value of such
contribution in order to reimburse the Fund for any costs it incurs in
liquidating and accepting such securities. Any such charge will be due and
payable by the contributing Investor in full at the time the contribution to the
capital of the Fund to which such charge relates is due.
ELIGIBLE INVESTORS
Each prospective Investor will be required to certify that the interest being
purchased is being acquired directly or indirectly for the account of an
"accredited investor" as defined in Regulation D under the 1933 Act, and that
such Investor, as well as each of the Investor's equity owners under certain
circumstances, (i) immediately after the time of purchase, has at least $750,000
under the discretionary investment management of PW Group and its affiliates or
subsidiaries, (ii) at the time of purchase, has a net worth of more than $1.5
million, or (iii) at the time of purchase, is a "qualified purchaser" as defined
in Section 2(a)(51)(A) of the 1940 Act (a "Qualified Purchaser"). Existing
Investors who purchase additional interests in the Fund and transferees of
interests in the Fund may be required to represent that they meet the foregoing
eligibility criterion at the time of the additional purchase. The relevant
Investor qualifications will be set forth in an application to be provided to
prospective Investors, which must be completed by each prospective Investor.
REDEMPTIONS, REPURCHASES OF INTERESTS AND TRANSFERS
NO RIGHT OF REDEMPTION
No Investor or other person holding an interest or a portion of an interest will
have the right to require the Fund to redeem the interest or portion thereof. No
public market exists for interests in the Fund, and none is expected to develop.
Consequently, Investors may not be able to liquidate their investment other than
as a result of repurchases of interests by the Fund, as described below.
REPURCHASES OF INTERESTS
The Fund from time to time may offer to repurchase interests pursuant to written
tenders by Investors. These repurchases will be made at such times and on such
terms as may be determined by the Board, in its complete and exclusive
discretion. In determining whether the Fund should repurchase interests or
portions thereof from Investors pursuant to written tenders, the Board will
consider the recommendation of the Manager. The Manager expects that generally,
beginning in 2001, it will recommend to the Board that the Fund offer to
repurchase interests from Investors twice that year, in June and December, and
then once each year thereafter, near year-end. The Directors also will consider
the following factors, among others, in making such determination:
o whether any Investors have requested to tender interests or portions
thereof to the Fund;
o the liquidity of the Fund's assets;
o the investment plans and working capital requirements of the Fund;
o the relative economies of scale with respect to the size of the Fund;
o the history of the Fund in repurchasing interests or portions thereof;
o the condition of the securities markets; and
o the anticipated tax consequences of any proposed repurchases of
interests or portions thereof.
The Board will determine that the Fund repurchase interests or portions thereof
from Investors pursuant to written tenders only on terms they determine to be
fair to the Fund and to all Investors or persons holding interests acquired from
Investors, as applicable. When the Board determines that the Fund will
repurchase interests in the Fund or portions thereof, notice will be provided to
each Investor describing the terms thereof, and containing information Investors
should consider in deciding whether and how to participate in such repurchase
opportunity. Investors who are deciding whether to tender their interests or
portions thereof during the period that a repurchase offer is open may ascertain
an estimated net asset value of their interest in the Fund from the Manager
during such period.
The LLC Agreement provides that the Fund shall be dissolved if the interest of
any Investor that has submitted a written request to tender its entire interest
for repurchase by the Fund has not been repurchased within a period of two years
of such request.
Repurchases of interests or portions thereof from Investors by the Fund may be
made, in the discretion of the Board, in part or in whole for cash or for
securities of equivalent value and will be effective after receipt by the Fund
of all eligible written tenders of interests or portions thereof from Investors.
The amount due to any Investor whose interest or portion thereof is repurchased
will be equal to the value of the Investor's capital account or portion thereof
based on the net asset value of the Fund's assets as of the effective date of
repurchase, after giving effect to all allocations to be made to the Investor's
capital account (including the Incentive Allocation) as of such date. Payment of
the purchase price pursuant to a tender of interests will consist of, first,
cash and/or securities valued at net asset value in accordance with the LLC
Agreement and distributed to tendering Investors on a PARI PASSU basis, in an
aggregate amount equal to at least 95% of the estimated unaudited net asset
value of the interests tendered, determined as of the expiration date of the
tender offer (the "expiration date"). Payment of such amount will be made
promptly after the expiration date (the "cash payment"). Generally, payment
pursuant to such a tender also will consist of a promissory note that, without
approval by the Board, will bear no interest and is not transferable (the
"note") entitling the holder thereof to a contingent payment equal to the
excess, if any, of (a) the net asset value of the interests tendered as of the
expiration date, determined based on the audited financial statements of the
Fund, over (b) the cash payment. The note would be delivered to the tendering
Investor promptly after the expiration date and would be payable in cash
promptly after completion of the audit of the financial statements of the Fund
or at such earlier date as the Board may determine. The audit of the Fund's
financial statements is expected to be completed within 60 days after the end of
each year. The Fund does not impose any charges on a repurchase of interests or
portion of interests in the Fund.
The Fund intends to maintain daily a segregated account containing permissible
liquid assets in an amount equal to the aggregate amount of the notes. Payment
for repurchased interests may require the Fund to liquidate portfolio holdings
earlier than the Manager otherwise would liquidate such holdings, potentially
resulting in losses, and may increase the Fund's portfolio turnover. The Manager
intends to take measures to attempt to avoid or minimize such potential losses
and turnover, and instead of liquidating portfolio holdings, may borrow money to
finance repurchases of interests.
The Fund may repurchase an interest in the Fund or portion of an interest of an
Investor or any person acquiring an interest or portion thereof from or through
an Investor if:
o such an interest or portion thereof has been transferred or such an
interest or portion thereof has vested in any person by operation of
law as the result of the death, dissolution, bankruptcy or
incompetency of an Investor;
o ownership of such an interest by an Investor or other person will
cause the Fund to be in violation of, or require registration of any
interest or portion thereof under, or subject the Fund to additional
registration or regulation under, the securities, commodities or other
laws of the United States or any other relevant jurisdiction;
o continued ownership of such an interest may be harmful or injurious to
the business or reputation of the Fund or the Manager, or may subject
the Fund or any Investors to an undue risk of adverse tax or other
fiscal consequences;
o any of the representations and warranties made by an Investor in
connection with the acquisition of an interest in the Fund or portion
thereof was not true when made or has ceased to be true; or
o it would be in the best interests of the Fund, as determined by the
Manager, for the Fund to repurchase such an interest or portion
thereof.
TRANSFERS OF INTERESTS
No person may become a substituted Investor without the written consent of the
Manager, which consent may be withheld for any reason in the Manager's sole and
absolute discretion. Investor interests may be transferred only (i) by operation
of law pursuant to the death, bankruptcy, insolvency or dissolution of an
Investor or (ii) with the written consent of the Manager, which may be withheld
in its sole and absolute discretion and is expected to be granted, if at all,
only in limited circumstances. Notice to the Fund of any proposed transfer must
include evidence satisfactory to the Fund that the proposed transfer is exempt
from registration under the 1933 Act, that the proposed transferee meets any
requirements imposed by the Fund with respect to investor eligibility and
suitability, including the requirement that any investor, or investor's equity
owners in certain circumstances, (i) immediately after the time of purchase, has
at least $750,000 under the discretionary investment management of PW Group and
its affiliates or subsidiaries, (ii) at the time of purchase, has a net worth of
more than $1.5 million, or (iii) at the time of purchase, is a Qualified
Purchaser, and must be accompanied by a properly completed application. In
addition to the foregoing, no Investor will be permitted to transfer an interest
or portion thereof unless after such transfer the balance of the capital account
of the transferee, and any Investor transferring less than its entire interest,
is at least equal to the amount of the Investor's initial capital contribution.
Any transferee meeting the eligibility requirements that acquires an interest or
portion thereof in the Fund by operation of law as the result of the death,
dissolution, bankruptcy or incompetency of an Investor or otherwise, will be
entitled to the allocations and distributions allocable to the interest so
acquired and to transfer such interest in accordance with the terms of the LLC
Agreement, but will not be entitled to the other rights of an Investor unless
and until such transferee becomes a substituted Investor as provided in the LLC
Agreement. If an Investor transfers an interest or portion thereof with the
approval of the Manager, under the policies established by the Board, the Fund
will promptly take all necessary actions to admit such transferee or successor
to the Fund as an Investor. Each Investor and transferee is required to pay all
expenses, including attorneys' and accountants' fees, incurred by the Fund in
connection with such transfer. If such a transferee does not meet the investor
eligibility requirements, the Fund reserves the right to redeem its interest.
By purchasing an interest in the Fund, each Investor has agreed to indemnify and
hold harmless the Fund, the Directors, the Manager, each other Investor and any
affiliate of the foregoing against all losses, claims, damages, liabilities,
costs and expenses, including legal or other expenses incurred in investigating
or defending against any such losses, claims, damages, liabilities, costs and
expenses or any judgments, fines and amounts paid in settlement, joint or
several, to which such persons may become subject by reason of or arising from
any transfer made by such Investor in violation of these provisions or any
misrepresentation made by such Investor in connection with any such transfer.
TAX ASPECTS
The following is a summary of certain aspects of the income taxation of the Fund
and its Investors which should be considered by a prospective Investor. The Fund
has not sought a ruling from the Internal Revenue Service (the "Service") or any
other Federal, state or local agency with respect to any of the tax issues
affecting the Fund, nor has it obtained an opinion of counsel with respect to
any tax issues other than the characterization of the Fund as a partnership
which is not a "publicly traded partnership" for Federal income tax purposes.
This summary of certain aspects of the Federal income tax treatment of the Fund
is based upon the Code, judicial decisions, Treasury Regulations (the
"Regulations") and rulings in existence on the date hereof, all of which are
subject to change (possibly with retroactive effect). Except as otherwise noted
below, this summary does not discuss the impact of various proposals to amend
the Code which could change certain of the tax consequences of an investment in
the Fund. This summary also does not discuss all of the tax consequences that
may be relevant to a particular investor, to investors that acquire interests in
the Fund other than for cash or to certain investors subject to special
treatment under the Federal income tax laws, such as insurance companies.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISER IN ORDER FULLY
TO UNDERSTAND THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES OF
AN INVESTMENT IN THE FUND.
In addition to the particular matters set forth in this section, tax-exempt
organizations should review carefully those sections of this Memorandum
regarding liquidity and other financial matters to ascertain whether the
investment objective of the Fund is consistent with their overall investment
plans. Each prospective tax-exempt Investor is urged to consult its own counsel
regarding the acquisition of interests in the Fund.
TAX TREATMENT OF FUND OPERATIONS
CLASSIFICATION OF THE FUND. The Fund has received an opinion of Stroock &
Stroock & Lavan LLP, counsel to the Fund, that under the provisions of the Code
and the Regulations, as in effect on the date of the opinion, the Fund will be
treated as a partnership for Federal income tax purposes and not as an
association taxable as a corporation.
Under Section 7704 of the Code, "publicly traded partnerships" are generally
treated as corporations for Federal income tax purposes. A publicly traded
partnership is any partnership the interests in which are traded on an
established securities market or which are readily tradable on a secondary
market, or the substantial equivalent thereof. Interests in the Fund will not be
traded on an established securities market. Regulations concerning the
classification of partnerships as publicly traded partnerships provide certain
safe harbors under which interests in a partnership will not be considered
readily tradable on a secondary market, or the substantial equivalent thereof.
The Fund will not be eligible for any of those safe harbors. In particular, it
will not qualify under the private placement safe harbor set forth in the
Regulations if, as is anticipated, the Fund has more than 100 Investors.
The Regulations specifically provide that the fact that a partnership does not
qualify for the safe harbors is disregarded for purposes of determining whether
interests in a partnership are readily tradable on a secondary market, or the
substantial equivalent thereof. Rather, in this event the partnership's status
is examined under a general facts and circumstances test set forth in the
Regulations. Counsel to the Fund has rendered its opinion that, under this
"facts and circumstances" test, and based upon the anticipated operations of the
Fund as well as the legislative history to Section 7704 and the text of the
Regulations, interests in the Fund will not be readily tradable on a secondary
market, or the substantial equivalent thereof, and, therefore, the Fund will not
be treated as a publicly traded partnership taxable as a corporation.
Neither of the opinions of counsel described above, however, is binding on the
Service or the courts. If it were determined that the Fund should be treated as
an association or a publicly traded partnership taxable as a corporation for
Federal income tax purposes, as a result of a successful challenge to such
opinions by the Service, changes in the Code, the Regulations or judicial
interpretations thereof, a material adverse change in facts, or otherwise, the
taxable income of the Fund would be subject to corporate income tax when
recognized by the Fund; distributions of such income, other than in certain
redemptions of Fund interests, would be treated as dividend income when received
by Investors to the extent of the Fund's current or accumulated earnings and
profits; and Investors would not be entitled to report profits or losses
realized by the Fund.
As an entity that is properly classified as a partnership, the Fund is not
itself subject to Federal income tax. For income tax purposes, each Investor
will be treated as a partner of the Fund and, as such, will be taxed upon its
distributive share of each item of the Fund's income, gain, loss and deductions
for each taxable year of the Fund ending with or within the Investor's taxable
year. Each item will have the same character to an Investor, and will generally
have the same source (either United States or foreign), as though the Investor
realized the item directly. Investors must report these items regardless of the
extent to which, or whether, the Fund or Investors receive cash distributions
for such taxable year, and thus may incur income tax liabilities unrelated to
any distributions to or from the Fund.
ALLOCATION OF PROFITS AND LOSSES. Under the LLC Agreement, the Fund's net
capital appreciation or net capital depreciation for each fiscal period is
allocated among the Investors and to their capital accounts without regard to
the amount of income or loss actually recognized by the Fund for Federal income
tax purposes. The LLC Agreement provides that items of income, deduction, gain,
loss or credit actually recognized by the Fund for each fiscal year generally
are to be allocated for income tax purposes among the Investors pursuant to
Regulations issued under Sections 704(b) and 704(c) of the Code, based upon
amounts of the Fund's net capital appreciation or net capital depreciation
allocated to each Investor's capital account for the current and prior fiscal
years.
Under the LLC Agreement, the Manager has the discretion to allocate specially an
amount of the Fund's net capital gains, including short-term capital gain, for
Federal income tax purposes to a withdrawing Investor to the extent that the
Investor's capital account exceeds its Federal income tax basis in its interest
in the Fund. There can be no assurance that, if the Manager makes such a special
allocation, the Service will accept such allocation. If such allocation is
successfully challenged by the Service, the Fund's gains allocable to the
remaining Investors would be increased.
An Investor admitted to the Fund other than as of January 1 of a fiscal year
will be allocated its distributive share of the Fund's tax items at the end of
such fiscal year based on its pro rata share of the Fund's capital. Such
allocation does not account for the possibility of a subsequent reallocation in
the following year to the Manager in respect of the initial Incentive
Allocation. The Manager, in its discretion, may attempt to minimize any negative
tax consequences which may result to an Investor from the foregoing, including
by utilizing special allocations of the Fund's tax items. However, there is no
assurance that any such attempt will successfully minimize any negative tax
consequence resulting to an Investor from the initial Incentive Allocation.
TAX ELECTIONS; RETURNS; TAX AUDITS. The Code provides for optional adjustments
to the basis of partnership property upon distributions of partnership property
to a partner and transfers of partnership interests, including by reason of
death, provided that a partnership election has been made pursuant to Section
754. Under the LLC Agreement, at the request of an Investor, the Manager, in its
sole discretion, may cause the Fund to make such an election. Any such election,
once made, cannot be revoked without the Service's consent. As a result of the
complexity and added expense of the tax accounting required to implement such an
election, the Manager does not presently intend to make such election.
The Manager decides how to report the Fund's tax items on the Fund's tax
returns, and all Investors are required under the Code to treat the items
consistently on their own returns, unless they file a statement with the Service
disclosing the inconsistency. In the event the income tax returns of the Fund
are audited by the Service, the tax treatment of the Fund's income and
deductions generally is determined at the Fund level in a single proceeding
rather than by individual audits of the Investors. The Manager is designated as
the Fund's "Tax Matters Partner" in the LLC Agreement. As such, it has
considerable authority to make decisions affecting the tax treatment and
procedural rights of all Investors. In addition, the Tax Matters Partner has the
authority to bind certain Investors to settlement agreements and the right on
behalf of all Investors to extend the statute of limitations relating to the
Investors' tax liabilities with respect to the Fund's tax items.
TAX CONSEQUENCES TO A WITHDRAWING INVESTOR
An Investor receiving a cash liquidating distribution from the Fund, in
connection with a complete withdrawal from the Fund generally will recognize
capital gain or loss to the extent of the difference between the proceeds
received by such Investor and such Investor's adjusted tax basis in its interest
in the Fund. Such capital gain or loss will be short-term or long-term depending
upon the Investor's holding period for its interest in the Fund. However, a
withdrawing Investor will recognize ordinary income to the extent such
Investor's allocable share of the Fund's "unrealized receivables" exceeds the
Investor's basis in such unrealized receivables, as determined pursuant to the
Regulations. For these purposes, accrued but untaxed market discount, if any, on
securities held by the Fund will be treated as an unrealized receivable with
respect to the withdrawing Investor. See "Tax Treatment of Fund
Investments--Obligations with Market Discount." An Investor receiving a cash
nonliquidating distribution will recognize income in a similar manner only to
the extent that the amount of the distribution exceeds such Investor's adjusted
tax basis in its interest in the Fund.
As discussed above, the LLC Agreement provides that the Manager may specially
allocate items of Fund capital gain, including short-term capital gain, to a
withdrawing Investor to the extent its liquidating distribution would otherwise
exceed its adjusted tax basis in its Fund interest. Such a special allocation
may result in the withdrawing Investor recognizing capital gain, which may
include short-term gain, in the Investor's last taxable year in the Fund,
thereby reducing the amount of long-term capital gain recognized during the
taxable year in which it receives its liquidating distribution upon withdrawal.
DISTRIBUTION OF PROPERTY
A partner's receipt of a distribution of property from a partnership is
generally not taxable. However, under Section 731 of the Code, a distribution
consisting of marketable securities generally is treated as a distribution of
cash (rather than property) unless the distributing partnership is an
"investment partnership" within the meaning of Section 731(c)(3)(C)(i) and the
recipient is an "eligible partner" within the meaning of Section
731(c)(3)(C)(iii). The Fund will determine at the appropriate time whether it
qualifies as an "investment partnership." Assuming it so qualifies, if an
Investor is an "eligible partner," which term should include an Investor whose
contributions to the Fund consisted solely of cash, the recharacterization rule
described above would not apply.
TAX TREATMENT OF FUND INVESTMENTS
IN GENERAL. The Fund expects to act as a trader or investor, and not as a
dealer, with respect to its securities transactions. A trader and an investor
are persons who buy and sell securities for their own accounts. A dealer, on the
other hand, is a person who purchases securities for resale to customers rather
than for investment or speculation.
Generally, the gains and losses realized by a trader or investor on the sale of
securities are capital gains and losses. Thus, subject to the treatment of
certain transactions described below, the Fund expects that its gains and losses
from its securities transactions typically will be capital gains and capital
losses.
These capital gains and losses may be long-term or short-term depending, in
general, upon the length of time a particular investment position is maintained
and, in some cases, upon the nature of the transaction. Property held for more
than one year generally will be eligible for long-term capital gain or loss
treatment. In certain circumstances, if the issuer of a security held by the
Fund engages in a reorganization transaction, the Fund may be treated as
disposing of the security in a taxable transaction at the time of the
reorganization, depending on certain factors relating to the reorganization, the
nature of the security and the nature of the consideration received for the
security in the reorganization. Accordingly, the timing of the Fund's
dispositions of its securities may be affected by factors beyond its control.
Further, the application of certain rules relating to short sales, to
constructive sales, to so-called "straddle" and "wash sale" transactions and to
"Section 1256 contracts" may serve to alter the manner in which the holding
period for a security is determined or may otherwise affect the characterization
as long-term or short-term, and also the timing of the realization, of certain
gains or losses. Moreover, the straddle rules and short sale rules may require
the capitalization of certain related expenses.
The maximum ordinary income tax rate for individuals is 39.6%, and the maximum
individual income tax rate for long-term capital gains is 20%, unless the
taxpayer elects to be taxed at ordinary rates, although in any case the actual
rate may be higher due to the phase out of certain tax deductions and
exemptions. See "Limitation on Deductibility of Interest" below. The excess of
capital losses over capital gains may be offset against the ordinary income of
an individual taxpayer, subject to an annual deduction limitation of $3,000. For
corporate taxpayers, the maximum income tax rate is 35%. Capital losses of a
corporate taxpayer may be offset only against capital gains, but unused capital
losses may be carried back three years, subject to certain limitations, and
carried forward five years.
The Fund may realize ordinary income from accruals of interest and dividends on
securities. Income or loss from transactions involving derivative instruments,
such as swap transactions, entered into by the Fund also may constitute ordinary
income or loss. Moreover, gain recognized from certain "conversion transactions"
will be treated as ordinary income.1
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1 Generally, a conversion transaction is one of several enumerated
transactions where substantially all of the taxpayer's return is
attributable to the time value of the net investment in the transaction.
The enumerated transactions are (i) the holding of any property, whether or
not actively traded, and entering into a contract to sell such property, or
substantially identical property, at a price determined in accordance with
such contract, but only if such property was acquired and such contract was
entered into on a substantially contemporaneous basis, (ii) certain
straddles, (iii) generally any other transaction that is marketed or sold
on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain or (iv) any other
transaction specified in the Regulations.
OBLIGATIONS WITH ORIGINAL ISSUE DISCOUNT. In many circumstances, the Fund will
invest in debt securities that are issued with OID. A debt instrument has OID if
the obligation's stated redemption price at maturity (which includes the
principal amount of the obligation and, in certain cases, interest payable on
the obligation) exceeds its issue price by more than a statutorily defined de
minimis amount. OID is includible in gross income as ordinary income as it
accrues under a prescribed constant-yield method. In general, OID will be
includible in income in advance of the receipt of cash associated with that
income. To the extent the Fund purchases a debt instrument that was issued with
OID for a price that exceeds the instrument's adjusted issue price (such excess
being "acquisition premium"), it may offset its OID income inclusions with the
acquisition premium as it is deemed to accrue over the life of the debt
instrument. It is unclear whether the Fund may reduce its OID income accruals
with respect to a debt instrument if there is no reasonable expectation of
collecting some or all of the cash associated with the OID income. The OID rules
do not provide for such an adjustment.
OBLIGATIONS WITH MARKET DISCOUNT. In many circumstances, the Fund will acquire
Market Discount Obligations. A debt security (excluding certain short-term
obligations) generally will be treated as a Market Discount Obligation if its
issue price exceeds the Fund's purchase price for the debt security by more than
a statutorily defined de minimis amount. Accrued market discount is includible
in income as ordinary income in each month, but limited to an amount equal to
the principal payments received that month on the obligation. Further, any gain
upon the disposition of a Market Discount Obligation will be treated as ordinary
income to the extent of any accrued and previously untaxed accrued market
discount. Subject to special rules which may apply to Market Discount
Obligations that receive principal payments prior to maturity, market discount
accrues on a straight-line basis or, if the Fund so elects, on a constant-yield
basis, over the remaining life of the obligation.
A holder of a Market Discount Obligation may be required to defer a portion of
the interest deductions attributable to any indebtedness incurred or continued
to purchase or carry the Market Discount Obligation. Alternatively, the holder
will be exempt from the interest deduction deferral rules if it elects to
include market discount in gross income as it accrues, without regard to the
timing of principal payments. The election to include market discount in income
as it accrues applies to all Market Discount Obligations acquired during the
year of the election and thereafter and may not be revoked without the consent
of the Internal Revenue Service.
SECTION 1256 CONTRACTS. In the case of "Section 1256 Contracts," the Code
generally applies a "mark to market" system of taxing unrealized gains and
losses on such contracts and otherwise provides for special rules of taxation.
Under these rules, Section 1256 Contracts, which include certain options
contracts, held at the end of each taxable year are treated for Federal income
tax purposes as if they were sold by the holder for their fair market value on
the last business day of such taxable year. The net gain or loss, if any,
resulting from such deemed sales, known as "marking to market," together with
any gain or loss resulting from actual sales of Section 1256 Contracts, must be
taken into account by the holder in computing its taxable income for such year.
If a Section 1256 Contract held at the end of a taxable year is sold in the
following year, the amount of any gain or loss realized on such sale will be
adjusted to reflect the gain or loss previously taken into account under the
"mark to market" rules.
Capital gains and losses from such Section 1256 Contracts generally are
characterized as short-term capital gains or losses to the extent of 40% thereof
and as long-term capital gains or losses to the extent of 60% thereof. Such
gains and losses will be taxed under the general rules described above. If an
individual taxpayer incurs a net capital loss for a year, the portion thereof,
if any, which consists of a net loss on "Section 1256 Contracts" may, at the
election of the taxpayer, be carried back three years. Losses so carried back
may be deducted only against net capital gain to the extent that such gain
includes gains on "Section 1256 Contracts."
MIXED STRADDLE ELECTION. The Code allows a taxpayer to elect to offset gains and
losses from positions which are part of a "mixed straddle." A "mixed straddle"
is any straddle in which one or more but not all positions are Section 1256
Contracts.
Pursuant to Temporary Regulations, the Fund may be eligible to elect to
establish one or more mixed straddle accounts for certain of its mixed straddle
trading positions. The mixed straddle account rules require a daily "marking to
market" of all open positions in the account and a daily netting of gains and
losses from positions in the account. At the end of a taxable year, the annual
net gains or losses from the mixed straddle account are recognized for tax
purposes. The application of the Temporary Regulations' mixed straddle account
rules is not entirely clear. Therefore, there is no assurance that a mixed
straddle account election by the Fund will be accepted by the Service.
SHORT SALES. Gain or loss from a short sale of property is generally considered
as capital gain or loss to the extent the property used to close the short sale
constitutes a capital asset in the taxpayer's hands. Except with respect to
certain situations where the property used to close a short sale has a long-term
holding period on the date of the short sale, special rules would generally
treat the gains on short sales as short-term capital gains. Moreover, a loss on
a short sale will be treated as a long-term capital loss if, on the date of the
short sale, "substantially identical property" has been held by the taxpayer for
more than one year. These rules may also terminate the running of the holding
period of "substantially identical property" held by the taxpayer.
Gain or loss on a short sale will generally not be realized until such time that
the short sale is closed. However, if the Fund holds a short sale position with
respect to stock, certain debt obligations or partnership interests that has
appreciated in value and then acquires property that is the same as or
substantially identical to the underlying property, the Fund generally will
recognize gain on the date it acquires such property as if the short sale were
closed on such date with such property. Similarly, if the Fund holds an
appreciated financial position with respect to stock, certain debt obligations
or partnership interests and then enters into a short sale with respect to the
same or substantially identical property, the Fund generally will recognize gain
as if the appreciated financial position were sold at its fair market value on
the date it enters into the short sale. The subsequent holding period for any
appreciated financial position that is subject to the constructive sale rules
will be determined as if such position were acquired on the date of the
constructive sale.
EFFECT OF STRADDLE RULES ON INVESTORS' SECURITIES POSITIONS. The Service may
treat certain positions in securities held, directly or indirectly, by an
Investor and its indirect interest in similar securities held by the Fund as
"straddles" for Federal income tax purposes. The application of the "straddle"
rules in such a case could affect an Investor's holding period for the
securities involved and may defer the recognition of losses with respect to such
securities.
MODIFICATIONS AND REORGANIZATION EXCHANGES OF DEBT SECURITIES. To the extent
there is a "substantial modification" of a debt security held by the Fund,
pursuant to a workout or otherwise, the Fund will be treated as exchanging the
pre-modification debt security for a new debt security having the terms of the
modified security. The Fund generally will be required to recognize gain or loss
upon the deemed exchange equal to the difference between the issue price of the
post-modification instrument and the Fund's basis in the pre-modification debt
security. Further, in certain circumstances, if the issuer of a security held by
the Fund engages in a reorganization transaction, the Fund may be treated as
disposing of the security in a taxable transaction at the time of the
reorganization, depending on certain factors relating to the reorganization, the
nature of the security and the nature of the consideration received for the
security in the reorganization. At the time of either a taxable deemed exchange
upon modification of a debt security or a taxable exchange of a debt security
pursuant to a reorganization of the issuer of such security, however, the Fund
will not have any cash receipts associated with any gains recognized upon the
deemed exchange or reorganization exchange. Each Investor will be required to
pay all applicable Federal and state income taxes with respect to its share of
any such gains even though, as described above, the Fund does not intend to make
periodic distributions of its net income or gains, if any, to Investors for such
purpose.
LIMITATION ON DEDUCTIBILITY OF INTEREST. For noncorporate taxpayers, Section
163(d) of the Code limits the deduction for "investment interest" (i.e.,
interest or short sale expenses for "indebtedness properly allocable to property
held for investment"). Investment interest is not deductible in the current year
to the extent that it exceeds the taxpayer's "net investment income," consisting
of net gain and ordinary income derived from investments in the current year
less certain directly connected expenses (other than interest or short sale
expenses). For this purpose, any long-term capital gain is excluded from net
investment income unless the taxpayer elects to pay tax on such amount at
ordinary income tax rates.
For purposes of this provision, the Fund's activities will be treated as giving
rise to investment income for an Investor, and the investment interest
limitation would apply to a noncorporate Investor's share of the interest and
short sale expenses attributable to the Fund's operation. In such case, a
noncorporate Investor would be denied a deduction for all or part of that
portion of its distributive share of the Fund's ordinary losses attributable to
interest and short sale expenses unless it had sufficient investment income from
all sources including the Fund. An Investor that could not deduct losses
currently as a result of the application of Section 163(d) would be entitled to
carry forward such losses to future years, subject to the same limitation. The
investment interest limitation would also apply to interest paid by a
noncorporate Investor on money borrowed to finance its investment in the Fund.
Potential Investors are advised to consult with their own tax advisers with
respect to the application of the investment interest limitation in their
particular tax situations. As indicated earlier, under "Tax Treatment of Fund
Investments--Obligations with Market Discount," limitations also may apply with
respect to interest deductions on indebtedness of the Fund that is incurred or
continued to purchase or carry a Market Discount Obligation.
DEDUCTIBILITY OF FUND INVESTMENT EXPENDITURES BY NONCORPORATE INVESTORS.
Investment expenses (e.g., investment advisory fees) of an individual, trust or
estate are deductible only to the extent that such expenses exceed 2% of
adjusted gross income.2 Further, in the case of an Investor that is a
partnership having 100 or more partners and which has elected to be treated as
an "electing large partnership," 70% of such deductions will be disallowed,
although the remaining deductions generally will be allowed at the partnership
level and will not be subject to the 2% floor that would otherwise be applicable
to individual Investors. In addition, the Code further restricts the ability of
an individual with an adjusted gross income in excess of a specified amount, for
2000, $128,950 or $64,475 for a married person filing a separate return, to
deduct such investment expenses. Under such provision, investment expenses in
excess of 2% of adjusted gross income may only be deducted to the extent such
excess expenses, along with certain other itemized deductions, exceed the lesser
of (i) 3% of the excess of the individual's adjusted gross income over the
specified amount or (ii) 80% of the amount of certain itemized deductions
otherwise allowable for the taxable year. Moreover, such investment expenses are
miscellaneous itemized deductions which are not deductible by a noncorporate
taxpayer in calculating its alternative minimum tax liability.
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2 However, Section 67(e) of the Code provides that, in the case of a trust or
an estate, such limitation does not apply to deductions or costs which are
paid or incurred in connection with the administration of the estate or
trust and would not have been incurred if the property were not held in
such trust or estate. The Federal Court of Appeals for the Sixth Circuit,
reversing a Tax Court decision, has held that the investment advisory fees
incurred by a trust were exempt under Section 67(e) from the 2% of adjusted
gross income floor on deductibility. The Service, however, has stated that
it will not follow this decision outside of the Sixth Circuit. Investors
that are trusts or estates should consult their tax advisers as to the
applicability of this case to the investment expenses that are allocated to
them.
Although the Fund intends to treat the trade or business related expenses and
any incentive-based allocations as not being subject to the foregoing
limitations on deductibility, there can be no assurance that the Service will
not treat such items as investment expenses which are subject to the
limitations.
The consequences of these limitations will vary depending upon the particular
tax situation of each taxpayer. Accordingly, noncorporate Investors should
consult their tax advisers with respect to the application of these limitations.
APPLICATION OF RULES FOR INCOME AND LOSSES FROM PASSIVE ACTIVITIES. The Code
restricts the deductibility of losses from a "passive activity" against certain
income which is not derived from a passive activity. This restriction applies to
individuals, personal service corporations and certain closely held
corporations. Pursuant to Temporary Regulations issued by the Treasury
Department, income or loss from the Fund's securities trading activity generally
will not constitute income or loss from a passive activity. Therefore, passive
losses from other sources generally could not be deducted against an Investor's
share of income and gain from the Fund. Income or loss attributable to
investments in partnerships engaged in a trade or business may constitute
passive activity income or loss.
"PHANTOM INCOME" FROM CERTAIN FOREIGN EQUITY INVESTMENTS. Pursuant to various
"anti-deferral" provisions of the Code (the "Subpart F," "passive foreign
investment company" and "foreign personal holding company" provisions),
investments, if any, by the Fund in certain foreign corporations may cause an
Investor to (i) recognize taxable income prior to the Fund's receipt of
distributable proceeds, (ii) pay an interest charge on receipts that are deemed
as having been deferred or (iii) recognize ordinary income that, but for the
"anti-deferral" provisions, would have been treated as capital gain.
FOREIGN TAXES
It is possible that certain dividends and interest received from sources within
foreign countries will be subject to withholding taxes imposed by such
countries. In addition, some foreign countries may impose capital gains taxes on
certain securities transactions involving foreign issuers. Tax treaties between
certain countries and the United States may reduce or eliminate such taxes.
The Fund will inform Investors of their proportionate share of the foreign taxes
paid or incurred by the Fund that Investors will be required to include in their
income. The Investors generally will be entitled to claim either a credit
(subject, however, to various limitations on foreign tax credits), or, if they
itemize their deductions, a deduction (subject to the limitations generally
applicable to deductions) for their share of such foreign taxes in computing
their Federal income taxes. An Investor that is tax exempt will not ordinarily
benefit from such credit or deduction.
UNRELATED BUSINESS TAXABLE INCOME
Generally, an exempt organization (such as an employee benefit plan, Individual
Retirement Account or 401(k) or Keogh Plan) is exempt from Federal income tax on
its passive investment income, such as dividends, interest and capital gains,
whether realized by the organization directly or indirectly through a
partnership in which it is an investor.3 This general exemption from tax does
not apply to the UBTI of an exempt organization. UBTI includes "unrelated
debt-financed income," which generally consists of (i) income derived by an
exempt organization, directly or through a partnership, from income-producing
property with respect to which there is "acquisition indebtedness" at any time
during the taxable year, and (ii) gains derived by an exempt organization,
directly or through a partnership, from the disposition of property with respect
to which there is "acquisition indebtedness" at any time during the 12-month
period ending with the date of such disposition. With respect to its investments
in partnerships engaged in a trade or business, the Fund's income, or loss, from
these investments may constitute UBTI.
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3 With certain exceptions, tax-exempt organizations which are private
foundations are subject to a 2% Federal excise tax on their "net investment
income." The rate of the excise tax for any taxable year may be reduced to
1% if the private foundation meets certain distribution requirements for
the taxable year. A private foundation will be required to make payments of
estimated tax with respect to this excise tax.
The Fund may incur "acquisition indebtedness" with respect to certain of its
transactions, such as the purchase of securities on margin. Based upon a
published ruling issued by the Service which generally holds that income and
gain with respect to short sales of publicly traded stock does not constitute
income from debt-financed property for purposes of computing UBTI, the Fund will
treat its short sales of securities as not involving "acquisition indebtedness"
and therefore not generating UBTI.4 The percentage of income (i.e., dividends
and interest) from securities with respect to which there is "acquisition
indebtedness" during a taxable year which will be treated as UBTI generally will
be based on the percentage which the "average acquisition indebtedness" incurred
with respect to such securities is of the "average amount of the adjusted basis"
of such securities during the taxable year.
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4 Moreover, income realized from option writing generally would not
constitute UBTI.
The percentage of capital gain from securities with respect to which there is
"acquisition indebtedness" at any time during the 12-month period ending with
the date of their disposition which will be treated as UBTI will be based on the
percentage which the highest amount of such "acquisition indebtedness" is of the
"average amount of the adjusted basis" of such securities during the taxable
year. In determining the unrelated debt-financed income of the Fund, an
allocable portion of deductions directly connected with the Fund's debt-financed
property is taken into account. Thus, for instance, a percentage of capital
losses from debt-financed securities, based on the debt/basis percentage
calculation described above, would offset gains treated as UBTI.
Since the calculation of the Fund's "unrelated debt-financed income" is complex
and will depend in large part on the amount of leverage, if any, used by the
Fund from time to time,5 it is impossible to predict what percentage of the
Fund's income and gains will be treated as UBTI for an Investor which is an
exempt organization. An exempt organization's share of the income or gains of
the Fund which is treated as UBTI may not be offset by losses of the exempt
organization either from the Fund or otherwise, unless such losses are treated
as attributable to an unrelated trade or business (e.g., losses from securities
for which there is acquisition indebtedness).
- ----------------
5 The calculation of a particular exempt organization's UBTI would also be
affected if it incurs indebtedness to finance its investment in the Fund.
An exempt organization is required to make estimated tax payments with
respect to its UBTI.
To the extent that the Fund generates UBTI, the applicable Federal tax rate for
such an Investor generally would be either the corporate or trust tax rate
depending upon the nature of the particular exempt organization. An exempt
organization may be required to substantiate, to the satisfaction of the
Service, the method used to calculate its UBTI. The Fund will be required to
report to an Investor which is an exempt organization information as to the
portion, if any, of its income and gains from the Fund for each year which will
be treated as UBTI. The calculation of such amount with respect to transactions
entered into by the Fund is highly complex, and there is no assurance that the
Fund's calculation of UBTI will be accepted by the Service.
In general, if UBTI is allocated to an exempt organization such as a qualified
retirement plan or a private foundation, the portion of the Fund's income and
gains which is not treated as UBTI will continue to be exempt from tax, as will
the organization's income and gains from other investments which are not treated
as UBTI. Therefore, the possibility of realizing UBTI from its investment in the
Fund generally should not affect the tax-exempt status of such an exempt
organization.6 However, a charitable remainder trust will not be exempt from
Federal income tax under Section 664(c) of the Code for any year in which it has
UBTI. A title-holding company will not be exempt from tax if it has certain
types of UBTI. Moreover, the charitable contribution deduction for a trust under
Section 642(c) of the Code may be limited for any year in which the trust has
UBTI. A prospective Investor should consult its tax adviser with respect to the
tax consequences of receiving UBTI from the Fund.
See also "ERISA CONSIDERATIONS."
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6 Certain exempt organizations which realize UBTI in a taxable year will not
constitute "qualified organizations" for purposes of Section
514(c)(9)(B)(vi)(I) of the Code, pursuant to which, in limited
circumstances, income from certain real estate partnerships in which such
organizations invest might be treated as exempt from UBTI. A prospective
tax-exempt Investor should consult its tax adviser in this regard.
CERTAIN ISSUES PERTAINING TO SPECIFIC EXEMPT ORGANIZATIONS
PRIVATE FOUNDATIONS. Private foundations and their managers are subject to
excise taxes if they invest "any amount in such a manner as to jeopardize the
carrying out of any of the foundation's exempt purposes." This rule requires a
foundation manager, in making an investment, to exercise "ordinary business care
and prudence" under the facts and circumstances prevailing at the time of making
the investment, in providing for the short-term and long-term needs of the
foundation to carry out its exempt purposes. The factors which a foundation
manager may take into account in assessing an investment include the expected
rate of return, both income and capital appreciation, the risks of rising and
falling price levels, and the needs for diversification within the foundation's
portfolio.
In order to avoid the imposition of an excise tax, a private foundation may be
required to distribute on an annual basis its "distributable amount," which
includes, among other things, the private foundation's "minimum investment
return," defined as 5% of the excess of the fair market value of its
nonfunctionally related assets (defined to include assets not used or held for
use in carrying out the foundation's exempt purposes), over certain indebtedness
incurred by the foundation in connection with such assets. It appears that a
foundation's investment in the Fund would most probably be classified as a
nonfunctionally related asset. A determination that an interest in the Fund is a
nonfunctionally related asset could conceivably cause cash flow problems for a
prospective Investor which is a private foundation. Such an organization could
be required to make distributions in an amount determined by reference to
unrealized appreciation in the value of its interest in the Fund. Of course,
this factor would create less of a problem to the extent that the value of the
investment in the Fund is not significant in relation to the value of other
liquid assets held by a foundation.
In some instances, an investment in the Fund by a private foundation may be
prohibited by the "excess business holdings" provisions of the Code. For
example, if a private foundation, either directly or together with a
"disqualified person," acquires more than 20% of the capital interest or profits
interest of the Fund, the private foundation may be considered to have "excess
business holdings." If this occurs, such foundation may be required to divest
itself of its interest in the Fund in order to avoid the imposition of an excise
tax. However, the excise tax will not apply if at least 95% of the gross income
from the Fund is "passive" within the applicable provisions of the Code and
Regulations. Although there can be no assurance, the Manager believes that the
Fund will meet this 95% gross income test.
A substantial percentage of investments of certain "private operating
foundations" may be restricted to assets directly devoted to their tax-exempt
purposes. Otherwise, generally, rules similar to those discussed above govern
their operations.
QUALIFIED RETIREMENT PLANS. Employee benefit plans subject to the provisions of
ERISA, Individual Retirement Accounts ("IRAs") and Keogh Plans should consult
their counsel as to the implications of such an investment under ERISA. See "TAX
ASPECTS--Unrelated Business Taxable Income" and "ERISA CONSIDERATIONS."
ENDOWMENT FUNDS. Investment managers of endowment funds should consider whether
the acquisition of an interest in the Fund is legally permissible. This is not a
matter of Federal law, but is determined under state statutes. It should be
noted, however, that under the Uniform Management of Institutional Funds Act,
which has been adopted, in various forms, by a large number of states,
participation in investment funds or similar organizations in which funds are
commingled and investment determinations are made by persons other than the
governing board of the endowment fund is allowed.
LEGISLATIVE PROPOSALS
There have been several proposals initiated by the Clinton Administration and
Congress that would affect the tax consequences described herein. It is not
possible to predict at this time the extent to which any of these proposals will
be enacted by Congress and, if enacted, what their final form and effective
dates will be. In addition, other proposals could be enacted that would change
the tax consequences described herein of an investment in the Fund. Prospective
Investors should consult their own tax advisers regarding the status of these
proposed changes and the effect, if any, on their investment in the Fund.
STATE AND LOCAL TAXATION
In addition to the Federal income tax consequences described above, prospective
Investors should consider potential state and local tax consequences of an
investment in the Fund. State and local tax laws differ in the treatment of
limited liability companies such as the Fund. A few jurisdictions may impose
entity level taxes on a limited liability company if it is found to have
sufficient contact with that jurisdiction. Such taxes are frequently based on
the income and capital of the entity that is allocated to the jurisdiction.
Although there can be no assurance, except as noted below, the Fund intends to
conduct its activities so that it will not be subject to entity level taxation
by any state or local jurisdiction.
State and local laws often differ from Federal income tax laws with respect to
the treatment of specific items of income, gain, loss, deduction and credit. An
Investor's distributive share of the taxable income or loss of the Fund
generally will be required to be included in determining its reportable income
for state and local tax purposes in the jurisdiction in which it is a resident.
A partnership in which the Fund acquires an interest may conduct business in a
jurisdiction which will subject to tax an Investor's share of the Fund's income
from that business. Prospective Investors should consult their tax advisers with
respect to the availability of a credit for such tax in the jurisdiction in
which that Investor is a resident.
The Fund should not be subject to the New York City unincorporated business tax,
which is not imposed on an entity taxed as a partnership which purchases and
sells securities for its "own account." By reason of a similar "own account"
exemption, it is also expected that a nonresident individual Investor should not
be subject to New York State personal income tax with respect to his share of
income or gain realized directly by the Fund. A nonresident individual Investor
will not be subject to New York City earnings tax on nonresidents with respect
to his or her investment in the Fund.
Individual Investors who are residents of New York State and New York City
should be aware that the New York State and New York City personal income tax
laws limit the deductibility of itemized deductions for individual taxpayers at
certain income levels. This limitation would likely apply to an Investor's share
of some or all of the Fund's expenses. Prospective Investors are urged to
consult their tax advisers with respect to the impact of these provisions and
the Federal limitations on the deductibility of certain itemized deductions and
investment expenses on their New York State and New York City tax liability.
For purposes of the New York State corporate franchise tax and the New York City
general corporation tax, a corporation generally is treated as doing business in
New York State and New York City, respectively, and is subject to such corporate
taxes as a result of the ownership of a limited partnership interest in a
partnership which does business in New York State and New York City,
respectively.7 Each of the New York State and New York City corporate taxes are
imposed, in part, on the corporation's taxable income or capital allocable to
the relevant jurisdiction by application of the appropriate allocation
percentages. Moreover, a non-New York corporation which does business in New
York State may be subject to a New York State license fee. A corporation which
is subject to New York State corporate franchise tax solely as a result of being
a limited partner in a New York partnership may, under certain circumstances,
elect to compute its New York State corporate franchise tax by taking into
account only its distributive share of such partnership's income and loss. There
is currently no similar provision in effect for purposes of the New York City
general corporation tax.
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7 New York State, but not New York City, generally exempts from corporate
franchise tax a non-New York corporation which (i) does not actually or
constructively own a 1% or greater limited partnership interest in a
partnership doing business in New York and (ii) has a tax basis in such
limited partnership interest not greater than $1 million.
Regulations under both the New York State corporate franchise tax and the New
York City general corporation tax, however, provide an exception to this general
rule in the case of a "portfolio investment partnership," which is defined,
generally, as a partnership which meets the gross income requirements of Section
851(b)(2) of the Code. New York State (but not New York City) has adopted
regulations that also include income and gains from commodity transactions
described in Section 864(b)(2)(B)(iii) as qualifying gross income for this
purpose. The Fund's qualification as such a portfolio investment partnership
must be determined on an annual basis and with respect to a taxable year, the
Fund may not qualify as a portfolio investment partnership.
A trust or other unincorporated organization which by reason of its purposes or
activities is exempt from Federal income tax is also exempt from New York State
and New York City personal income tax. A nonstock corporation which is exempt
from Federal income tax is generally presumed to be exempt from New York State
corporate franchise tax and New York City general corporation tax. New York
State imposes a tax with respect to such exempt entities on UBTI, including
unrelated debt-financed income, at a rate which is currently equal to the New
York State corporate franchise tax rate, plus the corporate surtax. There is no
New York City tax on the UBTI of an otherwise exempt entity.
Each prospective corporate Investor should consult its tax adviser with regard
to the New York State and New York City tax consequences of an investment in the
Fund.
ERISA CONSIDERATIONS
Persons who are fiduciaries with respect to an employee benefit plan or other
arrangement subject to the Employee Retirement Income Security Act of 1974, as
amended (an "ERISA Plan" and "ERISA," respectively), and persons who are
fiduciaries with respect to an IRA or Keogh Plan, which is not subject to ERISA
but is subject to the prohibited transaction rules of Section 4975 of the Code
(together with ERISA Plans, "Benefit Plans") should consider, among other
things, the matters described below before determining whether to invest in the
Fund.
ERISA imposes certain general and specific responsibilities on persons who are
fiduciaries with respect to an ERISA Plan, including prudence, diversification,
an obligation not to engage in a prohibited transaction and other standards. In
determining whether a particular investment is appropriate for an ERISA Plan,
Department of Labor ("DOL") regulations provide that a fiduciary of an ERISA
Plan must give appropriate consideration to, among other things, the role that
the investment plays in the ERISA Plan's portfolio, taking into consideration
whether the investment is designed reasonably to further the ERISA Plan's
purposes, an examination of the risk and return factors, the portfolio's
composition with regard to diversification, the liquidity and current return of
the total portfolio relative to the anticipated cash flow needs of the ERISA
Plan, the income tax consequences of the investment (see "TAX ASPECTS--Unrelated
Business Taxable Income" and "--Certain Issues Pertaining to Specific Exempt
Organizations") and the projected return of the total portfolio relative to the
ERISA Plan's funding objectives. Before investing the assets of an ERISA Plan in
the Fund, a fiduciary should determine whether such an investment is consistent
with its fiduciary responsibilities and the foregoing regulations. For example,
a fiduciary should consider whether an investment in the Fund may be too
illiquid or too speculative for a particular ERISA Plan, and whether the assets
of the ERISA Plan would be sufficiently diversified. If a fiduciary with respect
to any such ERISA Plan breaches its or his responsibilities with regard to
selecting an investment or an investment course of action for such ERISA Plan,
the fiduciary itself or himself may be held liable for losses incurred by the
ERISA Plan as a result of such breach.
Because the Fund will register as an investment company under the 1940 Act, the
underlying assets of the Fund should not be considered to be "plan assets" of
the ERISA Plans investing in the Fund for purposes of ERISA's (or the Code's)
fiduciary responsibility and prohibited transaction rules. Thus, the Manager
will not be a fiduciary within the meaning of ERISA by reason of its authority
with respect to the Fund.
The Manager will require a Benefit Plan which proposes to invest in the Fund to
represent that it, and any fiduciaries responsible for such Plan's investments,
are aware of and understand the Fund's investment objective, policies and
strategies, that the decision to invest plan assets in the Fund was made with
appropriate consideration of relevant investment factors with regard to the
Benefit Plan and is consistent with the duties and responsibilities imposed upon
fiduciaries with regard to their investment decisions under ERISA and/or the
Code.
Certain prospective Benefit Plan Investors may currently maintain relationships
with the Manager or other entities which are affiliated with the Manager. Each
of such persons may be deemed to be a party in interest to and/or a fiduciary of
any Benefit Plan to which it provides investment management, investment advisory
or other services. ERISA prohibits (and the Code penalizes) the use of ERISA and
Benefit Plan assets for the benefit of a party in interest and also prohibits
(or penalizes) an ERISA or Benefit Plan fiduciary from using its position to
cause such Plan to make an investment from which it or certain third parties in
which such fiduciary has an interest would receive a fee or other consideration.
ERISA and Benefit Plan investors should consult with counsel to determine if
participation in the Fund is a transaction which is prohibited by ERISA or the
Code. Fiduciaries of ERISA or Benefit Plan Investors will be required to
represent that the decision to invest in the Fund was made by them as
fiduciaries that are independent of such affiliated persons, that such
fiduciaries are duly authorized to make such investment decision and that they
have not relied on any individualized advice or recommendation of such
affiliated persons, as a primary basis for the decision to invest in the Fund.
The provisions of ERISA and the Code are subject to extensive and continuing
administrative and judicial interpretation and review. The discussion of ERISA
and the Code contained in this Memorandum is general and may be affected by
future publication of regulations and rulings. Potential Benefit Plan Investors
should consult their legal advisers regarding the consequences under ERISA and
the Code of the acquisition and ownership of interests.
ADDITIONAL INFORMATION AND SUMMARY OF LIMITED LIABILITY COMPANY AGREEMENT
The following is a summary description of additional items and of select
provisions of the LLC Agreement which are not described elsewhere in this
Memorandum. The description of such items and provisions is not definitive and
reference should be made to the complete text of the LLC Agreement contained in
Appendix A.
LIABILITY OF INVESTORS
Investors in the Fund will be members of a limited liability company as provided
under Delaware law. Under Delaware law and the LLC Agreement, an Investor will
not be liable for the debts, obligations or liabilities of the Fund solely by
reason of being an Investor, except that the Investor may be obligated to make
capital contributions to the Fund pursuant to the LLC Agreement, to repay any
funds wrongfully distributed to the Investor and to make additional capital
contributions up to, but in no event in excess of, the aggregate amount of any
distributions, amounts in connection with a repurchase of all or a portion of
the Investor's interests and any other amounts received by the Investor from the
Fund during or after the fiscal year to which any debt, obligation or liability
of the Fund is incurred.
DUTY OF CARE OF THE BOARD AND MANAGER
The LLC Agreement provides that neither the Directors nor the Manager (including
certain of its affiliates, among others) shall be liable to the Fund or any of
the Investors for any loss or damage occasioned by any act or omission in the
performance of their respective services as such in the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of their duties.
The LLC Agreement also contains provisions for the indemnification, to the
extent permitted by law, of the Directors and the Manager (including certain of
its affiliates, among others) by the Fund, but not by the Investors
individually, against any liability and expense to which any of them may be
liable which arises in connection with the performance of their activities on
behalf of the Fund. None of these persons will be personally liable to any
Investor for the repayment of any balance in such Investor's capital account or
for contributions by such Investor to the capital of the Fund or by reason of
any change in the Federal or state income tax laws applicable to the Fund or its
investors. The rights of indemnification and exculpation provided under the LLC
Agreement do not provide for indemnification of a Director or the Manager for
any liability, including liability under Federal securities laws which, under
certain circumstances, impose liability even on persons that act in good faith,
to the extent, but only to the extent, that such indemnification would be in
violation of applicable law.
AMENDMENT OF THE LLC AGREEMENT
The LLC Agreement may be amended with the approval of (i) the Board, including a
majority of the Independent Directors, if required by the 1940 Act, (ii) the
Manager or (iii) a majority, as defined in the 1940 Act, of the outstanding
voting securities of the Fund. Certain amendments involving capital accounts,
allocations thereto and the modification of events causing dissolution of the
Fund may not be made without the consent of any Investors adversely affected
thereby or unless each Investor has received notice of such amendment and any
Investor objecting to such amendment has been allowed a reasonable opportunity
to tender its entire interest for repurchase by the Fund.
POWER OF ATTORNEY
By purchasing an interest in the Fund, each Investor will appoint the Manager
and each of the Directors his or her attorney-in-fact for purposes of filing
required certificates and documents relating to the formation and continuance of
the Fund as a limited liability company under Delaware law or signing all
instruments effecting authorized changes in the Fund or the LLC Agreement and
conveyances and other instruments deemed necessary to effect the dissolution or
termination of the Fund.
The power-of-attorney granted in the LLC Agreement is a special
power-of-attorney coupled with an interest in favor of the Manager and each of
the Directors and as such is irrevocable and continues in effect until all of
such Investor's interest in the Fund has been withdrawn pursuant to a periodic
tender or transferred to one or more transferees that have been approved by the
Board for admission to the Fund as substitute Investors.
TERM, DISSOLUTION AND LIQUIDATION
The Fund will be dissolved:
o upon the affirmative vote to dissolve the Fund by both (1) the Board
and (2) Investors holding at least two-thirds of the total number of
votes eligible to be cast by all Investors;
o upon the expiration of any two-year period which commences on the date
on which any Investor has submitted to the Fund a written request in
accordance with the LLC Agreement, to tender its entire interest for
repurchase by the Fund if such Investor's interest has not been
repurchased during such period;
o at the election of the Manager;
o upon the failure of Investors to elect successor Directors at a
meeting called by the Manager when no Director remains; or
o as required by operation of law.
Upon the occurrence of any event of dissolution, the Manager, or a liquidator
under appointment by the Board, is charged with winding up the affairs of the
Fund and liquidating its assets. Net profits or net loss during the fiscal
period including the period of liquidation will be allocated as described in the
section titled "CAPITAL ACCOUNTS AND ALLOCATIONS--Allocation of Net Profits and
Net Losses."
Upon the dissolution of the Fund, its assets are to be distributed (1) first to
satisfy the debts, liabilities and obligations of the Fund, other than debts to
Investors, including actual or anticipated liquidation expenses, (2) next to
satisfy debts owing to the Investors, and (3) finally to the Investors
proportionately in accordance with the balances in their respective capital
accounts. Assets may be distributed in-kind on a pro rata basis if the Board or
liquidator determines that such a distribution would be in the interests of the
Investors in facilitating an orderly liquidation.
REPORTS TO INVESTORS
The Fund will furnish to Investors as soon as practicable after the end of each
taxable year such information as is necessary for such Investors to complete
Federal and state income tax or information returns, along with any other tax
information required by law. The Fund will send to Investors a semi-annual and
an audited annual report within 60 days after the close of the period for which
it is being made, or as otherwise required by the 1940 Act. Quarterly reports
from the Manager regarding the Fund's operations during such period also will be
sent to Investors.
FISCAL YEAR
The Fund's fiscal year ends on December 31st.
ACCOUNTANTS AND LEGAL COUNSEL
Ernst & Young LLP serves as the independent public accountants of the Fund. Its
principal business address is 787 Seventh Avenue, New York, New York 10019.
Stroock & Stroock & Lavan LLP, New York, New York, acts as legal counsel to the
Fund.
Schulte Roth & Zabel LLP, New York, New York, acts as legal counsel to the
Manager and its affiliates.
CUSTODIAN
PFPC Trust Company (the "Custodian") serves as the primary custodian of the
Fund's assets, and may maintain custody of the Fund's assets with domestic and
foreign subcustodians (which may be banks, trust companies, securities
depositories and clearing agencies) approved by the Directors. Assets of the
Fund are not held by the Manager or commingled with the assets of other accounts
other than to the extent that securities are held in the name of a custodian in
a securities depository, clearing agency or omnibus customer account of such
custodian. The Custodian's principal business address is Airport Business
Center, International Court 2, 200 Stevens Drive, Lester, Pennsylvania 19113.
INQUIRIES
Inquiries concerning the Fund and interests in the Fund, including information
concerning purchase and redemption procedures, should be directed to:
PW Willow Management, L.L.C.
c/o PaineWebber Incorporated
Alternative Investment Group
1285 Avenue of the Americas
New York, New York 10019
Telephone: (800) 486-2608
Telecopier: (212) 713-1498
* * * * *
All potential Investors in the Fund are encouraged to consult appropriate legal
and tax counsel.
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<PAGE>
APPENDIX A
PW WILLOW FUND, L.L.C.
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT of PW Willow Fund, L.L.C.
(the "Fund") is dated and effective as of February 11, 2000 by and among the
Organizational Member, the Manager and each person hereinafter admitted to the
Fund and reflected on the books of the Fund as a Member.
W I T N E S S E T H :
WHEREAS, the Fund heretofore has been formed as a limited liability
company under the Delaware Limited Liability Company Act, pursuant to the
Certificate dated as of January 31, 2000 and filed with the Secretary of State
of the State of Delaware on February 1, 2000;
NOW, THEREFORE, for and in consideration of the foregoing and the
mutual covenants hereinafter set forth, it is hereby agreed as follows:
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ARTICLE I
DEFINITIONS
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For purposes of this Agreement:
ADVICE AND MANAGEMENT means those services provided to the Fund by the
Manager pursuant to Section 3.4(b) hereof.
ADVISERS ACT means the Investment Advisers Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
AFFILIATE means affiliated person as such term is defined in the 1940
Act.
AGREEMENT means this Limited Liability Company Agreement, as amended
and/or restated from time to time.
ALLOCATION CHANGE means, with respect to each Member for each
Allocation Period, the difference between:
(1) the sum of (a) the balance of such Member's Capital Account as of
the close of the Allocation Period (after giving effect to all
allocations to be made to such Member's Capital Account as of
such date other than any Incentive Allocation to be debited
against such Member's Capital Account), plus (b) any debits to
such Member's Capital Account during the Allocation Period to
reflect any actual or deemed distributions or repurchases with
respect to such Member's Interest, plus (c) any debits to such
Member's Capital Account during the Allocation Period to reflect
any Insurance premiums allocable to such Member, plus (d) any
debits to such Member's Capital Account during the Allocation
Period to reflect any items allocable to such Member's Capital
Account pursuant to Section 5.6 hereof other than Management
Fees; and
(2) the sum of (a) the balance of such Member's Capital Account as of
the commencement of the Allocation Period, plus (b) any credits
to such Member's Capital Account during the Allocation Period to
reflect any contributions by such Member to the capital of the
Fund, plus (c) any credits to such Member's Capital Account
during the Allocation Period to reflect any Insurance proceeds
allocable to such Member.
If the amount specified in clause (1) exceeds the amount
specified in clause (2), such difference shall be a POSITIVE
ALLOCATION CHANGE, and if the amount specified in clause (2)
exceeds the amount specified in clause (1), such difference shall
be a NEGATIVE ALLOCATION CHANGE.
ALLOCATION PERIOD means, with respect to each Member, the period
commencing as of the date of admission of such Member to the Fund and ending at
the close of business on the first to occur of the following:
(1) the last day of the twelfth complete calendar month since the
admission of such Member to the Fund;
(2) the last day of a Fiscal Year subsequent to a Member having been
admitted to the Fund for 12 complete calendar months, and the
last day of each Fiscal Year thereafter;
(3) the day as of which the Fund repurchases any Interest or portion
of an Interest of such Member;
(4) the day as of which the Fund admits as a substituted Member a
person to whom the Interest (or a portion thereof) of such Member
has been Transferred (unless there is no change in beneficial
ownership);
(5) the day as of which the authority of the Manager to provide
Advice and Management is terminated pursuant to Section 3.4(a)
hereof;
(6) the day preceding any day as of which such Member becomes a
Special Member; or
(7) the day on which such Member ceases to be a Special Member.
BOARD means the Board of Directors established pursuant to Section 2.6
hereof.
CAPITAL ACCOUNT means, with respect to each Member, the capital
account established and maintained on behalf of each Member pursuant to Section
5.3 hereof.
CAPITAL PERCENTAGE means a percentage established for each Member as
of each Expense Allocation Date. The Capital Percentage of a Member on an
Expense Allocation Date shall be determined by dividing the amount of capital
contributed to the Fund by the Member pursuant to Section 5.1 hereof by the sum
of the capital contributed to the Fund by each Member pursuant to Section 5.1
hereof on or prior to such Expense Allocation Date. The sum of the Capital
Percentages of all Members on each Expense Allocation Date shall equal 100%.
CAPITAL CONTRIBUTION means the contribution, if any, made, or to be
made, as the context requires, to the capital of the Fund by a Member.
CERTIFICATE means the Certificate of Formation of the Fund and any
amendments thereto as filed with the office of the Secretary of State of the
State of Delaware.
CLOSING DATE means the first date on or as of which a Member other
than the Organizational Member or the Manager is admitted to the Fund.
CODE means the United States Internal Revenue Code of 1986, as amended
and as hereafter amended from time to time, or any successor law.
DELAWARE ACT means the Delaware Limited Liability Company Act (6
DEL.C.ss.18-101, ET SEQ.) as in effect on the date hereof and as amended from
time to time, or any successor law.
DIRECTOR means each natural person listed on Schedule I hereto who
serves on the Board and any other natural person who, from time to time,
pursuant hereto shall serve on the Board. Each Director shall constitute a
"manager" of the Fund within the meaning of the Delaware Act.
EXPENSE ALLOCATION DATE means the Closing Date, and thereafter each
day on or before December 31, 2000, as of which a contribution to the capital of
the Fund is made pursuant to Section 5.1 hereof.
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:
(1) the last day of a Fiscal Year;
(2) the day preceding any day as of which a contribution to the
capital of the Fund is made pursuant to Section 5.1;
(3) the day as of which the Fund repurchases any Interest or portion
of an Interest of any Member;
(4) the day as of which the Fund admits a substituted Member to whom
an Interest (or portion thereof) of a Member has been Transferred
(unless there is no change of beneficial ownership); or
(5) any other day as of which this Agreement provides for any amount
to be credited to or debited against the Capital Account of any
Member, other than an amount to be credited to or debited against
the Capital Accounts of all Members in accordance with their
respective Fund Percentages.
FISCAL YEAR means the period commencing on the Closing Date and ending
on the first December 31st following the Closing Date, and thereafter each
period commencing on January 1 of each year and ending on December 31 of each
year (or on the date of a final distribution pursuant to Section 6.2 hereof),
unless the Directors shall designate another fiscal year for the Fund that is a
permissible taxable year under the Code.
FORM N-2 means the Fund's Registration Statement on Form N-2 filed
with the Securities and Exchange Commission, as amended from time to time.
FUND means the limited liability company governed hereby, as such
limited liability company may from time to time be constituted.
FUND PERCENTAGE means a percentage established for each Member on the
Fund's books as of the first day of each Fiscal Period. The Fund Percentage of a
Member for a Fiscal Period shall be determined by dividing the balance of the
Member's Capital Account as of the commencement of such Fiscal Period by the sum
of the Capital Accounts of all of the Members as of the commencement of such
Fiscal Period. The sum of the Fund Percentages of all Members for each Fiscal
Period shall equal 100%.
INCENTIVE ALLOCATION means, with respect to any Member, other than a
Special Member, 20% (and, as respects a Special Member, such percentage as the
Manager shall have agreed with such Special Member) of the amount, determined as
of the close of each Allocation Period with respect to such Member, by which
such Member's Positive Allocation Change for such Allocation Period, if any,
exceeds any positive balance in such Member's Loss Recovery Account as of the
most recent prior date as of which any adjustment has been made thereto.
INDEPENDENT DIRECTORS means those Directors who are not "interested
persons" of the Fund as such term is defined in the 1940 Act.
INSURANCE means one or more "key man" insurance policies on the life
of any principal of a member of the Manager, the benefits of which are payable
to the Fund.
INTEREST means the entire ownership interest in the Fund at any
particular time of a Member or other person to whom an Interest or portion
thereof has been transferred pursuant to Section 4.3 hereof, including the
rights and obligations of such Member or other person under this Agreement and
the Delaware Act.
INVESTED CAPITAL means, with respect to any Member, the amount of such
Member's aggregate Capital Contributions to the Fund, decreased by any
withdrawals (through repurchases pursuant to Section 4.4 hereof) made by such
Member pursuant to Section 4.4 hereof other than withdrawals of aggregate Net
Capital Appreciation (for this purpose, any amounts withdrawn shall first be
applied against Net Capital Appreciation, if any).
LOSS RECOVERY ACCOUNT means a memorandum account to be recorded in the
books and records of the Fund with respect to each Member, which shall have an
initial balance of zero and which shall be adjusted as follows:
(1) As of the first day after the close of each Allocation Period for
such Member, the balance of the Loss Recovery Account shall be
increased by the amount, if any, of such Member's Negative
Allocation Change for such Allocation Period and shall be reduced
(but not below zero) by the amount, if any, of such Member's
Positive Allocation Change for such Allocation Period.
(2) The balance of the Loss Recovery Account shall be reduced (but
not below zero) as of the first date as of which the Capital
Account balance of any Member is reduced as a result of
repurchase or transfer with respect to such Member's Interest by
an amount determined by multiplying (a) such positive balance by
(b) a fraction, (i) the numerator of which is equal to the amount
of the repurchase or transfer, and (ii) the denominator of which
is equal to the balance of such Member's Capital Account
immediately before giving effect to such repurchase or transfer.
No transferee of any Interest shall succeed to any Loss Recovery
Account balance or portion thereof attributable to the transferor unless the
Transfer by which such transferee received such Interest did not involve a
change of beneficial ownership.
MANAGEMENT FEE means the fee paid to PWFA out of the Fund's assets,
and debited against Members' Capital Accounts, for PWFA Services.
MANAGER means PW Willow Management, L.L.C. or any successor thereto.
The Manager shall constitute a "manager" of the Fund within the meaning of the
Delaware Act. The Manager also shall constitute a "member" of the Fund within
the meaning of the Delaware Act and shall have an Interest.
MEMBER means the Manager and any person who shall have been admitted
to the Fund as a member (including any person who is a Special Member) until the
Fund repurchases the entire Interest of such person pursuant to Section 4.4
hereof or a substitute Member who is admitted to the Fund pursuant to Section
4.3 hereof, in such person's capacity as a member of the Fund. For purposes of
the Delaware Act, the Members shall constitute a single class or group of
members.
NEGATIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.
NET ASSETS means the total value of all assets of the Fund, less an
amount equal to all accrued debts, liabilities and obligations of the Fund,
calculated before giving effect to any repurchases of Interests.
NET CAPITAL APPRECIATION means, with respect to any Member, the
excess, if any, of the aggregate amount credited to such Member's Capital
Account under clause (ii) of paragraph (c) of Section 5.3 hereof over the
aggregate amount debited to such Member's Capital Account under clause (ii) of
paragraph (d) of Section 5.3 hereof.
NET PROFIT OR NET LOSS means the amount by which the Net Assets as of
the close of business on the last day of a Fiscal Period exceed (in the case of
Net Profit) or are less than (in the case of Net Loss) the Net Assets as of the
commencement of the same Fiscal Period (or, with respect to the initial Fiscal
Period of the Fund, at the close of business on the Closing Date), such amount
to be adjusted to exclude:
(1) the amount of any Insurance premiums or proceeds to be allocated
among the Capital Accounts of the Members pursuant to Section 5.5
hereof;
(2) any items to be allocated among the Capital Accounts of the
Members on a basis which is not in accordance with the respective
Fund Percentages of all Members as of the commencement of such
Fiscal Period pursuant to Sections 5.6 and 5.7 hereof; and
(3) Organizational Expenses allocated among the Capital Accounts of
the Members pursuant to Section 5.11 hereof.
1940 ACT means the Investment Company Act of 1940 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
1934 ACT means the Securities Exchange Act of 1934 and the rules,
regulations and orders thereunder, as amended from time to time, or any
successor law.
ORGANIZATIONAL EXPENSES means the expenses incurred by the Fund in
connection with its formation, its initial registration as an investment company
under the 1940 Act, and the initial offering of Interests.
ORGANIZATIONAL MEMBER means Norman E. Sienko, Jr.
PERSON means any individual, entity, corporation, partnership,
association, limited liability company, joint-stock company, trust, estate,
joint venture, organization or unincorporated organization.
POSITIVE ALLOCATION CHANGE has the meaning given such term in the
definition of Allocation Change.
PWFA means PW Fund Advisor, L.L.C., or any successor thereto.
PWFA SERVICES means such management and administrative services as
PWFA or its affiliates shall provide to the Fund pursuant to a separate written
agreement with the Fund as contemplated by Section 3.10(a) hereof.
RELATED PERSON means, with respect to any person, (i) a relative,
spouse or relative of a spouse who has the same principal residence as such
person, (ii) any trust or estate in which such person and any persons who are
related to such person collectively have more than 50% of the beneficial
interests (excluding contingent interests) and (iii) any corporation or other
organization of which such person and any persons who are related to such person
collectively are beneficial owners of more than 50% of the equity securities
(excluding directors' qualifying shares) or equity interests.
SECURITIES means securities (including, without limitation, equities,
debt obligations, options, and other "securities" as that term is defined in
Section 2(a)(36) of the 1940 Act) and any contracts for forward or future
delivery of any security, debt obligation, currency or commodity, all manner of
derivative instruments and any contracts based on any index or group of
securities, debt obligations, currencies or commodities, and any options
thereon.
SPECIAL MEMBER means (i) a Member whose Invested Capital equals or
exceeds $10,000,000, and (ii) such other Members as the Manager shall determine
from time to time, in its sole discretion, to be key employees, or directors of
the Manager and its affiliates, and members of their immediate families, and
attorneys or other professional advisors engaged on behalf of the Fund, and
members of their immediate families.
TAX MATTERS PARTNER means the Manager designated as "tax matters
partner" of the Fund pursuant to Section 8.17 hereof.
TRANSFER means the assignment, transfer, sale or other disposition of
all or any portion of an Interest, including any right to receive any
allocations and distributions attributable to an Interest.
VOTING INTEREST means with respect to a Member the number of votes
equivalent to such Member's Fund Percentage as of the record date for a meeting
of Members.
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ARTICLE II
ORGANIZATION; ADMISSION OF MEMBERS; BOARD
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2.1 FORMATION OF LIMITED LIABILITY COMPANY.
The Organizational Member and any person designated by the Board
hereby are designated as authorized persons, within the meaning of the Delaware
Act, to execute, deliver and file all certificates (and any amendments and/or
restatements thereof) required or permitted by the Delaware Act to be filed in
the office of the Secretary of State of the State of Delaware. The Board shall
cause to be executed and filed with applicable governmental authorities any
other instruments, documents and certificates which, in the opinion of the
Fund's legal counsel, may from time to time be required by the laws of the
United States of America, the State of Delaware or any other jurisdiction in
which the Fund shall determine to do business, or any political subdivision or
agency thereof, or which such legal counsel may deem necessary or appropriate to
effectuate, implement and continue the valid existence and business of the Fund.
2.2 NAME.
The name of the Fund shall be "PW Willow Fund, L.L.C." or such other
name as the Board hereafter may adopt upon (i) causing an appropriate amendment
to the Certificate to be filed in accordance with the Delaware Act and (ii)
sending notice thereof to each Member. The Fund's business may be conducted
under the name of the Fund or, to the fullest extent permitted by law, any other
name or names deemed advisable by the Board.
2.3 PRINCIPAL AND REGISTERED OFFICE.
The Fund shall have its principal office at the principal office of
the Manager, or at such other place designated from time to time by the Board.
The Fund shall have its registered office in the State of Delaware at
1013 Center Road, Wilmington, New Castle County, Delaware 19805-1297, and shall
have Corporation Service Company as its registered agent at such registered
office for service of process in the State of Delaware, unless a different
registered office or agent is designated from time to time by the Board in
accordance with the Delaware Act.
2.4 DURATION.
The term of the Fund commenced on the filing of the Certificate with
the Secretary of State of the State of Delaware and shall continue until the
Fund is dissolved pursuant to Section 6.1 hereof.
2.5 BUSINESS OF THE FUND.
(a) The business of the Fund is to purchase, sell (including short
sales), invest and trade in Securities, and to engage in any financial or
derivative transactions relating thereto or otherwise. The Manager, on behalf of
the Fund, may execute, deliver and perform all contracts, agreements and other
undertakings and engage in all activities and transactions as may in the opinion
of the Manager be necessary or advisable to carry out the Fund's business and
any amendments to any such contracts, agreements and other undertakings, all
without any further act, vote or approval of any other person, notwithstanding
any other provision of this Agreement.
(b) The Fund shall operate as a closed-end, management investment
company in accordance with the 1940 Act and subject to any fundamental policies
and investment restrictions set forth in the Form N-2.
2.6 THE BOARD.
(a) The Organizational Member hereby designates those persons listed
on Schedule I who shall agree to be bound by all of the terms of this Agreement
to serve as Directors on the initial Board. The Board may, subject to the
provisions of paragraphs (a) and (b) of this Section 2.6 with respect to the
number of and vacancies in the position of Director and the provisions of
Section 3.3 hereof with respect to the election of Directors by Members,
designate any person who shall agree to be bound by all of the terms of this
Agreement as a Director. The names and mailing addresses of the Directors shall
be set forth in the books and records of the Fund. The number of Directors shall
be fixed from time to time by the Directors but, at the Closing Date, shall not
be fewer than three.
(b) Each Director shall serve as a Director for the duration of the
term of the Fund, unless his or her status as a Director shall be sooner
terminated pursuant to Section 4.1 hereof. If any vacancy in the position of a
Director occurs, the remaining Directors may appoint a person to serve in such
capacity, so long as immediately after such appointment at least two-thirds of
the Directors then serving would have been elected by the Members. The Directors
may call a meeting of Members to fill any vacancy in the position of Director,
and shall do so within 60 days after any date on which Directors who were
elected by the Members cease to constitute a majority of the Directors then
serving as Directors.
(c) If no Director remains, the Manager shall promptly call a meeting
of the Members, to be held within 60 days after the date on which the last
Director ceased to act in that capacity, for the purpose of determining whether
to continue the business of the Fund and, if the business shall be continued, of
electing the required number of Directors. If the Members shall determine at
such meeting not to continue the business of the Fund or if the required number
of Directors is not elected within 60 days after the date on which the last
Director ceased to act in that capacity, then the Fund shall be dissolved
pursuant to Section 6.1 hereof and the assets of the Fund shall be liquidated
and distributed pursuant to Section 6.2 hereof.
2.7 MEMBERS.
The Board may admit one or more Members as of the beginning of each
calendar month or at such other times as the Board may determine. Members may be
admitted to the Fund subject to the condition that each such Member shall
execute an appropriate signature page of this Agreement or of the Fund's
application pursuant to which such Member agrees to be bound by all the terms
and provisions hereof. The Board, in its absolute discretion, may reject
applications for Interests in the Fund. The admission of any person as a Member
shall be effective upon the revision of the books and records of the Fund to
reflect the name and the contribution to the capital of the Fund of such
additional Member. Each of the Manager and the Organizational Member hereby is
admitted as a Member on the date hereof.
2.8 ORGANIZATIONAL MEMBER.
Upon the admission to the Fund of any additional Member pursuant to
Section 2.7, the Organizational Member shall withdraw from the Fund as the
Organizational Member and shall be entitled to the return of his Capital
Contribution, if any, without interest or deduction, and shall cease to be a
member of the Fund.
2.9 BOTH DIRECTORS AND MEMBERS.
A Member may at the same time be a Director and a Member, in which
event such Member's rights and obligations in each capacity shall be determined
separately in accordance with the terms and provisions hereof and as provided in
the Delaware Act.
2.10 LIMITED LIABILITY.
Except as otherwise provided in the Delaware Act, no Member or
Director shall be obligated personally for the Fund's debts, obligations or
liabilities, whether arising in contract, tort or otherwise, solely by reason of
being a member or manager of the Fund, except that a Member may be obligated to
make capital contributions to the Fund pursuant to this Agreement and to repay
any funds wrongfully distributed to such Member, and a Member, in the sole
discretion of the Manager, may be obligated to make additional capital
contributions up to, but in no event in excess of, the aggregate amount of any
distributions, amounts in connection with a repurchase of all or a portion of
such Member's Interest and any other amounts received by such Member from the
Fund during or after the Fiscal Year in which any debt, obligation or liability
of the Fund is incurred.
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ARTICLE III
MANAGEMENT
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3.1 MANAGEMENT AND CONTROL.
(a) Management and control of the business of the Fund shall be vested
in the Board, which shall have the right, power and authority, on behalf of the
Fund and in its name, to exercise all rights, powers and authority of managers
under the Delaware Act and to do all things necessary and proper to carry out
the business of the Fund and its duties hereunder, including, without
limitation, the power to engage the Manager to provide Advice and Management to
the Fund. No Director shall have the authority individually to act on behalf of
or to bind the Fund except within the scope of such Director's authority as
delegated by the Board. The parties hereto intend that, except to the extent
otherwise expressly provided herein, (i) each Director shall be vested with the
same powers, authority and responsibilities on behalf of the Fund as are
customarily vested in each director of a Delaware corporation and (ii) each
Independent Director shall be vested with the same powers, authority and
responsibilities on behalf of the Fund as are customarily vested in each
director of a closed-end management investment company registered under the 1940
Act that is organized as a Delaware corporation who is not an "interested
person" of such company as such term is defined in the 1940 Act. During any
period in which the Fund shall have no Directors, the Manager shall continue to
provide Advice and Management to the Fund.
(b) Each Member agrees not to treat, on his personal return or in any
claim for a refund, any item of income, gain, loss, deduction or credit in a
manner inconsistent with the treatment of such item by the Fund. The Board shall
have the exclusive authority and discretion to make any elections required or
permitted to be made by the Fund under any provisions of the Code or any other
revenue laws.
(c) Members (other than the Manager) shall have no right to
participate in and shall take no part in the management or control of the Fund's
business and shall have no right, power or authority to act for or bind the
Fund. Members shall have the right to vote on any matters only as provided in
this Agreement or on any matters that require the approval of the holders of
voting securities under the 1940 Act or as otherwise required in the Delaware
Act.
(d) The Board may delegate to any person, including the Manager, even
if such delegation is greater than the power given to the Manager pursuant to
Section 3.4 hereof, any rights, power and authority vested by this Agreement in
the Board to the extent permissible under applicable law.
3.2 ACTIONS BY THE BOARD.
(a) Unless provided otherwise in this Agreement, the Board shall act
only: (i) by the affirmative vote of a majority of the Directors (which majority
shall include any requisite number of Independent Directors required by the 1940
Act) present at a meeting duly called at which a quorum of the Directors shall
be present (in person or, if in person attendance is not required by the 1940
Act, in person or by telephone) or (ii) by unanimous written consent of all of
the Directors without a meeting, if permissible under the 1940 Act.
(b) The Board may designate from time to time a Chairman who shall
preside at all meetings. Meetings of the Board may be called by the Chairman or
any two Directors, and may be held on such date and at such time and place as
the Board shall determine. Each Director shall be entitled to receive written
notice of the date, time and place of such meeting within a reasonable time in
advance of the meeting. Notice need not be given to any Director who shall
attend a meeting without objecting to the lack of notice or who shall execute a
written waiver of notice with respect to the meeting. Directors may attend and
participate in any meeting by telephone, except where in person attendance at a
meeting is required by the 1940 Act. A majority of the Directors then in office
shall constitute a quorum at any meeting.
(c) The Board may designate from time to time agents and employees of
the Fund who shall have the same powers and duties on behalf of the Fund
(including the power to bind the Fund) as are customarily vested in officers of
a Delaware corporation, and designate them as officers of the Fund.
3.3 MEETINGS OF MEMBERS.
(a) Actions requiring the vote of the Members may be taken at any duly
constituted meeting of the Members at which a quorum is present. Meetings of the
Members may be called by the Board or by Members holding a majority of the total
number of votes eligible to be cast by all Members, and may be held at such
time, date and place as the Board shall determine. The Board shall arrange to
provide written notice of the meeting, stating the date, time and place of the
meeting and the record date therefor, to each Member entitled to vote at the
meeting within a reasonable time prior thereto. Failure to receive notice of a
meeting on the part of any Member shall not affect the validity of any act or
proceeding of the meeting, so long as a quorum shall be present at the meeting.
Only matters set forth in the notice of a meeting may be voted on by the Members
at a meeting. The presence in person or by proxy of Members holding a majority
of the total number of votes eligible to be cast by all Members as of the record
date shall constitute a quorum at any meeting. In the absence of a quorum, a
meeting of the Members may be adjourned by action of a majority of the Members
present in person or by proxy without additional notice to the Members. Except
as otherwise required by any provision of this Agreement or of the 1940 Act, (i)
those candidates receiving a plurality of the votes cast at any meeting of
Members shall be elected as Directors and (ii) all other actions of the Members
taken at a meeting shall require the affirmative vote of Members holding a
majority of the total number of votes eligible to be cast by those Members who
are present in person or by proxy at such meeting.
(b) Each Member shall be entitled to cast at any meeting of Members a
number of votes equivalent to such Member's Voting Interest. The Board shall
establish a record date not less than 10 nor more than 60 days prior to the date
of any meeting of Members to determine eligibility to vote at such meeting and
the number of votes which each Member will be entitled to cast thereat, and
shall maintain for each such record date a list setting forth the name of each
Member and the number of votes that each Member will be entitled to cast at the
meeting.
(c) A Member may vote at any meeting of Members by a proxy properly
executed in writing by the Member and filed with the Fund before or at the time
of the meeting. A proxy may be suspended or revoked, as the case may be, by the
Member executing the proxy by a later writing delivered to the Fund at any time
prior to exercise of the proxy or if the Member executing the proxy shall be
present at the meeting and decide to vote in person. Any action of the Members
that is permitted to be taken at a meeting of the Members may be taken without a
meeting if consents in writing, setting forth the action taken, are signed by
Members holding a majority of the total number of votes eligible to be cast or
such greater percentage as may be required in order to approve such action.
3.4 ADVICE AND MANAGEMENT.
(a) Among its powers, the Board shall have the power to engage the
Manager to provide Advice and Management to the Fund under its general
supervision, subject to the initial approval thereof prior to the Closing Date
by the Organizational Member. The Board also delegates to the Manager the rights
and powers expressly given to the Manager under this Agreement. The authority of
the Manager granted under this Section 3.4 shall become effective upon such
initial approval and shall terminate: (i) if any period of 12 consecutive months
following the first 12 consecutive months of the effectiveness of such authority
shall conclude without the approval of the continuation of such authority by (A)
the vote of a majority (as defined in the 1940 Act) of the outstanding Voting
Interests of the Fund or (B) the Board, and in either case, approval by a
majority of the Independent Directors by vote cast in person at a meeting called
for such purpose; (ii) if revoked by the Board or by vote of a majority (as
defined in the 1940 Act) of the outstanding Voting Interests of the Fund, in
either case with 60 days' prior written notice to the Manager; or (iii) at the
election of the Manager with 60 days' prior written notice to the Board. The
authority of the Manager to provide Advice and Management pursuant to this
Section 3.4 shall automatically terminate upon the occurrence of any event in
connection with the Manager, its provision of Advice and Management, this
Agreement or otherwise constituting an "assignment" within the meaning of the
1940 Act. If the authority of the Manager under this Section 3.4 is terminated
as provided herein, the Board may appoint, subject to the approval thereof by a
majority of the Independent Board and by vote of a majority (as defined in the
1940 Act) of the outstanding Voting Interests of the Fund, a person or persons
to provide Advice and Management to the Fund, and shall cause the terms and
conditions of such appointment to be stated in an agreement executed on behalf
of the Fund and such person or persons. Notwithstanding anything in this
Agreement to the contrary, upon receiving the requisite approval set forth in
the preceding sentence, the Fund, and a person designated by the Board, shall
have the power and authority to enter into such agreement without any further
act, vote or approval of any Member.
(b) So long as the Manager has been and continues to be authorized to
provide Advice and Management, it shall have, subject to any policies and
restrictions set forth in any current offering memorandum issued by the Fund,
this Agreement, the Form N-2 or the 1940 Act, or adopted from time to time by
the Board and communicated in writing to the Manager, full discretion and
authority (i) to manage the assets and liabilities of the Fund and (ii) to
manage the day-to-day business and affairs of the Fund. In furtherance of and
subject to the foregoing, the Manager, except as otherwise provided in this
Agreement, shall have full power and authority on behalf of the Fund:
(1) to purchase, sell, exchange, trade and otherwise deal in and with
Securities and other property of the Fund and to loan Securities
of the Fund;
(2) to open, maintain and close accounts with brokers and dealers, to
make all decisions relating to the manner, method and timing of
Securities and other investment transactions, to select and place
orders with brokers, dealers or other financial intermediaries
for the execution, clearance or settlement of any transactions on
behalf of the Fund on such terms as the Manager considers
appropriate, and to grant limited discretionary authorization to
such persons with respect to price, time and other terms of
investment and trading transactions;
(3) to borrow from banks or other financial institutions and to
pledge Fund assets as collateral therefor, to trade on margin, to
exercise or refrain from exercising all rights regarding the
Fund's investments, and to instruct custodians regarding the
settlement of transactions, the disbursement of payments to
Members with respect to repurchases of Interests and the payment
of Fund expenses, including those relating to the organization
and registration of the Fund;
(4) to issue to any Member an instrument certifying that such Member
is the owner of an Interest;
(5) to call and conduct meetings of Members at the Fund's principal
office or elsewhere as it may determine and to assist the Board
in calling and conducting meetings of the Board;
(6) to engage and terminate such attorneys, accountants and other
professional advisors and consultants as the Manager may deem
necessary or advisable in connection with the affairs of the Fund
or as may be directed by the Board;
(7) to engage and terminate the services of others to assist the
Manager in providing, or to provide under the Manager's control
and supervision, Advice and Management to the Fund at the expense
of the Manager;
(8) to assist in the preparation and filing of any required tax or
information returns to be made by the Fund;
(9) as directed by the Board, to commence, defend and conclude any
action, suit, investigation or other proceeding that pertains to
the Fund or any assets of the Fund;
(10) if directed by the Board, to arrange for the purchase of (A)
Insurance, or (B) any insurance covering the potential
liabilities of the Fund or relating to the performance of the
Board or the Manager, or any of their principals, directors,
officers, members, employees and agents; and
(11) to execute, deliver and perform such contracts, agreements and
other undertakings, and to engage in such activities and
transactions as are, in the opinion of the Manager, necessary and
appropriate for the conduct of the business of the Fund, without
the act, vote or approval of any other Member or person.
3.5 CUSTODY OF ASSETS OF THE FUND.
The physical possession of all funds, Securities or other property of
the Fund shall at all times, be held, controlled and administered by one or more
custodians retained by the Fund in accordance with the requirements of the 1940
Act.
3.6 BROKERAGE.
In the course of selecting brokers, dealers and other financial
intermediaries for the execution, clearance and settlement of transactions for
the Fund, the Manager may agree to such commissions, fees and other charges on
behalf of the Fund as it shall deem reasonable under the circumstances, taking
into account all such factors as it deems relevant (including the quality of
research and other services made available to it even if such services are not
for the exclusive benefit of the Fund and the cost of such services does not
represent the lowest cost available) and shall be under no obligation to combine
or arrange orders so as to obtain reduced charges unless otherwise required
under the Federal securities laws. The Manager, subject to such procedures as
may be adopted by the Board, may use Affiliates of the Manager as brokers to
effect the Fund's Securities transactions and the Fund may pay such commissions
to such brokers in such amounts as are permissible under applicable law.
3.7 OTHER ACTIVITIES OF MEMBERS (INCLUDING THE MANAGER) AND DIRECTORS.
(a) Neither the Directors nor the Manager shall be required to devote
full time to the affairs of the Fund, but shall devote such time as may
reasonably be required to perform their obligations under this Agreement.
(b) Any Member (including the Manager) or Director or Affiliate
thereof may engage in or possess an interest in other business ventures or
commercial dealings of every kind and description, independently or with others,
including, but not limited to, acquisition and disposition of Securities,
provision of investment advisory or brokerage services, serving as directors,
officers, employees, advisors or agents of other companies, partners of any
partnership, members of any limited liability company, or trustees of any trust,
or entering into any other commercial arrangements. No Member shall have any
rights in or to such activities of any other Member or Director, or any profits
derived therefrom.
3.8 DUTY OF CARE.
(a) The Directors and the Manager, including any officer, director,
member, principal, employee or agent of the Manager, shall not be liable to the
Fund or to any of its Members for any loss or damage occasioned by any act or
omission in the performance of such person's services under this Agreement,
unless it shall be determined by final judicial decision on the merits from
which there is no further right to appeal that such loss is due to an act or
omission of such person constituting willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
person's duties hereunder.
(b) A Member not in breach of any obligation hereunder or under any
agreement pursuant to which the Member subscribed for an Interest shall be
liable to the Fund, any other Member or third parties only as required by the
Delaware Act or otherwise provided in this Agreement.
3.9 INDEMNIFICATION.
(a) To the fullest extent permitted by law, the Fund shall, subject to
Section 3.9(b) hereof, indemnify each Director (including for this purpose their
executors, heirs, assigns, successors or other legal representatives), the
Manager (including for this purpose each affiliate, officer, director, member,
partner, principal, employee or agent of the Manager or a member thereof, and
the executors, heirs, assigns, successors or other legal representatives of each
of the foregoing, and of any person who controls or is under common control, or
otherwise is affiliated, with the Manager or any member thereof, and their
executors, heirs, assigns, successors or other legal representatives), and the
Tax Matters Partner (including for this purpose its successor) against all
losses, claims, damages, liabilities, costs and expenses, including, but not
limited to, amounts paid in satisfaction of judgments, in compromise, or as
fines or penalties, and reasonable counsel fees, incurred in connection with the
defense or disposition of any action, suit, investigation or other proceeding,
whether civil or criminal, before any judicial, arbitral, administrative or
legislative body, in which such indemnitee may be or may have been involved as a
party or otherwise, or with which such indemnitee may be or may have been
threatened, while in office or thereafter, by reason of being or having been a
Director, Manager or the Tax Matters Partner, as the case may be, of the Fund or
the past or present performance of services to the Fund by such indemnitee,
except to the extent such loss, claim, damage, liability, cost or expense shall
have been finally determined in a decision on the merits in any such action,
suit, investigation or other proceeding to have been incurred or suffered by
such indemnitee by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of such indemnitee's
office. The rights of indemnification provided under this Section 3.9 shall not
be construed so as to provide for indemnification of an indemnitee for any
liability (including liability under federal securities laws which, under
certain circumstances, impose liability even on persons that act in good faith)
to the extent (but only to the extent) that such indemnification would be in
violation of applicable law, but shall be construed so as to effectuate the
applicable provisions of this Section 3.9 to the fullest extent permitted by
law.
(b) Expenses, including reasonable counsel fees, so incurred by any
such indemnitee (but excluding amounts paid in satisfaction of judgments, in
compromise, or as fines or penalties), may be paid from time to time by the Fund
in advance of the final disposition of any such action, suit, investigation or
proceeding upon receipt of an undertaking by or on behalf of such indemnitee to
repay to the Fund amounts so paid if it shall ultimately be determined that
indemnification of such expenses is not authorized under Section 3.9(a) hereof;
PROVIDED, HOWEVER, that (i) such indemnitee shall provide security for such
undertaking, (ii) the Fund shall be insured by or on behalf of such indemnitee
against losses arising by reason of such indemnitee's failure to fulfill his or
its undertaking, or (iii) a majority of the Directors (excluding any Director
who is seeking advancement of expenses hereunder) or independent legal counsel
in a written opinion shall determine based on a review of readily available
facts (as opposed to a full trial-type inquiry) that there is reason to believe
such indemnitee ultimately will be entitled to indemnification.
(c) As to the disposition of any action, suit, investigation or
proceeding (whether by a compromise payment, pursuant to a consent decree or
otherwise) without an adjudication or a decision on the merits by a court, or by
any other body before which the proceeding shall have been brought, that an
indemnitee is liable to the Fund or its Members by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such indemnitee's office, indemnification shall be
provided pursuant to Section 3.9(a) hereof if (i) approved as in the best
interests of the Fund by a majority of the Directors (excluding any Director who
is seeking indemnification hereunder) upon a determination based upon a review
of readily available facts (as opposed to a full trial-type inquiry) that such
indemnitee acted in good faith and in the reasonable belief that such actions
were in the best interests of the Fund and that such indemnitee is not liable to
the Fund or its Members by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
indemnitee's office, or (ii) the Directors secure a written opinion of
independent legal counsel based upon a review of readily available facts (as
opposed to a full trial-type inquiry) to the effect that such indemnitee acted
in good faith and in the reasonable belief that such actions were in the best
interests of the Fund and that such indemnitee is not liable to the Fund or its
Members by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of such indemnitee's
office.
(d) Any indemnification or advancement of expenses made pursuant to
this Section 3.9 shall not prevent the recovery from any indemnitee of any such
amount if such indemnitee subsequently shall be determined in a decision on the
merits in any action, suit, investigation or proceeding involving the liability
or expense that gave rise to such indemnification or advancement of expenses to
be liable to the Fund or its Members by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of such indemnitee's office. In any suit brought by an indemnitee to
enforce a right to indemnification under this Section 3.9 it shall be a defense
that, and in any suit in the name of the Fund to recover any indemnification or
advancement of expenses made pursuant to this Section 3.9 the Fund shall be
entitled to recover such expenses upon a final adjudication that, the indemnitee
has not met the applicable standard of conduct set forth in this Section 3.9. In
any such suit brought to enforce a right to indemnification or to recover any
indemnification or advancement of expenses made pursuant to this Section 3.9,
the burden of proving that the indemnitee is not entitled to be indemnified, or
to any indemnification or advancement of expenses, under this Section 3.9 shall
be on the Fund (or any Member acting derivatively or otherwise on behalf of the
Fund or its Members).
(e) An indemnitee may not satisfy any right of indemnification or
advancement of expenses granted in this Section 3.9 or to which he, she or it
may otherwise be entitled except out of the assets of the Fund, and no Member
shall be personally liable with respect to any such claim for indemnification or
advancement of expenses.
(f) The rights of indemnification provided hereunder shall not be
exclusive of or affect any other rights to which any person may be entitled by
contract or otherwise under law. Nothing contained in this Section 3.9 shall
affect the power of the Fund to purchase and maintain liability insurance on
behalf of any Director or other person.
3.10 FEES, EXPENSES AND REIMBURSEMENT.
(a) So long as PWFA (or its affiliates) provides PWFA Services to the
Fund, it shall be entitled to receive such fees as may be agreed to by PWFA and
the Fund pursuant to a separate written agreement, which, notwithstanding
anything in this Agreement to the contrary, may be entered into by the Fund, and
the Manager on behalf of the Fund, without any further act, vote or approval of
any Member.
(b) The Board may cause the Fund to compensate each Director for his
or her services hereunder. In addition, the Fund shall reimburse the Directors
for reasonable out-of-pocket expenses incurred by them in performing their
duties under this Agreement.
(c) The Fund shall bear all expenses incurred in the business of the
Fund other than those specifically required to be borne by the Manager or its
members hereunder or under any other agreement. Expenses to be borne by the Fund
include, but are not limited to, the following:
(1) all costs and expenses related to portfolio transactions and
positions for the Fund's account, including, but not limited to,
brokerage commissions, research fees, interest and commitment
fees on loans and debit balances, borrowing charges on Securities
sold short, dividends on Securities sold short but not yet
purchased, custodial fees, margin fees, transfer taxes and
premiums and taxes withheld on foreign dividends;
(2) all costs and expenses associated with the organization and
registration of the Fund, offering costs and the costs of
compliance with any applicable Federal or state laws;
(3) the costs and expenses of holding any meetings of Members that
are regularly scheduled, permitted or are required to be held by
this Agreement, the 1940 Act or other applicable law;
(4) fees and disbursements of any attorneys, accountants, auditors
and other consultants and professionals engaged on behalf of the
Fund, including, without limitation, in connection with the
Manager's serving on creditors' and equity holders' committees
and otherwise seeking to preserve or protect the Fund's rights in
portfolio Securities;
(5) the costs of a fidelity bond and any liability insurance obtained
on behalf of the Fund, the Manager or the Directors;
(6) any fees payable to PWFA or its affiliates for PWFA Services;
(7) all costs and expenses of preparing, setting in type, printing
and distributing reports and other communications to Members;
(8) all expenses of computing the Fund's net asset value, including
any equipment or services obtained for the purpose of valuing the
Fund's investment portfolio, including valuation services
provided by third parties;
(9) all charges for equipment or services used for communications
between the Fund and any custodian, or other agent engaged by the
Fund;
(10) fees payable to custodians and persons providing administrative
services to the Fund; and
(11) such other types of expenses as may be approved from time to time
by the Board.
The Manager shall be entitled to reimbursement from the Fund for any
of the above expenses that it pays on behalf of the Fund.
(d) The Fund from time to time, alone or in conjunction with other
accounts for which the Manager, or any Affiliate of the Manager, acts as general
partner, managing member or investment adviser, may purchase Insurance in such
amounts, from such insurers and on such terms as the Board shall determine.
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ARTICLE IV
TERMINATION OF STATUS OF DIRECTORS;
TRANSFERS AND REPURCHASES
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4.1 TERMINATION OF STATUS OF A DIRECTOR.
The status of a Director shall terminate if the Director (i) shall
die; (ii) shall be adjudicated incompetent; (iii) shall voluntarily withdraw as
a Director (upon not less than 90 days' prior written notice to the other
Directors, unless the other Directors waive such notice); (iv) shall be removed
under Section 4.2; (v) shall be certified by a physician to be mentally or
physically unable to perform his duties hereunder; (vi) shall be declared
bankrupt by a court with appropriate jurisdiction, file a petition commencing a
voluntary case under any bankruptcy law or make an assignment for the benefit of
creditors; or (vii) shall have a receiver appointed to administer the property
or affairs of such Director.
4.2 REMOVAL OF THE DIRECTORS.
Any Director may be removed either by (a) the vote or written consent
of at least two-thirds of the Directors not subject to the removal vote or (b)
the vote or written consent of Members holding not less than two-thirds of the
total number of votes eligible to be cast by all Members.
4.3 TRANSFER OF INTERESTS OF MEMBERS.
(a) An Interest or portion thereof of a Member may be Transferred only
(i) by operation of law pursuant to the death, bankruptcy, insolvency or
dissolution of such Member or (ii) with the written consent of the Board (which
may be withheld in its sole and absolute discretion). In addition, the Board may
not consent to a Transfer of an Interest or a portion thereof of a Member unless
the person to whom such Interest is transferred (or each of such person's equity
owners if such a person is a "private investment company" as defined in Rule
205-3(d)(3) under the Advisers Act, an investment company registered under the
1940 Act, or a business development company as defined under the Advisers Act)
is a person whom the Board believes meets the requirements of paragraph (d)(1)
of Rule 205-3 under the Advisers Act or successor rule thereto, or is otherwise
exempt from such requirements. If any transferee does not meet such investor
eligibility requirements, the Fund reserves the right to redeem its Interest. If
the Board does not consent to a Transfer by operation of law, the Fund shall
redeem the Interest from the Member's successor. In addition to the foregoing,
no Member shall be permitted to Transfer its Interest or portion thereof unless
after such Transfer the balance of the Capital Account of each of the transferor
and the transferee is at least equal to the amount of the transferor's initial
Capital Contribution. Any permitted transferee shall be entitled to the
allocations and distributions allocable to the Interest so acquired and to
Transfer such Interest in accordance with the terms of this Agreement, but shall
not be entitled to the other rights of a Member unless and until such transferee
becomes a substituted Member. If a Member Transfers an Interest or portion
thereof with the approval of the Board, the Fund shall promptly take all
necessary actions so that each transferee or successor to whom such Interest or
portion thereof is Transferred is admitted to the Fund as a substituted Member.
The admission of any transferee as a substituted Member shall be effective upon
the execution and delivery by, or on behalf of, such substituted Member of
either a counterpart of this Agreement or an instrument that constitutes the
execution and delivery of this Agreement. Each transferring Member and
transferee agrees to pay all expenses, including attorneys' and accountants'
fees, incurred by the Fund in connection with such Transfer. Upon the Transfer
to another person or persons of a Member's entire Interest, such Member shall
cease to be a member of the Fund.
(b) Each transferring Member shall indemnify and hold harmless the
Fund, the Directors, the Manager, each other Member and any Affiliate of the
foregoing against all losses, claims, damages, liabilities, costs and expenses
(including legal or other expenses incurred in investigating or defending
against any such losses, claims, damages, liabilities, costs and expenses or any
judgments, fines and amounts paid in settlement), joint or several, to which
such persons may become subject by reason of or arising from (i) any Transfer
made by such Member in violation of this Section 4.3 and (ii) any
misrepresentation by such Member in connection with any such Transfer.
4.4 REPURCHASE OF INTERESTS.
(a) Except as otherwise provided in this Agreement, no Member or other
person holding an Interest or portion thereof shall have the right to withdraw
or tender to the Fund for repurchase of that Interest or portion thereof. The
Board may from time to time, in its complete and exclusive discretion and on
such terms and conditions as it may determine, cause the Fund to repurchase
Interests or portions thereof pursuant to written tenders. In determining
whether to cause the Fund to repurchase Interests or portions thereof pursuant
to written tenders, the Board shall consider the following factors, among
others:
(1) whether any Members have requested to tender Interests or
portions thereof to the Fund;
(2) the liquidity of the Fund's assets;
(3) the investment plans and working capital requirements of the
Fund;
(4) the relative economies of scale with respect to the size of the
Fund;
(5) the history of the Fund in repurchasing Interests or portions
thereof;
(6) the condition of the securities markets; and
(7) the anticipated tax consequences of any proposed repurchases of
Interests or portions thereof.
The Board shall cause the Fund to repurchase Interests or portions
thereof pursuant to written tenders only on terms fair to the Fund and to all
Members (including persons holding Interests acquired from Members), as
applicable.
(b) The Board may cause the Fund to repurchase an Interest or portion
thereof of a Member or any person acquiring an Interest or portion thereof from
or through a Member if the Board determines or has reason to believe that:
(1) such an Interest or portion thereof has been transferred in
violation of Section 4.3 hereof, or such an Interest or portion
thereof has vested in any person by operation of law as the
result of the death, dissolution, bankruptcy or incompetency of a
Member;
(2) ownership of such an Interest by a Member or other person will
cause the Fund to be in violation of, or require registration of
any Interest or portion thereof under, or subject the Fund to
additional registration or regulation under, the securities,
commodities or other laws of the United States or any other
relevant jurisdiction;
(3) continued ownership of such an Interest may be harmful or
injurious to the business or reputation of the Fund, the Manager
or the Directors, or may subject the Fund or any of the Members
to an undue risk of adverse tax or other fiscal consequences;
(4) any of the representations and warranties made by a Member in
connection with the acquisition of an Interest or portion thereof
was not true when made or has ceased to be true; or
(5) it would be in the best interests of the Fund, as determined by
the Board, for the Fund to repurchase such an Interest or portion
thereof.
(c) Repurchases of Interests or portions thereof by the Fund shall be
payable in cash or in part by promissory note, in each case without interest,
unless the Board, in its discretion, determines otherwise, or, in the discretion
of the Board, in Securities (or any combination of Securities and cash) of
equivalent value. All such repurchases shall be subject to any and all
conditions as the Board may impose and shall be effective as of a date set by
the Board after receipt by the Fund of all eligible written tenders of Interests
or portion thereof. The amount due to any Member whose Interest or portion
thereof is repurchased shall be equal to the value of such Member's Capital
Account or portion thereof as applicable as of the effective date of repurchase,
after giving effect to all allocations to be made to such Member's Capital
Account as of such date.
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ARTICLE V
CAPITAL
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5.1 CONTRIBUTIONS TO CAPITAL.
(a) The minimum initial contribution of each Member (other than the
Manager) to the capital of the Fund shall be $250,000 ($25,000 for employees or
directors of the Manager and its affiliates, and members of their immediate
families, and, in the sole discretion of the Board, attorneys or other
professional advisors engaged on behalf of the Fund, and members of their
immediate families) or such other amount as the Board may determine from time to
time. The amount of the initial contribution of each Member shall be recorded on
the books and records of the Fund upon acceptance as a contribution to the
capital of the Fund. The Directors shall not be entitled to make voluntary
contributions of capital to the Fund as Directors of the Fund, but may make
voluntary contributions to the capital of the Fund as Members.
(b) The Members may make additional contributions to the capital of
the Fund, effective as of such times as the Board in its discretion may permit,
but no Member shall be obligated to make any additional contribution to the
capital of the Fund except to the extent provided in Section 5.7 hereof.
(c) Except as otherwise permitted by the Board, (i) initial and any
additional contributions to the capital of the Fund by any Member shall be
payable in cash or in such Securities that the Board, in its absolute
discretion, may agree to accept on behalf of the Fund, and (ii) initial and any
additional contributions in cash shall be payable in readily available funds at
the date of the proposed acceptance of the contribution. The Fund shall charge
each Member making a contribution in Securities to the capital of the Fund such
amount as may be determined by the Board not exceeding 2% of the value of such
contribution in order to reimburse the Fund for any costs incurred by the Fund
by reason of accepting such Securities, and any such charge shall be due and
payable by the contributing Member in full at the time the contribution to the
capital of the Fund to which such charges relate is due. The value of
contributed Securities shall be determined in accordance with Section 7.3 hereof
as of the date of contribution.
5.2 RIGHTS OF MEMBERS TO CAPITAL.
No Member shall be entitled to interest on his or its contribution to
the capital of the Fund, nor shall any Member be entitled to the return of any
capital of the Fund except (i) upon the repurchase by the Fund of a part or all
of such Member's Interest pursuant to Section 4.4 hereof, (ii) pursuant to the
provisions of Section 5.7(c) hereof or (iii) upon the liquidation of the Fund's
assets pursuant to Section 6.2 hereof. No Member shall be liable for the return
of any such amounts. No Member shall have the right to require partition of the
Fund's property or to compel any sale or appraisal of the Fund's assets.
5.3 CAPITAL ACCOUNTS.
(a) The Fund shall maintain a separate Capital Account for each
Member.
(b) Each Member's Capital Account shall have an initial balance equal
to the amount of cash and the value of any Securities (determined in accordance
with Section 7.3 hereof) constituting such Member's initial contribution to the
capital of the Fund.
(c) Each Member's Capital Account shall be increased by the sum of (i)
the amount of cash and the value of any Securities (determined in accordance
with Section 7.3 hereof) constituting additional contributions by such Member to
the capital of the Fund permitted pursuant to Section 5.1 hereof, plus (ii) any
amount credited to such Member's Capital Account pursuant to Sections 5.4
through 5.7 or 5.11 hereof.
(d) Each Member's Capital Account shall be reduced by the sum of (i)
the amount of any repurchase of the Interest, or portion thereof, of such Member
or distributions to such Member pursuant to Sections 4.4, 5.10 or 6.2 hereof
which are not reinvested, plus (ii) any amounts debited against such Member's
Capital Account pursuant to Sections 5.4 through 5.7 and 5.11 hereof.
(e) If all or a portion of an Interest is transferred in accordance
with the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred Interest.
5.4 ALLOCATION OF NET PROFIT AND LOSS.
As of the last day of each Fiscal Period, any Net Profit or Net Loss
for the Fiscal Period shall be allocated among and credited to or debited
against the Capital Accounts of the Members in accordance with their respective
Fund Percentages for such Fiscal Period.
5.5 ALLOCATION OF INSURANCE PREMIUMS AND PROCEEDS.
(a) Any premiums payable by the Fund for Insurance purchased pursuant
to Section 3.9(d) hereof shall be apportioned evenly over each Fiscal Period or
portion thereof falling within the period to which such premiums relate under
the terms of such Insurance, and the portion of the premiums so apportioned to
any Fiscal Period shall be allocated among and debited against the Capital
Accounts of each Member who is a member of the Fund during such Fiscal Period in
accordance with such Member's Fund Percentage for such Fiscal Period.
(b) Proceeds, if any, to which the Fund may become entitled pursuant
to such Insurance shall be allocated among and credited to the Capital Accounts
of each Member who is a member of the Fund during the Fiscal Period in which the
event which gives rise to recovery of proceeds occurs in accordance with such
Member's Fund Percentage for such Fiscal Period.
5.6 ALLOCATION OF CERTAIN WITHHOLDING TAXES AND OTHER EXPENDITURES.
(a) If the Fund incurs a withholding tax or other tax obligation with
respect to the share of Fund income allocable to any Member, then the Board,
without limitation of any other rights of the Fund or the Board, shall cause the
amount of such obligation to be debited against the Capital Account of such
Member when the Fund pays such obligation, and any amounts then or thereafter
distributable to such Member shall be reduced by the amount of such taxes. If
the amount of such taxes is greater than any such distributable amounts, then
such Member and any successor to such Member's Interest shall pay to the Fund as
a contribution to the capital of the Fund, upon demand of the Fund, the amount
of such excess. The Fund shall not be obligated to apply for or obtain a
reduction of or exemption from withholding tax on behalf of any Member that may
be eligible for such reduction or exemption; provided, that in the event that
the Fund determines that a Member is eligible for a refund of any withholding
tax, the Fund may, at the request and expense of such Member, assist such Member
in applying for such refund.
(b) Except as otherwise provided for in this Agreement and unless
prohibited by the 1940 Act, any expenditures payable by the Fund, to the extent
determined by the Board to have been paid or withheld on behalf of, or by reason
of particular circumstances applicable to, one or more but fewer than all of the
Members, shall be charged to only those Members on whose behalf such payments
are made or whose particular circumstances gave rise to such payments. Such
charges shall be debited from the Capital Accounts of such Members as of the
close of the Fiscal Period during which any such items were paid or accrued by
the Fund.
5.7 RESERVES.
(a) Appropriate reserves may be created, accrued and charged against
Net Assets and proportionately against the Capital Accounts of the Members for
contingent liabilities, if any, as of the date any such contingent liability
becomes known to the Manager or the Board, such reserves to be in the amounts
which the Board in its sole discretion deem necessary or appropriate. The Board
may increase or reduce any such reserves from time to time by such amounts as it
in its sole discretion deems necessary or appropriate. The amount of any such
reserve, or any increase or decrease therein, shall be proportionately charged
or credited, as appropriate, to the Capital Accounts of those parties who are
Members at the time when such reserve is created, increased or decreased, as the
case may be; PROVIDED, HOWEVER, that if any such individual reserve item,
adjusted by any increase therein, exceeds the lesser of $500,000 or 1% of the
aggregate value of the Capital Accounts of all such Members, the amount of such
reserve, increase, or decrease instead shall be charged or credited to those
parties who were Members at the time, as determined by the Board in its sole
discretion, of the act or omission giving rise to the contingent liability for
which the reserve was established, increased or decreased in proportion to their
Capital Accounts. (b) If at any time an amount is paid or received by the Fund
(other than contributions to the capital of the Fund, distributions or
repurchases of Interests or portions thereof) and such amount exceeds the lesser
of $500,000 or 1% of the aggregate value of the Capital Accounts of all Members
at the time of payment or receipt and such amount was not accrued or reserved
for but would nevertheless, in accordance with the Fund's accounting practices,
be treated as applicable to one or more prior Fiscal Periods, then such amount
shall be proportionately charged or credited, as appropriate, to those parties
who were Members during such prior Fiscal Period or Periods.
(c) If any amount is required by paragraph (a) or (b) of this Section
5.7 to be charged or credited to a party who is no longer a Member, such amount
shall be paid by or to such party, as the case may be, in cash, with interest
from the date on which the Board determines that such charge or credit is
required. In the case of a charge, the former Member shall be obligated to pay
the amount of the charge, plus interest as provided above, to the Fund on
demand; PROVIDED, HOWEVER, that (i) in no event shall a former Member be
obligated to make a payment exceeding the amount of such Member's Capital
Account at the time to which the charge relates; and (ii) no such demand shall
be made after the expiration of three years from the date on which such party
ceased to be a Member. To the extent that a former Member fails to pay to the
Fund, in full, any amount required to be charged to such former Member pursuant
to paragraph (a) or (b), whether due to the expiration of the applicable
limitation period or for any other reason whatsoever, the deficiency shall be
charged proportionately to the Capital Accounts of the Members at the time of
the act or omission giving rise to the charge to the extent feasible, and
otherwise proportionately to the Capital Accounts of the current Members.
5.8 INCENTIVE ALLOCATION.
(a) So long as the authority to provide Advice and Management under
Section 3.4 hereof shall remain effective, the Incentive Allocation shall be
debited against the Capital Account of each Member (other than the Manager) as
of the last day of each Allocation Period with respect to such Member and the
amount so debited shall be credited simultaneously to the Capital Account of the
Manager, or, subject to compliance with the 1940 Act and the Advisers Act, to
the Capital Accounts of such Members as have been designated in any written
notice delivered by the Manager, to the Fund within 90 days after the close of
such Allocation Period.
(b) Within 30 days after the close of each Allocation Period with
respect to each Member, the Manager may withdraw up to 100% of the Incentive
Allocation (computed on the basis of unaudited data) that was credited to the
Capital Account of the Manager, and debited from such Member's Capital Account
with respect to such Allocation Period. The Fund shall pay the Manager the
undrawn balance, if any, of such Incentive Allocation (subject to audit
adjustments) within 30 days after the completion of the audit of the Fund's
books. Any amount of such Incentive Allocation not withdrawn by the Manager
pursuant to the first sentence of this Section 5.8(b) shall be deemed reinvested
in the Fund by the Manager.
5.9 TAX ALLOCATIONS.
For each Fiscal Year, items of income, deduction, gain, loss or credit
shall be allocated for income tax purposes among the Members in such a manner as
to reflect equitably amounts credited or debited to each Member's Capital
Account for the current and prior Fiscal Years (or relevant portions thereof).
Allocations under this Section 5.9 shall be made pursuant to the principles of
Sections 704(b) and 704(c) of the Code, and in conformity with Treasury
Regulations Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(4)(i) and 1.704-3(e)
promulgated thereunder, as applicable, or the successor provisions to such
Section and Regulations. Notwithstanding anything to the contrary in this
Agreement, there shall be allocated to the Members such gains or income as shall
be necessary to satisfy the "qualified income offset" requirement of Treasury
Regulations Section 1.704-1(b)(2)(ii)(d).
If the Fund realizes capital gains (including short-term capital
gains) for Federal income tax purposes for any Fiscal Year during or as of the
end of which one or more Positive Basis Members (as hereinafter defined)
withdraw from the Fund pursuant to Articles IV or VI hereof, the Board may elect
to allocate such gains as follows: (i) to allocate such gains among such
Positive Basis Members, PRO RATA in proportion to the respective Positive Basis
(as hereinafter defined) of each such Positive Basis Member, until either the
full amount of such gains shall have been so allocated or the Positive Basis of
each such Positive Basis Member shall have been eliminated and (ii) to allocate
any gains not so allocated to Positive Basis Members to the other Members in
such manner as shall reflect equitably the amounts credited to such Members'
Capital Accounts.
As used herein, (i) the term "Positive Basis" shall mean, with respect
to any Member and as of any time of calculation, the amount by which the total
of such Member's Capital Account as of such time exceeds its "adjusted tax
basis," for Federal income tax purposes, in its Interest as of such time
(determined without regard to any adjustments made to such "adjusted tax basis"
by reason of any transfer or assignment of such Interest, including by reason of
death and without regard to such Member's share of the liabilities of the Fund
under Section 752 of the Code), and (ii) the term "Positive Basis Member" shall
mean any Member who withdraws from the Fund and who has a Positive Basis as of
the effective date of its withdrawal but such Member shall cease to be a
Positive Basis Member at such time as it shall have received allocations
pursuant to clause (i) of the preceding sentence equal to its Positive Basis as
of the effective date of its withdrawal.
5.10 DISTRIBUTIONS.
(a) The Board, in its sole discretion, may authorize the Fund to make
distributions in cash or in kind at any time to all of the Members on a PRO RATA
basis in accordance with the Members' Fund Percentages. Notwithstanding anything
to the contrary in this Agreement, a Member may be compelled to accept a
distribution of any asset in kind from the Fund despite the fact that the
percentage of the asset distributed to the Member exceeds the percentage of that
asset which is equal to the percentage in which the Member shares in
distributions from the Fund.
(b) The Board may withhold taxes from any distribution to any Member
to the extent required by the Code or any other applicable law. For purposes of
this Agreement, any taxes so withheld by the Fund with respect to any amount
distributed by the Fund to any Member shall be deemed to be a distribution or
payment to such Member, reducing the amount otherwise distributable to such
Member pursuant to this Agreement and, if appropriate, reducing the Capital
Account of such Member.
(c) Notwithstanding anything to the contrary contained herein, none of
the Directors or the Members (including the Manager), nor any other person on
behalf of the Fund, shall make a distribution to the Members on account of their
interest in the Fund if such distribution would violate the Delaware Act or
other applicable law.
5.11 ALLOCATION OF ORGANIZATIONAL EXPENSES.
(a) As of the first Expense Allocation Date, Organizational Expenses
shall be allocated among and debited against the Capital Accounts of the Members
in accordance with their respective Capital Percentages on such Expense
Allocation Date.
(b) As of each Expense Allocation Date following the first Expense
Allocation Date, all amounts previously debited against the Capital Account of a
Member pursuant to this Section 5.11 on the preceding Expense Allocation Date
will be credited to the Capital Account of such Member, and Organizational
Expenses then shall be re-allocated among and debited against the Capital
Accounts of all Members in accordance with their respective Capital Percentages
on such Expense Allocation Date.
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ARTICLE VI
DISSOLUTION AND LIQUIDATION
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6.1 DISSOLUTION.
(a) The Fund shall be dissolved at any time there are no Members,
unless the Fund is continued in accordance with the Delaware Act, or upon the
occurrence of any of the following events:
(1) upon the affirmative vote to dissolve the Fund by both (i) the
Board and (ii) Members holding at least two-thirds of the total
number of Voting Interests eligible to be cast by all Members;
(2) upon the failure of Members to approve of successor Directors at
a meeting called by the Manager in accordance with Section 2.6(c)
hereof when no Director remains to continue the business of the
Fund;
(3) upon the expiration of any two-year period which commences on the
date on which any Member has submitted a written notice to the
Fund requesting to tender such Member's entire Interest for
repurchase by the Fund if such Member has not been permitted to
do so at any time during such period;
(4) upon the determination by the Manager to dissolve the Fund; or
(5) as required by operation of law.
Dissolution of the Fund shall be effective on the day on which the
event giving rise to the dissolution shall occur, but the Fund shall not
terminate until the assets of the Fund have been liquidated in accordance with
Section 6.2 hereof and the Certificate has been canceled.
6.2 LIQUIDATION OF ASSETS.
(a) Upon the dissolution of the Fund as provided in Section 6.1
hereof, the Board, acting directly or through a liquidator it selects, shall
promptly liquidate the business and administrative affairs of the Fund, except
that if the Board is unable to perform this function, a liquidator elected by
Members holding a majority of the total number of votes eligible to be cast by
all Members shall promptly liquidate the business and administrative affairs of
the Fund. Net Profit and Net Loss during the period of liquidation shall be
allocated pursuant to Article V hereof. The proceeds from liquidation shall,
subject to the Delaware Act, be distributed in the following manner:
(1) in satisfaction (whether by payment or the making of reasonable
provision for payment thereof) of the debts and liabilities of
the Fund, including the expenses of liquidation (including legal
and accounting expenses incurred in connection therewith), but
not including debt and liabilities to Members, up to and
including the date that distribution of the Fund's assets to the
Members has been completed, shall first be paid on a PRO RATA
basis;
(2) such debts, liabilities or obligations as are owing to the
Members shall be paid next in their order of seniority and on a
PRO RATA basis; and
(3) the Members shall be paid next on a PRO RATA basis the positive
balances of their respective Capital Accounts after giving effect
to all allocations to be made to such Members' Capital Accounts
for the Fiscal Period ending on the date of the distributions
under this Section 6.2(a)(3).
(b) Anything in this Section 6.2 to the contrary notwithstanding, but
subject to the priorities set forth in Section 6.2(a) above, upon dissolution of
the Fund, the Board or other liquidator may distribute ratably in kind any
assets of the Fund; PROVIDED, HOWEVER, that if any in-kind distribution is to be
made (i) the assets distributed in kind shall be valued pursuant to Section 7.3
hereof as of the actual date of their distribution and charged as so valued and
distributed against amounts to be paid under Section 6.2(a) above, and (ii) any
profit or loss attributable to property distributed in-kind shall be included in
the Net Profit or Net Loss for the Fiscal Period ending on the date of such
distribution.
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ARTICLE VII
ACCOUNTING, VALUATIONS AND BOOKS AND RECORDS
- -------------------------------------------------------------------------------
7.1 ACCOUNTING AND REPORTS.
(a) The Fund shall adopt for tax accounting purposes any accounting
method which the Board shall decide in its sole discretion is in the best
interests of the Fund. The Fund's accounts shall be maintained in U.S. currency.
(b) After the end of each taxable year, the Fund shall furnish to each
Member such information regarding the operation of the Fund and such Member's
Interest as is necessary for Members to complete Federal and state income tax or
information returns and any other tax information required by federal or state
law.
(c) Except as otherwise required by the 1940 Act, or as may otherwise
be permitted by rule, regulation or order, within 60 days after the close of the
period for which a report required under this Section 7.1(c) is being made, the
Fund shall furnish to each Member a semi-annual report and an annual report
containing the information required by the 1940 Act. The Fund shall cause
financial statements contained in each annual report furnished hereunder to be
accompanied by a certificate of independent public accountants based upon an
audit performed in accordance with generally accepted accounting principles. The
Fund may furnish to each Member such other periodic reports as it deems
necessary or appropriate in its discretion.
7.2 DETERMINATIONS BY THE BOARD.
(a) All matters concerning the determination and allocation among the
Members of the amounts to be determined and allocated pursuant to Article V
hereof, including any taxes thereon and accounting procedures applicable
thereto, shall be determined by the Board (either directly or by the Manager
pursuant to delegated authority) unless specifically and expressly otherwise
provided for by the provisions of this Agreement or as required by law, and such
determinations and allocations shall be final and binding on all the Members.
(b) The Board may make such adjustments to the computation of Net
Profit or Net Loss or any components (withholding any items of income, gain,
loss or deduction) comprising any of the foregoing as it considers appropriate
to reflect fairly and accurately the financial results of the Fund and the
intended allocation thereof among the Members.
7.3 VALUATION OF ASSETS.
(a) Except as may be required by the 1940 Act, the Board shall value
or have valued any Securities or other assets and liabilities of the Fund as of
the close of business on the last day of each Fiscal Period or more frequently,
in the discretion of the Board, in accordance with such valuation procedures as
shall be established from time to time by the Board and which conform to the
requirements of the 1940 Act. In determining the value of the assets of the
Fund, no value shall be placed on the goodwill or name of the Fund, or the
office records, files, statistical data or any similar intangible assets of the
Fund not normally reflected in the Fund's accounting records, but there shall be
taken into consideration any items of income earned but not received, expenses
incurred but not yet paid, liabilities, fixed or contingent, the unamortized
portion of any organizational expenses and any other prepaid expenses to the
extent not otherwise reflected in the books of account, and the value of options
or commitments to purchase or sell Securities or commodities pursuant to
agreements entered into prior to such valuation date.
(b) The value of Securities and other assets of the Fund and the net
worth of the Fund as a whole determined pursuant to this Section 7.3 shall be
conclusive and binding on all of the Members and all parties claiming through or
under them.
- -------------------------------------------------------------------------------
ARTICLE VIII
MISCELLANEOUS PROVISIONS
- -------------------------------------------------------------------------------
8.1 AMENDMENT OF LIMITED LIABILITY COMPANY AGREEMENT.
(a) Except as otherwise provided in this Section 8.1, this Agreement
may be amended, in whole or in part, with the approval of (i) the Board
(including the vote of a majority of the Independent Directors, if required by
the 1940 Act), (ii) the Manager or (iii) a majority (as defined in the 1940 Act)
of the outstanding Voting Interests of the Fund.
(b) Any amendment that would:
(1) increase the obligation of a Member to make any contribution to
the capital of the Fund;
(2) reduce the Capital Account of a Member other than in accordance
with Article V; or
(3) modify the events causing the dissolution of the Fund;
may be made only if (i) the written consent of each Member adversely affected
thereby is obtained prior to the effectiveness thereof or (ii) such amendment
does not become effective until (A) each Member has received written notice of
such amendment and (B) any Member objecting to such amendment has been afforded
a reasonable opportunity (pursuant to such procedures as may be prescribed by
the Board) to tender his or her entire Interest for repurchase by the Fund.
(c) The Board at any time without the consent of the Members may:
(1) restate this Agreement together with any amendments hereto which
have been duly adopted in accordance herewith to incorporate such
amendments in a single, integrated document;
(2) amend this Agreement (other than with respect to the matters set
forth in Section 8.1(b) hereof) to effect compliance with any
applicable law or regulation or to cure any ambiguity or to
correct or supplement any provision hereof which may be
inconsistent with any other provision hereof, provided that such
action does not adversely affect the rights of any Member in any
material respect; and
(3) amend this Agreement to make such changes as may be necessary or
desirable, based on advice of legal counsel to the Fund, to
assure the Fund's continuing eligibility to be classified for
U.S. Federal income tax purposes as a partnership which is not
treated as a corporation under Section 7704(a) of the Code;
subject, however, to the limitation that any amendment to this Agreement
pursuant to Sections 8.1(c)(2) or (3) hereof shall be valid only if approved by
the Board (including the vote of a majority of the Independent Directors, if
required by the 1940 Act).
(d) The Board shall give written notice of any proposed amendment to
this Agreement (other than any amendment of the type contemplated by clause (1)
of Section 8.1(a) hereof) to each Member, which notice shall set forth (i) the
text of the proposed amendment or (ii) a summary thereof and a statement that
the text thereof will be furnished to any Member upon request.
8.2 SPECIAL POWER OF ATTORNEY.
(a) Each Member hereby irrevocably makes, constitutes and appoints the
Manager and each of the Directors, acting severally, and any liquidator of the
Fund's assets appointed pursuant to Section 6.2 hereof with full power of
substitution, the true and lawful representatives and attorneys-in-fact of, and
in the name, place and stead of, such Member, with the power from time to time
to make, execute, sign, acknowledge, swear to, verify, deliver, record, file
and/or publish:
(1) any amendment to this Agreement which complies with the
provisions of this Agreement (including the provisions of Section
8.1 hereof);
(2) any amendment to the Certificate required because this Agreement
is amended or as otherwise required by the Delaware Act; and
(3) all other such instruments, documents and certificates which, in
the opinion of legal counsel to the Fund, from time to time may
be required by the laws of the United States of America, the
State of Delaware or any other jurisdiction in which the Fund
shall determine to do business, or any political subdivision or
agency thereof, or which such legal counsel may deem necessary or
appropriate to effectuate, implement and continue the valid
existence and business of the Fund as a limited liability company
under the Delaware Act.
(b) Each Member is aware that the terms of this Agreement permit
certain amendments to this Agreement to be effected and certain other actions to
be taken or omitted by or with respect to the Fund without such Member's
consent. If an amendment to the Certificate or this Agreement or any action by
or with respect to the Fund is taken in the manner contemplated by this
Agreement, each Member agrees that, notwithstanding any objection which such
Member may assert with respect to such action, the attorneys-in-fact appointed
hereby are authorized and empowered, with full power of substitution, to
exercise the authority granted above in any manner which may be necessary or
appropriate to permit such amendment to be made or action lawfully taken or
omitted. Each Member is fully aware that each Member will rely on the
effectiveness of this special power-of-attorney with a view to the orderly
administration of the affairs of the Fund.
(c) This power-of-attorney is a special power-of-attorney and is
coupled with an interest in favor of the Manager and each of the Directors,
acting severally, and any liquidator of the Fund's assets, appointed pursuant to
Section 6.2 hereof, and as such:
(1) shall be irrevocable and continue in full force and effect
notwithstanding the subsequent death or incapacity of any party
granting this power-of-attorney, regardless of whether the Fund,
the Board or any liquidator shall have had notice thereof; and
(2) shall survive the delivery of a Transfer by a Member of the whole
or any portion of such Member's Interest, except that where the
transferee thereof has been approved by the Board for admission
to the Fund as a substituted Member, this power-of-attorney given
by the transferor shall survive the delivery of such assignment
for the sole purpose of enabling the Board or any liquidator to
execute, acknowledge and file any instrument necessary to effect
such substitution.
8.3 NOTICES.
Notices which may or are required to be provided under this Agreement
shall be made, if to a Member, by regular mail, hand delivery, registered or
certified mail return receipt requested, commercial courier service, telex or
telecopier, or, if to the Fund, by registered or certified mail, return receipt
requested, and shall be addressed to the respective parties hereto at their
addresses as set forth on the books and records of the Fund (or to such other
addresses as may be designated by any party hereto by notice addressed to the
Fund in the case of notice given to any Member, and to each of the Members in
the case of notice given to the Fund). Notices shall be deemed to have been
provided when delivered by hand, on the date indicated as the date of receipt on
a return receipt or when received if sent by regular mail, commercial courier
service, telex or telecopier. A document that is not a notice and that is
required to be provided under this Agreement by any party to another party may
be delivered by any reasonable means.
8.4 AGREEMENT BINDING UPON SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, assigns, executors,
trustees or other legal representatives, but the rights and obligations of the
parties hereunder may not be Transferred or delegated except as provided in this
Agreement and any attempted Transfer or delegation thereof which is not made
pursuant to the terms of this Agreement shall be void.
8.5 APPLICABILITY OF 1940 ACT AND FORM N-2.
The parties hereto acknowledge that this Agreement is not intended to,
and does not set forth the substantive provisions contained in the 1940 Act and
the Form N-2 which affect numerous aspects of the conduct of the Fund's business
and of the rights, privileges and obligations of the Members. Each provision of
this Agreement shall be subject to and interpreted in a manner consistent with
the applicable provisions of the 1940 Act and the Form N-2.
8.6 CHOICE OF LAW; ARBITRATION.
(a) Notwithstanding the place where this Agreement may be executed by
any of the parties hereto, the parties expressly agree that all the terms and
provisions hereof shall be construed under the laws of the State of Delaware,
including the Delaware Act, without regard to the conflict of law principles of
such State.
(B) EACH MEMBER AGREES TO SUBMIT ALL CONTROVERSIES ARISING BETWEEN OR
AMONG MEMBERS OR ONE OR MORE MEMBERS AND THE FUND IN CONNECTION WITH THE FUND OR
ITS BUSINESSES OR CONCERNING ANY TRANSACTION, DISPUTE OR THE CONSTRUCTION,
PERFORMANCE OR BREACH OF THIS OR ANY OTHER AGREEMENT, WHETHER ENTERED INTO PRIOR
TO, ON OR SUBSEQUENT TO THE DATE HEREOF, TO ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS SET FORTH BELOW. EACH MEMBER UNDERSTANDS THAT:
(1) ARBITRATION IS FINAL AND BINDING ON THE PARTIES;
(2) THE PARTIES ARE WAIVING THEIR RIGHTS TO SEEK REMEDIES IN COURT,
INCLUDING THE RIGHT TO JURY TRIAL;
(3) PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND
DIFFERENT FROM COURT PROCEEDINGS;
(4) THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND A PARTY'S RIGHT TO APPEAL OR TO
SEEK MODIFICATION OF RULINGS BY ARBITRATORS IS STRICTLY LIMITED;
AND
(5) A PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH THE SECURITIES
INDUSTRY.
(C) CONTROVERSIES SHALL BE DETERMINED BY ARBITRATION BEFORE, AND ONLY
BEFORE, AN ARBITRATION PANEL CONVENED BY THE NEW YORK STOCK EXCHANGE, INC.
("NYSE") OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. (THE "NASD"),
TO THE FULLEST EXTENT PERMITTED BY LAW. THE PARTIES MAY ALSO SELECT ANY OTHER
NATIONAL SECURITIES EXCHANGE'S ARBITRATION FORUM UPON WHICH A PARTY IS LEGALLY
REQUIRED TO ARBITRATE THE CONTROVERSY, TO THE FULLEST EXTENT PERMITTED BY LAW.
SUCH ARBITRATION SHALL BE GOVERNED BY THE RULES OF THE ORGANIZATION CONVENING
THE PANEL, TO THE FULLEST EXTENT PERMITTED BY LAW. JUDGMENT ON ANY AWARD OF ANY
SUCH ARBITRATION MAY BE ENTERED IN THE SUPREME COURT OF THE STATE OF NEW YORK OR
IN ANY OTHER COURT HAVING JURISDICTION OVER THE PARTY OR PARTIES AGAINST WHOM
SUCH AWARD IS RENDERED. EACH MEMBER AGREES THAT THE DETERMINATION OF THE
ARBITRATORS SHALL BE BINDING AND CONCLUSIVE UPON THEM.
(D) NO MEMBER SHALL BRING A PUTATIVE OR CERTIFIED CLASS ACTION TO
ARBITRATION, NOR SEEK TO ENFORCE ANY PRE-DISPUTE ARBITRATION AGREEMENT AGAINST
ANY PERSON WHO HAS INITIATED IN COURT A PUTATIVE CLASS ACTION OR WHO IS A MEMBER
OF A PUTATIVE CLASS WHO HAS NOT OPTED OUT OF THE CLASS WITH RESPECT TO ANY
CLAIMS ENCOMPASSED BY THE PUTATIVE CLASS ACTION UNLESS AND UNTIL: (I) THE CLASS
CERTIFICATION IS DENIED; OR (II) THE CLASS IS DECERTIFIED; OR (III) THE MEMBER
IS EXCLUDED FROM THE CLASS BY THE COURT. THE FORBEARANCE TO ENFORCE AN AGREEMENT
TO ARBITRATE SHALL NOT CONSTITUTE A WAIVER OF ANY RIGHTS UNDER THIS AGREEMENT
EXCEPT TO THE EXTENT STATED HEREIN.
8.7 NOT FOR BENEFIT OF CREDITORS.
The provisions of this Agreement are intended only for the regulation
of relations among past, present and future Members and the Fund. This Agreement
is not intended for the benefit of non-Member creditors and no rights are
granted to non-Member creditors under this Agreement.
8.8 CONSENTS.
Any and all consents, agreements or approvals provided for or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Fund.
8.9 MERGER AND CONSOLIDATION.
(a) The Fund may merge or consolidate with or into one or more limited
liability companies formed under the Delaware Act or other business entities (as
defined in Section 18-209(a) of the Delaware Act) pursuant to an agreement of
merger or consolidation which has been approved in the manner contemplated by
Section 18-209(b) of the Delaware Act.
(b) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, an agreement of merger or consolidation approved in accordance
with Section 18-209(b) of the Delaware Act may, to the extent permitted by
Section 18-209(b) of the Delaware Act, (i) effect any amendment to this
Agreement, (ii) effect the adoption of a new limited liability company agreement
for the Fund if it is the surviving or resulting limited liability company in
the merger or consolidation, or (iii) provide that the limited liability company
agreement of any other constituent limited liability company to the merger or
consolidation (including a limited liability company formed for the purpose of
consummating the merger or consolidation) shall be the limited liability company
agreement of the surviving or resulting limited liability company.
8.10 PRONOUNS.
All pronouns shall be deemed to refer to the masculine, feminine,
neuter, singular or plural, as the identity of the person or persons, firm or
corporation may require in the context thereof.
8.11 CONFIDENTIALITY.
(a) A Member may obtain from the Fund, for any purpose reasonably
related to the Member's Interest, such information regarding the affairs of the
Fund as is just and reasonable under the Delaware Act, subject to reasonable
standards (including standards governing what information and documents are to
be furnished, at what time and location and at whose expense) established by the
Board.
(b) Each Member covenants that, except as required by applicable law
or any regulatory body, it will not divulge, furnish or make accessible to any
other person the name or address (whether business, residence or mailing) of any
Member (collectively, "Confidential Information") without the prior written
consent of the Board, which consent may be withheld in its sole discretion.
(c) Each Member recognizes that in the event that this Section 8.11 is
breached by any Member or any of its principals, partners, members, directors,
officers, employees or agents or any of its affiliates, including any of such
affiliates' principals, partners, members, directors, officers, employees or
agents, irreparable injury may result to the non-breaching Members and the Fund.
Accordingly, in addition to any and all other remedies at law or in equity to
which the non-breaching Members and the Fund may be entitled, such Members also
shall have the right to obtain equitable relief, including, without limitation,
injunctive relief, to prevent any disclosure of Confidential Information, plus
reasonable attorneys' fees and other litigation expenses incurred in connection
therewith.
(d) The Fund shall have the right to keep confidential from the
Members for such period of time as it deems reasonable any information which the
Board reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the Board in good faith believes is not in
the best interest of the Fund or could damage the Fund or its business or which
the Fund is required by law or by agreement with a third party to keep
confidential.
8.12 CERTIFICATION OF NON-FOREIGN STATUS.
Each Member or transferee of an Interest from a Member that is
admitted to the Fund in accordance with this Agreement shall certify, upon
admission to the Fund and at such other time thereafter as the Board may
request, whether he or she is a "United States Person" within the meaning of
Section 7701(a)(30) of the Code on forms to be provided by the Fund, and shall
notify the Fund within 30 days of any change in such Member's status. Any Member
who shall fail to provide such certification when requested to do so by the
Board may be treated as a non-United States Person for purposes of U.S. Federal
tax withholding.
8.13 SEVERABILITY.
If any provision of this Agreement is determined by a court of
competent jurisdiction not to be enforceable in the manner set forth in this
Agreement, each Member agrees that it is the intention of the Members that such
provision should be enforceable to the maximum extent possible under applicable
law. If any provisions of this Agreement are held to be invalid or
unenforceable, such invalidation or unenforceability shall not affect the
validity or enforceability of any other provision of this Agreement (or portion
thereof).
8.14 ENTIRE AGREEMENT.
This Agreement (including the Schedule attached hereto which is
incorporated herein) constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto. It is hereby acknowledged and agreed that the
Board, without the approval of any Member may enter into written agreements
("Other Agreements") with Members, executed contemporaneously with the admission
of such Members to the Fund, effecting the terms hereof or of any application in
order to meet certain requirements of such Members. The parties hereto agree
that any terms contained in an Other Agreement with a Member shall govern with
respect to such Member notwithstanding the provisions of this Agreement or of
any application.
8.15 DISCRETION.
To the fullest extent permitted by law, whenever in this Agreement, a
person is permitted or required to make a decision (i) in its "sole discretion"
or "discretion" or under a grant of similar authority or latitude, such person
shall be entitled to consider only such interests and factors as it desires,
including its own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Fund or the Members,
or (ii) in its "good faith" or under another express standard, then such person
shall act under such express standard and shall not be subject to any other or
different standards imposed by this Agreement or any other agreement
contemplated herein or by relevant provisions of law or in equity or otherwise.
8.16 COUNTERPARTS.
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart.
8.17 TAX MATTERS PARTNER. The Manager hereby is designated as the "tax
matters partner" under the Code for the Fund.
<PAGE>
THE UNDERSIGNED ACKNOWLEDGES HAVING READ THIS AGREEMENT IN ITS
ENTIRETY BEFORE SIGNING, INCLUDING THE PRE-DISPUTE ARBITRATION CLAUSES SET FORTH
IN SECTION 8.6 ON PAGES 35-36 AND THE CONFIDENTIALITY CLAUSES SET FORTH IN
SECTION 8.11 ON PAGE 37.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ORGANIZATIONAL MEMBER:
/S/ NORMAN E. SIENKO, JR.
-------------------------
Norman E. Sienko, Jr.
MANAGER:
PW WILLOW MANAGEMENT, L.L.C.
By: PW FUND ADVISOR, L.L.C.
By:/S/ DANIEL ARCHETTI
Name: Daniel Archetti
Title: Authorized Person
ADDITIONAL MEMBERS:
Each person who has signed or has had signed on its behalf a Member
Signature Page, which shall constitute a counterpart hereof.
<PAGE>
The undersigned understand and agree to the provisions of this Agreement
pertaining to the obligations of Directors.
/S/ E. GARRETT BEWKES, JR.
E. Garrett Bewkes, Jr., Director
/S/ MEYER FELDBERG
Meyer Feldberg, Director
/S GEORGE W. GOWEN
George W. Gowen, Director
<PAGE>
SCHEDULE I
DIRECTORS
NAME AND ADDRESS
E. Garrett Bewkes, Jr.
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Meyer Feldberg
c/o Columbia University
101 Uris Hall
New York, New York 10027
George W. Gowen
666 Third Avenue
New York, New York 10017
<PAGE>
FORM N-2
PW WILLOW FUND, L.L.C.
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
Because the Registrant has no assets, financial statements are
omitted.
(2) Exhibits:
(a) (1) Certificate of Formation.
(2) Limited Liability Company Agreement.*
(b) Not Applicable.
(c) Not Applicable.
(d) See Item 24(2)(a)(2).
(e) Not Applicable.
(f) Not Applicable.
(g) See Item 24(2)(a)(2).
(h) Not Applicable.
(i) Not Applicable.
(j) Custodian Services Agreement.
(k) (1) Management and Administration Agreement.
(2) Administration, Accounting and Investor
Services Agreement.
(3) Escrow Agreement.
(l) Not Applicable.
(m) Not Applicable.
(n) Not Applicable.
(o) Not Applicable.
(p) Not Applicable.
(q) Not Applicable.
(r) Not Applicable.
--------------
* See Appendix A of the Confidential Offering Memorandum.
ITEM 25. MARKETING ARRANGEMENTS
Not Applicable.
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Blue Sky fees and expenses (including fees of
counsel) $ 5,000
Legal and accounting fees and expenses 125,000
Printing, engraving and offering expenses 115,000
Miscellaneous 5,000
-----------
$250,000
===========
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
After completion of the private offering of interests, the Registrant
expects that no person will be directly or indirectly under common control with
the Registrant, except that the Registrant may be deemed to be controlled by PW
Willow Management, L.L.C. (the "Manager"), the manager of the Registrant, which,
in turn, is controlled by PW Fund Advisor, L.L.C. Information regarding the
ownership of PW Fund Advisor, L.L.C. is set forth in its Form ADV, as filed with
the Commission (File No. 801-55537).
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
- -------------- ------------------------
Interests 1 (The Registrant anticipates
that as a result of the private
offering of interests there will
be more than 100 record holders
of such interests in the future.)
ITEM 29. INDEMNIFICATION
Reference is made to Section 3.9 of the Registrant's Limited Liability
Company Agreement (the "LLC Agreement") filed as Exhibit (a)(2) hereto. The
Registrant hereby undertakes that it will apply the indemnification provision of
the LLC Agreement in a manner consistent with Release 40-11330 of the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), so long as the interpretation therein of Sections 17(h) and
17(i) of the 1940 Act remains in effect.
The Registrant, in conjunction with the Manager, the Registrant's
directors and other registered management investment companies managed by the
Manager or its affiliates, maintains insurance on behalf of any person who is or
was an independent director, officer, employee, or agent of the Registrant, or
who is or was serving at the request of the Registrant as an individual general
partner, director, officer, employee or agent of another managed investment
company, against certain liability asserted against and incurred by, or arising
out of, his or her position. However, in no event will the Registrant pay that
portion of the premium, if any, for insurance to indemnify any such person or
any act for which the Registrant itself is not permitted to indemnify.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
A description of any other business, profession, vocation, or
employment of a substantial nature in which the investment adviser of the
Registrant, and each member, director, executive officer, or partner of any such
investment adviser, is or has been, at any time during the past two fiscal
years, engaged in for his or her own account or in the capacity of member,
director, officer, employee, partner or trustee, is set forth in the
Registrant's Confidential Memorandum in the section entitled "THE MANAGER, PWFA
AND BOND STREET." Information as to the members and officers of PW Fund Advisor,
L.L.C. is included in its Form ADV as filed with the Commission (File No.
801-55537), and is incorporated herein by reference. Information as to the
members and officers of Bond Street Capital, L.L.C. will be filed by amendment.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Administrator maintains certain required accounting related and
financial books and records of the Registrant at 400 Bellevue Parkway,
Wilmington, Delaware 19809. The other required books and records are maintained
by the Manager, c/o PW Fund Advisor, L.L.C., 1285 Avenue of the Americas, New
York, New York 10019.
ITEM 32. MANAGEMENT SERVICES
Not Applicable.
ITEM 33. UNDERTAKINGS
Not Applicable.
<PAGE>
FORM N-2
PW WILLOW FUND, L.L.C.
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
and State of New York, on the 29th day of February, 2000.
PW WILLOW FUND, L.L.C.
By: PW Willow Management, L.L.C.
Manager
By: PW Fund Advisor, L.L.C.
Managing Member
By: /S/ Daniel Archetti
--------------------------
Name: Daniel Archetti
Title: Authorized Representative
<PAGE>
FORM N-2
PW WILLOW FUND, L.L.C.
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a)(1) Certificate of Formation.
(2) Limited Liability Company Agreement.*
(j) Custodian Services Agreement.
(k)(1) Management and Administration Agreement.
(2) Administration, Accounting and Investor Services Agreement.
(3) Escrow Agreement.
- --------------
* See Appendix A of the Confidential Offering Memorandum.
<PAGE>
EXHIBIT (a)(1)
CERTIFICATE OF FORMATION
OF
PW WILLOW FUND, L.L.C.
Under Section 18-201 of the Delaware
Limited Liability Company Act
The undersigned, being an authorized person under Section 18-201 of the
Limited Liability Company Act of the State of Delaware, hereby certifies:
FIRST: The name of the limited liability company is PW Willow Fund, L.L.C.
(the "Company").
SECOND: The address of the Company's registered office in the State of
Delaware is Corporation Service Company, 1013 Centre Road, in the City of
Wilmington, County of New Castle (Zip Code 19805). The name of its registered
agent at such address is Corporation Service Company.
IN WITNESS WHEREOF, the undersigned has signed this Certificate on this
31st day of January, 2000.
MANAGER:
PW WILLOW MANAGEMENT, L.L.C.
MANAGING MEMBER:
PW FUND ADVISOR, L.L.C.
By: /s/ Daniel Archetti
Name: Daniel Archetti
Title: Authorized Signature
<PAGE>
EXHIBIT (j)
CUSTODIAN SERVICES AGREEMENT
THIS AGREEMENT is made as of February 11, 2000 by and between PFPC TRUST
COMPANY, a limited purpose trust company incorporated under the laws of Delaware
("PFPC Trust"), and PW WILLOW FUND, L.L.C., a Delaware limited liability company
(the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC Trust to provide custodian
services, and PFPC Trust wishes to furnish custodian services, either directly
or through an affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any person duly authorized by the Fund's
Board to give Oral Instructions and Written Instructions on behalf of
the Fund and listed on the Authorized Persons Appendix attached hereto
and made a part hereof, or any amendment thereto as may be received by
PFPC. An Authorized Person's scope of authority may be limited by the
Fund by setting forth such limitation in the Authorized Persons
Appendix.
(d) "BOARD" AND "MEMBERS" shall have the same meanings as set forth in the
Fund's limited liability company agreement (the "Limited Liability
Company Agreement").
(e) "BOOK-ENTRY SYSTEM" means Federal Reserve Treasury book-entry system
for United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(f) "CEA" means the Commodities Exchange Act, as amended.
(g) "CODE" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
(h) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC Trust from
an Authorized Person or from a person reasonably believed by PFPC
Trust to be an Authorized Person.
(i) "PFPC TRUST" means PFPC Trust or a subsidiary or affiliate of PFPC
Trust Company.
(j) "PROPERTY" means:
(i) any and all securities and other investment items which the Fund
may from time to time deposit, or cause to be deposited, with
PFPC Trust or which PFPC Trust may from time to time hold for the
Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or investment
items; and
(iv) all proceeds of the sale of securities issued by the Fund, which
are received by PFPC Trust from time to time, from or on behalf
of the Fund.
(k) "SEC" means the Securities and Exchange Commission.
(l) "SECURITIES LAWS" mean the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(m) "SHARES" mean the interests of any series or class of the Fund.
(n) "WRITTEN INSTRUCTIONS" mean written instructions signed by two
Authorized Persons and received by PFPC Trust. The instructions may be
delivered by hand, mail, tested telegram, cable, telex or facsimile
sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC Trust to provide custodian
services to the Fund, on behalf of each of its investment portfolios (each,
a "Portfolio"), and PFPC Trust accepts such appointment and agrees to
furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PFPC Trust with the following:
(a) certified or authenticated copies of the resolutions of the Board,
approving the appointment of PFPC Trust or its affiliates to provide
services;
(b) a copy of the Fund's most recent effective registration statement;
(c) a copy of the Limited Liability Company Agreement;
(d) a copy of the placement agency agreement with respect to the Shares;
(e) a copy of each Portfolio's administration agreement if PFPC Trust is
not providing the Portfolio with such services;
(f) copies of any shareholder servicing agreements made in respect of the
Fund or a Portfolio; and
(g) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS. PFPC Trust undertakes to comply with all applicable
requirements of the Securities Laws and any laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to
be performed by PFPC Trust hereunder. Except as specifically set forth
herein, PFPC Trust assumes no responsibility for such compliance by the
Fund or any Portfolio.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC Trust shall act only
upon Oral Instructions and Written Instructions.
(b) PFPC Trust shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a
person reasonably believed by PFPC Trust to be an Authorized Person)
pursuant to this Agreement. PFPC Trust may assume that any Oral
Instructions or Written Instructions received hereunder are not in any
way inconsistent with the provisions of organizational documents of
the Fund or of any vote, resolution or proceeding of the Board, or the
Members unless and until PFPC Trust receives Written Instructions to
the contrary.
(c) The Fund agrees to forward to PFPC Trust Written Instructions
confirming Oral Instructions (except where such Oral Instructions are
given by PFPC Trust or its affiliates) so that PFPC Trust receives the
Written Instructions by the close of business on the same day that
such Oral Instructions are received. The fact that such confirming
Written Instructions are not received by PFPC Trust in no way shall
invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an
Authorized Person, PFPC Trust shall incur no liability to the Fund in
acting upon such Oral Instructions or Written Instructions provided
that PFPC Trust's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF THE FUND. If PFPC Trust is in doubt as to any action it
should or should not take, PFPC Trust may request directions or
advice, including Oral Instructions or Written Instructions, from the
Fund.
(b) ADVICE OF COUNSEL. If PFPC Trust shall be in doubt as to any question
of law pertaining to any action it should or should not take, PFPC
Trust may request advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's investment
adviser or PFPC Trust, at the option of PFPC Trust).
(c) CONFLICTING ADVICE. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC Trust
receives from the Fund, and the advice it receives from counsel, PFPC
Trust shall be entitled to rely upon and follow the advice of counsel
provided that such counsel is selected with reasonable care. In the
event PFPC Trust so relies on the advice of counsel, PFPC Trust
remains liable for any action or omission on the part of PFPC Trust
which constitutes willful misfeasance, bad faith, negligence or
reckless disregard by PFPC Trust of any duties, obligations or
responsibilities set forth in this Agreement.
(d) PROTECTION OF PFPC TRUST. PFPC Trust shall be protected in any action
it takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Fund or from
counsel and which PFPC Trust believes, in good faith, to be consistent
with those directions, advice or Oral Instructions or Written
Instructions. Nothing in this section shall be construed so as to
impose an obligation upon PFPC Trust (i) to seek such directions,
advice or Oral Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions of
this Agreement, the same is a condition of PFPC Trust's properly
taking or not taking such action. Nothing in this subsection shall
excuse PFPC Trust when an action or omission on the part of PFPC Trust
constitutes willful misfeasance, bad faith, negligence or reckless
disregard by PFPC Trust of any duties, obligations or responsibilities
set forth in this Agreement.
7. RECORDS; VISITS. The books and records pertaining to the Fund and any
Portfolio, which are in the possession or under the control of PFPC Trust,
shall be the property of the Fund. Such books and records shall be
prepared, preserved and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Fund and Authorized
Persons shall have access to such books and records at all times during
PFPC Trust's normal business hours. Upon the reasonable request of the
Fund, copies of any such books and records shall be provided by PFPC Trust
to the Fund or to an authorized representative of the Fund, at the Fund's
expense.
8. CONFIDENTIALITY. PFPC Trust agrees to keep confidential all records of the
Fund and information relating to the Fund and its Members, unless the
release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC Trust may be
exposed to civil or criminal contempt proceedings or when required to
divulge such information or records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PFPC Trust shall cooperate with the Fund's
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC Trust shall enter into and shall maintain in effect
with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment
failures, PFPC Trust at no additional expense to the Fund, shall take
reasonable steps to minimize service interruptions. PFPC Trust shall have
no liability with respect to the loss of data or service interruptions
caused by equipment failure provided such loss or interruption is not
caused by PFPC Trust's own willful misfeasance, bad faith, negligence or
reckless disregard of its duties or obligations under this Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PFPC Trust (a) has reviewed its business
and operations as they relate to the services provided hereunder, (b) has
developed or is developing a program to remediate or replace computer
applications and systems, and (c) has developed a testing plan to test the
remediation or replacement of computer applications/systems, in each case,
to address on a timely basis the risk that certain computer
applications/systems used by PFPC Trust may be unable to recognize and
perform properly date sensitive functions involving dates prior to,
including and after December 31, 1999, including dates such as February 29,
2000 (the "Year 2000 Challenge"). To the best of PFPC Trust's knowledge and
belief, the reasonably foreseeable consequences of the Year 2000 Challenge
will not adversely effect PFPC Trust's ability to perform its duties and
obligations under this Agreement.
12. COMPENSATION. As compensation for custody services rendered by PFPC Trust
during the term of this Agreement, the Fund, on behalf of each of the
Portfolios, will pay to PFPC Trust a fee or fees as may be agreed to in
writing from time to time by the Fund and PFPC Trust.
13. INDEMNIFICATION. (a) The Fund, on behalf of each Portfolio, agrees to
indemnify and hold harmless PFPC Trust and its affiliates from all taxes,
charges, expenses, assessments, claims and liabilities (including, without
limitation, liabilities arising under the Securities Laws and any state and
foreign securities and blue sky laws, and amendments thereto) and expenses,
including (without limitation) reasonable attorneys' fees and
disbursements, (collectively, "Losses") arising directly or indirectly from
any action or omission to act which PFPC Trust takes (i) at the request or
on the direction of or in reliance on the advice of the Fund or (ii) upon
Oral Instructions or Written Instructions. Neither PFPC Trust, nor any of
its affiliates, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC Trust's or its affiliates'
own willful misfeasance, bad faith, negligence or reckless disregard of its
duties under this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, neither the
Fund nor any Portfolio shall be liable to PFPC Trust or its affiliates for
any consequential, special or indirect losses or damages which PFPC Trust
or its affiliates may incur or suffer, whether or not the likelihood of
such losses or damages was known by the Fund.
14. RESPONSIBILITY OF PFPC TRUST.
(a) PFPC Trust shall be under no duty to take any action on behalf of the
Fund or any Portfolio except as specifically set forth herein or as
may be specifically agreed to by PFPC Trust in writing. PFPC Trust
shall be obligated to exercise care and diligence in the performance
of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for
under this Agreement. PFPC Trust agrees to indemnify and hold harmless
the Fund from Losses arising out of PFPC Trust's failure to perform
its duties under this Agreement to the extent such damages arise out
of PFPC Trust's willful misfeasance, bad faith, negligence or reckless
disregard of its duties under this Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC Trust shall not be under any
duty or obligation to inquire into and shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral
Instruction or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which
PFPC Trust reasonably believes to be genuine; or (B) subject to
Section 10 of this Agreement, delays or errors or loss of data
occurring by reason of circumstances beyond PFPC Trust's control,
including acts of civil or military authority, national emergencies,
fire, flood, catastrophe, acts of God, insurrection, war, riots or
failure of the mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC Trust nor its affiliates shall be liable to the Fund or to any
Portfolio for any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of PFPC
Trust's or its affiliates' performance of the services provided
hereunder, whether or not the likelihood of such losses or damages was
known by PFPC Trust or its affiliates.
15. DESCRIPTION OF SERVICES.
(a) DELIVERY OF THE PROPERTY. The Fund will deliver or arrange for
delivery to PFPC Trust, all of the Property owned by the Portfolios,
including cash received as a result of the distribution of Shares,
during the period that is set forth in this Agreement. PFPC Trust will
not be responsible for such Property until actual receipt.
(b) RECEIPT AND DISBURSEMENT OF MONEY. PFPC Trust, acting upon Written
Instructions, shall open and maintain separate accounts in the Fund's
name using all cash received from or for the account of the Fund,
subject to the terms of this Agreement. In addition, upon Written
Instructions, PFPC Trust shall open separate custodial accounts for
each separate Portfolio of the Fund (collectively, the "Accounts") and
shall hold in the Accounts all cash received from or for the Accounts
of the Fund specifically designated to each separate Portfolio. PFPC
Trust shall make cash payments from or for the Accounts of a Portfolio
only for:
(i) purchases of securities in the name of a Portfolio or PFPC Trust
or PFPC Trust's nominee as provided in sub-section (j) of this
Section and for which PFPC Trust has received a copy of the
broker's or dealer's confirmation or payee's invoice, as
appropriate;
(ii) purchase or redemption of Shares delivered to PFPC Trust;
(iii) payment of, subject to Written Instructions, interest, taxes,
administration, accounting, distribution, advisory, management
fees or similar expenses which are to be borne by a Portfolio;
(iv) payment to, subject to Written Instructions, the Members of an
amount equal to the amount of dividends and distributions stated
in the Written Instructions to be distributed in cash;
(v) payments, upon Written Instructions, in connection with the
conversion, exchange or surrender of securities owned or
subscribed to by the Fund and held by or delivered to PFPC Trust;
(vi) payments of the amounts of dividends received with respect to
securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in
sub-section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper Fund
purposes.
PFPC Trust hereby is authorized to endorse and collect all checks, drafts
or other orders for the payment of money received as custodian for the
Accounts.
(c) RECEIPT OF SECURITIES; SUBCUSTODIANS.
(i) PFPC Trust shall hold all securities received by it for the
Accounts in a separate account that physically segregates such
securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry System.
All such securities shall be held or disposed of only upon
Written Instructions of the Fund pursuant to the terms of this
Agreement. PFPC Trust shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities
or investment, except upon the express terms of this Agreement
and upon Written Instructions, accompanied by a certified
resolution of the Board, authorizing the transaction. In no case
may any member of the Board, or any officer, employee or agent of
the Fund withdraw any securities.
At PFPC Trust's own expense and for its own convenience, PFPC
Trust may enter into sub-custodian agreements with other United
States banks or trust companies to perform duties described in
this sub-section (c). Such bank or trust company shall have an
aggregate capital, surplus and undivided profits, according to
its last published report, of at least one million dollars
($1,000,000), if it is a subsidiary or affiliate of PFPC Trust,
or at least twenty million dollars ($20,000,000) if such bank or
trust company is not a subsidiary or affiliate of PFPC Trust. In
addition, such bank or trust company must be qualified to act as
custodian and agree to comply with the relevant provisions of the
1940 Act and other applicable rules and regulations. Any such
arrangement will not be entered into without prior written notice
to the Fund.
PFPC Trust shall remain responsible for the performance of all of its
duties as described in this Agreement and shall hold the Fund and each
Portfolio harmless from its own acts or omissions, under the standards
of care provided for herein, or the acts and omissions of any
sub-custodian chosen by PFPC Trust under the terms of this sub-section
(c).
(d) TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral Instructions
or Written Instructions and not otherwise, PFPC Trust, directly or
through the use of the Book-Entry System, shall:
(i) deliver any securities held for a Portfolio against the receipt
of payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in such
Oral Instructions or Written Instructions, proxies, consents,
authorizations, and any other instruments whereby the authority
of a Portfolio as owner of any securities may be exercised;
(iii) deliver any securities to the issuer thereof, or its agent, when
such securities are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or other
consideration is to be delivered to PFPC Trust;
(iv) deliver any securities held for a Portfolio against receipt of
other securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, tender offer, merger,
consolidation or recapitalization of any corporation, or the
exercise of any conversion privilege;
(v) deliver any securities held for a Portfolio to any protective
committee, reorganization committee or other person in connection
with the reorganization, refinancing, merger, consolidation,
recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(vi) make such transfer or exchanges of the assets of the Portfolios
and take such other steps as shall be stated in said Oral
Instructions or Written Instructions to be for the purpose of
effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of the
Fund;
(vii) release securities belonging to a Portfolio to any bank or trust
company for the purpose of a pledge or hypothecation to secure
any loan incurred by the Fund on behalf of that Portfolio;
provided, however, that securities shall be released only upon
payment to PFPC Trust of the monies borrowed, except that in
cases where additional collateral is required to secure a
borrowing already made subject to proper prior authorization,
further securities may be released for that purpose; and repay
such loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or notes
evidencing the loan;
(viii) release and deliver securities owned by a Portfolio in
connection with any repurchase agreement entered into on behalf
of the Fund, but only on receipt of payment therefor; and pay out
moneys of the Fund in connection with such repurchase agreements,
but only upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by the Fund in
connection with any conversion of such securities, pursuant to
their terms, into other securities;
(x) release and deliver securities owned by the Fund for the purpose
of redeeming in kind shares of the Fund upon delivery thereof to
PFPC Trust; and
(xi) release and deliver or exchange securities owned by the Fund for
other corporate purposes.
PFPC Trust must also receive a certified resolution describing
the nature of the corporate purpose and the name and address of
the person(s) to whom delivery shall be made when such action is
pursuant to this sub-section d.
(e) USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to PFPC Trust
certified resolutions of the Board approving, authorizing and
instructing PFPC Trust on a continuous basis, to deposit in the
Book-Entry System all securities belonging to the Portfolios eligible
for deposit therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of purchases and sales of
securities by the Portfolios, and deliveries and returns of securities
loaned, subject to repurchase agreements or used as collateral in
connection with borrowings. PFPC Trust shall continue to perform such
duties until it receives Written Instructions or Oral Instructions
authorizing contrary actions.
PFPC Trust shall administer the Book-Entry System as follows:
(i) With respect to securities of each Portfolio which are maintained
in the Book-Entry System, the records of PFPC Trust shall
identify by book-entry or otherwise those securities belonging to
each Portfolio. PFPC Trust shall furnish to the Fund a detailed
statement of the Property held for each Portfolio under this
Agreement at least monthly and from time to time and upon written
request.
(ii) Securities and any cash of each Portfolio deposited in the
Book-Entry System will at all times be segregated from any assets
and cash controlled by PFPC Trust in other than a fiduciary or
custodian capacity but may be commingled with other assets held
in such capacities. PFPC Trust and its sub-custodian, if any,
will pay out money only upon receipt of securities and will
deliver securities only upon the receipt of money.
(iii) All books and records maintained by PFPC Trust which relate to
the Fund's participation in the Book-Entry System will be open to
the inspection of Authorized Persons at all times during PFPC
Trust's regular business hours, and PFPC Trust will furnish to
the Fund all information in respect of the services rendered as
it may require.
PFPC Trust will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably request from
time to time.
(f) REGISTRATION OF SECURITIES. All Securities held for a Portfolio which
are issued or issuable only in bearer form, except such securities
held in the Book-Entry System, shall be held by PFPC Trust in bearer
form; all other securities held for a Portfolio may be registered in
the name of the Fund on behalf of that Portfolio, PFPC Trust, the
Book-Entry System, a sub-custodian, or any duly appointed nominees of
the Fund, PFPC Trust, Book-Entry System or sub-custodian. The Fund
reserves the right to instruct PFPC Trust as to the method of
registration and safekeeping of the securities of the Fund. The Fund
agrees to furnish to PFPC Trust appropriate instruments to enable PFPC
Trust to hold or deliver in proper form for transfer, or to register
in the name of its nominee or in the name of the Book-Entry System,
any securities which it may hold for the Accounts and which may be
registered from time to time in the name of the Fund on behalf of a
Portfolio.
(g) VOTING AND OTHER ACTION. Neither PFPC Trust nor its nominee shall vote
any of the securities held pursuant to this Agreement by or for the
account of a Portfolio, except in accordance with Written
Instructions. PFPC Trust, directly or through the use of the
Book-Entry System, shall execute in blank and promptly deliver all
notices, proxies and proxy soliciting materials to the registered
holder of such securities. If the registered holder is not the Fund on
behalf of a Portfolio, then Written Instructions or Oral Instructions
must designate the person who owns such securities.
(h) TRANSACTIONS NOT REQUIRING INSTRUCTIONS. In the absence of contrary
Written Instructions, PFPC Trust is authorized to take the following
actions:
(i) COLLECTION OF INCOME AND OTHER PAYMENTS.
(A) collect and receive for the account of each Portfolio, all
income, dividends, distributions, coupons, option premiums,
other payments and similar items, included or to be included
in the Property, and promptly advise each Portfolio of such
receipt and credit such income, as collected, to each
Portfolio's custodian account;
(B) endorse and deposit for collection, in the name of the Fund,
checks, drafts, or other orders for the payment of money;
(C) receive and hold for the account of each Portfolio all
securities received as a distribution on the Portfolio's
securities as a result of a stock dividend, share split-up
or reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar
securities issued with respect to any securities belonging
to a Portfolio and held by PFPC Trust hereunder;
(D) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or
retired, or otherwise become payable on the date such
securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such income
and other payments and the endorsement for collection of
checks, drafts, and other negotiable instruments.
(ii) MISCELLANEOUS TRANSACTIONS.
(A) deliver or cause to be delivered Property against payment or
other consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for the
account of a Portfolio in accordance with street
delivery custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the Fund on
behalf of a Portfolio or PFPC Trust or nominee of
either, or for exchange of securities for a different
number of bonds, certificates, or other evidence,
representing the same aggregate face amount or number
of units bearing the same interest rate, maturity date
and call provisions, if any; provided that, in any such
case, the new securities are to be delivered to PFPC
Trust.
(B) Unless and until PFPC Trust receives Oral Instructions or
Written Instructions to the contrary, PFPC Trust shall:
(1) pay all income items held by it which call for payment
upon presentation and hold the cash received by it upon
such payment for the account of each Portfolio;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of each Portfolio;
(3) hold for the account of each Portfolio all stock
dividends, rights and similar securities issued with
respect to any securities held by PFPC Trust; and
(4) execute as agent on behalf of the Fund all necessary
ownership certificates required by the Code or the
Income Tax Regulations of the United States Treasury
Department or under the laws of any state now or
hereafter in effect, inserting the Fund's name, on
behalf of a Portfolio, on such certificate as the owner
of the securities covered thereby, to the extent it may
lawfully do so.
(i) SEGREGATED ACCOUNTS.
(i) PFPC Trust upon receipt of Written Instructions or Oral
Instructions, shall establish and maintain segregated accounts on
its records for and on behalf of each Portfolio. Such accounts
may be used to transfer cash and securities, including securities
in the Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and any
releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies; and
(B) upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PFPC Trust shall arrange for the establishment of IRA custodian
accounts for such Members holding Shares through IRA accounts, in
accordance with the Fund's Confidential Memorandum, the Code and
such other procedures as are mutually agreed upon from time to
time by and between the Fund and PFPC Trust.
(j) PURCHASES OF SECURITIES. PFPC Trust shall settle purchased securities
upon receipt of Oral Instructions or Written Instructions from the
Fund or its investment advisers that specify:
(i) the name of the issuer and the title of the securities, including
CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase;
(vi) the Portfolio involved; and
(vii) the name of the person from whom or the broker through whom the
purchase was made. PFPC Trust, upon receipt of securities
purchased by or for a Portfolio, shall pay out of the moneys held
for the account of the Portfolio the total amount payable to the
person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable
as set forth in such Oral Instructions or Written Instructions.
(k) SALES OF SECURITIES. PFPC Trust shall settle sold securities upon
receipt of Oral Instructions or Written Instructions from the Fund
that specify:
(i) the name of the issuer and the title of the security, including
CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the
sale was made;
(vii) the location to which the security must be delivered and
delivery deadline, if any; and
(viii) the Portfolio involved.
PFPC Trust shall deliver the securities upon receipt of the total amount payable
to the Portfolio upon such sale, provided that the total amount payable is the
same as was set forth in the Oral Instructions or Written Instructions. Subject
to the foregoing, PFPC Trust may accept payment in such form as shall be
satisfactory to it, and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities.
(l) REPORTS; PROXY MATERIALS.
(i) PFPC Trust shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may reasonably
request;
(B) a monthly statement summarizing all transactions and entries
for the account of each Portfolio, listing each Portfolio
securities belonging to each Portfolio with the adjusted
average cost of each issue and the market value at the end
of such month and stating the cash account of each Portfolio
including disbursements;
(C) the reports required to be furnished to the Fund pursuant to
Rule 17f-4 under the 1940 Act; and
(D) such other information as may be agreed upon from time to
time between the Fund and PFPC Trust.
(ii) PFPC Trust shall transmit promptly to the Fund any proxy
statement, proxy material, notice of a call or conversion or
similar communication received by it as custodian of the
Property. PFPC Trust shall be under no other obligation to inform
the Fund as to such actions or events.
(m) CREDITING OF ACCOUNTS. If PFPC Trust in its sole discretion credits an
Account with respect to (a) income, dividends, distributions, coupons,
option premiums, other payments or similar items on a contractual
payment date or otherwise in advance of PFPC Trust's actual receipt of
the amount due, (b) the proceeds of any sale or other disposition of
assets on the contractual settlement date or otherwise in advance of
PFPC Trust's actual receipt of the amount due or (c) provisional
crediting of any amounts due, and (i) PFPC Trust is subsequently
unable to collect full and final payment for the amounts so credited
within a reasonable time period using reasonable efforts or (ii)
pursuant to standard industry practice, law or regulation PFPC Trust
is required to repay to a third party such amounts so credited, or if
any Property has been incorrectly credited, PFPC Trust shall have the
absolute right in its sole discretion without demand to reverse any
such credit or payment, to debit or deduct the amount of such credit
or payment from the Account, and to otherwise pursue recovery of any
such amounts so credited from the Fund. Nothing herein or otherwise
shall require PFPC Trust to make any advances or to credit any amounts
until PFPC Trust's actual receipt thereof. The Fund hereby grants a
first priority contractual possessory security interest in the amount
necessary to secure the return and payment to PFPC Trust of any
advance or credit made by PFPC Trust (including charges related
thereto) to such Account.
(n) COLLECTIONS. All collections of monies or other property in respect,
or which are to become part of the Property (but not the safekeeping
thereof upon receipt by PFPC Trust) shall be at the sole risk of the
Fund. If payment is not received by PFPC Trust within a reasonable
time after proper demands have been made, PFPC Trust shall notify the
Fund in writing, including copies of all demand letters, any written
responses, memoranda of all oral responses and shall await
instructions from the Fund. PFPC Trust shall not be obliged to take
legal action for collection unless and until reasonably indemnified to
its satisfaction. PFPC Trust also shall notify the Fund as soon as
reasonably practicable whenever income due on securities is not
collected in due course and shall provide the Fund with periodic
status reports of such income collected after a reasonable time.
16. DURATION AND TERMINATION. This Agreement shall continue until terminated by
the Fund or by PFPC Trust on ninety (90) days' prior written notice to the
other party. In the event this Agreement is terminated (pending appointment
of a successor to PFPC Trust or vote of the Members of the Fund to dissolve
or to function without a custodian of its cash, securities or other
property), PFPC Trust shall not deliver cash, securities or other property
of the Portfolios to the Fund. It may deliver them to a bank or trust
company of PFPC Trust's choice, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
twenty million dollars ($20,000,000), as a custodian for the Fund to be
held under terms similar to those of this Agreement. PFPC Trust shall not
be required to make any such delivery or payment until full payment shall
have been made to PFPC Trust of all of its fees, compensation, costs and
expenses attributable to the relevant Portfolio(s). PFPC Trust shall have a
security interest in and shall have a right of setoff against the Property
of such Portfolio(s) as security for the payment of such fees,
compensation, costs and expenses.
17. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. Notice shall be addressed (a) if to PFPC
Trust, at Airport Business Center, 200 Stevens Drive, Lester, Pennsylvania
19113 (b) if to the Fund, at 1285 Avenue of the Americas, New York, New
York 10019, Attn: Mark D. Goldstein, Esq., or (c) if to neither of the
foregoing, at such other address as shall have been given by like notice to
the sender of any such notice or other communication by the other party. If
notice is sent by confirming telegram, cable, telex or facsimile sending
device, it shall be deemed to have been given immediately. If notice is
sent by first-class mail, it shall be deemed to have been given five days
after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
18. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived
only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. DELEGATION; ASSIGNMENT. PFPC Trust may assign its rights and delegate its
duties hereunder to any affiliate (as defined in the 1940 Act) of PFPC
Trust, or PNC Bank Corp., provided that (i) PFPC Trust gives the Fund
thirty (30) days' prior written notice; (ii) the delegate (or assignee)
agrees with PFPC Trust and the Fund to comply with all relevant provisions
of the Securities Laws; and (iii) PFPC Trust and such delegate (or
assignee) promptly provide such information as the Fund may request, and
respond to such questions as the Fund may ask, relative to the delegation
(or assignment), including (without limitation) the capabilities of the
delegate (or assignee).
20. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
21. FURTHER ACTIONS. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
22. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their
agreement, if any, with respect to delegated duties and Oral
Instructions.
(b) CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made in
Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by
such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
PFPC TRUST COMPANY
By:
Title:
PW WILLOW FUND, L.L.C.
By:
Title:
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
_______________________________ ___________________________________
_______________________________ ___________________________________
_______________________________ ___________________________________
<PAGE>
EXHIBIT (k)(1)
MANAGEMENT AND ADMINISTRATION AGREEMENT
BY AND BETWEEN
PW FUND ADVISOR, L.L.C.
AND
PW WILLOW FUND, L.L.C.
THIS MANAGEMENT AND ADMINISTRATION AGREEMENT (the "Agreement") is made
as of this 11th day of February, 2000, by and between PW Fund Advisor, L.L.C.
("PWFA") and PW Willow Fund, L.L.C. (the "Fund").
WHEREAS, PWFA is in the business of providing, and the Fund wishes
PWFA to provide, certain management and administrative services;
NOW THEREFORE, in consideration of the terms and conditions herein
contained, the parties agree as follows:
1. APPOINTMENT OF PWFA.
(a) The Fund hereby appoints, and PWFA hereby accepts
appointment, to serve as the Fund's management company. In such capacity, PWFA
agrees to provide certain management (but not investment management) and
administrative services to the Fund. These services shall include:
(i) the provision of office space, telephone and utilities;
(ii) the provision of administrative and secretarial, clerical
and other personnel as necessary to provide the services
required to be provided under this Agreement;
(iii) the general supervision of the entities which are retained
by the Fund to provide administrative services and custody
services to the Fund;
(iv) the handling of investor inquiries regarding the Fund and
providing investors with information concerning their
investment in the Fund and capital account balances;
(v) monitoring relations and communications between investors
and the Fund;
(vi) overseeing the drafting and updating of disclosure documents
relating to the Fund and assisting in the distribution of
all offering materials to investors;
(vii) maintaining and updating investor information, such as
change of address and employment;
(viii) overseeing the distribution and acceptance of investor
applications and confirming the receipt of such applications
and funds;
(ix) overseeing the provision of investment advice to the Fund by
PW Willow Management, L.L.C., the manager of the Fund (or
any successor adviser) (the "Manager"), and monitoring
compliance by the Manager with applicable investment
policies and restrictions of the Fund;
(x) coordinating and organizing meetings of the Fund's board of
directors (the "Board" and its members, the "Directors");
(xi) preparing materials and reports for use in connection with
meetings of the Board; and
(xii) reviewing and approving all regulatory filings required
under applicable law.
(b) All other services to be performed, and expenses related
thereto, in the operation of the Fund shall be borne by the Fund.
(c) Notwithstanding the appointment of PWFA to provide services
hereunder, the Board shall remain responsible for supervising and controlling
the management, business and affairs of the Fund.
2. PWFA FEE; REIMBURSEMENT OF EXPENSES.
(a) In consideration for the provision by PWFA of its services
hereunder, the Fund will pay PWFA a management fee at the annual rate of 1.25%
of the Fund's "net assets," excluding assets attributable to the Manager's
capital account (the "Fee"). The Fee will be paid to PWFA at such times as the
Manager, on behalf of the Fund, shall determine in its sole discretion, but
generally is expected to be paid monthly. "Net assets" shall equal the total
value of all assets of the Fund, less an amount equal to all accrued debts,
liabilities and obligations of the Fund calculated before giving effect to any
repurchase of interests.
(b) The Fee will be computed based on the net assets of the Fund
as of the start of business on the first business day of the period to which the
Fee relates, after adjustment for any applications effective on such date, and
will be payable in arrears. The Fee will be charged in each period to the
capital accounts of the Fund's investors in proportion to their capital accounts
at the beginning of such period. The Fee will be appropriately pro-rated based
on the number of days in such period.
(c) PWFA is responsible for all costs and expenses associated
with the provision of its services hereunder. The Fund shall pay all other
expenses associated with the conduct of its business, including the costs and
expenses of holding any meetings of the Board that are regularly scheduled,
permitted or required to be held under the terms of the Fund's limited liability
company agreement, the Investment Company Act of 1940, as amended (the "1940
Act"), or other applicable law, and the fees and disbursements of any attorneys
engaged on behalf of the Fund.
(d) The Fund understands that PWFA may pay a portion of the fees
received by it hereunder to Bond Street Capital, L.L.C. or an affiliate.
3. LIABILITY. PWFA will not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund or its investors in
connection with the performance of its duties under this Agreement, except a
loss resulting from willful misfeasance, bad faith or gross negligence on PWFA's
part (or on the part of an officer or employee of PWFA) in the performance of
its duties hereunder or reckless disregard by it of its duties under this
Agreement.
4. EFFECTIVE DATE AND TERMINATION. This Agreement shall become
effective as of the date first noted above, and shall remain in effect for an
initial term of two years from the date of its effectiveness. This Agreement may
be continued in effect from year to year thereafter provided that each such
continuance is approved by the Board, including the vote of a majority of the
Directors who are not "interested persons" of the Fund, as defined by the 1940
Act. This Agreement may be terminated by PWFA, by the Board or by vote of a
majority of the outstanding voting securities of the Fund at any time, in each
case upon not less than 60 days' prior written notice. This Agreement shall also
terminate automatically in the event of its "assignment," as such term is
defined by the 1940 Act.
5. ENTIRE AGREEMENT. This Agreement embodies the entire understanding
of the parties. This Agreement cannot be altered, amended, supplemented, or
abridged, or any provisions waived, except by written agreement of the parties.
6. CHOICE OF LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York and the 1940 Act. In the event
the laws of New York conflict with the 1940 Act, the applicable provisions of
the 1940 Act shall control.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
PW FUND ADVISOR, L.L.C.
By:
Name:
Title:
PW WILLOW FUND, L.L.C.
By:
Name:
Title:
<PAGE>
EXHIBIT (k)(2)
ADMINISTRATION , ACCOUNTING AND INVESTOR SERVICES AGREEMENT
THIS AGREEMENT is made as of February 11, 2000 by and between PW WILLOW
FUND, L.L.C., a Delaware limited liability company (the "Fund"), and PFPC INC.,
a Delaware corporation ("PFPC"), which is an indirect subsidiary of PNC Bank
Corp.
W I T N E S S E T H :
WHEREAS, the Fund is registered as a closed-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to retain PFPC to provide certain administration,
accounting and investor services provided for herein, and PFPC wishes to furnish
such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
(a) "1933 ACT" means the Securities Act of 1933, as amended.
(b) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(c) "AUTHORIZED PERSON" means any person duly authorized by the Fund's
Board to give Oral Instructions and Written Instructions on behalf of
the Fund and listed on the Authorized Persons Appendix attached hereto
or any amendment thereto as may be received by PFPC from time to time.
An Authorized Person's scope of authority may be limited to the extent
set forth in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
(e) "BOARD" and "MEMBERS" shall have the same meanings as set forth in the
Fund's limited liability company agreement (the "Limited Liability
Company Agreement").
(f) "MANAGER" means PW Willow Management, L.L.C.
(g) "ORAL INSTRUCTIONS" mean oral instructions received by PFPC from an
Authorized Person or from a person reasonably believed by PFPC to be
an Authorized Person.
(h) "SEC" means the Securities and Exchange Commission.
(i) "SECURITIES LAWS" means the 1933 Act, the 1934 Act, the 1940 Act and
the CEA.
(j) "WRITTEN INSTRUCTIONS" mean written instructions signed by an
Authorized Person or a person reasonably believed by PFPC to be an
Authorized Person and received by PFPC. The instructions may be
delivered by hand, mail, tested telegram, cable, telex or facsimile
sending device.
2. APPOINTMENT. The Fund hereby appoints PFPC to provide administration,
accounting and investor services to the Fund, in accordance with the terms
set forth in this Agreement. PFPC accepts such appointment and agrees to
furnish such services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the Board,
approving the appointment of PFPC or its affiliates to provide
services and approving this Agreement;
(b) a copy of the Fund's most recent effective registration statement on
Form N-2 under the 1940 Act, as filed with the SEC;
(c) a copy of the Limited Liability Company Agreement;
(d) a copy of any distribution agreement with respect to the Fund;
(e) a copy of any additional administration agreement with respect to the
Fund;
(f) a copy of any investor servicing agreement made with respect to the
Fund; and
(g) copies (certified or authenticated, where applicable) of any and all
amendments or supplements to the foregoing.
4. COMPLIANCE WITH RULES AND REGULATIONS. PFPC undertakes to comply with all
applicable requirements of the Securities Laws, and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to
the duties to be performed by PFPC hereunder. Except as specifically set
forth herein, PFPC assumes no responsibility for such compliance by the
Fund or any other party.
5. INSTRUCTIONS.
(a) Unless otherwise provided in this Agreement, PFPC shall act only upon
Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions or Written
Instructions it receives from an Authorized Person (or from a person
reasonably believed by PFPC to be an Authorized Person) pursuant to
this Agreement. PFPC may assume that any Oral Instruction or Written
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or this Agreement or of any
vote, resolution or proceeding of the Board or the Members, unless and
until PFPC receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions confirming
Oral Instructions and shall endeavor to ensure that PFPC receives the
Written Instructions by the close of business on the same day that
such Oral Instructions are received. The fact that such confirming
Written Instructions are not received by PFPC shall in no way
invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from an
Authorized Person, PFPC shall incur no liability to the Fund in acting
upon such Oral Instructions or Written Instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. RIGHT TO RECEIVE ADVICE.
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of law
pertaining to any action it should or should not take, PFPC may
request advice at its own cost from such counsel of its own choosing
(who may, without limitation, be counsel for the Fund, or PFPC, at the
option of PFPC), provided that such counsel is selected with
reasonable care.
(c) Conflicting Advice. In the event of a conflict between directions,
advice or Oral Instructions or Written Instructions PFPC receives from
the Fund, and the advice PFPC receives from counsel selected with
reasonable care, PFPC may rely upon and follow the advice of such
counsel. PFPC shall promptly inform the Fund of such conflict. If PFPC
relies on the advice of counsel, PFPC will remain liable for any
action or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PFPC
of any duties, obligations or responsibilities set forth in this
Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
does not take in reliance upon directions, advice or Oral Instructions
or Written Instructions it receives from the Fund or from counsel
selected with reasonable care and which PFPC believes, in good faith,
to be consistent with those directions, advice and Oral Instructions
or Written Instructions. Nothing in this section shall be construed so
as to impose an obligation upon PFPC (i) to seek such directions,
advice or Oral Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions of
this Agreement, the same is a condition of PFPC's properly taking or
not taking such action. Nothing in this subsection shall excuse PFPC
when an action or omission on the part of PFPC constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PFPC
of any duties, obligations or responsibilities set forth in this
Agreement.
7. RECORDS; VISITS.
(a) The books and records pertaining to the Fund, which are in the
possession or under the control of PFPC, shall be the property of the
Fund. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules
and regulations. The Fund and Authorized Persons shall have access to
such books and records at all times during PFPC's normal business
hours. Upon the reasonable request of the Fund, copies of any such
books and records shall be provided by PFPC to the Fund or to an
Authorized Person, at the Fund's expense.
(b) PFPC shall keep the following records: (i) all books and records with
respect to the Fund's books of account; (ii) records of the Fund's
securities transactions; and (iii) all other books and records as the
Fund is required to maintain pursuant to Rule 31a-1 of the 1940 Act in
connection with the services of PFPC provided hereunder.
(c) Upon termination of this Agreement, PFPC in accordance with the Fund's
reasonable request, shall, in accordance with Written Instructions,
deliver a copy of the books and records pertaining to the Fund, which
are in the possession or under control of PFPC, to the Fund or any
other person designated by the Fund.
8. CONFIDENTIALITY. PFPC agrees to keep confidential all records of the Fund
and information relating to the Fund and its Members, unless the release of
such records or information is otherwise consented to, in writing, by the
Fund. The Fund agrees that such consent shall not be unreasonably withheld.
The Fund further agrees that, should PFPC be required to provide such
information or records to duly constituted authorities (who may institute
civil or criminal contempt proceedings for failure to comply), PFPC shall
not be required to seek the Fund's consent prior to disclosing such
information.
9. LIAISON WITH ACCOUNTANTS. PFPC shall act as liaison with the Fund's
independent public accountants and shall provide account analyses, fiscal
year summaries, and other audit-related schedules as the Fund or such
accountants may reasonably request. PFPC shall take all reasonable action
in the performance of its duties under this Agreement to ensure that the
necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PFPC shall enter into and shall maintain in effect with
appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect
to the loss of data or service interruptions caused by equipment failure,
provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties or obligations under this Agreement.
11. YEAR 2000 READINESS DISCLOSURE. PFPC (a) has reviewed its business and
operations as they relate to the services provided hereunder, (b) has
developed or is developing a program to remediate or replace computer
applications and systems, and (c) has developed a testing plan to test the
remediation or replacement of computer applications/systems, in each case,
to address on a timely basis the risk that certain computer
applications/systems used by PFPC may be unable to recognize and perform
properly date sensitive functions involving dates prior to, including and
after December 31, 1999, including dates such as February 29, 2000 (the
"Year 2000 Challenge"). To the best of PFPC's knowledge and belief, the
reasonably foreseeable consequences of the Year 2000 Challenge will not
adversely effect PFPC's ability to perform its duties and obligations under
this Agreement.
12. COMPENSATION. As compensation for services rendered by PFPC during the term
of this Agreement, the Fund will pay to PFPC a fee or fees as may be agreed
to in writing by the Fund and PFPC.
13. INDEMNIFICATION.
(a) The Fund agrees to indemnify and hold harmless PFPC and its affiliates
from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the
Securities Laws and any state or foreign securities and Blue Sky laws,
and amendments thereto), and expenses, including, without, limitation
reasonable attorneys' fees and disbursements (collectively, "Losses")
arising directly or indirectly from any action which PFPC takes or
does not take (i) at the request or on the direction of or in reliance
on the advice of the Fund or (ii) upon Oral Instructions or Written
Instructions. Neither PFPC, nor any of its affiliates, shall be
indemnified against any liability (or any expenses incident to such
liability) arising out of PFPC's or its affiliates own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties and obligations under this Agreement.
(b) Notwithstanding anything in this Agreement to the contrary, the Fund
shall not be liable to PFPC or its affiliates for any consequential,
special or indirect losses or damages which PFPC or its affiliates may
incur or suffer, whether or not the likelihood of such losses or
damages was known by the Fund.
14. RESPONSIBILITY OF PFPC.
(a) PFPC shall be under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be specifically
agreed to by PFPC in writing. PFPC shall be obligated to exercise care
and diligence in the performance of its duties hereunder, to act in
good faith and to use its best efforts, within reasonable limits, in
performing services provided for under this Agreement. PFPC agrees to
indemnify and hold harmless the Fund from Losses arising out of PFPC's
failure to perform its duties under this Agreement to the extent such
damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with
the standard of care set forth above; and (ii) PFPC shall not be
liable for (A) the validity or invalidity or authority or lack thereof
of any Oral Instruction or Written Instruction, notice or other
instrument which conforms to the applicable requirements of this
Agreement, and which PFPC reasonably believes to be genuine; or (B)
subject to Section 10 of this Agreement, delays or errors or loss of
data occurring by reason of circumstances beyond PFPC's control,
including acts of civil or military authority, national emergencies,
labor difficulties, fire, flood, catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PFPC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund
may incur or suffer by or as a consequence of PFPC's or any
affiliates' performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC or its
affiliates.
15. DESCRIPTION OF ACCOUNTING SERVICES ON A CONTINUOUS BASIS.
PFPC will perform the following accounting services:
(i) Journalize investment, capital and income and expense activities;
(ii) Verify investment buy/sell trade tickets when received from the
Manager in accordance with PFPC's written procedures;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Record and reconcile corporate action activity and all other capital
changes with the Manager;
(vi) Reconcile cash and investment balances of the Fund with the custodian,
and provide the Manager with the beginning cash balance available for
investment purposes.
(vii) Update the cash availability throughout the day as required by the
Manager, including details of cash movements related to securities and
payment of Fund expenses;
(viii) Calculate contractual expenses (e.g. advisory and custody fees) in
accordance with the Fund's Confidential Memorandum;
(ix) Maintain expense budget for the Fund and notify an officer of the Fund
of any proposed adjustments;
(x) Control all disbursements and authorize such disbursements from the
Fund's account at the custodian upon Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
(xiii) Determine applicable foreign exchange gains and losses on payables
and receivables;
(xiv) Interface with global custodian to monitor collection of tax
reclaims;
(xv) Obtain daily security market quotes from independent pricing services
approved by the Manager, or if such quotes are unavailable, then
obtain such prices from the Manager, and in either case calculate the
market value and the appreciation/depreciation on the Fund's
investments;
(xvi) Transmit or otherwise send a copy of the daily portfolio valuation to
the Manager;
(xvii) Compute net asset values monthly;
(xviii) Research and recommend portfolio accounting tax treatment for
unique security types; and
(xix) As appropriate, compute yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average
dollar-weighted maturity in accordance with applicable regulations.
16. DESCRIPTION OF ADMINISTRATION SERVICES ON A CONTINUOUS BASIS. PFPC will
perform the following administration services:
(i) Prepare quarterly broker security transactions summaries including
principal and agency transactions and related commissions;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Fund statistical data as
requested on an ongoing basis;
(iv) Provide to the extent contained in accounting records materials
required for board reporting as may be requested from time to time;
(v) Prepare for execution and file the Fund's Federal Form 1065 and state
tax returns;
(vi) Prepare and file the Fund's Annual and Semi-Annual Reports with the
SEC on Form N-SAR via EDGAR;
(vii) Prepare and coordinate the services of the Fund's printer for the
printing of and filing with the SEC via EDGAR the Fund's annual and
semi-annual shareholder reports;
(viii) Assist in the preparation of registration statements;
(ix) Transmit or otherwise send, to the extent practicable and feasible,
requested detailed information related to the Members, including
admission details, income, capital gains and losses, and performance
detail;
(x) Mail Fund offering materials to prospective investors; and
(xi) Mail quarterly reports of the Manager and Semi-Annual Financial
Statements to investors as well as any other necessary correspondence.
17. DESCRIPTION OF INVESTOR SERVICES ON A CONTINUOUS BASIS. PFPC will perform
the following functions:
(i) Maintain the register of Members and enter on such register all
issues, transfers and repurchases of interests in the Fund;
(ii) Arrange for the calculation of the issue and repurchase prices of
interests in the Fund in accordance with the Limited Liability Company
Agreement and the Fund's Confidential Memorandum;
(iii) Allocate income, expenses, gains and losses to individual Members'
capital accounts in accordance with applicable tax laws and with the
Fund's Confidential Memorandum;
(iv) Calculate the Incentive Allocation in accordance with the Fund's
Confidential Memorandum and reallocate corresponding amounts from the
applicable Members' accounts to the Manager's account;
(v) Prepare and mail annually to Members a Form K-1 in accordance with
applicable tax regulations; and
(vi) Mail tender offers to Members for purposes of executing repurchases.
18. DURATION AND TERMINATION. This Agreement shall be effective on the date
first above written and shall continue in effect for an initial period of
two years. Thereafter, this Agreement, unless terminated, shall continue
automatically for successive terms of one (1) year. This Agreement may be
terminated by either party upon 60 days' prior written notice to the other
party.
19. NOTICES. All notices and other communications, including Written
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed to have been
given immediately. If notice is sent by first-class mail, it shall be
deemed to have been given three days after it has been mailed. If notice is
sent by messenger, it shall be deemed to have been given on the day it is
delivered. Notices shall be addressed (a) if to PFPC, at 400 Bellevue
Parkway, Wilmington, Delaware 19809, Attn: Neal J. Andrews; (b) if to the
Fund, at c/o PaineWebber Incorporated, 1285 Avenue of the Americas, New
York, New York 10019, Attn: Mark D. Goldstein, Esq.; or (c) if to neither
of the foregoing, at such other address as shall have been provided by like
notice to the sender of any such notice or other communication by the other
party.
20. AMENDMENTS. This Agreement, or any term thereof, may be changed or waived
only by written amendment, signed by the party against whom enforcement of
such change or waiver is sought.
21. DELEGATION; ASSIGNMENT. PFPC may assign its rights and delegate its duties
hereunder to any affiliate (as defined in the 1940 Act) of or any
majority-owned direct or indirect subsidiary of PFPC Inc., or PNC Bank
Corp., provided that (i) PFPC gives the Fund (60) days' prior written
notice; (ii) the delegate (or assignee) agrees with PFPC and the Fund to
comply with all relevant provisions of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to the duties to be performed by the delegate (or assignee)
hereunder; and (iii) PFPC and such delegate (or assignee) promptly provide
such information as the Fund may request, and respond to such questions as
the Fund may ask, relative to the delegation (or assignment), including,
without limitation, the capabilities of the delegate (or assignee).
22. COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
23. FURTHER ACTIONS. Each party agrees to perform such further acts and execute
such further documents as are necessary to effectuate the purposes hereof.
24. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating
to the subject matter hereof.
(b) CAPTIONS. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) GOVERNING LAW. This Agreement shall be deemed to be a contract made in
Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) PARTIAL INVALIDITY. If any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) FACSIMILE SIGNATURES. The facsimile signature of any party to this
Agreement shall constitute the valid and binding execution hereof by
such party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By: ________________________________
Title: _______________________________
PW WILLOW FUND, L.L.C.
By: ________________________________
Title: ______________________________
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
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<PAGE>
EXHIBIT (k)(3)
ESCROW AGREEMENT
THIS AGREEMENT is made as of February 11, 2000, by and between PW WILLOW
FUND, L.L.C., a Delaware limited liability company (the "Fund"), PW WILLOW
MANAGEMENT, L.L.C. (the "Manager"), and PFPC INC., a Delaware corporation which
is an indirect subsidiary of PNC Bank Corp. (the "Escrow Agent").
WITNESSETH
WHEREAS, the Fund is registered as a closed-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Fund has retained PFPC Inc. to provide certain administration,
accounting and investor services pursuant to an Administration, Accounting and
Investor Services Agreement dated as of February 11, 2000; and
WHEREAS, the Fund desires that PFPC Inc. also provide services as escrow
agent, as described herein, and PFPC Inc. wishes to provide such services.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. ACCEPTANCE BY ESCROW AGENT. The Escrow Agent hereby accepts the appointment
as escrow agent hereunder and agrees to act on the terms and conditions
hereinafter set forth.
2. RIGHTS AND RESPONSIBILITIES OF ESCROW AGENT. The acceptance by the Escrow
Agent of its duties hereunder is subject to the following terms and
conditions, which the parties to this Agreement hereby agree shall govern
and control the Escrow Agent's rights, duties, liabilities and immunities.
(a) The Escrow Agent shall act hereunder as a depositary only, and in its
capacity as such, it shall not be responsible or liable in any manner
whatever for the sufficiency, correctness, genuineness or validity of
any document furnished to the Escrow Agent or any asset deposited with
it.
(b) "Written Instructions" mean written instructions received by the
Escrow Agent and signed by the Manager or any other person duly
authorized by the Manager, or by the Fund's Board (as defined under
the Fund's limited liability company agreement (the "Limited Liability
Company Agreement"), to give such instructions on behalf of the Fund.
The instructions may be delivered by hand, mail, facsimile, cable,
telex or telegram; except that any instruction terminating this
Agreement may be given only by hand or mail. The Fund shall file from
time to time with the Escrow Agent a certified copy certified by the
Manager of each resolution of its Board authorizing the person or
persons to give Written Instructions. Such resolution shall include
certified signatures of such persons authorized to give Written
Instructions. This shall constitute conclusive evidence of the
authority of the signatories designated therein to act. Such
resolution shall be considered in full force and effect with the
Escrow Agent fully protected in acting in reliance thereon unless and
until it receives written notice from the Manager or the Board to the
contrary. The Escrow Agent may rely upon and shall be protected for
any action or omission it takes pursuant to Written Instructions if
it, in good faith, believes such Written Instructions to be genuine.
Unless otherwise provided in this Agreement, the Escrow Agent shall
act only upon Written Instructions. The Escrow Agent shall be entitled
to assume that any Written Instruction received hereunder is not in
any way inconsistent with the provisions of the Limited Liability
Company Agreement or this Agreement or of any vote, resolution or
proceeding of the Board, or of the Fund's members, unless and until
the Escrow Agent receives Written Instructions to the contrary.
(c) The Escrow Agent shall be obligated to exercise care and diligence in
the performance of its duties hereunder, to act in good faith and to
use its best efforts, within reasonable limits, in performing services
provided for under this Agreement. The Escrow Agent shall be liable
for any damages arising out of its failure to perform its duties under
this Agreement to the extent such damages arise out of its willful
misfeasance, bad faith, gross negligence or reckless disregard of such
duties.
(d) Notwithstanding anything in this Agreement to the contrary, neither
the Escrow Agent nor its affiliates shall be liable to the Fund or the
Manager for any consequential, special or indirect losses or damages
which the Fund may incur or suffer by or as a consequence of the
Escrow Agent's or its affiliates' performance of the services provided
hereunder, whether or not the likelihood of such losses or damages was
known by the Escrow Agent or its affiliates.
(e) Without limiting the generality of the foregoing or of any other
provision of this Agreement, the Escrow Agent shall not be liable for
losses beyond its control, provided it has acted in accordance with
the standard of care set forth above; and the Escrow Agent shall not
be liable for delays or errors or loss of data occurring by reason of
circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties, fire, flood,
catastrophe, acts of God, insurrection, war, riots or failure of the
mails, transportation, communication or power supply.
(f) The Fund agrees to indemnify the Escrow Agent and hold it harmless
from and against any tax, charge, loss, liability, expense (including
reasonable attorneys fees and expenses), claim or demand arising
directly or indirectly from any action or omission to act which the
Escrow Agent takes (i) at the request or on the direction of or in
reliance on the advice of the Fund or (ii) upon Written Instructions;
provided, however, that neither the Escrow Agent, nor any of its
affiliates, shall be indemnified against any liability (or any
expenses incident to such liability) arising out of the Escrow Agent's
or its affiliates own willful misfeasance, bad faith, gross negligence
or reckless disregard of its duties and obligations under this
Agreement. The Fund shall indemnify and hold harmless the Escrow Agent
against and in respect of any liability for taxes and for any
penalties or interest in respect of taxes attributable to the
investment of funds held in escrow by the Escrow Agent pursuant to
this Agreement. Notwithstanding anything in this Agreement to the
contrary, the Fund shall not be liable to the Escrow Agent for any
consequential, special or indirect losses or damages which the Escrow
Agent may incur or suffer, whether or not the likelihood of such
losses or damages was known by the Fund. These indemnities shall
survive the resignation of the Escrow Agent or the termination of this
Agreement.
(g) The Escrow Agent shall have no duties except those specifically set
forth in this Agreement.
(h) The Escrow Agent shall have the right at any time it deems appropriate
to seek an adjudication in a court of competent jurisdiction as to the
respective rights of the parties hereto and shall not be held liable
by any party hereto for any delay or the consequences of any delay
occasioned by such resort to court.
(i) The Escrow Agent shall notify promptly the Manager of any discrepancy
between the amounts set forth on any remittance advice received by
Escrow Agent and the sums delivered to it therewith.
3. DEFINITIONS. Except as specifically set forth herein, the terms used in
this Agreement shall have the same meaning as set forth in the
Administration, Accounting and Investor Services Agreement among the
parties.
4. DEPOSIT OF ESCROW FUND. The Escrow Agent shall establish an account in the
name of PW Willow Fund, L.L.C., Escrow Account for the Benefit of Investors
(the "Subscription Account") and an account in the name of PW Willow Fund,
L.L.C. Repurchase Account (the "Repurchase Account") and, together with the
Subscription Account, the "Accounts"). The Escrow Agent shall promptly
deposit in the Subscription Account checks remitted by Potential Investors
and made payable to PW Willow Fund, L.L.C. Potential Investors also may
deposit monies in the Subscription Account by wire transfer pursuant to
instructions provided to them by the Fund or by amounts wire transferred
from brokerage accounts at PaineWebber Incorporated. Balances on deposit in
the Subscription Account will earn interest at prevailing market rates
pursuant to arrangements approved by the Fund.
5. STATEMENTS. During the term of this Agreement, the Escrow Agent shall
provide the Fund with (a) monthly statements containing the beginning
balance in each Account as well as all principal and income transactions
for the statement period and (b) a daily summary of amounts deposited and
the status of available funds. The Fund shall be responsible for
reconciling such statements. The Escrow Agent shall be forever released and
discharged from all liability with respect to the accuracy of such
statements, except with respect to any such act or transaction as to which
the Fund shall, within 90 days after the furnishing of the statement, file
written objections with the Escrow Agent.
6. DISTRIBUTIONS AND CLOSINGS. Upon Written Instructions, at each closing of
each offering of interests in the Fund, the Escrow Agent will wire
principal balances on deposit in the Subscription Account to the account
designated by the Fund. Such Written Instructions shall be sent to the
Escrow Agent by 2:00 p.m. on the closing date with respect to each closing.
In the event that a Potential Investor who has escrow funds in the
Subscription Account is not admitted into the Fund, upon Written
Instructions, the Escrow Agent shall promptly issue refunds to the
Potential Investor in the amount of the principal balance with accrued
interest. Such refunds shall be made in check form or by wire transfer to
the brokerage account of the Potential Investor at PaineWebber
Incorporated.
7. INTEREST. All interest earned on the escrow funds deposited in the Accounts
hereunder shall be added to and held in the Accounts. With respect to each
closing, pursuant to Written Instructions, within 5 business days the
Escrow Agent shall issue interest payments in check form to each Potential
Investor based on his or her individual balance in the Subscription Account
along with a cover letter and to the Manager based upon its balance in the
Subscription Account along with a cover letter. The Escrow Agent will
prepare and send notifications on Form 1099 for each calendar year.
8. REPURCHASES. The Fund from time to time may wire balances to the Repurchase
Account in connection with periodic repurchases of interests by the Fund
from its members. Upon Written Instructions, the Escrow Agent shall issue
promptly repurchase payments from the Repurchase Account in check form to
the repurchasing member or to the Manager, as the case may be. Upon Written
Instructions, the Escrow Agent will withhold specified amounts from
repurchasing members. Any interest earned thereon will be credited to the
accounts of the Fund.
9. TAX IDENTIFICATION NUMBER. All deposits to the Accounts shall be subject to
the Escrow Agent's receipt of a valid tax identification number for the
Fund, Manager or Potential Investor, as applicable.
10. COMPENSATION. The fee of the Escrow Agent for its services hereunder shall
be paid by the Fund as may be mutually agreed to in writing by the Fund and
Escrow Agent. Notwithstanding the foregoing, standard account transaction
charges will be billed to the Fund as an out-of-pocket expense.
11. AMENDMENT. This Agreement may not be amended or supplemented, and no
provision hereof may be modified or waived, except by an instrument in
writing, signed by all of the parties hereto.
12. TERMINATION. This Agreement shall continue until terminated by either party
on 60 days prior written notice. Upon the termination of this Agreement and
upon the delivery of the balance of the Accounts to a successor escrow
agent or such other person as may be designated by Written Instructions,
the Escrow Agent shall be released and discharged of any and all further
obligations hereunder. If no successor Escrow Agent has been designated
pursuant to Written Instructions to receive the balance of the Accounts at
the expiration of the 60-day period, the Escrow Agent shall have no further
obligation hereunder except to hold the escrow funds as a depositary. Upon
written notification by the Fund of the appointment of the successor, the
Escrow Agent shall promptly deliver the balance of the Accounts to such
successor, and the duties of the resigning Escrow Agent shall thereupon in
all respects terminate, and it shall be released and discharged of any and
all further obligations hereunder.
13. EXECUTION. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but such counterparts together shall
constitute one and the same instrument.
14. MISCELLANEOUS. All covenants and agreements contained in this Agreement by
or on behalf of the parties hereto shall bind and inure to the benefit of
such parties and their respective heirs, administrators, legal
representatives, successors and assigns, as the case may be. The headings
in this Agreement are for convenience of reference only and shall neither
be considered as part of this Agreement, nor limit or otherwise affect the
meaning thereof. This Agreement shall be construed and enforced in
accordance with the laws of Delaware without regard to principles of
conflicts of law.
15. NOTICES. All instructions, notices and other communications hereunder must
be in writing and shall be deemed to have been duly given if delivered by
hand or facsimile or mailed by first class, registered mail, return receipt
requested, postage prepaid, and addressed as follows:
(a) If to the Fund:
PW Willow Fund, L.L.C.
c/o PaineWebber Incorporated
Attn: Mark D. Goldstein, Esq.
1285 Avenue of the Americas
New York, New York 10019
(b) If to the Escrow Agent:
PFPC Inc.
Attn: Neal Andrews
400 Bellevue Parkway
Wilmington, DE 19809
16. PARTIAL INVALIDITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
17. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding among the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof; provided that, the
parties may embody in one or more separate documents their agreement, if
any, with respect to delegated duties and instructions.
<PAGE>
IN WITNESS THEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PW WILLOW FUND, L.L.C.
By: ________________________________
Name: _____________________________
Title: ______________________________
PW WILLOW MANAGEMENT, L.L.C.
By: ________________________________
Name: _____________________________
Title: ______________________________
PFPC INC.
By: _______________________________
Name: _____________________________
Title: ______________________________
